Module 1

Strategic Thinking

Introduction
It is important to have a long term view. A huge advantage that a growing entrepreneurial
company can have is the ability to take a very long-term view which actually exists right from the very
beginning. When applied in an organizational strategic management process, strategic thinking involves
the generation and application of unique business insights and opportunities intended to create
competitive advantage for a firm or organization. It can be done individually, as well as collaboratively
among key people who can positively alter an organization's future. Group strategic thinking may create
more value by enabling a proactive and creative dialogue, where individuals gain other people's
perspectives on critical and complex issues. In other words, in whatever stage in a business, managers
must always think long-term. By looking ahead they can set targets and goals, and have a real, defined
benchmark by which to measure progress and success. By working collaboratively with others they get a
great insight into the complex ramifications of seemingly minor decisions.

Management accountants are in a unique position to participate in and lead the strategic analysis
process. To do so, however, requires strategic thinking and strategic analysis skills. The Strategic
Management Accounting’s (SMA) overall objective is to help management accounting professionals play
a valuable leadership role in the strategic management and strategic analysis processes of their
organizations. It emphasizes the importance of developing a connection and alignment between the
strategy, strategy execution, budgets, and financial performance to create greater long-term sustainable
value for shareholders and stakeholders.

To become trusted strategic advisors and partners in the business, management accountants need
to have a deep understanding of the underlying business. They need to know how the business is run, the
major influences or levers of the business, who the customers are and their buying habits, the customer
needs fulfilled by the company, and the strengths and weaknesses of competitors. This can be achieved by
asking questions about the operational side of the business, building good working relationships outside
of accounting and finance, organizing weekly staff meetings, or facilitating monthly reviews of plan vs.
actual results, including both financial and nonfinancial metrics.

Further, setting up regular strategy planning meetings and discussions using a variety of tools will
help management accountants understand, develop, execute, and communicate the strategic priorities of
the organization. Those tools are described in IMA’s new Statement on Management Accounting (SMA),
Strategic Analysis—Methods for Achieving Superior and Sustainable Performance​. (Frigo and
Krumwiede, 2020)
Intended Learning Outcome (ILO)
At the end of this module, students are expected to
1. Discuss the emerging factors affecting strategic analysis
2. Enumerate and discuss the different analysis tools and frameworks
3. Explain the various definitions of strategy.
4. Discuss the terms plan and planning
5. Differentiate strategic and operational planning
 6. Enumerate the substantive issues considered in strategic planning.
7. Discuss the different techniques in strategic planning and management.
8. Distinguish the terms strategic thinking, strategic planning and strategic management.
9. Identify the role of management accountant in strategic management.

Emerging Factors Affecting Strategic Analysis

Before going into strategy formulation, it is important to conduct a research on the organization
and its working environment. This is the process of strategic analysis.There are many factors that affect
the way organizations develop strategies today. A big one is sustainability. Integrating sustainability
objectives into the strategic initiatives of an organization facilitates the alignment of strategy with
long-term value creation. Another important factor is the speed of change. Disruptive forces can adversely
impact a company or provide great opportunities of creating value.

It’s also important to avoid the pitfall of short-termism in strategic analysis. Companies need to
understand, manage, and align their long-term value drivers to achieve sustainable value creation,
especially in today’s constantly changing business environment. Further, investors should understand a
company’s long-term value-creating strategy to confidently commit to investing in that company.

Finally, an organization’s culture, organizational structure, performance evaluation, and incentive

system can greatly influence its success with strategic analysis and execution. Big companies may need
incentives and organizational changes to foster more entrepreneurial spirit.

Knowing how to perform strategic analysis isn’t enough. It requires applying the right tools and
frameworks to create value in your organization.

Strategic Analysis Tools and Frameworks

The tools and frameworks discussed in the SMA are grouped into three categories: environmental
scan and competitive analysis; internal/external strategic analysis; and innovation, change, and market
disruption. Here’s a list of all the tools and frameworks discussed, along with their purpose.

Environmental Scan and Competitive Analysis

● Porter’s Five Forces​:Identify potential market threats to a company’s value proposition.
● STEEP analysis​:Identify nonmarket trends and issues relating to the general social,
economic, and political environment.
● Scenario planning​:Stimulate creative thinking to better prepare for potential scenarios.
● Strategic risk management​:Assess and manage the strategic risks as part of the strategic
planning and strategic management process.

Internal/ External Strategic Analysis

● SWOT analysis​:Match market opportunities with internal capabilities.
● Value chain analysis​:Identify unique value propositions.
● Strategy maps​:Develop and articulate the strategy of an organization in a simple visual form.
● Gap analysis​:Highlight where an organization desires to be on one of its goals and where it
will be if no changes are made.
● Good to Great’s Hedgehog concept​: Describe the unique value proposition of a company.
 ● Return Driven Strategy​:Assess how well strategies are aligned with ethically creating
long-term sustainable value.

