The nature of a training professional's work typically demands a tactical-level, detail-oriented approach. As a result, we may overlook the strategic link between our activities and the mission of the organizations we serve. Here we explore some strategic issues.
Strategic Management

Table of Contents

Gus Prestera, March, 2002

What is strategic management?

Strategic management is (on a good day) a systematically planned process for managing an organization which is guided by a systemic (global view of systems and how they inter-relate) understanding of the organization. According to Wright, Pringle, and Kroll (1994), strategic management encompasses strategy formulation, implementation, and control. These three phases are executed through the traditional strategic management model, which employs the SWOT analysis process:

  1. Analyze external opportunities and threats

  2. Analyze internal strengths and weaknesses

  3. Establish the mission and develop goals

  4. Formulate strategies that leverage strengths/opportunities and minimize the impact of threats/weaknesses

  5. Implement strategies

  6. Evaluate and control the effectiveness of those strategies (p. 4)

Wheelen & Hunger (1995) define strategic management as "that set of managerial decisions and actions that determines the long-run performance of a corporation… includes environmental scanning, strategy formulation, strategy implementation, and evaluation and control" (p. 3).

Strategic management is typically done at the highest levels of an organization, presumably by those who best understand the internal and external relationships of the system components. It is typically long-range in nature and impacts the entire organization.

Why do it? There are several good reasons for going through the effort of developing and implementing a strategic plan. The process itself can be an eye-opening one for managers. Going through the exercise of listing the organization's strengths, weaknesses, opportunities, and threats (SWOTs) can make managers more aware of broad internal and external systemic issues (e.g., the threat of upcoming tax legislation or the introduction of a new technology that may enhance the organization's effectiveness) that may impact the organization. In other words, if done correctly, SWOT analysis should force managers to look at a broad array of issues that they may not have considered otherwise. It also forces them to think of issues that often get left by the side of the road, such as implementation, evaluation, and control. While some managers may be strong on the implementation side and others on the planning side, the strategic management model keeps both kinds of managers from leaving the table too soon, again, if used faithfully.

Having a strategic plan that has emerged from systemic analysis of strategic issues provides a benchmark against which lower level managers can measure their goals, processes, and management controls. Rummler and Brache (1990) suggest that alignment of goals, structure, and management across the strategic (organization), process, and worker levels of the organization is critical for optimal performance.

Measuring strategic management

The measures used to assess and guide corporate strategies should be selected based on the objectives that the strategies are trying to meet. Some strategies have short-term objectives while others long-term, some internal (e.g., efficiency, proficiency, and productivity) and others public (market share, capitalization, and profitability), some are at the organizational level and some are at the business unit or functional level. The measures used should be contingent on the types of strategies and the specific objectives which they serve.

The most common way that firms seem to measure the success of strategic initiatives is with financial accounting-based measures of performance. The most popular of these are ROI (return on investment), EVA (economic value added), and ROE (return on equity). However, as discussed earlier (in essay 1.0) the information on financial statements has underling assumptions that are framed within the context of financial accounting's mission and bookkeeping framework. As a result, these seemingly clear-cut, objective indicators of performance can be muddled by non-performance related variables. For example, return on investment, which represents net income before taxes divided by the total assets of the firm, can be inflated by the depreciation of assets (which reduces the value of assets, driving up ROI) as well as several other factors (e.g., transfers, book value, and seasonal fluctuations in sales to name a few). In addition, ROI is a relatively short-term indicator of performance. Is it then appropriate for assessing the impact of long-term strategies?

Market information (share price, P/E, market capitalization, dividend yield, etc.) is also used. However, these data can fluctuate significantly in the short term due to market volatility, economic cycles, and seasonal variations.

Benchmarking is another type of criterion measure. It may or may not rely on financial accounting data. Benchmarking is the continuous process of measuring workflows (processes and practices) and outputs (products and services) against competitors and/or firms recognized as industry leaders (Wheelen & Hunger, 1995: p. 293). Benchmarks can also be linked to industry certification standards (e.g., ISO 2000)

In conclusion, the three most popular types of measures for strategy evaluation are financial accounting-based measures (i.e., liquidity, activity, leverage, and profitability ratios), market-based measures, and benchmarking measures. The alternative is to utilize custom measures that are specific to a set of objectives. This may require a great deal of additional work if the data is not already collected through some existing mechanism, therefore, they should be used sparingly when other measures prove insufficiently precise.


