1 Emeric GERARD Strategic management

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Emeric GERARD
Strategic management:
How to implement strategic management within a company.
Emeric GERARD
2017/2018
Management report Management report Management report
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Emeric GERARD
Strategic management
How and why implementing strategic management in a company?
Introduction
Strategy formulation
I. Mission and Vision Statements:
II. The external Audit:
III. The internal audit:
IV. Long terms Objectives and Strategies:
V. Strategy analysis and choice:
Strategy implementation
VI. Implementing Strategies
Strategy evaluation
VII. Strategy Review, Evaluation, and Control
Conclusion
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Introduction
Definition of strategic management
Strategic management consists in managing both the external environment and internal resources in order to create sustainable competitive advantages over the competition.
Strategic management is first and foremost an art, a practice and an academic discipline called “strategic corporate management”
As art, strategic management is the exercise of the freedom of the business manager. As a discipline, it is the establishment and renewal of methods of analysis and decision making and normative principles to assist decision-makers. The main purpose is to exploit and create new and different opportunities for tomorrow.
It claims disciplinary status within the management sciences.
It focuses on integrating management, marketing, finance/accounting, production/operations, research and development, and information systems to achieve organizational success.
Strategic management should not be confused with operational management. Operational management consists in ensuring the daily functioning of the organisation. It concerns operational decisions which are simpler and more frequent, with an impact in the medium and short term. It is carried out by management staff or below and aims to implement the organization’s strategy in concrete terms by means of operational plans (e.g. creation of tools, training and facilitation of employees). Operational management calls on management skills (human, financial, logistical, etc.) to optimise the various resources needed to implement the strategy.
Consequently, the strategic management is in close collaboration with the operational management, the success of one depending on the other.
The implementation of strategic management can be interesting for all companies. But it is particularly important for large companies. It can also be implemented in smaller companies, but this is rarer. Indeed, in many companies, at least in France, there is no developed management system. In these companies the management is family management, the decisions will be taken rather instinctively and not reflected by a management committee with advanced education in this field.
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In large companies the strategic analysis of the company is important. Indeed it will make it possible to determine the internal advantages and the strengths of the company, as well as the weaknesses and the threats of the company. Strategic management enables more thoughtful and better structured decisions to be made based on the company’s capabilities and the situation in the external environment.
Strategic management is divided into three main phases:
-Strategy formulation
-Strategy implementation
-Strategy evaluation
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Strategy formulation:
I. Mission and Vision Statements:
In the strategy formulation there is different steps. But we can start by talking about missions and vision statements. Indeed, these two things will be the origin of the strategic management of the company. They will show the strategic direction the company will take.
First, let’s make the distinction between the mission and the corporate vision.
The mission presents what your company does, what it offers as a service, and as much as possible, how it does or distinguishes itself. The mission is a statement you present to your clients that helps them determine if they want to do business with you.
The corporate vision is a statement that will be used primarily internally with your employees and partners. The vision will define where you want to go, clearly communicate what you want to achieve, mobilize and motivate people to follow your vision.
Within a company, the mission and vision are not always implemented by the same people. Indeed, depending on the vision of the leaders, the vision and mission may express the unique goal of the leaders (example: Mc Donald) or may include all employees in the choice. (example: Favi, liberated company).
Implementing a vision or mission can be important but can quickly represent an empty shell indeed it can represent a simple formulation and not a reality on the ground. It is fundamental for a company to respect its vision and mission. They don’t just have to be present to look pretty but have to be fundamentally real.
II. The external Audit:
Once the company’s vision and mission have been determined, external opportunities and threats must be identified. To determine them we must go through an external analysis of the environment. This external assessment is one of the main parts of the strategy formulation. The purpose of an External Audit permit to Develop a finite list of opportunities that could benefit a firm and threats that should be avoided. The external audit process must be conducted by the entire company, as many employees as possible must be involved managers, workers, accountants, IT specialists. This diversity will allow the company not to miss important threats due to lack of technical knowledge on the part of managers.
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The external analysis will be organized in different areas:
-economic forces
-social, cultural, demographic, and natural environment forces;
-political, governmental, and legal forces;
-technological forces;
-competitive forces.
