Strategic management is the set of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals. Managers ask questions such as What changes and trends are occurring in the competitive environment? Who is our customer? What products or services should we offer? How can we offer those products and services most efficiently? Answers to these questions help managers make choices about how to position their organization in the environment with respect to rival companies. Superior organizational performance is not a matter of luck. It is determined by the choices that managers make. Top executives use strategic management to define an overall direction for the organizations, which is the firm’s grand strategy.
Grand strategy is the general plan of major action by which a firm intends to achieve its long term goals. Grand strategies fall into three general categories: growth, stability and retrenchment. A separate grand strategy can also be defined for global operations.
Growth can be promoted internally by investing in expansion or externally by acquiring additional business divisions. Internal growth can include development of new or changed product such as Frito Lay’s introduction of baked Doritos or expansion of current products into new markets, such as Avon’s selling of products in mall kiosks. External growth typically involves diversification which means the acquisition of businesses that are related to current product line or that take the corporation into new areas. The number of companies choosing to grow through mergers and acquisitions in recent years has been astounding as organizations strive to acquire the size and resources to compete on a global scale, to invest in new technology and to control distribution channels and guarantee access to markets. For example, Citibank and Travellers merged to form Citigroup, which has now acquired Sears credit card portfolio to become the nation’s largest private label credit issuer. Boeing Co. acquired McDonnell Douglas, to move more aggressively into defense contracting and Hughes Electronics Corp’s. Space & Communication Division to tap into growth opportunities in space travel.
Stability sometimes called pause strategy means that the organizations wants to remain the same size or grow slowly and in a controlled fashion. The corporation wants to stay in its current business such as Allied Tire stores whose motto is ‘We just sell tires’. After organizations have undergone a turbulent period of rapid growth, executives often focus on a stability strategy to integrate strategic business units and ensure that the organization is working efficiently. Mattel is currently pursuing a stability strategy to recover from former CEO Jill Barad’s years of big acquisitions and new businesses. The current top executive is seeking only modest new ventures to get Mattel on a slower growth and a more stable course.
Retrenchment means that the organization goes through a period of forced decline by either shrinking current business units or selling of or liquidating entire businesses.
The organization may have experienced a precipitous drop in demand for its products or services, prompting managers to order across the board cuts in personnel and expenditures. For example, in the early 2000s Nortel Networks laid off more than 40,000 employees, shut down several divisions and closed dozens of plants and offices to cope with reduced demand. Gaylord Entertainment, a Nashville based entertainment company that traces its roots to the Grand Ole Opry, had counted on digital entertainment as a growth business but just two years later managers closed the Gaylord Digital subsidiary, cut jobs and put the company’s Web business up for sale. Top executives felt that a period of retrenchment was necessary to strengthen profitability across the company.
Source: New Era Management