7.3 The Strategic Management Process

Step 1: Identifying the Organization's Current Mission, Goals and Strategies

A formal business organization needs a mission, which is a statement of purpose of that organization.

Defining the organization's mission forces managers to identify what it is in business to do.

It is also important for managers to identify the goals currently in place and the strategies currently being used.

Goals are therefore the foundation of planning and provide the measurable performance targets that employees are working to meet.

Knowing the company's current goals gives managers a basis for assessing whether those goals need to be changed.

For the same reasons, it is important for managers to know the organization's current strategies to assess whether there is any need to be changed or updated.

7.3 The Strategic Management Process

Step 2: Doing the External Analysis

An organization may not succeed by focusing on its immediate internal environment only.

Setting organizational goals and planning the process and time to achieve those goals requires critical evaluation and analysis of the external environment.

Analyzing that environment is a critical step in the strategic management process.

Managers in every organization need to do an external analysis.

They need to do, for instance, what the competition is doing, what pending legislation might affect the organization or what the labour supply is like in locations where it operates.

In analyzing the external environment, managers should examine both the specific and general environments to see what trends and changes are occurring.

This is the only way to ensure success in the short term and long term.

After analyzing the environment, managers need to assess what they have learned in terms of opportunities that the organization can exploit, and threats that it must counteract of buffer against.

Opportunities are positive trends in external environmental factors; treats are negative trends.

An external analysis in the same environment can present opportunities to one organization and pose threats to another in the same industry because of their different resources and capabilities.

7.3 The Strategic Management Process

Step 3: Doing the Internal Analysis

Similarly the achievable and realistic objectives are set through internal analysis, besides external one.

The internal analysis offers important information about an organization's specific resources, opportunities, capabilities and threats.

An organization's resources are its assets; financial, physical, human, intangible, used by the organization to develop, manufacture, and deliver products or services to its customers.

Its capabilities are its skills and abilities in doing the work activities needed in business.

The major value-creating capabilities and skills of the organization are known as its core competencies.

Both resources and core competencies can determine the organization's competitive resources and core competencies can determine the organization's competitive weapons.

After doing the internal analysis, managers should be able to identify organizational strengths and weaknesses.

Any activities the organization does well or any unique resources that it has are called strengths.

Weaknesses are activities the organizations do not do well or resources it needs but does not possess.

7.3 The Strategic Management Process

This step forces managers to recognize that their organizations, no matter how large or successful, are constrained by the resources and capabilities they have.

Doing an internal analysis of an organization's financial and physical assets is fairly easy because information on those areas is readily available.

However, evaluating an organization's intangible assets, things such as employees' skills, talents, and knowledge; databases and other IT assets; organizational culture; etc, is relatively difficult.

Organizational culture, specifically, is one crucial part of the internal analysis that is often overlooked, as strong and weak cultures do have different effects on strategy and the content of a culture has a major effect on strategies issues.

In fact, performing internal and external analysis is called SWOT analysis because it is an analysis of the organization's strengths, weaknesses, opportunities, and threats.

After completing the SWOT analysis, managers are ready to formulate appropriate strategies that:

Exploit an organization's strengths and external opportunities.

Buffer or protect the organization from external threats.

Correct critical weaknesses.

7.3 The Strategic Management Process

Step 4: Formulating strategies

As managers formulate strategies, they have to consider the realities of the external environment and their available resources and capabilities and design strategies that will help the organization achieve its goals.

There are three main types of strategy that managers need to formulate:

Corporate

Business

Functional

Step 5: Implementing Strategies

After strategies are formulated, they must be implemented.

To observe a fruitful result a developed strategy must be implemented.

Top management leadership together with a motivated group of middle and lower level managers are required to carry out the organization's specific goals.