Economic forces
The analysis of economic forces can be quite varied and can range from GDP, to unemployment rates, to monetary policies, to the propensity to spend. Economic factors have a direct impact on the potential attractiveness of various strategies.
Social, cultural, demographic, and natural environment forces
Social, cultural, demographic, and environmental changes have a major impact on virtually all products, services, markets, and customers. Small, large, for-profit, and non-profit organizations in all industries are being staggered and challenged by the opportunities and threats arising from changes in social, cultural, demographic, and environmental variables.
Political, governmental, and legal forces
Political-legal forces include the results of elections, legislation, and Court judgments, such as decisions rendered by various commissions and agencies. The environmental policy sector presents real and potential restriction on the way an organization function.
Among the most important government actions are: settlement, taxation, spending, change (creating a crown corporation, and privatization)
Technological forces
Technological developments can significantly change an organization’s demand or industry products or services.
Technological change can decimate existing companies and even entire industries, we have the most telling example with Kodak. The company did not see the digital age coming and completely went bankrupt with the development of photos. Moreover, changes in technology can affect a company’s operations as well as its products and services.
These changes could affect processing methods, raw materials, and service delivery. In international business, a country’s use of new technological developments can make another country’s products overrated and non-competitive.
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Competitive forces
Competitive strengths correspond to the analysis of major competitors. For that the company will collect and evaluate data on the competitors in order to see the different strengths and weaknesses of these do to our company.
During this phase we will analyze in competitors: Strengths, Weaknesses, Capabilities, Opportunities, Threats, Objectives, Strategies.
III. The internal audit:
At the same time as an external audit is performed, an internal audit must also be performed. The two audits are complementary and will allow a lucid look at the situation of the internal and external company. This double inspection will make it possible to understand and apprehend as well as possible the difficulties which could damage it.
It will permit to determine the weakness and strength inside the company. Internal audit will involve an analysis all the company’s functions:
-Management
-Marketing
-Finance and accounting
-Production and operations
-Research and development
-Management information systems
During this internal audit the company will have different goal. It will try to identify firm’s strengths that cannot be easily matched or imitated by competitors. The company will try to build competitive advantage involves taking advantage of distinctive competencies
After analyzing all the weaknesses and strengths of the company deemed important. The internal audit concludes with the completion of an IFE matrix. The IFE Matrix is one of the tools for analysis of internal factors, his approach consists of identifying the main factors influencing the future development of companies of both advantages and disadvantages to determine the weights according to various factors that influence the degree of size, then the company is valid for each of the key factors the degree of reaction of the key factors that obtain, the final weighted total score is calculated company. By the IFE, companies can put
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their own advantages and disadvantages face summarized, to characterize the seriousness of all companies.
To create the IFE Matrix lists the key factors identified in the internal analysis process. Use of 10-20 internal factors, including strengths and weaknesses of both. Benefits listed first, then the list of weaknesses. To be as accurate as possible, use comparative percentages, figures and ratios. After you weight each factor, ranging from 0.0 (not significant) to 1.0 (very significant). The sum of all weighted score is equal to the total weighted score, final value of total weighted score should be between range 1.0 (low) to 4.0(high). The average weighted score for IFE matrix is 2.5 any company total weighted score falls below 2.5 consider as weak. The company total weighted score higher than 2.5 is consider as strong in position.
At the end the IFE Matrix look like that. On this example the final weighted score is above 2.5 so the company is in a strong position.
The IFE Matrix is the conclusion of the internal audit. It shows a resume of the audit and point the weaknesses who needs more attention. These weaknesses need to be controlled. In the example the Sensitivity to oil prices is the main weakness for the company.
IV. Long terms Objectives and Strategies:
After having developed a vision and a mission and having leaded an internal and external audit, the company will be led to establish concrete long-term objectives. We will then enter the actual formulation of the strategy.
