Management of a company can be divided into many smaller groups for each aspect of organising and running the company, three aspects of which are strategic management, human resources (HR) management and reward management strategy. The first part of this dissertation examines in depth each of these three aspects, then goes on to show the link between them, along with different aspects of reward management. Strategic management is the process of specifying an organisation's objectives, developing policies and plans to achieve these objectives, and allocating resources so as to implement the plans.
It is the highest level of managerial activity, usually performed by the company's Chief Executive Officer (CEO) and executive team.It provides overall direction to the whole enterprise. An organisation’s strategy must be appropriate for its resources, environmental circumstances, and core objectives. Matching the company's strategic advantages to the business environment the organisation faces is paramount and the objective of an overall corporate strategy is to put the organisation into a position to carry out its mission effectively and efficiently.
It should integrate an organisation’s goals, policies, and action sequences, also known as tactics, into a cohesive whole, and must be based on business realities.Strategic management can be seen as a combination of strategy formulation and strategy implementation, but strategy must be closely aligned with purpose. Strategy formulation first involves a situation analysis both internal and external; both micro-environmental and macro-environmental. Objectives are set according to this assessment. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organisation gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives.
These objectives should, in the light of the situation analysis, suggest a strategic plan.The plan provides the details of how to achieve these objectives. This three-step strategy formulation process is sometimes referred to as determining where one is now, determining where one wants to go, and then determining how to get there. To implement strategy, a company should allocate sufficient resources (financial, personnel, time, and technology support). It must then establish a chain of command or some alternative structure such as cross-functional teams, assign responsibility of specific tasks or processes to specific individuals or groups so as to increase efficiency, and it also involves managing the process. This includes monitoring results, comparing to benchmarks and best practices, evaluating the overall efficiency of the process, controlling variances, and making adjustments to the process as necessary.
These adjustments are actions such as acquiring the proper resources, developing the process, training, process testing, documentation, and integration with and/or conversion from previous processes. Strategy formulation and implementation is an on-going, never-ending, integrated process requiring continuous reassessment and reformation. Strategic management is dynamic, involving a complex pattern of actions and reactions and is partially planned and partially unplanned. Strategy is both planned and emergent, dynamic, and interactive. Some people that there are critical points at which a strategy must take a new direction in order to be in step with a changing business environment.
These critical points of change are called strategic inflection points. There are two time scales on which strategic management operates: short term, medium term and long term. Short term strategies involve planning and managing for the present. Long term strategies involve preparing for and preempting the future. Marketing strategist Derek Abell (1993) has suggested that understanding this dual nature of strategic management is the least understood part of the process. He claims that balancing the temporal aspects of strategic planning requires the use of dual strategies simultaneously.
In general terms, there are two main approaches, which are opposite but complement each other in some ways, to strategic management: the industrial organisation approach, which is based on economic theory and deals with issues like competitive rivalry, resource allocation, economies of scale. It assumes rationality, self discipline behaviour and profit maximisation.Second, there is the sociological approach which deals primarily with human interactions. It assumes a bounded rationality, satisfying behaviour, and profit sub-optimality. Strategic management techniques can be viewed as bottom-up, top-down, or collaborative processes. In the bottom-up approach, employees submit proposals to their managers who, in turn, funnel the best ideas further up the organisation.
This is often accomplished by a capital budgeting process. Proposals are assessed using financial criteria such as return on investment or cost-benefit analysis. Any proposals that are approved form the basic substance of a new strategy, all of which is done without a grand strategic design or a strategic architect.The top-down approach, however, is the most common. The CEO, possibly with the assistance of a strategic planning team, decides on the overall direction the company should take. Some organisations are starting to experiment with collaborative strategic planning techniques that recognize the emergent nature of strategic decisions.
In most large corporations there are several levels of strategy. Strategic management is the highest in the sense that it is the broadest, applying to all parts of the firm. It gives direction to corporate values, corporate culture, corporate goals, and corporate missions.Under this broad corporate strategy there are often functional or business unit strategies. Functional strategies include marketing strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, and information technology management strategies. The emphasis is on short and medium term plans and is limited to the domain of each department’s functional responsibility.
Each functional department attempts to do its part in meeting overall corporate objectives, and hence to some extent their strategies are derived from broader corporate strategies. Many companies feel that a functional organizational structure is not an efficient way to organise activities so they have reengineered according to processes or strategic business units (called SBUs). A strategic business unit is a semi-autonomous unit within an organization. It is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting. An SBU is treated as an internal profit centre by corporate headquarters.Each SBU is responsible for developing its business strategies, strategies that must be in tune with broader corporate strategies.
The “lowest” level of strategy is operational strategy. It is very narrow in focus and deals with day-to-day operational activities such as scheduling criteria. It must operate within a budget but is not at liberty to adjust or create that budget. Operational level strategy was encouraged by Peter Drucker in his theory of management by objectives (MBO). Operational level strategies are informed by business level strategies which, in turn, are informed by corporate level strategies. Business strategy, which refers to the aggregated operational strategies of single business firm or that of an SBU in a diversified corporation refers to the way in which a firm competes in its chosen arenas.
