The Strategic Management Process

The Strategic Management Process

Employers can’t intelligently design their human resource policies and practices without understanding the role these policies and practices are to play in achieving their companies’ strategic goals. In this chapter, we look at how managers design strategic and human resource plans, and how they evaluate the results of their plans. We start with an overview of the basic management planning process.

The Management Planning Process

The basic management planning process consists of five steps: setting objectives, making basic planning forecasts, reviewing alternative courses of action, evaluating which options are best, and then choosing and implementing your plan. A plan shows the course of action for getting from where you are to the goal. Planning is always “goal-directed” (such as, “double sales revenue to $16 million in fiscal year 2020”).

In companies, it is traditional to view the goals from the top of the firm down to front-line employees as a chain or hierarchy of goals. Figure 3-1 illustrates this. At the top, the president sets long-term or “strategic” goals (such as “double sales revenue to $16 million in fiscal year 2020”). His or her vice presidents then set goals for their units that flow from, and make sense in terms of accomplishing, the president’s goal.

Policies and procedures provide day-to-day guidance employees need to do their jobs in a manner that is consistent with the company’s plans and goals. Policies set broad guidelines delineating how employees should act. For example, “It is the policy of this company to comply with all laws, regulations, and principles of ethical conduct.” Procedures spell out what to do if a specific situation arises. For example: Any employee who believes this policy has been violated must report this belief to the employee’s immediate supervisor. If that is not practical, the employee should file a written report with the Director of Human Resources. There is to be no retaliation in any form. Employers write their own policies and procedures or adapt ones from existing sources (or both). For example, most employers have employee manuals listing the company’s human resource policies and procedures. An online search for prepackaged HR policies manuals would produce choices.

Sample Hierarchy of Goals Diagram for a Company

What Is Strategic Planning?

Setting goals for the company usually starts at the top, by formulating an overall stra[1]tegic plan for the company. A strategic plan is the company’s overall plan for how it will match its internal strengths and weaknesses with its external opportunities and threats in order to maintain a competitive position. The strategic planner asks, “Where are we now as a business, and where do we want to be?” He or she then formulates a strategic plan to help guide the company to the desired end point. When Walmart bought Jet.com to expand online, and WeWork branched out into renting entire facilities to companies like IBM, they were engaged in strategic planning. A strategy is a course of action. Both PepsiCo and Coca-Cola face the same basic problem—people are drinking fewer sugared drinks. However, they each chose different strategies to deal with this. PepsiCo diversified by selling more food items like chips. Coca-Cola concentrated on sweet beverages, and on boosting advertising to (hopefully) boost Coke sales.

Finally, strategic management is the process of identifying and executing the organization’s strategic plan by matching the company’s capabilities (strengths and weaknesses) with the demands of its environment (its competitors, customers, and suppliers, for instance).

The Strategic Management Process

Its seven steps include (1) ask, “What business are we in now?”; (2) evaluate the firm’s internal and external strengths, weaknesses, opportunities, and threats; (3) formulate a new business direction; (4) decide on strategic goals; and (5) choose specific strategies or courses of action. Steps (6) and (7) are to implement and then evaluate the strategic plan. The strategic management process begins (step 1) by asking, “What business are we in?” Here the manager defines the company’s current business. Specifically, “What products do we sell, where do we sell them, and how do our products or services differ from our competitors’?” For example, the Coca-Cola Company sells mostly sweetened beverages such as Coke and Sprite, while PepsiCo sells drinks but also foods such as Quaker Oats and Frito chips. The second step is to ask, “Are we in the right business given our strengths and weaknesses and the challenges that we face?” To answer this, managers “audit” or study both the firm’s environment and the firm’s internal strengths and weaknesses about the company’s environment. As you can see, this includes the economic, competitive, and political trends that may affect the company. The SWOT chart in Figure 3-4 is widely used. Managers use it to compile and organize the company’s strengths, weaknesses, opportunities, and threats. This audit may also include analyzing the so-called PEST factors. These include Political factors such as government regulations and employment laws; Economic factors including unemployment and economic growth; Social factors such as changing demographics and health consciousness trends; and Technological factors such as social media, digitalization, and self-driving vehicles. In any case, the manager’s aim is to create a strategic plan that makes sense in terms of the company’s strengths, weaknesses, opportunities, and threats.

The Strategic Management Process

Next, based on this analysis (in other words, on the environmental scan, SWOT, and PEST analyses), the task in step 3 is to decide what should our new business be, in terms of what we sell, where we will sell it, and how our products or services differ from competitors’ products and services? Some managers express the essence of their new business with a vision statement. A vision statement is a general statement of the firm’s intended direction; it shows, in broad terms, “what we want to become.”6 For example, PepsiCo’s vision is to pursue performance within a framework of socially responsible purposes. Because of this, PepsiCo CEO Indra Nooyi and her executives choose which businesses to be in based on that vision’s focus on human sustainability, environmental sustainability, and talent sustainability.7 For example, that vision prompted PepsiCo to add the healthy Quaker Oats and Gatorade to its lineup of products.

SWOT Matrix with Generic Examples

Whereas the vision statement describes in broad terms what the business should be, the company’s mission statement summarizes what the company’s main tasks are today. Several years ago, Ford adopted what was for several years a powerful Ford mission statement—making “Quality Job One.” In any case, the next step (step 4) is to translate the desired new direction into strategic goals. At Ford, for example, what exactly did making “Quality Job One” mean for each department in terms of how they would boost quality? The answer was laid out in goals such as “no more than 1 initial defect per 10,000 cars.

Next, (step 5) the manager chooses strategies—courses of action—that will enable the company to achieve its strategic goals. For example, how should Ford pursue its goal of no more than 1 initial defect per 10,000 cars? Perhaps open two new high-tech plants, and put in place new, rigorous employee selection, training, and performance-appraisal procedures. Step 6, strategy execution, means translating the strategies into action. This means actually hiring (or firing) people, building (or closing) plants, and adding (or eliminating) products and product lines. Finally, in step 7, the manager evaluates the results of his or her planning and execution. Things don’t always turn out as planned. All managers should periodically assess the progress of their strategic decisions.