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Objectives should be quantitative, measurable, realistic, understandable, challenging, hierarchical, obtainable, and congruent among organizational units. Each objective should also be associated with a timeline. Objectives are commonly stated in terms such as growth in assets, growth in sales, profitability, market share, degree and nature of diversification, degree and nature of vertical integration, earnings per share, and social responsibility. Clearly established objectives offer many benefits. They provide direction, allow synergy, aid in evaluation, establish priorities, reduce uncertainty, minimize conflicts, stimulate exertion, and aid in both the allocation of resources and the design of jobs. Objectives provide a basis for consistent decision making by managers whose values and attitudes differ. Objectives serve as standards by which individuals, groups, departments, divisions, and entire organizations can be evaluated.
With the precise establishment of the objectives to be achieved, it will be possible to begin to establish the type of strategy the company will be heading towards. There are different types of strategies that will then correspond to the state of the company in relation to the environment and itself.
The different strategy:
In strategic management we can define 4 types of strategy
Specialization strategy
Specialization consists of a company focusing on a single business in which it deploys its resources and skills. This strategy can take 3 forms: market penetration, market expansion and product development.
Market penetration: focusing on the existing product/market mix to improve the company’s position in its current markets
Market expansion: identifying and exploiting new markets for existing products
Product development: consists in developing new products that address existing markets
The specialization strategy allows the company to:
Develop a strong competitive advantage, by concentrating its resources and skills in a profession. Achieve economies of scale based on experience gained. Develop a positive image as a specialist in your field.
Two major disadvantages:
It presents risks in the event of saturation of demand, the appearance of substitute products, technological maturity, etc. The high specialisation of equipment and people creates rigidities
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Diversification strategy
Diversification leads the company to develop in several different trades from each other. it is a strategy that targets new markets with new products. It can take two forms: related or unrelated.
Diversification is related when the company’s new activities are linked to its original business. The logic of diversification is to complete or extend the company’s offer
Diversification is unrelated when there is no link between the company’s different businesses. The logic of diversification here is purely financial. The aim is to place surplus resources on a buoyant market to benefit from the opportunities of this market.
The main benefits expected from the diversification strategy are:
Obtain synergies between its various activities. Investing in growth areas and improving profitability. Limit the various risks and allocate them between several activities
There is three major disadvantages :
It requires investments and financing for each of the activities. It leads to a dispersion of the company’s resources and skills between several activities. Managing a diversified business can become complex and cumbersome
Integration strategy
The integration strategy consists in internalizing within the company complementary activities located upstream and/or downstream of the current activities.
Upstream vertical integration occurs when the company integrates supply activities previously carried out by suppliers.
Vertical integration is downstream when the company integrates activities related to the distribution of its products.
Integration is horizontal when the company takes control of competing activities by acquiring competitors or alliances.
Integration is global when the company carries out all the activities of the sector itself. This strategy can be effective in a fast-growing industrial sector
The main benefits expected from the integration strategy are:
Secure supplies and/or outlets and appropriate the added value of customers and suppliers. Better coordinate upstream and/or downstream activities with current activities to streamline organization and reduce costs. Achieve critical mass in competitor buyouts
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The integration strategy has three major disadvantages:
It requires the mastery of different resources and skills since the company manages several trades. It is costly and risky if the sector is of low profitability. Any problem in an activity has repercussions on the firm as a whole
Outsourcing strategy
The outsourcing strategy consists for a company in entrusting some of its activities to other companies. The logic is no longer to do it yourself but to have it done.
Main benefits expected from the outsourcing strategy:
It allows the company to reduce its costs and improve the quality of its products since it uses companies specialized in the activity it entrusts to them. It allows the company to be more flexible in the face of changes in the environment
The outsourcing strategy has three major disadvantages:
Risk of dependence on external service providers. The company risks losing strategic and distinctive resources and skills to maintain competitive advantage. Social conflicts linked to job losses and/or the transfer of employment contracts to external service providers.
V. Strategy analysis and choice:
After learning about all the different major strategies that exist they need to aggregate all the knowledge as well as the long-term goals to analyse the strategy that will best fit the goals. The firm’s present strategies, objectives, and mission, coupled with the external and internal audit information, provide a basis for generating and evaluating feasible alternative strategies.