Innovation, Change and Market Disruption

● Blue Ocean strategy​:Create an entirely new uncontested market space.
● Creating shared value​:Create economic value that also creates value for society.
● Disruptive innovation​:Disrupt the market by making something unique that creates new
value for customers and the company.
● Reverse innovation​:Innovate in a developing country and later sell the product in more
developed countries.

Strategy
Strategy is a word with many meanings and all of them are relevant and useful to those who are charged
with setting strategy for their corporations, businesses, or organizations. Some definitions of strategy as
offered by various writers spanning the years 1962 to 1996 are briefly reviewed below.

Alfred D. Chandler, Jr., author of ​Strategy and Structure (​ 1962), the classic study of
the relationship between an organization’s structure and its strategy, defined strategy as
“the determination of the basic long-term goals and objectives of an enterprise, and the
adoption of courses of action and the allocation of resources for carrying out these
goals.”

Robert N. Anthony, author of ​Planning and Control Systems ​(1965), one of the books
that laid the foundation for strategic planning, didn’t give his own definition of
strategy. Instead, he used one presented in an unpublished paper by Harvard colleague
Kenneth R. Andrews: “the pattern of objectives, purposes or goals and major policies
and plans for achieving these goals stated in such a way as to define what business the
company is or is to be in and the kind of company it is or is to be.” (Here we can see
the emergence of some vision of the company in the future as an element in strategy.)

Michael Porter, another Harvard professor, became well known with the publication of
his 1980 book, ​Competitive Strategy​. Porter defined competitive strategy as “a broad
formula for how a business is going to compete, what its goals should be, and what
policies will be needed to carry out those goals.” (In contrast with Andrews’ definition,
Porter’s is much narrower, focusing as it does on the basis of competition.)

In 1994, Henry Mintzberg, an iconoclastic professor of management at McGill

University, took the entire strategic planning establishment to task in his book, ​The
Rise and Fall of Strategic Planning.​ In effect, Mintzberg declared strategy did indeed
have several meanings, all of which were useful. He indicated that strategy is a ​plan,​ a
pattern​, a ​position​, a ​perspective ​and, in a footnote, he indicated that it can also be a
ploy,​ a maneuver intended to outwit a competitor.

A more recent entry appears in ​Strategic Planning for Public and Nonprofit
Organizations​, published in 1996 by John Bryson, professor of planning and public
policy at the University of Minnesota. Bryson defines strategy as “a pattern of
 purposes, policies, programs, actions, decisions, or resource allocations that define
what an organization is, what it does, and why it does it.”

In the military, the strategy for a battle refers to a general plan of attack or defense. Typically,
this involves arrangements made ​before a​ ctually engaging the enemy and intended to disadvantage that
enemy. In this context, strategy is concerned with the ​deployment o​ f resources. In civilian terms, this
amounts to the “allocation” of resources. Tactics is the companion term and it refers to actions
formulated and executed ​after t​ he enemy has been engaged — “in the heat of battle,” as it were.
Tactics, then, is concerned with the ​employment o​ f resources already deployed. In the civilian sector,
this equates to operations in the broad sense of that term. Generally speaking, tactical maneuvers are
expected to occur in the context of strategy so as to ensure the attainment of strategic intent. However,
strategy can fail and, when it does, tactics dominate the action. Execution becomes strategy. Thus it is
that, whether on the battlefield or in business, the realized strategy is always one part intended (the plan
as conceived beforehand) and one part emergent (an adaptation to the conditions encountered). As a
consequence, there are always two versions of a given strategy: (1) strategy as contemplated or
intended, and (2) strategy as realized.

Although there are many similarities in the definitions above, there are also some important
differences. We are left, then, with no clear-cut, widely-accepted definition of strategy; only different
views and opinions offered by different writers working different agendas.
Nichols (2011) proposed a definition of strategy for use when he was the head of Strategic Planning
and Management Services at Educational Testing Service:

Strategy refers to ​a general plan of action for achieving one’s goals and objectives.

A ​strategy​ or ​general plan of action​ might be formulated

·​ for broad, long-term, corporate goals and objectives,

·​ for more specific business unit goals and objectives, or
·​ for a functional unit, even one as small as a cost center.

Such goals might or might not address the nature of the organization, its culture, the kind of
company its leadership wants it to be, the markets it will or won’t enter, the basis on which it will
compete, or any other attribute, quality or characteristic of the organization.

