Strategic Management

Strategic management is the process of integrating all the functions and activities in an organization into a coherent whole. We previously defined management as the process of planning, organizing, leading, and controlling people in the organization to effectively use resources to meet organizational goals. Strategy management provides the "glue" that holds these processes together. Rather than looking at individual functions or activities, strategic management considers the entire organization and how the pieces fit together. Good strategic management allows an organization to develop synergy. That is, the pieces support each other so that the total output is greater than the sum of the output of individual functions.

Strategic management best fits with the planning function, and it involves two broad functions. The first is to determine how the company will create competitive advantage. That is, how will the company produce distinction and value to its customers? The answer to this question is the company's business strategy. Management must make sure that all activities in the company support its business strategy. This is called "doing the right things". It means everyone must be focused on excelling at the things that create competitive advantage, making sure that resources are allocated to the departments that create competitive advantage, and closely controlling the activities that create competitive advantage. That doesn't mean they can ignore other things; successful businesses have to do many things well but excel at only a few.

Strategic management's second function is to make sure that the people in the organization support the strategy. As we discussed previously, almost everything an organization accomplishes is achieved by people doing things. Management must make sure that the people in the organization are willing and capable of excelling at the things that create competitive advantage. This is called "doing things right". They can do this by providing training and development opportunities for employees to improve skills that support the strategy, by creating a compensation system that rewards behaviors that support the strategy, and by implementing a supervisory system that encourages and recognizes behaviors that support the strategy. Management can also instill a culture of excellence throughout the organization. Organizational culture is the shared values and beliefs that guide individual behaviors in the organization. Managers can induce a culture that supports the strategy by communicating and modeling behaviors and values they want to see throughout the organization.

For example, when Tom's of Maine introduced a new deodorant that disappointed customers, company founder Tom Chappell pulled the product from the market and reimbursed the customers who had purchased it. The company lost the money it had put into developing and producing the product, as well as the reimbursement cost. But it reinforced the core values of fairness and honesty that the company espoused, and demonstrated that quality and customer satisfaction were the company's competitive advantage.

In another example, Southwest Airlines' management implemented the "Walk a Mile" program in which managers and executives pitch in to help front-line employees. Executives clean planes, load luggage, and attend gates. Flight attendants were surprised when Herb Kelleher, the company chairman, showed up to help them provision a plane. This program reinforces the family culture at Southwest, where everyone is valued and considered equal. It also emphasizes the company's focus on customer service by demonstrating that everyone has to support activities that directly affect the customer.