Stage 1 – Input Stage
• EFE Matrix
• IFE matrix
• CPM
Stage 2 – Matching Stage
• SWOT
• SPACE matrix (Annex 1)
• BCG matrix (Annex 2)
• IE Matrix
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• Grand strategy matrix
Stage 3 – Decision Stage
• QSPM
The fact of making all these matrices will make it possible to analyse the situation as well as possible in the face of the various existing strategies. It will allow the best possible choice to be made. I’m not going to detail all these matrices and how to make it. Indeed, it would be too long and tedious and would not add much to the report. Some examples will be placed in annexes. It is easy to find guides and explanations to make these matrices online.
Strategy implementation
VI. Implementing Strategies
After having finally been able to choose an adapted strategy of attack it is time to set it up and that also passes by various phases. This step may seem the simplest. Indeed all the reflection and thought part of the strategies have been realized. But in reality, it is the most complex part that begins. More complex than Strategy Formulation. Indeed it is at this moment that thought and reflection will be transformed into action.
Implementing strategy affects an organization from top to bottom; it affects all the functional and divisional areas of a business. It is beyond the purpose and scope of this text to examine all the business administration concepts and tools important in strategy implementation.
During the implementation it is necessary that the whole company is involved. Not just the management of this one. Training and involving employees in the new strategies put in place will enable implementation under the best possible conditions.
As noted earlier, leaders continue to play important roles, but they no longer act as the only designers of the strategy. As architects of the raison d’être, they ensure that that shared representations correspond to values and broad objectives of the organization; they also ensure that procedures and routines are in accordance with this system of representations. As creators of the context, they create a context that allows participation and innovation, and they ensure that the structure and the different management systems make this participation and creativity possible. It is through their leadership that all members of the organization are brought to work together, in the the same management, so that the company is economically
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efficient and social. Conceived in this way, the strategy formation process becomes a process of co-construction of meaning, shared by the different levels of the organization, and a co-driving process “along the way”. Analysis and action become interrelated processes, the action can no longer be conceived as the simple implementation of strategic choices made at the top of the organization.
Strategy evaluation
VII. Strategy Review, Evaluation, and Control
This phase is the last phase of strategic management in the company. It is this part that will allow managers to know if the strategies implemented have achieved their objectives. This will allow to know if the new measures were not negative for the company. Finally this assessment will allow the company to know if it should continue in the same direction or if it should take corrective decisions to better achieve the objectives.
Strategy evaluation can be a complex and sensitive undertaking. Too much emphasis on evaluating strategies may be expensive and counterproductive. No one likes to be evaluated too closely! The more managers attempt to evaluate the behavior of others, the less control they have. Yet too little or no evaluation can create even worse problems. Strategy evaluation is essential to ensure that stated objectives are being achieved. In many organizations, strategy evaluation is simply an appraisal of how well an organization has performed. Have the firm’s assets increased? Has there been an increase in profitability? Have sales increased? Have productivity levels increased? Have profit margin, return on investment, and earnings-per-share ratios increased? Some firms argue that their strategy must have been correct if the answers to these types of questions are affirmative. Well, the strategy or strategies may have been correct, but this type of reasoning can be misleading because strategy evaluation must have both a long-run and short-run focus. Strategies often do not affect short-term operating results until it is too late to make needed changes.
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Conclusion:
Through this report we have therefore seen in theory how strategic management can be implemented in companies. This vision is very theoretical and quite summarized. We can easily detail all the parts of setting up a management (going into details and financial calculations, analyzing financing strategies, analyzing all marketing strategies or human resources). But this detail would have been too heavy for a simple report on the subject. It is easy to immerse yourself in the different theories in all fields.
Although this summary provides an overview of the topic. It is essential that this type of practice be conducted by people who have total knowledge of their field (finance, production, marketing, HR, etc.).
We saw at the beginning that strategic management was interesting for all companies. Small or large, but I would like to stress that this type of management is particularly aimed at large companies. Indeed, in small companies it is rare to see managers qualified enough to implement this type of strategy. Moreover, this mechanism has a certain cost. Indeed, as we have seen many internal and external audits take place and such audits, although advantageous, are also costly. Moreover, the implementation of new strategies requires employees, managers or not, who must focus their attention on the project.
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Annex 1 The Space Matrix
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Annex 2 The BCG Matrix
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Annex 3 The IE Matrix