The Drivers of Effective Strategic Management
The purpose of this paper is to generalize the concepts of drivers of the effective strategic management. Strategic drivers are forces that shape an organization’s strategy. Effective strategic management drivers will be discussed in this paper which are portfolio drivers, strategic analysis drivers which includes SWOT, PEST and Value Chain forces analyses, strategic formulation drivers which include corporate, business and functional level strategies, strategy implementation, organizational drivers which includes organizational learning, change, and performance, operational drivers, marketing drivers and financial drivers that initiate and support activities that will help your company define and accomplish its goals.
Strategic management is the management of making effective use of a company’s resources in order to accomplish the company’s goals and objectives. It’s a strategy to make sure the company’s goals are fulfilled and that it continues to expand. Developing plans and policies to accomplish goals, then assigning resources to execute the plans, is how strategic management gives overall direction. Organizations use strategic management to obtain a competitive advantage over their rivals (Fred R David, 2020).
Historically, strategic management may be traced back to industrial-organizational economics, which emerged in the 1950s. Peter Drucker, widely known as the Father of Modern Management Theory, thought that establishing goals and tracking business development should permeate the whole organization from the top to the bottom (Freeman, 2015).
Strategic management doesn’t care whether a company is small or big. To be successful in the future, even small businesses must recognize how effective they are in their sector and take the necessary steps. Long-term company success requires sound strategic management. It entails establishing a business strategy with specific objectives, developing a plan for achieving those objectives, aligning company operations with the goals, and assigning the necessary resources to do so.
Drivers of effective strategic management
Strategic drivers determine important success elements, long-term prosperity, and essential value propositions. Typically, businesses have more than one strategic driver, and within three to five strategic drivers, there is a major subcategory of all variables that has significant impact on an industry battle in which many companies engage (S., 2011).
Some of the Strategic management drivers as follows:
- Portfolio Driver
Portfolio driver is derived directly from the company’s mission and vision. It focuses on how company plans to expand and what steps it will take to make that happen (or indeed, in times of a downturn, how it will consolidate). Here are several issues that need to be addressed: (1) What will we provide? Will we expand via organic means or acquisitions? Will the business be self-sufficient and vertically integrated, or will we go for a partnership or agency structure? (4) Are we going to manufacture/develop in-house, or will we outsource?
- Strategic Analysis Drivers
Strategic analysis helps you in discovering new development opportunities, addressing industry-specific problems, and making smarter business choices. Using strategy analysis, an organization’s capacities to reach an envisioned future state are facilitated, researched, analyzed and mapped out based on current reality and consideration of the organization’s processes, technology, business growth and people’s skills (Muiga, 2020). Some strategic analysis drivers are as follows:
Developed at Stanford University in the 1970s, SWOT analysis is a method widely used in strategic planning. An organization, project, or commercial venture’s SWOT analysis analyses an organization’s strengths, weaknesses, opportunities, and threats. A SWOT analysis is a basic yet effective framework for exploiting a company’s strengths, addressing weaknesses, reducing threats, and making the most of opportunities that exist.
SWOT analysis is a procedure in which the management team determines the internal and external variables that will have an impact on the future performance of the business. It aids in the identification of what is occurring both inside and outside, allowing you to plan and run your company more effectively and efficiently (Freeman, 2015).
PEST analysis is a useful driver for understanding market growth or decrease, and therefore a company’s position, potential, and direction are all made easier. PEST stands for Political, Economic, Social, and Technological aspects, and it is used to evaluate the market for a company or an organization. A PESTLE study includes legal and environmental issues as well as economic ones and is sometimes referred to as such.
A PEST analysis helps us discover successful methods for prioritizing tasks, assigning resources, and creating a timeline and development roadmap, as well as systems for controlling those timelines and developing new initiatives. You may discover opportunities and risks connected with your approach using this analysis and devise strategies to take advantage of and avoid them (Freeman, 2015).
- Value Chain Analysis
To understand how an organization may get an edge over its competitors, value chain analysis analyses the company’s business operations graphically. Using a value chain analysis, a business may discover how it provides value and, in turn, how much it can charge for its product or service, resulting in a profit margin. Customers should be willing to return to the organization and trade freely if it is managed effectively, since the value they get should outweigh the expenses of operating it.
