BENEFITS OF STRATEGIC MANAGEMENT

The classic corporate planning process has postulated a blend of top-down and bottom-up thinking that in theory enables the final plan to be a rational amalgam of all view points, argued out in a constructive manner. In fact we know that many different approaches to strategic planning and strategic management have evolved.

Strategic management allows and organization to be more proactive than reactive in shaping its own future; it allows an organization to initiate and influence activities and thus to exert control over its own destiny. Small business owners, chief executive officers, presidents and managers of many for-profit and non-profit organizations have recognized and realized the benefits of strategic management.

Strategic Management Benefits

Historically, the principle benefit of strategic management has been to help organizations formulate better strategies through the use of the more systematic, logical and rational approach to strategic choice. It has both financial benefits such as improvement in sales , profitability and productivity.And non-Financial benefits such as improved understanding of competitors strategies. Enhanced awareness of threats, Reduced resistance to change, Enhanced problem-preventioncapabilities. Research into strategic management and its benefits has become more complex because of all the differences and nuances. It seems that the totality of the research covered in this chapter proves beyond doubt that strategic management can be beneficial, but common sense tells us that it will not be beneficial in every situation. Even when the hurdle of fitting the approach to the situation has been overcome, strategic management is not likely to be successful if it is applied badly. There are also degrees of success, and not all organisations set a high enough level of expectation from their planning work, and are therefore too easily satisfied. We can look at organisations on a case-by-case basis, and find some whose strategies have given them a clear edge. British Airways, for example, have a clear vision, the strategies to support it, and the courage to reshape the rules of the industry to build a position of competitive advantage. We can also put a date on when all this began to happen, which was when the organisation was privatised, and we can see that the benefits have come through consistently in the bottom-line results. By contrast, we can see other privatised British organisations, such as certain water companies, who earned very high levels of profits which their managements claimed was through management skill, but in fact was from a local monopoly situation.

Strategic management is in large part about setting corporate strategy in relation to the opportunities and threats of the marketplace and the business environment. Many large organisations in Europe and the USA, most if not all of which would claim to be practising strategic management, seem to produce similar strategic moves. In mid-1970s it was fashionable for airlines to move into the hotel business: a decade later most had moved out of hotels to concentrate on the core airline business.

We see fashions in strategy: ‘it’s good to diversify’ seemed to be the slogan of the 1960s and 1970s, yet by the 1980s the fashion was to revert to the core businesses. The 1990s seem to have been a period where de-layering, downsizing and cost cutting were the clever things to do, but these decisions were not always taken with forethought, nor was attention always given to how the organisation should operate afterwards.

There have been strategic failings by many British businesses over several decades. Whole industries have declined or disappeared and although in some cases this has been because of a ‘natural’ change in economic advantage, in others it has been because foreign competition has had a superior strategy to the British firms.There is evidence over a long period that not all organisations have been willing to learn. Take the ever popular strategy of acquisition. Channon noted the failure of many acquisitions in his landmark study of British companies’ strategies through the 1960s. Few British companies attempted to rationalise their acquisitions. `Frequently, acquired concerns were allowed to continue along much as before without real influence from the parent. The acquisition was in name only, but not in managerial action’ .

Buckner found that, over the period 1960–70, over half of diversification moves were failures, and that the failure rate was higher when diversification was by acquisition rather than internal development. Similar findings on the failure of acquisitions have been found consistently in surveys in Europe, the UK and the USA right up to the present decade, suggesting that the issue is not unique to the UK, and that there is a constant failure of either the strategy, its implementation, or both. All but the first of the studies in references 26–32 found a failure rate of around 50 per cent.

The evidence on the results of some of the cost-cutting strategies is not of universal success. Kinnie, Hutchinson and Purcell33 reviewed the published research studies:
There is increasing evidence, however, to suggest that the majority of downsizings are unsuccessful – the anticipated economic and organisational benefits fail to materialise. In the USA between two thirds to three quarters of all downsizings are unsuccessful from the start. A study in the USA by the Wyatt Co. found that few downsizings meet their desired goals in terms of increased competitiveness and profitability. The majority of organisations meet their immediate cost reducing objectives but this improvement is not sustained in other areas, especially in the long range goals of improved service and increased competitive advantage. The findings of another study by Kenneth de Meuse show that for the three year period after the downsizing announcements firms making redundancies had ended up with lower profit margins and poorer returns on assets and equity than equivalent firms who do not downsize.

Business Process Re-engineering has also proved of dubious value in many organisations. Coulson-Thomas found in his research across Europe (including the UK, of course) that most BPR exercises examined were really process simplification rather than re-engineering, and were being undertaken for medium-term cost and time savings and not for longer-term strategic benefits:

Although there is every reason for an organisation to commit to strategic management, there is also need for many more organisations to do a great deal more to achieve mastery over all aspects of the subject.It would be unrealistic to believe that every organisation will achieve total success in everything it does. The realities of the global competitive arena mean that for every relative degree of success by one firm, another will experience a degree of relative failure. But my conclusion from the evidence discussed so far in this book is that, although many companies are good at strategic management, many more could dramatically improve their results by improving their strategic capabilities. There are four areas of weakness in organisations, and which can contribute to poor strategic performance, and these can be improved:

a. Failure to analyse the situation before strategic decisions are made.

b. Failure to implement strategic decisions, including failure to think through the implications of a new strategy.

c. Problems with the process of planning itself.

d. Incomplete understanding of many of the concepts by those claiming to apply them.