Strategic Planning

Accurate and timely information. Managers are highly reliant on the accuracy and timeliness of information. The phases of the strategic management process that are most sensitive to information needs are the SWOT identification steps (#1 and #2) and the control phase (#6). In the former, managers will need the most accurate and timely information possible about the external and internal variables. If a critical piece of legislation is missed or the financial health of a competitor is underestimated, it can have exponential impact on the future of the organization. It is in these details that Chaos Theory suggests we often miss the tiny wiring problem that burns down the building. In the control phase, managers need accurate, timely, and appropriate feedback regarding the progress of their initiatives. If inaccurate or too slow, these steering controls are not only useless, but may potentially cause the manager to steer the initiative in the wrong direction, take action when not needed, or fail to take action when needed. All of these can have serious consequences for the organization.

Implementation. As important as planning and control may be, they are no substitute for effective implementation. In order for strategies to achieve even a modicum of success, goals and expectations need to be communicated clearly, the right people need to be in place with the appropriate level of authority, resources, and expertise with which to accomplish their objectives, and there needs to be at least cooperation, if not support, from the workers who will be carrying out the critical tasks. In order to create support for management initiatives, managers often use internal promotional campaigns in conjunction with participative change models. However, if the initiatives are not based on substantive issues and if the participative process is perceived as merely a ploy to make workers believe it was their idea or to simply to get them to buy into management's ideas, these efforts are likely to fail and perhaps even create more resistance. Implementation is a communication process but it is at least as much about action as words. While clarity of goals and expectations is important, workers need to see that management is moving effectively to provide them with the resources they need to achieve results.

Think strategically. Wright, Pringle, and Kroll (1994) suggest that all workers should be aware of strategic management processes, so that they are better able to relate the organization's strategy with their work assignments. While this may be true, it is also important for workers to think strategically because in many organizations today the workers are constantly engaged in decision making and if they think only tactically, they may not realize the systemic impact that their decisions may have on other components of the system. In addition, strategic thinking is long-term thinking, so workers who think about what they do today as impacting future interactions (say, with customers) should make better decisions than those who do not. This increase in worker autonomy is a product of the decentralized, or at a minimum distributed, nature of organizations today in which service and knowledge work dominate. In such a climate, it would be foolhardy to think that strategic management processes are strictly within the domain of senior management.

Flexibility and speed. The strategic management process has been criticized for being slow, tedious, linear, and rigid. These are characteristics often associated with systematic processes. In the instructional systems field, we often hear these same criticisms directed at the instructional design (ISD) process. Nevertheless, I suggest that those criticisms do not reflect the characteristics of the model so much as they represent the way in which it is typically implemented. SWOT analysis need not be a one-time event. In fact, it should be an ongoing process that is closely linked with evaluation and control mechanisms. Goals and strategies need not only be set at the highest levels of the organization, they are things which, on an ongoing basis, should involve both top-down and bottom-up communication processes. Strategizing should be a routine activity for employees at all levels. This breeds variety, and variety breeds adaptability. Adaptability leads to flexibility and agility in dealing with changes in the internal and external environments. These are critical structural characteristics in these times of rapid technological innovation, quickly shifting markets, and evolving customer needs.


Resource-based vs. behavioral perspective

Human resource management (HRM) refers to the goals, structures, policies, practices, and processes that serve the functions of personnel recruitment, selection, training, appraisal, and rewards (Wright & McMahan, 1992) within an organization. Strategic human resource management (SHRM) refers to the practice of linking or aligning HRM with the strategic goals of an organization. Wright and McMahan define SHRM as: "the pattern of planned human resource deployments and activities intended to enable an organization to achieve its goals" (p. 298). Two theoretical models have been proposed to explain how SHRM interacts with the organization at a strategic level.

Resource-based view

The resource-based view (Barney, 1991) is that a firm can have a sustained competitive advantage over other firms only after other firms have given up trying to replicate the advantage. The advantage itself is seen as a function of the firm's resources, its physical, organizational and human capital. Competitive advantage is gained through resource heterogeneity and resource immobility (Wright & McMahan, 1992). In other words, the firm has an advantage that is created by a one-of-a-kind combination of several different types of resources.