Michael Porter developed value chain analysis in the 1980s as a way to conceptualize value added as a series of links along a chain. He proposed a division of an organization’s “main operations” and “support activities,” according to him. Porter’s Value Chain Analysis model separates activities into main and support activities, as seen in the chart below (Freeman, 2015).
- Five Forces Analysis
In 1980, Michael Porter created the Five Forces Model. When analyzing a market, one of the most useful competitive analysis tools is Michael Porter’s Five Forces model. It is a widely used business model that refers to the five key elements that drive a company’s competitive position in an industry. You can rapidly evaluate the strength of your position and your capacity to earn a sustainable profit in the industry by thinking about how each force impacts you and by recognizing the intensity and direction of each force (Fred R David, 2020).
- Strategic Formulation drivers
It is necessary to formulate strategy at three distinct levels: corporate, business, and operational.
Corporate Level strategies: To be successful, a company’s strategy must consider not just how to acquire a competitive edge in each industry, but also what industries the company should be in initially. It’s all about choosing the best possible mix of companies and figuring out how to combine them into a single corporate entity: a portfolio. Top management often makes significant investment and divestiture decisions at this level. M&A (mergers and acquisitions) are also an essential element of a company’s strategy. This level of strategy is only required when the firm operates in two or more business areas via distinct business units with diverse business-level plans that must be linked to create an internally consistent corporate-level strategy. As a result, corporate strategy is more often seen in multinational corporations (MNEs) or conglomerates than in small and medium-sized businesses (SME) (Fred R David, 2020).
Business Unit strategies: Different parts of the company employ business unit strategy such as services and products, or multiple departments or divisions. Completion time depends on the number of companies participating and their organizational structure. It’s critical to create a plan for each company unit so you know which ones are succeeding and which ones need improvement. You may evaluate the costs and advantages of each business unit and determine where your resources should be spent if you have a business unit plan. According on your success and market analysis, you may even decide it’s time to divest or sell some of your business units so you may concentrate on the areas that are most essential to achieve the corporate plan of your firm (Fred R David, 2020).
Functional Level Strategies: Strategically, each department is involved at the functional level, and what each department is doing on a daily basis to promote corporate goals. Senior management would develop and assess your business unit plan, while department heads are usually responsible for producing your functional strategy such as leaders in marketing, operations, finance, IT, etc. These people may assist in ensuring that departments carry out the specified strategic aspects and that the functional level components complement both departmental and corporate goals (Fred R David, 2020).
- Strategy Development Drivers
The following are the six key drivers of strategy development:
Your consumers will be the focus of your strategy, maybe even more so than anything else. This should include sales and marketing, as well as client retention and satisfaction.
Your customer strategy should include who your customers are, where and how you’re likely to find them, what problems your business solves for them, what kind of marketing they tend to respond to, and a sales funnel to convert them from prospects to sales and a process to nurture those relationships for future sales (Muiga, 2020).
By partnering, I mean forming strategic alliances with like-minded organizations. In order to identify, build, and cultivate these connections for mutual benefit, every company’s ideal partner will be different.
Suppliers, distributors, and other businesses that may recommend business to a company may need to form partnerships with them. Sponsorships are essential for event organizers. Donors are essential to nonprofit organizations. Other businesses may need the assistance of government or regulatory partners in order to comply with laws and regulations. Depending on your industry, the relationships will be different.
Even though businesses may differ in their strategies, the necessity to build strong relationships remains constant. Finding needs, identifying prospective partners, obtaining an introduction, putting up a proposal, and so on are all examples of strategies (Muiga, 2020).
- Operational improvements
In addition, every company should have a plan for developing operational changes, such as streamlining the various business processes. Improved lead generation or follow-up may be the goal for a one-person consulting firm. It may be efficiency or the supply chain for a manufacturing company. Details may change, but the overall approach does not.
- Development of new products or services/innovation:
The business that doesn’t go forward will be left behind by the competition. No matter how big or small your business is, you should always keep an eye out for new developments that will help you succeed in the future.
Innovations, regardless of business size, are often what set one firm apart from another in a competitive industry. One way a small accounting company may innovate is by aiding with the newest and most cutting-edge online tools. It’s possible that a company making a product is always on the hunt for fresh designs or features that will set it apart from the competition.