Corporate strategy, then, refers to the overarching strategy of the diversified firm. Such corporate strategy answers the questions of "in which businesses should we compete?" and "how does being in one business add to the competitive advantage of another portfolio firm, as well as the competitive advantage of the corporation as a whole?"Since the turn of the millennium, there has been a tendency in some firms to revert to a simpler strategic structure. This is being driven by information technology. It is felt that knowledge management systems should be used to share information and create common goals. Strategic divisions are thought to hamper this process. Most recently, this notion of strategy has been captured under the rubric of dynamic strategy, popularised by the strategic management textbook authored by Carpenter and Sanders.
This work builds on that of Brown and Eisenhart as well as Christensen and portrays firm strategy, both business and corporate, as necessarily embracing ongoing strategic change, and the seamless integration of strategy formulation and implementation. Such change and implementation are usually built into the strategy through the staging and pacing facets.There are many reasons why strategic plans fail, especially: failure to understand the customer. Questions such as ‘why do they buy?’ ‘Is there a real need for the product?’are left improperly answered due to inadequate or incorrect marketing research There is also an inability to predict environmental reaction, such as deducing what competitors will do (fighting brands, price wars) or determining if the government will intervene. Over-estimation of resource competence, failure to coordinate, thus leading to reporting and control relationships being inadequate.
This in turn means the organisational structure is not flexible enough.There is also failure to obtain senior management commitment, to get management involved right from the start, and to obtain sufficient company resources to accomplish the task Employee commitment must be obtained. However, this cannot happen if a new strategy is not well explained to employees or if no incentives are given to workers to embrace the new strategy. No critical path analysis is done due to underestimation of time requirements. There is something to be said for leniency in strategy, however.
Although a sense of direction is important, it can also stifle creativity, especially if it is rigidly enforced. In an uncertain and ambiguous world, fluidity is often more important than a finely tuned strategic compass.When a strategy becomes internalised into a corporate culture, it can lead to group think. It can also cause an organisation to define itself too narrowly.
The reader will note that many of these points involve the employee in some way, thus leading to the next segment of the dissertation, which is on HR strategy. Faced with rapid change, organisations need to develop a more focused and coherent approach to managing people. Just as a business requires a marketing or information technology strategy, it also requires a human resource or people strategy. In developing such a strategy two critical questions must be addressed:’What kinds of people are needed to manage and run the business to meet your strategic business objectives?’ and ‘What people programs and initiatives must be designed and implemented to attract, develop and retain staff to compete effectively?’ In order to answer these questions four key dimensions of an organization must be addressed.These are: culture (the beliefs, values, norms and management style of the organisation) organisation (the structure, job roles and reporting lines of the organisation) people (the skill levels, staff potential and management capability) and human resources systems (the people focused mechanisms which deliver the strategy - employee selection, communications, training, rewards, career development). Frequently in managing the people element of their business senior managers will only focus on one or two of these dimensions and neglect to deal with the others.
Typically, companies reorganise their structures to free managers from bureaucracy and drive for more entrepreneurial flair but then fail to adjust their training or reward systems. When the desired entrepreneurial behaviour does not emerge managers frequently are confused at the apparent failure of the changes to deliver results.The fact is that seldom can focus be directed on only one area. What is required is a strategic perspective aimed at identifying the relationship between all four dimensions.
If any entrepreneur requires an organisation which really values quality and service staff not only have to be retrained, but one must also review the organisation, reward, appraisal and communications systems. The pay and reward system is a classic problem in this area. Frequently organisations have payment systems which are designed around the volume of output produced. If one then seeks to develop a company which emphasises the product's quality the pay systems must be changed. There are seven steps to developing a human resource strategy and the active involvement of senior line managers should be sought throughout its approach.
First, understand business strategy. Second, highlight the key driving forces of the business, such as technology, distribution, competition, and the markets. Ask the questions ‘What are the implications of the driving forces for the people side of the business?’ and 'What is the fundamental people contribution to bottom line business performance?’ After answering these questions, develop a mission statement or statement of intent. This relates to the people side of the business. Negative reactions to the words or references to idealistic statements are negligible - it is the actual process of thinking through the issues in a formal and explicit manner that is important.
Next, conduct a SWOT analysis of the organisation, focus on the internal strengths and weaknesses of the people side of the business. Consider the current skill and capability issues, then research the external business and market environment and highlight the opportunities and threats relating to the people side of the business to determine what impact they will/might have on business performance, and what areas suffer skill shortages. The emergence of new technology could affect staffing levels, so research into it is prudent as well. From this analysis one then must review the capability of the personnel department. Complete a SWOT analysis of the department - consider in detail the department's current areas of operation, the service levels and competences of personnel staff. Conduct a detailed human resources analysis.
Concentrate on the organisation's culture, organisation, people and COPS (culture, organisation, people, systems (HR)) Determine critical people issues. Go back to the business strategy and examine it against the previously performed SWOT and COPS Analysis Identify the critical people issues namely those people issues that must be addressed, which are the ones with a key impact on the delivery of business strategy. Prioritise the critical people issues by asking what would occurr were they not to be addressed. Develop consequences and solutions. For each critical issue highlight the options for managerial action generate, elaborate and create.
This is an important step as frequently people resort to first tried-and-true methods rather than challenge existing assumptions about the way things have been done in the past.Think about the consequences of taking various courses of action. Consider the mix of HR systems needed to address the issues. Is there a need to improve communications, training or pay? What are the implications for the business and the personnel function? It should be possible to translate the action plan into broad objectives. These will need to be broken down into the specialist HR Systems areas of employee training and development, management development, organisation development, performance appraisal, employee reward, employee selection and recruitment, manpower planning and communication.
