Strategic Management Process, Corporate Governance

Strategic Management Process

Strategic management is a process of analyzing the major initiatives that contain resources and performance in external environments, which a firm’s top management manages on behalf of the company owners.

The following diagram illustrates the five important steps of strategic management process.

The Five Steps of Strategic Management

Strategic management is a very large, complicated, and always-evolving endeavor. Therefore, it is handy to group it into a set of solid steps to describe the process of strategic management. The most common and used frameworks of strategic management include five steps, grouped in two general stages − Formulation and Implementation.

Formulation

• Analysis− Analysis involves comprehensive market, financial and business research on the external and competitive environments. The process includes conducting Porter’s Five Forces, SWOT, PESTEL, and value chain management analyses and combining expertise in each industry that are part of the strategy.
• Strategy Formation− After analyzing internal and external environments, the organization arrives at a generic strategy (for instance, low-cost, differentiation, etc.) that is based upon the value-chain implications. It is done for deriving and maximizing core competence and prospective competitive advantages.
• Goal Setting− Goal setting is the next step of strategy formation. As the defined strategy is in hand, management now tends to find out and communicates the goals and objectives of the company that are linked to the predicted results, strengths, and opportunities.

Implementation

• Structure− The implementation phase has the basic function of structuring the management and operational processes. As there is a strategy in place, the business now wants to solidify the organizational structure and leadership patterns (making many changes if required).
• Feedback− Feedback is the final stage of strategic management process. In this final stage of strategy, all of the budgetary figures are collected and disseminated for evaluation. Financial ratios calculation and performance reviews are delivered to relevant managers, executives and concerned departments.

Corporate Governance

Corporate Governance refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of Directors and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and social goals.

Corporate Governance is the interaction between various participants (shareholders, board of directors, and company’s management) in shaping corporation’s performance and the way it is proceeding towards. The relationship between the owners and the managers in an organization must be healthy and there should be no conflict between the two. The owners must see that individual’s actual performance is according to the standard performance. These dimensions of corporate governance should not be overlooked.

Corporate Governance deals with the manner the providers of finance guarantee themselves of getting a fair return on their investment. Corporate Governance clearly distinguishes between the owners and the managers. The managers are the deciding authority. In modern corporations, the functions/ tasks of owners and managers should be clearly defined, rather, harmonizing.

Corporate Governance deals with determining ways to take effective strategic decisions. It gives ultimate authority and complete responsibility to the Board of Directors. In today’s market- oriented economy, the need for corporate governance arises. Also, efficiency as well as globalization are significant factors urging corporate governance. Corporate Governance is essential to develop added value to the stakeholders.

Corporate Governance ensures transparency which ensures strong and balanced economic development. This also ensures that the interests of all shareholders (majority as well as minority shareholders) are safeguarded. It ensures that all shareholders fully exercise their rights and that the organization fully recognizes their rights.

Corporate Governance has a broad scope. It includes both social and institutional aspects. Corporate Governance encourages a trustworthy, moral, as well as ethical environment.

Benefits of Corporate Governance

1. Good corporate governance ensures corporate success and economic growth.
2. Strong corporate governance maintains investors’ confidence, as a result of which, company can raise capital efficiently and effectively.
3. It lowers the capital cost.
4. There is a positive impact on the share price.
5. It provides proper inducement to the owners as well as managers to achieve objectives that are in interests of the shareholders and the organization.
6. Good corporate governance also minimizes wastages, corruption, risks and mismanagement.
7. It helps in brand formation and development.
8. It ensures organization in managed in a manner that fits the best interests of all.