This approach may involve an assessment of which offerings are performing well and which are not, customer feedback, pet project ideas, development, testing and launch while also supporting the goods and services you presently provide (Mühlbacher, 2011).
- Management of Technology and Information:
There isn’t a single industry these days that doesn’t depend significantly on information systems and technology. A technology and information management plan should consider the tools, systems, and data needed to achieve business goals. My advice is to begin by asking yourself what you want to accomplish, and then look for methods to support it with the appropriate technology and data.
- Talent and people:
This approach may be the second-most critical to the success of a business after finding new consumers. Your strategy for people and talent should be to guarantee that the proper people are in place and skills are developed in the appropriate areas. The employment of an assistant or the use of contractors may be options for a small company. A big corporation may have a dedicated human resources department, as well as recruitment and training initiatives.
There is a critical component of your company’s strategy that is frequently overlooked: your people requirements. Finding and nurturing the appropriate individuals for the right positions should be a priority for companies (Muiga, 2020).
- Strategy Implementation Drivers
Employees and management involvement is necessary for the successful implementation of developed strategies. It’s known as strategic management’s “most challenging driver.” It requires self-discipline and dedication.
Strategic success was favorably and substantially associated with the key strategy implementation drivers of human resources, financial resources, organizational structure, organizational policy, and employee commitment to strategy implementation (Muiga, 2020).
- Organizational Driver
Every day, an organization must perform many support tasks that allow its core business activities. The organizational driver defines who will complete these tasks and how they enable the company’s core business functions. It provides management with information about how the company will be organized and what human resources will be needed (Muiga, 2020).
- Organizational Learning
The process of generating, maintaining, and transferring knowledge inside an organization is known as organizational learning. The more experience a company has, the better it becomes. It has the ability to generate knowledge as a result of this experience. This expertise spans a wide range of topics that may help a company. A few examples are methods to improve manufacturing efficiency or cultivate better relationships with shareholders and investors. Individuals, groups, organizations, and inter organizations all contribute to the creation of new knowledge.
A learning curve is the most popular metric for gauging an organization’s progress in learning. Learning curves illustrate how an organization’s productivity, efficiency, dependability, and/or quality of production improve as it produces more of a product or service, but with decreasing returns. Organizational learning rates influence the steepness of the learning curve. Individual competency, technological advancements, and changes to an organization’s structures, procedures, and coordination techniques all influence the pace at which an organization learns (Freeman, 2015).
- Organizational Change Drivers
External and internal drivers of change are the two major categories: External drivers, as their name implies, are things that happen outside of a business and can’t be controlled. Sometimes, they are predictable and provide businesses an opportunity to better prepare; in other instances, however, they are unpredictable and need fast and efficient responses from managers as well as a strong defense strategy. Regulation, hypercompetition, educational advancement and demographic shifts are just a few examples of external forces at work. Companies have internal drivers, which may be decisions made by firms or things in the hands of firms. Examples include things like innovation, company culture, and management methods. The majority of internal transformation choices are made with a proactive mindset in mind, with the goal of becoming more successful or competitive in the market. Firms and workers typically see internal drives favorably and embrace them, in part because management can regulate or influence them (Mühlbacher, 2011).
An organization’s strategy is driven by strategic performance drivers, which are described as factors that lead to improved performance. Organizations that fail to include these performance factors into their strategy are setting themselves up for catastrophe. Technological advancement, competition, and government restrictions are typically the catalysts for the emergence of new driver types.
HR operations are intertwined with key determinants of strategic success. Human resources departments are critical to the success of any company. The way a company’s human resources department handles its hiring, recruitment, training, and appraisal operations, as well as its compliance with regulations and long-term retention of workers, determines its overall success. Adapting human resources operations to market changes and competition is critical when driving the company’s success via better tactics. It’s impossible to get the same results without using strategic performance drivers as well (S., 2011).
- Operational Drivers
Operational drivers determine the locations and methods for managing supply chains as well as what technology (such as IT) is needed to support operations and how operational risk factors are handled (Mühlbacher, 2011).
- Supply Chain Drivers
These five drivers have an impact on the supply chain’s performance: production; inventory; location; transportation; and information (Freeman, 2015). In order to achieve the optimum balance between responsiveness and efficiency, companies may create and control these drivers.