According to this view, a resource must have four characteristics in order to be a source of competitive advantage: value, rareness, imperfect imitability, and non-substitutability. It must be valuable, unique or rare, impossible to imitate exactly, and impossible to substitute with something else. In other words, it must be a rare gem. The difference is that a rare gem can be purchased. According to Barney (1991), sustained competitive advantage cannot be purchased, it must already exist within the firm. Continuing with the gem metaphor, the firm must discover, mine, and polish the diamond itself if it is to find the truly one-of-a-kind gem.

Applying this model to HRM, human resources can create a sustained competitive advantage by interacting with other resources to add positive value to the firm in ways that cannot be exactly replicated (using a different mix of people) or substituted (e.g., replaced by computer technology). In order to be unique, human resources must possess rare traits, skills, or knowledge or possess skills or knowledge that are at unusually high levels. One example might be a high performance cross functional work team that works to design cutting edge products. Individually, each may or may not constitute a competitive advantage to the firm, but as a team, they certainly represent a heterogeneous, value-added, inimitable, unsubstitutable asset. HRM finds, retains, and develops these resources through its recruiting, selection, training, evaluation, and reward systems.

Viewing human resources in this way is consistent with Senge (1990), who implies that organizations need to harness and leverage their human capital as a potential source of competitive advantage. Indeed, in industries where the skills of individual workers seems to make a significant impact on organizational performance (e.g., information technology), the ability to recruit and retain the most talented, skilled, or knowledge people can serve as a competitive advantage. The issue of mobility, however, seems to stifle attempts to consider this a sustainable competitive advantage.

Behavioral view

The behavioral view (Schuler & Jackson, 1987) assumes "that the purpose of various employment practices is to elicit and control employee attitudes and behaviors" (Wright & McMahan, 1992: p. 303). Employee role behavior is an important means, and stands between strategy and performance, mediating the impact of the former upon the latter. Schuler and Jackson propose that innovative strategies require role behaviors reflecting innovative behavior, a long-term focus, high cooperation, moderate concern for quality and quantity, and a higher degree of risk taking. In this model, HRM practices are viewed as a menu of management tools from which HR managers choose the ones that promote the most appropriate role behaviors. These practices need to be aligned with each other to promote a cohesive SHRM strategy, which should in turn align with organizational goals and strategies.

Comparing the two models

The resource and behavioral views are not necessarily mutually exclusive models of HRM, in that both could theoretically be used in the same organizations. However, they have some fundamental differences, which I believe makes each more appropriate in some settings than the other.

The behavioral perspective views workers as throughput and seems to consider them potential liabilities, threats to performance, which need to be addressed through HR practices. How can we manipulate the throughput to improve the fidelity between strategy and performance? What worker behaviors will help us optimize performance? This contrasts with the resource-based perspective, which views workers as potential sources of competitive advantage and therefore treats them as assets. How can we attract, train, and retain the best and the brightest? What unique combination will yield unusually high performance? In both perspectives, workers are things to be used, tools with which or through which to achieve a set of objectives. In the behavioral model, behaviors need to be molded into a particular shape. In the resource-based model, there is no mold. There is discovery, mining, and polishing of a rare commodity. The behavioral model seems more appropriate to contexts where the skill set required of employees is low to medium and where labor resources are easily substituted (e.g., production settings), i.e., where there is little chance that the human resources could become a competitive advantage. The resource-based model seems more appropriate in situations where the skills, knowledge, and/or abilities needed are high and difficult to find (e.g., service settings). In these settings, there may be a higher chance that human resources could form a competitive advantage.

I have seen firsthand an HR program modeled on the behavioral model. The organization, a manufacturing company, had a list of 15-20 role behaviors (e.g., innovator, communicator, analyzer, etc.). The hiring, training, appraisal, and incentive programs were all built around these role behaviors. This HR department eventually scrapped the program, saying that the program had no measurable impact on performance. The behavioral model stresses conformity (to the role behaviors), while the resource model appears to at least respect the inherent abilities, skills, and knowledge that workers bring to the organization. It does not present a pre-conceived idea of what ideal behaviors are, rather it appears to be more flexible and context-based. On the other hand, both models reflect a disturbing tendency of HRM to dehumanize people and their value.

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