Strategic management provides the framework for all the major business decisions of an enterprise such as decisions on businesses, products and markets, manufacturing facilities, investments and organizational structure. In a successful corporation, strategic planning works as the pathfinder to various business opportunities; simultaneously, it also serves as a corporate defense mechanism, helping the firm avoid costly mistakes in product market choices or investments.
Another reason for the importance of strategic management is that it provides a sense of direction so that organization members know where to expend their efforts. Without a strategic plan, managers throughout the organization may concentrate on day-to-day activities only to find that a competitor has maneuvered itself into a favorable competitive position by taking a more comprehensive, long-term view of strategic directions.
Yet another reason for the importance of strategic management is that it can help highlight the need for innovation and provide an organized approach for encouraging new ideas related to strategies. In addition, the process can be used to involve managers at various levels in planning, thus making it more likely that the managers will understand the resulting plans and be committed to their implementation.
Strategic management has the ultimate burden of providing a business organization with certain core competencies and competitive advantages in its fight for survival and growth. For example, Disney has been able to gain a competitive advantage in the family entertainment industry by creating amusement parks, movies, and products based on the renowned Disney characters. It is not just a matter of projecting the future. It is not just a forecasting job; it is concerned with ensuring a good future for the firm. It seeks to prepare the corporation to face the future and even shape the future in its favor. Its ultimate burden is influencing the environmental forces in its favor, working into the environs and shaping it, instead of getting carried away by its turbulence or uncertainties. It is environmental uncertainty that makes strategy and strategic conduct essential in a business. The more intense the environmental uncertainty, more critical is the need for strategic management.
Finally, studies support the existence of a link between strategic management and organizational financial performance, although results have not always been consistent. According to Fred R. David, research studies indicate that organizations using strategic management concepts are more profitable and successful than those that do not. For example, a longitudinal study of 101 retail, service, and manufacturing firms over a 3-year period concluded that businesses using strategic management concepts showed significant improvement in sales, profitability, and productivity compared to firms without systematic planning activities; another study reported that up to 80 percent of the improvement possible in a firm’s profitability is achieved through changes in a company’s strategic direction; Cook and Ferris reported that the practices of high performing firms reflect a more strategic orientation and longer term-focus. High-performing firms tend to do systematic planning to prepare for future fluctuations in their external and internal environments. Firms with planning systems more closely resembling strategic management theory generally exhibit superior long-term financial performance relative to their industry.
Strategic planning and implementation have become a must for all organizations for their survival and growth in the present turbulent business environment. ‘Survival of fittest’ as propagated by Drawin is the only principle of survival for organization, where ‘fittest’ are not the ‘largest’ or ‘strongest’ organization but those who can change and adapt successfully to the changes in business environment. Just like the extinction of the dinosaurus who ruled the earth one time but failed to survive in change condition of earth natural environment many organizational giants have also followed the path of extinction failing to manage drastic changes in the business environment. Also business follows the war principle of ‘win or lose’, and not necessarily win-win situation arises in business world. Hence the organization has to build its competitive advantage over the competitors in the business warfare in order to win. This can be done only following strategic analysis, formulation and implementation.
Of course, assessments of strategic management should also consider other important outcomes, such as the satisfaction of various organizational stakeholders and the extent to which the organization adequately deals with relevant factors in the environment.
Short Case Study: British Airways
Airline industries and carriers are facing very hard time, because recession has affected the business and the industries have to reduce their prices and are not making well profit as compared to the past. As it is a worldwide fast growing industry making airlines more complex and challenging. Because of recession and increased number of unemployment’s in airline industries. British Airways is the UK’s largest international airline, flying to 6 domestic destinations over 148 international destinations at multiple times, to the all best located airports. The major place of business is Heathrow, one of the world’s premier airport locations. BA also operates a worldwide air cargo business. But still British Airways had to restructured and make some serious strategic changes to avoid the bankruptcy or the closure. BA had his vision to achieve their goal and took effective and reasonable steps to compete in the market with its performance and operation under the last couple of years. Market fell from more than 30 per cent in 1998 to about 20 per cent in 2005. This year, BA announced the worst half-year losses in its history.
During the six months to September 2009, the company face a £292m ($485m) loss, compared with £52m profits during the same period a year earlier. In order to survive and to make an easy recovery in this competitive environment and to attain a leadership in the industry BA has taken strong steps to upgrade the systems and technology, In order to increased the fleet size British Airways ordered 36 new long haul Aircraft on 27th September 2007 which includes 12 A380s,and 24 Boeing 787s. British Airways also ordered on 1st February 2008 Airbus A318s to run a premium services out from London City Airport to New York. This fitted luxury 32 lie flat beds in business class cabin. The increase in technology like online ticketing, online checking also enhances the BA business. Because customer has no need to stand in queue. Innovative flight service such as sleeper service will attract more customers. Introduction of the terminal 5 on the HEATHROW AIRPORT will help increasing of the flights of the BA and able to provide more relaxed environment to its customers. Possible merger of the BRITISH AIRWAYS and QANTAS AIRLINE could be the great opportunity to become absolute market leader of the world. Willie Walsh stated that British Airways had reduced 1,450 staff members since March 2009. They also reduced the overtime and 500 redundancies were made. Twenty percent of future capital expenditure is reduced this year from 725 million pounds to 580 million pounds and it will be the same through out this year. Mr. Willie Walsh also admitted that this structural change of British Airways is necessary for survival and long term success. British Airways managed with its comprehensive and proactive strategy to accelerate its return to profitability and economic welfare well in advance of its rivals. The airline announced that it is planning to raise £680 million of liquidity through a £350 million convertible bond issue and by gaining access to bank facilities which are currently used to provide guarantees to its pension funds. This will increase liquidity to approximately £2 billion.