Defining Strategic Management Fred R. David

Defining Strategic Management1
Strategic management can be defined as the art and science of formulating, implementing, and evaluating crossfunctional decisions that enable an organization to achieve its objectives. As this definition implies, strategic
management focuses on integrating management, marketing, finance/accounting, production/operations,
research and development, and information systems to achieve organizational success. The term strategic
management in this text is used synonymously with the term strategic planning. The latter term is more often
used in the business world, whereas the former is often used in academia. Sometimes the term strategic
management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning
referring only to strategy formulation. The purpose of strategic management is to exploit and create new and
different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the
trends of today.
The term strategic planning originated in the 1950s and was very popular between the mid-1960s and the mid1970s. During these years, strategic planning was widely believed to be the answer for all problems. At the time,
much of corporate America was obsessed with strategic planning. Following that boom, however, strategic
planning was cast aside during the 1980s as various planning models did not yield higher returns. The 1990s,
however, brought the revival of strategic planning, and the process is widely practiced today in the business
world.
A strategic plan is, in essence, a companys game plan. Just as a football team needs a good game plan to have
a chance for success, a company must have a good strategic plan to compete successfully. Profit margins among
firms in most industries have been so reduced by the global economic recession that there is little room for
error in the overall strategic plan. A strategic plan results from tough managerial choices among numerous good
alternatives, and it signals commitment to specific markets, policies, procedures, and operations in lieu of other,
less desirable courses of action.
Stages of Strategic Management
The strategic-management process consists of three stages: strategy formulation, strategy implementation, and
strategy evaluation. Strategy formulation includes developing a vision and mission, identifying an organizations
external opportunities and threats, determining internal strengths and weaknesses, establishing long-term
objectives, generating alternative strategies, and choosing particular strategies to pursue. Strategy-formulation
issues include deciding what new businesses to enter, what businesses to abandon, how to allocate resources,
whether to expand operations or diversify, whether to enter international markets, whether to merge or form
a joint venture, and how to avoid a hostile takeover.
Because no organization has unlimited resources, strategists must decide which alternative strategies will
benefit the firm most. Strategy-formulation decisions commit an organization to specific products, markets,
resources, and technologies over an extended period of time. Strategies determine long-term competitive
advantages. For better or worse, strategic decisions have major multifunctional consequences and enduring
effects on an organization. Top managers have the best perspective to understand fully the ramifications of
strategy-formulation decisions; they have the authority to commit the resources necessary for implementation.
Reproduced from Fred R. David, Strategic Management: Concepts and Cases, 13 ed. for classroom use only.
Page 1 of 2
Strategy implementation requires a firm to establish annual objectives, devise policies, motivate employees,
and allocate resources so that formulated strategies can be executed. Strategy implementation includes
developing a strategy-supportive culture, creating an effective organizational structure, redirecting marketing
efforts, preparing budgets, developing and utilizing information systems, and linking employee compensation
to organizational performance.
Strategy implementation often is called the action stage of strategic management. Implementing strategy
means mobilizing employees and managers to put formulated strategies into action. Often considered to be the
most difficult stage in strategic management, strategy implementation requires personal discipline,
commitment, and sacrifice. Successful strategy implementation hinges upon managers ability to motivate
employees, which is more an art than a science. Strategies formulated but not implemented serve no useful
purpose.
Interpersonal skills are especially critical for successful strategy implementation. Strategy-implementation
activities affect all employees and managers in an organization. Every division and department must decide on
answers to questions, such as What must we do to implement our part of the organizations strategy? and
How best can we get the job done? The challenge of implementation is to stimulate managers and employees
throughout an organization to work with pride and enthusiasm toward achieving stated objectives.
Strategy evaluation is the final stage in strategic management. Managers desperately need to know when
particular strategies are not working well; strategy evaluation is the primary means for obtaining this
information. All strategies are subject to future modification because external and internal factors are
constantly changing. Three fundamental strategy-evaluation activities are (1) reviewing external and internal
factors that are the bases for current strategies, (2) measuring performance, and (3) taking corrective actions.
Strategy evaluation is needed because success today is no guarantee of success tomorrow! Success always
creates new and different problems; complacent organizations experience demise.
Strategy formulation, implementation, and evaluation activities occur at three hierarchical levels in a large
organization: corporate, divisional or strategic business unit, and functional. By fostering communication and
interaction among managers and employees across hierarchical levels, strategic management helps a firm
function as a competitive team. Most small businesses and some large businesses do not have divisions or
strategic business units; they have only the corporate and functional levels. Nevertheless, managers and
employees at these two levels should be actively involved in strategic-management activities.
Peter Drucker says the prime task of strategic management is thinking through the overall mission of a business:
. . . that is, of asking the question, What is our business? This leads to the setting of objectives, the
development of strategies, and the making of todays decisions for tomorrows results. This clearly must be
done by a part of the organization that can see the entire business; that can balance objectives and the needs
of today against the needs of tomorrow; and that can allocate resources of men and money to key results.
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