Strategic Management Process
Strategic Management Process and Role of Corporate Governance in Strategic Decision-Making
Strategic management is the process by which organizations or firms use to create a vision, and analyze their external and internal environments, and choose one or more strategies to apply in order to maximize the value for shareholders, customers and other stake holders. In the vision, there are two components: mission that outlines the firm’s DNA and the “image” of the firm as it hopes to exist in future (Morrison & Wilson, 2003). The objective of the vision is to stimulate the employees realize the tomorrow aspirations of what the company can get and to facilitate the creation of the foundation for ethical behavior. A strategy is an action plan aimed at moving an organization towards the accomplishment of its vision. The mission states the firm’s core value and business in which it plans to run. The strategic management process is simplified in five steps as discussed below.
The first step is the goal setting, where the firm classifies its vision. Activities under this stage include definition for short- and long-term goals, steps provision on how to achieve the set goals and duty assignment to various staff. These goals need to be detailed, achievable and corresponding with the firm’s vision. Lastly the firm to provide mission statement that concisely relates the firm’s goals to both shareholder and employees (Morrison & Wilson, 2003).
The environmental analysis is the next step, where gathering, scrutinizing, and availing of information is conducted for strategic purposes. This assists in analyzing internal and external factors affecting the firm. The center for the analysis should be on the comprehending the requirements of the firm as a protractible enterprise, its strategic direction, and outlining proposals that will see the firm expand.
Third step is strategy formulation where data collected from completing analysis is reviewed. Available resources to the firm that can help achieve the desired goals are determined. The challenges facing the firm are also prioritized according to their significance towards success, and alternative approaches developed (Morrison & Wilson, 2003).
Strategy implementation is the fourth point which is also the action stage. It includes designing firm’s structure, supplying resources, developing decision-making process, and managing human resources. Lastly on the steps, is the strategic evaluation. Activities that are done here include a review of external and internal factors, performance measurement, and correcting actions where necessary. Evaluation confirms that firm’s strategy together with its implementation is per the firm’s objectives.
Strategic management is meant to integrate traditional management activities such as planning, budgeting, monitoring and controlling in to a broader context, accounting for internal and external organization abilities, and the firm’s overall purpose and course. Indeed, the emphasis on predicting the needs of stakeholders is a crucial factor in external analysis. Therefore, firms that adopt a complete, quality management are better prepared to face the challenges of competition in the global economy (Morrison & Wilson, 2003).
Role of Corporate Governance in Strategic Decision-Making
The Organization for Economic Cooperation and Development (OECD) defines corporate governance as “a set of relationships between the firm’s management, its board, shareholders, and other stakeholders.” The definition accounts for the relationship between the firm, shareholders, and other stakeholders like customers, employees, bondholders and suppliers. Corporate governance offer a structure on how the firm’s objectives are set, and the mechanism of achieving those goals, as well as, resolving issues related to supervisions and performances. Stakeholder theory recognizes the corporate governance for its capability to achieve stability and equality (Biswas, 2007). The theory argues that corporate governance is responsible for balancing between social and economic goals, and between personal and communal goals. Therefore, the framework of the governance provides efficient resource utilization and equality thereby encouraging accountability for the stewardship of those resources.
They corporate governance is also responsible for providing enough and desirable system of control in the firm leading to the safety of the assets. Secondly, it prevents an individual from amassing too much power and influence. The third role is the creation of a mutual existence between the firm’s management, shareholders, board of directors and other stake holders. Lastly, corporate governance provides transparency and accountability. The Corporate governance is an efficient mechanism to utilize resource more efficiently because it is a network among various corporate players like the managers, shareholders, lenders, government, suppliers and consumers (Biswas, 2007). Generally, main role of the corporate governance is to direct and control an organization. They have to establish and enforce policies that are necessary for the effective operation of the firm.
Each organization runs in an environment that can be either external or internal. Therefore, environmental analysis is the process of monitoring and understanding various environmental factors, and establishing possible threats and opportunities availed by these factors. The environment is petitioned in to various components to display their nature, relationship and role for examining opportunities and threats and establish where they originate. External environment affecting the firm’s operation includes technological, legal, political, social economic factors among others.
Internal environmental factors include suppliers, customers, and competitors. The environmental analysis plays a crucial role in the strategy formulation process (Vandanaprap, 2012). Therefore, the environment should be carefully examined to establish factors within the environment and their possible opportunities they pose towards better achievements of firm’s objectives and what factors present threats. Economical tools that can help in environmental analyses are the PEST and SWOT analysis. The PEST stands for Political, Economic, Socio-cultural and Technological, and suitable for analyzing external environment. The other tool is the SWOT analysis, stands for Strength, Weakness, Opportunities and Threats (Vandanaprap, 2012).
Challenges in Strategy Implementation
One of the challenges may arise in the way and manner in which the information is conveyed up or down the ranks. If there is a barrier to the movement of information processes it means that decision would be established basing on outdated information. However, this can be resolved, through devolution of the central command, to facilitate information flow throughout the ranks and files particularly when implementing a new business strategy. Recognition of the organizational structure and designs set up should also be taken into account especially where strategic and operational decisions are made (Whonder, 2009).
Another challenge due to resource planning is failure to translate statements of strategic purpose, like gaining market share in to significant factors that will make the purpose realizable and ultimately accomplished. For instance, an unambiguous schedule might be required for a firm struggling to launch, say a new product for Christmas (Whonder, 2009). A detailed assessment of the scheduling has to be conducted if the production and its selling would be a success, as well as the provision of funds for this process. Here, the problem arises due to the non-uniformity in the times required for the various acts; it is difficult to establish where to begin.
The emergence of the problem is quite common in developing a plan of action. The question arising from this particular area is where to begin with an available level of funds, a market forecast, or a production-level constraint. However, the starting point may sometime pose little challenges because the plan has to be re-worked and adjusted severally (Whonder, 2009). A fundamental guideline is to enter the problem through what seems to be a crucial change area. A firm drafting fresh strategies of growth may as well begin with examination market opportunities. While a person who is starting a new enterprise may commence with a pragmatic evaluation of the amount of capital available with them.
There are many ways of defining strategy, and its implementation style may also differ and, therefore, different challenges and solutions occur. Implementation entails the controlling of others’ conduct, culture and perception; hence, most challenges are human related. This means that possible solutions will depend on management conduct and style of leadership in terms of availability, allocation and structure of resources. The environmental analysis, on the other hand, avails time to foresee the plan and opportunities to meet challenges as well as to warn the firm about the threats. It also examines the internal strengths and weakness of a firm in relation to the outside opportunities and threats it faces.
Biswas, P.K. (2007). Agency Problem and the Role of Corporate Governance Revisited. Retrieved from http://www.scribd.com/doc/34013436/Agency-Problem-and-the-Role-of-Corporate-Governance.
Morrison, J & Wilson, I. (2003). The Strategic Management Response to the Challenge of Global Change. Retrieved from http://horizon.unc.edu/courses/papers/Scenario_wksp.asp.
Vandanaprap . (2012). Environmental and Organizational Analysis – for Strategic Management. retrieved from http://www.scribd.com/doc/23775560/13/Environmental-and-Organizational-Analysis-%E2%80%93.
Whonder, J. (2009). Strategy implementation: Significant Problems Encountered in Implementing a New Strategy in a Business. Retrieved from http://community.businessballs.com/blogs/printblog?index_php?view=article&id=188&tmpl=component&print=1.