What is Strategic Management?

Strategic management is the process of setting goals, objectives and developing plans, policies in order to achieve those objectives, and then allocating the requisite resources to implement those plans. This is done in order to make the firm more competitive.

Strategic Management

What is Strategic Management?

Strategic Management is concerned with establishing the proper “organization – environment fit” or matching the organizational factors with the environmental factors. It involves an analysis of organizational factors (strengths and weaknesses of the organization) and the environmental factors (threats and opportunities in the business environment).

Related: What is a Strategy?

It is the art and science of formulating, implementing, and evaluating cross-functional decisions and strategies that enable an organization to achieve its objectives.

Strategic-Management is about answering the following questions:

• Where are we now?
• Where do we want to go?
• How are we going to get there?

Strategic management is a costly activity that takes up a lot of management time. It is therefore important to stop & consider why it is important:

• Issues, decisions and actions affecting the firm as a whole
• Issues, decisions and actions that deal with the direction and scope of the firm
• Issues, etc. with a time horizon; long term but with intermediary goals
• Issues etc. with resource implications; financial, physical, human and ‘knowledge’ resources.

‘Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.’ (Porter , 1996).

Achieving sustainable competitive advantage is the central issue of strategic management

• Exists in all walks of life
• The ability of the firm to outperform other firms in the market (customers and profit)
• Need not be destructive

Importance and Benefits of Strategic Management

In today’s age, strategic management is more important than ever for organisations!

It allows an organisation to become more proactive rather than reactive. It has helped organisations formulate sound strategies. These strategies are based on a more systematic, logical and rational approach to strategic choice.

• Even if you’re on the right track, you’ll get run over if you just sit there (Will Rogers)
• Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat (Sun Tzu)
• The best way to predict the future is to create it (Peter Drucker)
• The essence of strategy is choosing what not to do (Michael Porter)

Benefits of Strategic Management

Benefits of Strategic Management includes Enhanced Communication, Greater Commitment, Deeper/Improved Understanding, Positive Results.

Financial Benefits:

• Improvement in sales, profitability and productivity.
• Profits will come naturally.

Non-Financial Benefits:

• Improved understanding of competitors strategies.
• Reduction in resistance to change. More and more opportunities can be exploited in the process.
• Helps define the management problems objectively.
• Provides a framework for a company to coordinate and control activities.
• Encourages strategic thinking!

The Strategic-Management Model

Stages of Strategic Management:

Strategy analysis (Internal and External Environment Analysis), Strategy formulation and Strategy Implementation are the three Stages of Strategic Management.

Strategic Analysis

Strategic analysis is the process of analyzing a company and its operating environment in order to come up with a suitable strategy.

Strategic Analysis is the objective study of the environmental factors, both internal and external, which are considered in the process of strategic choice. It is the process of conducting research on the business environment within which an organization operates and on the organization itself, in order to formulate strategy.

Environment Analysis and Scanning

The forces, conditions, situations, events etc. that impact the organization is referred to collectively as the organization’s environment.

The ever-changing internal (controllable) as well as external (uncontrollable) forces of environment pose numerous challenges to the business firms to adjust and adapt itself to the realities of such environment.

To address these challenges, business leaders conduct an environmental analysis and develop policies and processes that adapt the firms operations and products to this environment.

Advantages of Environment Analysis and Scanning:

• Identification of Strength
• Identification of Weakness
• Identification of Opportunities
• Identification of Threat
• Optimum Use of Resources
• Survival and Growth
• Expansion and Diversification
• Long Term Planning of Business Strategy
• Aids Decision Making
• Flexibility in Operations
• Corporate Image

Two types of Strategic Analysis can be done by different organizations for future planning. They are:

1. Internal Analysis (using tools such as SWOT)
2. External Analysis (using tools such as PESTLE)

Related: Read more on Internal Environment Analysis and External Environment Analysis.

Generally, detailed analysis of a company should include eight areas:

• The history, development, and growth of the company over time
• The identification of the company’s internal strengths and weaknesses
• The nature of the external environment surrounding the company
• A SWOT analysis
• The kind of corporate-level strategy that the company is pursuing
• The nature of the company’s business-level strategy
• The company’s structure and control systems and how they match its strategy
• Recommendation

After conducting a detailed strategic analysis, a firm can proceed with Strategy Formulation.

Related: Strategic capabilities of a firm that it uses to compete.

Strategy Formulation

Strategy formulation is the process of offering proper direction to a firm. It seeks to set the long-term goals that help a firm exploit its strengths fully and encash the opportunities that are present in the environment.

The information from various strategic decision making models such as PESTEL and SWOT analysis is used to set clear and realistic goals and objectives. The firm should be able to identify if it needs additional resources and sources to procure them. The firm should formulate targeted plans and prioritize activities to achieve the goals.

Strategy formulation is the process by which an organization chooses the most appropriate course of action in order to achieve its pre determined goals.

It helps an organization to consider the changing environment and be prepared for the possible changes that may occur. It further enables to evaluate the resources, allocate budgets, and determine the most effective plan for maximizing the return on investment.

Strategy Formulation:

• developing a vision and mission
• identifying an organization’s external opportunities and threats
• determining internal strengths and weaknesses
• establishing long-term objectives
• generating alternative strategies
• choosing particular strategies to pursue

Strategy formulation decisions involve taking decisions about:

• What new businesses to enter
• What businesses to abandon
• Whether to expand operations or diversify
• Whether to enter international markets
• Whether to merge or form a joint venture
• How to avoid a hostile takeover

A strategic plan is a company’s game plan. It results from tough managerial choices among numerous good alternatives, and it signals commitment to specific markets, policies, procedures, and operations.

Strategic plans should be communicated to everyone in the organization so that they are aware of the objectives, mission, and purpose.

Strategy Implementation

Strategy Implementation is the execution of the various plans and strategies to meet the desired outcomes, including meeting the long-term goals of the organization.

It is the process by which strategies and policies are put into action through the development of programs, budgets and procedures.

It is the sum total of all the activities and choices required for the execution of a strategic plan.

It involves allocating resources to support the chosen strategies.

Strategy Implementation:

• requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed
• often called the action stage

This process includes the various management activities that are necessary to put strategy in motion, institute strategic controls that monitor progress, and ultimately achieve organizational goals.

References

Strategic Management – Fred R. David, Published by Prentice Hall International.

Business Policy and Strategic Management – Dr. Azhar Kazmi, published by Tata McGraw Hill Publications

Nagpal, Sharma: Strategic Management, SYBMS (Sem. 3), Sheth Publishers

Nagpal, Shelankar, Sharma: Strategic Management, M.Com (Sem. 3), Sheth Publishers