Each of the following key supply chain performance drivers has a role in the competitive strategy:
- Production: Flexible manufacturing processes and techniques may be used to gain an advantage over the production driver. Manufacturing facilities are strategically located to enable businesses to better serve their clients’ needs and requirements.
- Inventory: With forecasting methods integrated into the business process, it is possible to plan a company’s inventory effectively. Stocking up on inventory in the production facilities is a bad idea since it reduces the facility’s overall economies of scale and savings.
- Location: The business makes this choice after examining a number of criteria, including:
- The facility’s distance from suppliers
- The distance separating the institution from its clients
- Trade restrictions imposed by local governments
- Transportation: In order for the business to be competitive and responsive to customers, the transportation strategy must support both of these goals. In order to stay ahead of the competition, businesses often include transportation methods that can get their goods to customers in a short amount of time.
- Information: SCM is being aided by technological development. A company’s main performance drivers are information and knowledge. Companies spend a lot of money on R & D because it helps them maintain their market share and competitive edge.
- Information Technology Driver
The competitiveness and profitability of a business are largely dependent on innovation and productivity improvements. Information technology plays a crucial role as an ‘enabler’ in this process. Value chains that span the globe cannot be built without the use of advanced IT systems.
The use of technology lowers the labor expenses by speeding data collection and automating tasks that are prone to mistake. The availability of real-time, up-to-date information throughout the whole supply chain has a major effect on how businesses operate and do business (Mühlbacher, 2011).
- Marketing Driver
Marketing driver focuses on Sales and distribution and customers and CRM. Instead of looking upstream, it evaluates the success of the plan by looking at downstream activity. It has the greatest direct influence on market performance and measures it (Muiga, 2020).
- Customer Relationship Management(CRM)
CRM is a set of techniques, methods, and technology used by businesses to keep track of and analyze customer interactions and data throughout the customer lifecycle. The objective is to enhance client connections, aid in customer retention, and increase sales. CRM systems collect client data from a variety of points of contact, such as the company’s website, telephone, live chat, direct mail, marketing materials, and social media. Additionally, CRM systems may provide staff employees who deal directly with consumers with comprehensive data on those customers, including as personal information, purchase history, preferences, and issues (Freeman, 2015).
- Financial Drivers
Financial driver focuses on corporate finance tasks such as currency management, risk management, and the planning of long- and short-term financial needs (Muiga, 2020). In addition, the following items are included:
- Cash: A business runs on cash. Business cannot pay its bills, pay its workers, or purchase the supplies it needs to create the goods or services it offers if it does not have cash. Cash position, cash flow, and liquidity are the three most important aspects of your company’s cash and evaluating them can help you understand how you produce cash and how to spend it effectively while also stimulating development.
- Profit: To put it another way, profit is the difference between what you earn selling products and services and what it costs you to create and sell them. Identifying a company’s efficiency in converting revenue into profit may be done by examining the disparities between profit margin and cash flow.
- Assets: Assets are everything a business utilizes to generate income, whether it’s physical (like buildings and equipment) or intangible (like patents). The issue of balancing asset strength is one that all companies must deal with. Investigating how a business fulfils its responsibilities, seizes opportunities, and weathers economic storms – including asset utilization – is essential for revenue generation and long-term development.
- Growth: Growing your company is one of the few methods to deal with the constant change in today’s business world. Both revenue and profit may be used to gauge growth. Understanding how growth plans affect company performance and the bottom line can offer a smoother path to success.
- People: Cope asserts that people are at the centre of the five main drives. “People make the choices, provide the money resources, purchase the goods, and offer the labor and services…. Cash, profits, assets, and growth are all fueled by them. Making sure that your workers, customers, and other key stakeholders’ needs, and expectations are met or exceeded is critical to your financial success(Fred R David, 2020).
Effective strategic management drivers are forces that influence a company’s overall strategy. Strategies aren’t born out of thin air. Different external and internal strategic drivers have an impact on them. Effective strategic management drivers discussed in this paper which are portfolio drivers, strategic analysis drivers which includes SWOT, PEST and Value Chain forces analyses, strategic formulation drivers which include corporate, business and functional level strategies, strategy implementation, organizational drivers which includes organizational learning, change, and performance, operational drivers, marketing drivers and financial drivers initiate and support activities that will help your business grow. The main impacts or variables that are important for the success of your business are represented by these drivers.