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May
2015

What is Strategic Management?

                                                 Sergign/Shutterstock

Mind-set, Methods and Models in Strategy: Part 1 (a)

This is the first in a series of four articles about Strategic Management and Leadership. Together, these articles explore a new generation of rigorous, evidence-based but user-friendly methods that are useful for educating executives in the development and management of strategy.

Kim Warren Ph.D.

Andy Milward Ph.D.

What is Strategic Management?

By ‘Strategic Management’, we mean the process an organisation uses to:

  1. select and update its objectives,
  1. position itself relative to other organisations, and
  1. steer its development and progress towards those objectives, over time.

Strategic Management is a continuing process of analysis and direction, ensuring the organisation stays on a stable trajectory towards its goals, adapting as necessary to deal with challenges and to realise new possibilities.

An analytical, forward-looking discipline, Strategic Management relies for its success on the process-skill of Strategic Leadership.

It addresses the complexity that arises from changes that occur over time, both in the organisation’s external environment and in its own development and performance

A time-based mindset

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                                             Everything Possible/Shutterstock

Strategic Managers see their organisation as a holistic system of interacting parts and interdependencies, developing and delivering its intended performance through time.

Large organisations that think strategically may employ specialist strategy officers (CSOs), who support the CEO, the Executive Board and other senior managers in driving strategy.

Alternatively, this key advisory function may be part of another senior executive’s responsibility, such as the CFO.

Strategic Managers educate and inform other executives and leaders at every level of the organisation, whether those people are managing divisions, departments, or, in the case of the CEO and executive board, the entire organisation.

They encourage others to embed strategic thinking in routine management practice.

This guidance concerns not only the strategic health, development and prospects of the organisation itself, but also the current and prospective market environment, competitive and other external challenges and opportunities.

The CEO, or a full or part-time CSO, where this role exists, may delegate much of this communication.

Many organisations are bad at Strategic Management.

Organisations that are poor at Strategic Management are unlikely to have a specific senior individual or department dedicated to strategic analysis.

They see strategy as the sole responsibility of the CEO and board.

A limiting worldview

This perspective limits their ability to manage progress over time.

  • They see the organisation as atomistic, governed by simple linear cause-effect relationships rather than a coherent set of interdependent elements that develop over time.
  • They regard each period’s results as another static snapshot, bringing its own opportunities and challenges.
  • Rather than see change as a complex time-based interaction of various effects, they see it through the lens of qualitative, static frameworks and ratios (mostly financial).
  • Instead of seeing psychological factors as key to how performance changes over time, they focus only on numbers and things.
  • Rather than trying to predict or create the organisation’s future, they worry about the present.
  • Instead of anticipating challenges before they arise, they react to them, often with simplistic responses.
  • Rather than plan to create and/or seize possibilities as they emerge, they struggle to follow others who get there first.

Organisations that lack a strategic mind-set and the disciplines that this leads to face frequent ‘crises’.

The urgency to deal with these issues takes priority over Strategic Management. This just reinforces the problem.

Drivers of Strategic Management thinking

So why do some organisations develop a dynamic, forward-looking mind-set while others have a more restricted world-view?

  1. Leadership

The behaviour of those in authority, and the policies, practices, and procedures they display and encourage, determine how people come to think about their organisation.

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Personality

The CEO’s personality shapes the norms that influence whether – and how – the organisation does Strategic Management.

Strategically minded leaders have a very dynamical forward-thinking perspective.

They exemplify the required approach to strategy development and implementation.

The requirements set by the CEO drive the processes used for developing and implementing strategy.

These include the expectation that the organisation will provide factual evidence and analysis.

Reporting procedures

The frequency and format of reporting required by senior leaders influences the nature and depth of analysis that goes into the preparation of management reports.

Tenure

It takes time to embed strong norms, so leaders need to stay around.

Those who move on after a short time leave the organisation confused, not only about its direction, but also about how it should adapt and pursue that direction.

  1. External context

Organisations that operate in a tough environment and competitive market are more likely to think carefully about their next move.

In contrast, organisations in slow-moving conditions with low competition are less likely to perceive a need for an analytical, forward-thinking mind-set.

In public companies, the frequent rush to prepare reports for shareholders and analysts shortens the organisation’s strategic horizon.

This is far from an exhaustive list.

Many other external factors influence the extent to which an organisation adopts Strategic Management. Click here for more about the critical effect of external context.

  1. Methods and tools

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The methods and tools available for strategic analysis also drive Strategic Management.

Although many frameworks, methods, and approaches are claimed to be useful for developing and implementing strategy, few of these are used in practice, to any significant degree.

Most executives think Strategic Management consists of SWOT analysis, although the word ‘analysis’ here is misleading.

As commonly carried out, SWOT exercises are little more than descriptive, subjective checklists, lacking hard supporting evidence and analytical rigour.

Most other methods for strategic “analysis” are equally weak, providing little more than descriptive two by two grids, checklists, and option lists.

Lacking factual, quantitative support, they provide no reliable conclusions and can lead to no confident action plans. At best, they provide a basis for discussion.

Strategy is complex, subtle, and demanding – these common tools fail to reflect this complexity.

  1. Strategic Management Education

The most effective way to reshape an organisation’s approach to Strategic Management is through education.

Recently, a new generation of rigorous, evidence-based but user-friendly methods have emerged that are useful for educating managers in the development and management of strategy.

These methods were developed in response to the dearth of effective approaches that we referred to above.

Scientific rigour

In contrast to the vague approaches mentioned so far, these methods take a rigorous fact based approach to Strategic Management.

These user-friendly tools are based on the science of system dynamics (which derives from engineering control-theory), supported by advanced statistical analysis.

They enable strategic managers to build working, quantified models of their organisation and its past and prospective performance.

These models provide a means of developing and exploring Strategic Management issues, educating managers in the time-based complexity of strategy.

They can incorporate widely repeated mechanisms, such as the growth-limiting impact of under-investment in physical and staff capacity, or the improved functionality and falling cost of products and services as experience accumulates.

Their critical contribution is to connect the broad principles of strategic choices to the hard performance consequences (financial and other), through the time-phased actions and choices of management.

Part 1 (b) – A case study

In Mind-set, Methods, and Models: Part 1 (b), we will illustrate Strategic Management thinking with a case study of Technocorp, a consumer electronics company facing an important strategic decision.

Andy Milward

Andy Milward Ph.D. is founder and principal of Milward, a consulting and research firm specialising in Strategic Leadership. With over thirty-five years industrial experience, Andy supports senior executives with the analysis of complex problems, strategy development, decision-making and personal growth. A specialist in strategic change, he helps leaders to plan, execute and lead the process of change. Click here for more about Andy.

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Professor Kim Warren Ph.D.  is founder and principal of Strategy Dynamics Ltd, and the originator of the strategy dynamics method for developing and implementing strategy. He was formerly Retail Strategy Director at Whitbread PLC and Teaching Fellow at London Business School. Click here for more about Kim.

©Andy Milward and Milward: Consulting in Strategic Leadership: Latest Thinking, 2014-2015.

Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Andy Milward PhD, Kim Warren Ph.D., and Milward: Consulting in Strategic Leadership: Latest Thinking with appropriate and specific direction to the original content.

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