6 Evolution of Strategic Management
Strategic management is concerned with achieving sustainable competitive advantage. How such competitive advantage may be achieved has become a matter of debate. An organization’s competitive advantage is tested in the market.
Strategic management as a discipline is changing with the change in economic and other dynamics. The evolution of strategic management may be discussed as under.
1. Basic financial planning (1950s):
In the 1950s, financial budgeting in the form of annual financial planning and investment appraisal was prepared. They provided short-term control and aided project selection. It did little to guide the long-term development of the firm.
The organizations tended to exhibit strong strategies however they were rarely documented. Hence, the success of the organization was dependent on the quality of the CEO and the top management team and their knowledge of products, markets and rivals.
2. Forecast based planning (1960s):
The forecast-based planning in the 1960s resulted in organizations embracing a longer time horizon environmental analysis, multi-year forecasts, and a static resource allocation as the firm responded to the demands of growth. Organizations developed long-term plans that were based on budgetary control systems. Macroeconomic forecasts provided the foundation for the new corporate planning. The planning set goals and objectives, forecast key economic trends, established priorities for different products and business areas of the firm, and allocated capital expenditures. It proved particularly useful for developing and guiding the diversification strategies that many large firms were pursuing.
3. Externally oriented planning (1970s):
In the 1970s there was a move to externally oriented planning in response to markets and competition. Planning included environmental and competitive analysis. It also included an evaluation of alternative strategies and dynamic resource allocation.
4. Strategic management (1980s):
In the 1980s, firms shifted their emphasis from planning to strategy making, where the focus was on positioning them in markets to maximize the potential for profit. This shift was characterized by an increasing focus on competition as the central characteristic of the business environment and competitive advantage as the primary goal of the strategy.
5. The quest for competitive advantage (1990s):
In the 1990s, the focus of strategy shifted from industrial analysis to the sources of profit within the firm. Increasingly, the resources and capabilities of the firm were regarded as the main source of competitive advantage and the primary basis for formulating strategy. It was called the resource-based view of the firm. In contrast to Porter’s view, the resource-based view has emerged. It emphasized that organizations should look at their own resources and competencies and their exploitation as sources of sustained competitive advantage.
The emphasis on internal resources and capabilities encouraged firms to identify how they were different from their competitors and to design strategies that exploited these differences.
6. Adapting to turbulence/hyper-competition (2000):
The term hyper-competition was first used by D’Aveni in 1994. It explains the relentless mode of competitive behaviors of the firms to force the competitors out of the industry. In hyper-competition, the frequency, boldness, and aggressiveness of dynamic movement by the players accelerate to create a condition of constant disequilibrium and change. Market stability is threatened by short product life cycles, short product design cycles, new technologies, frequent entry by unexpected outsiders, repositioning by incumbents, and tactical redefinitions of market boundaries as diverse industries merge. In other words, environments escalate toward higher and higher levels of uncertainty, dynamism, heterogeneity of the players, and hostility.
The organizations started cooperation which is a blend of competition and cooperation. They now emphasize the benefits of collaboration, cooperation, and joint alliances. Networking between companies is becoming a new buzzword.
FAQ’s
Evolution of Strategic Management
1950s: Basic Financial Planning,
1960s: Forecast based Planning,
1970s: Externally oriented Planning,
1980s: Strategic Management,
1990s: The quest for competitive advantage,
2000s: Adapting to turbulence/hyper-competition.
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