Strategic Management: Todays Most Important Business Challenge Liam Fahey Babson College and Cranfield School of Management Strategic management is the name given to the most important, difficult, and encompassing challenge that confronts any private or public organization: how to lay the foundation for tomorrows success while competing to win in todays marketplace. Winning today is never enough; unless the seeds of tomorrows success are planted and cultivated, the organization will not have a future. This challenge is difficult because, as we shall see throughout this book, the choices involved in exploiting the present and building for the future confront managers with complex tradeoffs. Managers must resolve conflicting demands from stakeholders; perennial tensions among different groups and levels within the organization must be fairly addressed. It is encompassing because it embraces all the decisions that any organization makes. The conflict between the demands of the present and the requirements of the future lies at the heart of strategic management for at least three reasons: 1. The environment in which tomorrows success will be earned is likely to be quite different from the environment that confronts the organization today. Products change as competitors introduce new variations, sometimes radically shifting the nature of the offering made to customers. New models of laptop computers that are smaller, lighter, and more powerful have changed many customers perceptions of what constitutes a The author would like to especially thank Robert M. Randall for his many comments on this chapter, and H. Kurt Christensen, Jeffrey Ellis, Samuel Felton, V. K. Narayanan, G. Richard Patten, and Daniel Simpson for their comments on an earlier draft of this chapter. page_3 Page 4 personal computer. New competitors enter longestablished markets with new concepts of how to serve and satisfy customers. For example, Saturn, at the low end of the automobile market, and Lexus, at the high end, have dramatically altered the dynamics of competition within their product categories. 1 Increasingly, the emergence of substitute products causes highly disruptive industry change. Customers tastes sometimes change in unexpected ways. Technological developments often alter not only the function of products but every facet of how business is conducted: procurement, logistics, manufacturing, marketing, sales, and service. Political, regulatory, social, and economic change often give rise, directly or indirectly, to shifts in industry or competitive conditions.2 To succeed in the new environment of tomorrow, the organization itself must undergo significant and sometimes radical change. Organizations as large, as diverse, and as historically successful as IBM, General Motors, Sears, Honda, Sony, Philips, and Rolls Royce have learned this painful lesson in the late 1980s and early 1990s. Old ways of thinking have had to be challenged and reconceived: longheld assumptions and beliefs ultimately have become incongruent with the changed environment. New operating processes or ways of doing things must be learned. Organizational structures, systems, and decision processes inherited from outmoded eras need to be redesigned. Adapting to (and, in many cases, driving) change in and around the marketplace during a time of significant internal change places an extremely heavy burden on the leaders of any organization. Yet, that is precisely the dual task that confronts strategic managers. They must: Exploit the present while sowing the seeds for a new and very different future and, simultaneously, Build bridges between change in the environment and change within their organizations.3 Change is the central concern and focus of strategic management: change in the environment, change inside the organization, and change in how the organization links strategy and the organization. Change means that organizations can never become satisfied with their accomplishments. Unless an organization changes its products over time, it falls behind competitors. Unless the organization changes its own understanding of the environment, it cannot keep abreast of, much less get ahead of, changes in customers, the industry, technology, and governmental policies. The importance and pervasiveness of change is evident in the strategic management principles noted in Table 11. From environmental change springs opportunities. Without change or the potential to affect change, organizations would neither confront nor be able to create opportunities.4 Without a managed flow of new opportunities, organizations cannot grow and prosper; they are destined to decline and die. Unfortunately, change is also the source of threats to the organizations current and page_4 Page 5 Table 11 Some strategic management (SM) principles. Strategic Management Involves the management of marketplace strategy, of the organization, and of the relationship between them. Has as a core assignment; management of the interface between the organization and its environment. Involves anticipating, adapting to, and creating change both in the environment and within the organization. Is driven by the relentless pursuit of opportunities. Recognizes that opportunities may arise in the external environment or they may be generated within the organization; in either case, they are realized in the marketplace. Necessitates risk taking; the organization commits to pursuing opportunities before they have fully materialized (in the environment). Is as much about inventing or creating the organizations competitive future as it is about adapting to some understanding of that future. Sees the marketplace purpose of an organization as residing outside its (legal) boundaries; it must find, serve, and satisfy customers as a prelude to other returns such as profits. Is the task of the whole organization; it cannot be delegated to any group within the organization. Necessitates the integration of the longdistance and shortdistance horizons; the future influences current decisions; current decisions are intended to lead toward some future state or goal. potential strategies. Thus, organizations must commit themselves to grappling with changeunderstanding it and transforming it into opportunity. Leveraging andor shaping change in the environment is, as we shall see in the next section, central to designing and executing strategy. Although organizations cannot control their environment, 5 they are not helpless in the face of persistent and sometimes unpredictable environmental change. By practicing strategic management, managers can lead more effectively. They can effect change in their strategies: they can introduce new products, enhance their existing products, withdraw from particular markets, compete more smartly against their competitors, and offer better value to customers. Managers can also reconfigure their organization: They can get more output out of existing resources, hone existing capabilities or competencies and develop new ones, and energize the organization through their leadership. As we shall see throughout this chapter, managing more effectively and reconfiguring organizations go handinhand. To cope with change successfully, strategic management must address three interrelated tasks (see Figure 11): 1. Managing strategy in the marketplace: designing, executing, and refining strategies that win in a changing marketplace.