Strategic Management

Strategic management in a business refers to the planning, management, utilization of resources to define and achieve objectives efficiently. It also includes a review of internal processes and external factors impacting the business. Formulating and implementing strategies allow a company to proceed with its action plan.

The management sets goals on behalf of business shareholders. It then develops strategies (prescriptive model) and puts them into practice (descriptive model). Crucial steps in between include strategy evaluation, resources allocation, competition analysis, and internal structure assessment. Almost all companies, academics, nonprofit organizations, etc., incorporate strategic planning and management to gain a competitive advantage.

• Strategic management is the systematic planning, management, and use of available resources to ensure a business specifies and achieves its goals. It also comprises strategy evaluation, a review of internal processes and external factors, resource allocation, and competition analysis.
• The company culture, structure, operations, and skills of human resources influence its strategy development process.
• The strategic steps in the process include identifying direction, analyzing resources, formulating and implementing strategies, evaluating their effectiveness, etc.
• It prepares businesses for a competitive market and assists them in identifying potential opportunities and risks.

The strategic management model deals with the planning, analyzing, and assessing different factors and inputs critical for production. It also entails the evaluation, allocation, and exploitation of available resources to achieve specified business objectives. The corporate culture, internal structure, and skills of human resources influence the strategy development process of an organization.

By identifying and managing strategies, a company can make decisions about its future direction and performance. Also, with strategic organizational management, top officials can learn from past failures and devise an action plan. It further necessitates evaluating potential threats and opportunities and analyzing possibilities for operational improvement.

Let us understand this with a simple example:

Diana runs an apparel store that employs ten people, including herself. She assigned two people to work on social media promotions of her store, two people for physical advertisements in the local area, two software developers to design and develop her e-commerce website, and two representatives to attend customers at the store. Diana herself took the responsibility of supervising all the tasks and coordinating with the teams.

As the business flourished, she decided to open more branches. Diana listed down her business expansion goals, finalized the budget, and formulated strategies. She also hired the best people and put them to work to achieve objectives.

Diana noticed that her products receive more attention online. So, she decided to focus more on online promotions and her e-commerce website. Therefore, she collaborated with the best logistics partners to ensure her products get delivered to customers on time.

The planning and assessment of different inputs and factors helped Diana make informed decisions, thereby assisting her in developing effective strategies.

An organization must follow a set of processes for strategic planning to be effective and fruitful. The following are the steps in the strategic management process:

#1 - Identifying Direction

The first step requires the organization to have a clear vision and direction. Before developing plans, a business should determine its short- and long-term objectives. The company will not have any clarity on processes and procedures unless it sets its goals beforehand.

#2 - Analyzing Resources

An organization must first arrange its resources to carry out specific tasks to reap the strategic management benefits. For example, someone who excels at marketing may struggle to manage the organization's public relations. Hence, the management should assess its resources and select the best one for respective processes.

#3 - Framing Strategies

After selecting the best resource for every process, the organization frames its action plan for accomplishing the goal. This strategic planning consists of elements needed to achieve the set objectives effectively. The analysis, assessment, and supervision of processes at every stage help the business resolve issues, whether internal or external.

#4 - Implementing Strategies

Following the strategy development based on the organization's objectives, the next stage is to execute them. Every business must train its human resources, from entry-level employees to managers, to ensure they fully understand the process. It will bring core competencies into action within the organization for the best possible output.

#5 - Evaluating Effectiveness

The review of strategies is the final step in the process. Looking into each aspect of the business during the strategy formulation and implementation helps the management identify the efforts of every individual. The organization can recognize these efforts through performance appraisal schemes, which are essential aspects of the business.

Let us understand the concept better with the below-mentioned strategic management examples:

Example #1

Dave intends to extend his constrained furniture business by introducing a new product category, i.e., all home decor goods. However, he is unsure how his brand would perform as it took years for him to establish his furniture business due to a delay in identifying negative factors. Thus, to avoid any risk this time, Dave conducts SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis as part of the strategic management.

He identifies the strong and weak points of business. He also analyzes potential opportunities and threats based on the current market trend. Accordingly, Dave strategizes and plans the processes, starting from manufacturing to advertising, ensuring that he allocates the right resources at the right places.

Example #2

The old strategy calendar is a strategic management approach that signifies the process execution in isolation without guidance, coordination, or collaboration. As a result of the disconnect between enterprise strategy and strategic groups and units, many businesses failed to achieve their goals.

Due to performance concerns, the economic slump, rising expenses, and invading imports, Chrysler Group experienced massive losses in 2000. It was when the automotive manufacturer decided to combine all strategy-related activities into a single functional unit. As a part of this, it set up the Office of Strategy Management. It aided in the management of company strategies. Furthermore, it helped in the development of new products by business units.

The collaboration of employees and management resulted in core competencies required to achieve business goals. In 2004, the automobile brand successfully launched a series of new sedans and made a profit of $1.2 billion despite struggling domestic market.

Besides preparing organizations for market competition, strategic management helps them identify opportunities that arise from time to time. In addition, businesses get a clue of threats that might hurt them in the long run. Through step-by-step formulation and implementation of strategies, companies can overcome hurdles coming their way and grow efficiently.

Let us have a look at some more points that make strategic planning a crucial aspect of any business:

• The past strategies act as a reference for future decisions that the organization makes.
• It results in improved organizational performance.
• The formulation of plans considers the current market trends and gives organizations a competitive advantage in the changing market.
• The step-wise strategic processes make goals achievable.
• It helps identify and select efficient individuals and recognize their efforts, thereby allowing them to grow with the organizational growth.
• The synchronization of processes, workforce and strategies make sure strategies align with organizational goals.

This has been a guide to strategic management and its definition. Here we discuss a model of strategic management work along with process, examples, and importance. You may also have a look at the following articles to learn more -

• Strategic Budgeting
• Strategic Alliances
• Joint Venture vs Strategic Alliance