Businesses vary in the processes they use to formulate and direct their strategic management activities. Sophisticated planners, such as General Electric, Procter & Gamble, and IBM, have developed more detailed processes than less formal planners of similar size. Small businesses that rely on the strategy formulation skills and limited time of an entrepreneur typically exhibit more basic planning concerns than those of larger firms in their industries. Understandably, firms with multiple products, markets, or technologies tend to use more complex strategic management systems. However, despite differences in detail and the degree of formalization, the basic components of the models used to analyze strategic management operations are very similar.
Components of the Strategic Management Model
This section will define and briefly describe the key components of the strategic management model. Each of these components will receive much greater attention in a later chapter. The intention here is simply to introduce them.
1. Company Mission
The mission of a company is the unique purpose that sets it apart from other companies of its type and identifies the scope of its operations. In short, the company mission describes company mission. The unique purpose that sets a company apart from others of its type and identifies the scope of its operations.
2. Internal Analysis
The company analyzes the quantity and quality of the company’s financial, human, and physical resources. It also assesses the strengths and weaknesses of the company’s management and organizational structure. Finally, it contrasts the company’s past successes and traditional concerns with the company’s current capabilities in an attempt to identify the company’s future capabilities.
3. External Environment
A firm’s external environment consists of all the conditions and forces that affect its strategic options and define its competitive situation. The strategic management model shows the external environment as three interactive segments: the remote, industry, and operating environments.
4. Strategic Analysis and Choice
Simultaneous assessment of the external environment and the company profile enables a firm to identify a range of possibly attractive interactive opportunities. These opportunities are possible avenues for investment. However, they must be screened through the criterion of the company mission to generate a set of possible and desired opportunities. This screening process results in the selection of options from which a strategic choice is made. The process is meant to provide the combination of long-term objectives and generic and grand strategies that optimally position the firm in its external environment to achieve the company mission.
Strategic analysis and choice in single or dominant product/service businesses center around identifying strategies that are most effective at building sustainable competitive advantage based on key value chain activities and capabilities—core competencies of the firm. Multibusiness companies find their managers focused on the question of which combination of businesses maximizes shareholder value as the guiding theme during their strategic analysis and choice.
5. Long-Term Objectives
The results that an organization seeks over a multiyear period are its long-term objectives. Such objectives typically involve some or all of the following areas: profitability, return on investment, competitive position, technological leadership, productivity, employee relations, public responsibility, and employee development.
6. Generic and Grand Strategies
Many businesses explicitly and all implicitly adopt one or more generic strategies characterizing their competitive orientation in the marketplace. Low cost, differentiation, or focus strategies define the three fundamental options. Enlightened managers seek to create ways their firm possesses both low cost and...