As the definition implies, strategy (and tactics) relate to ​how ​a given end is to be attained.
Together, strategy and tactics bridge the gap between ends and means. Resources are ​allocated or
deployed and then ​employed in the course of executing a given strategy so as to realize the end in view.
The establishment of the ends to be attained does indeed call for strategic thinking, but it is separate
from settling on the strategy that will realize them.

Before coming to grips with the term “strategic planning,” it is best to examine each of those
terms separately. Let’s tackle “strategic” first.
Strategic

Clearly, strategic means “of or having to do with strategy.” Because strategies can and do exist
at various levels of the organization, it is entirely conceivable and appropriate ​for the corporation to
have a strategic plan​, ​for a business unit to have one too​, and ​for a functional unit to have one.​ Strategic
also means “of great significance or import” and so strategic plans, at all levels, are intended to address
matters of great importance. For those concerned with the enterprise, strategic issues, initiatives, and
plans are those that affect the entire enterprise in important ways. Chief among these are the direction
and destination of the firm. Where is it headed and what is it to become? Not all strategic issues are
long-term, although many are. A short-term crisis can be of strategic significance and should be dealt
with accordingly. These considerations hold true at all levels of the organization. For our purposes, then,
“strategic” means “of great importance.”

Next in our series of terms to be examined are plans and planning.

Plans and Planning

Plans of action, whether for business or the battlefield, always have two fundamental aspects:
ends and means — ​what i​ s to be achieved and ​how ​it is to be achieved. The ends sought might be broad,
far-reaching, and off in the distant future. Or, they might be nearby, tightly focused, and well defined.
And, whether we label these future results “goals,” “aims,” “targets,” or “objectives” is of little
consequence. The same is true of the means chosen to attain one’s ends. We might call these
“programs,” “actions,” “steps,” “initiatives” or we might even reuse the word “plans.” As is the case
with ends, means, too, might be very broad or very narrow, and long-term or short-term.

Needless to say, the scope and scale of our plans, thinking, and managerial activity varies. At
least three levels of strategy and planning are widely accepted:

● enterprise level
● business unit level
● functional level

Those combinations of ends and means we call plans can be found at all three levels of
organization. Strategies, too, exist at all three levels. Consequently, one can and should find strategic
thinking, planning, and management at all three levels.

Planning has been defined in various ways, ranging from thinking about the future to specifying
in advance who is to do what when. For our purposes, we will define planning as “the activity of
preparing a plan” and we will define a plan as a set of intended outcomes (ends) coupled with the actions
by which those outcomes are to be achieved (means). To plan, then, is to specify the ends sought and the
means whereby they are to be attained.

Planning can be formal or informal and involve lots of documentation or very little. The
information base can be large and captured in a wide range of reports, studies, databases, and analyses,
or it can rest entirely on the personal knowledge of a few people, or even just one. Plans, and thus the
planning activities that produce them, frequently will address timeframes, either generally, or in the form
of milestones and perhaps detailed schedules. Resources, too, might be addressed, whether in terms of
money, space, equipment, or people. There are no predetermined, mandatory guidelines to follow; it is a
matter of doing what is appropriate for the task at hand.

Strategic planning is a different matter.

Strategic Planning
Strategic planning is a defined, recognizable set of activities. Techniques vary with the
particular author but the ​substantive issues​ are essentially the same across authors. These include:

❏ establishing and periodically confirming the organization’s mission and its corporate
strategy (what has been termed “the context for managing”)
❏ setting strategic or enterprise-level financial and non-financial goals and objectives
❏ developing broad plans of action necessary to attain these goals and objectives
❏ allocating resources on a basis consistent with strategic directions and goals and
objectives, and managing the various lines of business as an investment “portfolio”
❏ deploying the mission and strategy, that is, articulating and communicating it, as well as
developing action plans at lower levels that are supportive of those at the enterprise level
(one very specific method of policy or strategy deployment is known as ​Hoshin Kanri​, a
technique developed by the Japanese and subsequently used successfully by some
American businesses, most notably Hewlett Packard)
❏ monitoring results, measuring progress, and making such adjustments as are required to
achieve the strategic intent specified in the strategic goals and objectives
❏ reassessing mission, strategy, strategic goals and objectives, and plans at all levels and, if
required, revising any or all of them

The ​techniques ​involved in strategic planning and management generally include some
variation of the following:

❏ a strategic review or audit intended to clarify factors such as mission, strategy, driving
forces, future vision of the enterprise, and the concept of the business
❏ a stakeholders’ analysis to determine the interests and priorities of the major
stakeholders in the enterprise (e.g., board of trustees, employees, suppliers, creditors,
clients, and customers)
❏ an assessment of external threats and opportunities as well as internal weaknesses and
strengths (known variously as SWOT or TOWS), leading to the identification and
prioritization of strategic issues
❏ either as part of the assessment above, or as a separate exercise, the identification of
“core” or “distinctive competencies”
❏ also as part of the assessment above, or as separate exercises, the playing out of
“scenarios” and even “war games” or simulations
❏ situational and ongoing “scans” and analyses of key sectors in the business
environment, including industries, markets, customers, competitors, regulators,
technology, demographics, and the economy, to name some of the more prominent
sectors of the environment
❏ various kinds of financial and operational performance audits intended to flag areas
where improvement might yield strategic advantage
Difference between Strategic and Operational Planning

Strategic Planning Operational Planning

➢ Long-term (usually 5-10 years) ➢ Short-term (1 year or less)
➢ Focuses on future achievements and conditions ➢ Achievements or targets annual
➢ Weighs a series of alternatives before making ➢ Planned activities represent choices already
fundamental choices made; alternatives are not considered
➢ Usually integrates several functions, levels, ➢ Tend to focus on one unit or related set of
components simultaneously activities
➢ Integrates strategies for resource mobilization ➢ Resources for implementation usually already
with activities (sustainability plans) identified
➢ Usually requires ratification from governing ➢ No formal action or ratification required
structures
Strategic Thinking and Management
Obviously, a great deal of strategic thinking must go into developing a strategic plan and, once
developed, a great deal of strategic management is required to bring its aims to fruition. But, as several
authors have pointed out, the objective is indeed to think and manage strategically, not to blindly engage
in strategic planning for the sake of strategic planning. However, when it comes to specifying the
substance of the distinctions among strategic thinking, strategic planning and strategic management, all
authors are noticeably reticent. So, we will take those distinctions as amounting to a well-meant caution
against confusing the form of strategic planning with its substance.

Nested Concepts
Nichols (2011) found it useful to view the concepts discussed in this discussion as a set of
“nested” concepts as depicted in Figure 1 below.

​Figure 1 – The “Nested” Concepts Related to Strategy

As Figure 1 indicates, strategic thinking encompasses all the other concepts. Strategic
management represents an effort to realize the fruits of strategic thinking. This occurs via strategy
formulation, strategic planning, and strategy deployment (i.e., putting it all into action).
Role of Management Accountant in Strategic Management
When management accounting professionals have the necessary skills and abilities, they can
create value in various leadership roles using strategic analysis, including:

● Helping to develop innovation and growth strategies.

● Reviewing and refining strategies to create greater long-term sustainable value.
● Analyzing where the company or business units are in the competitive life cycle.
● Communicating the strategy within the company and to the board of directors.
● Developing information for investor relations presentations by the CFO.
● Evaluating merger and acquisition (M&A) opportunities and risks.
● Assessing strategic risks of the organization.
● Developing a strategy for the finance organization.

Conclusions
Strategy is a useful concept, even in all its many variations. Strategic planning is a useful tool,
of help in managing the enterprise, especially if the strategy and strategic plans can be successfully
deployed throughout the organization. Thinking and managing strategically are important aspects of
senior managers’ responsibilities, too. All these are part of what it takes to manage the enterprise. None
of them is sufficient. Why? Because, if for no other reason, there is usually an existing book of business
to manage. For most established firms, this can easily amount to 80 percent of the action. In other words,
“strategic issues,” regardless of their importance, typically consume no more than 20 percent of the
organization’s resources (although they frequently command 80 percent of top management’s time and
attention). To paraphrase an old saw, “The strategy wheel gets the executive grease.” This is as it should
be. Senior management should focus on the strategic issues, on the important issues facing the business
as a whole, including where it is headed and what it will or should become. Others can “mind the store.”

References:

1. Nickols, Fred (2011). ​Strategy, Strategic Management, Strategic Planning and Strategic
Thinking.​ Distance Consulting, LLC.
2. Andrews, Kenneth (1980). ​The Concept of Corporate Strategy​, 2nd Edition. Dow-Jones Irwin.
3. Bryson, John M. (1995). ​Strategic Planning for Public and Nonprofit Organizations.
Jossey-Bass.
4. Chandler, Alfred Jr. (1962). ​Strategy and Structure: Chapters in the History of the American
Industrial Enterprise. M​ IT.
5. Frigo, Mark L. and Krumwiede, Kip (2020). “​Strategic Analysis and the Management
Accountant.” S ​ trategic Finance
​ asic Books.
6. Mintzberg, Henry (1994). ​The Rise and Fall of Strategic Planning. B
7. Porter, Michael (1986). ​Competitive Strategy​. Harvard Business School Press.