Strategic management is understood as the identification and description of strategies that will be used by managers in order to achieve a competitive advantage or better performance for the organization. An organization is considered to have a competitive advantage when its profitability is higher than that of other companies in the same industry. It is also defined as a sample of decisions and acts that a manager undertakes to improve the organization’s performance. A strategic manager is one who has a thorough knowledge and analysis of the competitive and general environment to make the right decision. This article will provide you with the detailed meaning and process of strategic management.
Strategic management is used to refer to a branch of management concerned with the creation of strategic vision, formulating and implementing strategies, setting out objectives, and coming up with corrective measures to correct any deviations to achieve the organization’s goals. It is a management field that focuses on long-term direction and planning of the organization. It ensures that things in the organization do not happen randomly, but as per pre-planned long-term plans. Strategic management enables companies to be more competitive than their competitors and improves their profitability.
What is strategic management?
Strategic management involves planning, monitoring, assessment, and analysis of all the factors necessary for achieving an organization’s goals and objectives. The emerging technologies, customer expectations, and fast-paced innovation are forcing organizations to make decisions and think strategically in order to remain successful in their industries. The strategic management process enables the organization's leaders and managers to assess the organization's present situation, develop strategies, implement them, and analyze their effectiveness. Therefore, the strategic management process is concerned with cross-functional business decisions before implementing them.
Strategic management concepts
Short-term objectives based on long-term goals
This concept states your overall objective for being in business. Once you have a big picture concerning your business, you have a guiding principle that will help you make short and long-term decisions. Putting into consideration the big picture when it comes to day-to-day operations, you will manage to move your business in a cohesive direction.
A strategy that is based on long-term goals will help in evaluating the business's success if the management is specific as possible about the objective of the organization. The management should use quantifiable objectives when determining goals so that they can refer back when evaluating progress. Measurable goals highlight deviations and they show what the business needs to achieve.
Reflecting on the process
The long-term goals should be open to re-evaluation. It is impossible to predict five years into the future concerning how the market will be for your products and services. You should evaluate the progress you make regarding the goals. In case the targets are no longer important, articulate new ways through which you can work toward your vision and mission.
Describe the major components of strategic management process
You might be wondering what is strategic management process. Below are the components of strategic management also known as the strategic management process that you need to know about:
If an organization knows what it wants to achieve, it doesn’t need to plan ahead. The goal setting component is concerned with setting long-term and short-term goals. The goals should be SMART (Specific, Measurable, Attainable, Relevant, and Timely).
This component is concerned with gathering information about all the internal and external factors that may influence the implementation of strategies, hence the achievement of the set goals.
The formulation of strategy comes after the goals and research are put in place. Strategy formulation determines the actions that should be taken to achieve the organization's goals. It also involves the allocation of resources in the right manner to meet the organization's goals.
After you have had the strategy ready, you need to execute it seamlessly. The execution of strategy is known as strategy implementation, and it is the most rigorous and practical part of strategic management. Whatever the management has planned to meet the organization's goals are converted into actual actions and activities geared toward the achievement of goals.
A written strategy may look doable and perfect, but implementation may prove otherwise. Various deviations may exist in planning which may have a negative impact on strategy. You should avoid this by ensuring that the implementation process is monitored and evaluated from time to time. Any issues that arise during implementation should be corrected immediately.
Role of strategic management
1. Defining company identity
The companies that are considered successful are those that know who they are and what their goals are. Defining a company's identity is the first role of strategic management. The identity is defined concerning the specific capabilities it provides in the industry. The definition process often takes the form of the formulation of vision or mission statement.
2. Formulating overall strategy
The mission statement becomes the stage for practical policies and actions. The primary role of strategic management is to develop a big picture that shows practical measures that will help in translating functional the organization's vision into reality. Your organization may decide to develop various products and services based on its unique capabilities, opportunities presented by the needs and wants of customer, and the existing competition.
3. Formulating actionable goals
Once the big picture strategy has been developed, the other strategic management role will be to create a series of actionable and quantifiable goals and inform the employees. If the organization does not achieve the set goals, strategic management role will be to evaluate the outcome. It will then determine if the organization should approach goals differently or revise the goals altogether.
4. Strategic segmentation
Finally, the strategic management is responsible for analyzing the market for your organization's products and services. Through the analysis, it will develop a plan for attracting various groups of customers. The strategic segmentation role is concerned with the understanding of various target markets and using the information gathered in marketing and product development.
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External environment analysis in strategic management
External environment analysis is a significant part of strategic management. PESTEL Analysis is used to analyze the external environment. PESTEL analysis included Political, Economic, Social, Technological, Environmental, and Legal Analysis.
Political factors are concerned with how the government activities interfere with the economy. Political factors include trade restriction, environmental law, labor law, tax policy, political stability, and tariffs. They may also include those goods and services that the government allows and those that it doesn't allow. The government can have a significant influence on education, overall health, and infrastructure of a country.
The economic factors are such as interest rates, economic growth, the inflation rate, and exchange rates. The economic factors influence how the organization operates including how it makes decisions. For example, when interest rates increase, the organization's cost of capital will increase, thus affecting business expansion, and growth. Also, exchange rates can influence the costs of exports and the price of imports.
The social factors are such as population growth rate, career attitudes, health consciousness, emphasis on safety, and age distribution. The trends in these social factors may affect the demand for the organization's goods and services and how it operates. For example, an aging population leads to the less-willing workforce.
Technological factors are composed of environmental and ecological aspects such as automation, research and development activity, the rate of technological change, and technology incentives. These factors determine barriers to entry, affects outsourcing decisions and affects production level. The factors can also affect quality, costs and can lead to innovation.
Environmental factors are conditions such as climate, weather, and climate change. These factors may influence farming, tourism, and insurance sectors. The increased awareness about climate change is affecting the way organizations operate and what products and services they offer. They are damaging the existing markets and creating new ones.
The legal factors are such as discrimination, antitrust, consumer affairs, health and safety, and employment. The legal factors can affect costs, operations, and demand for products and services. They can also affect the reputation or brand value of the organization.
What is SWOT analysis in strategic management?
SWOT analysis (strengths, weaknesses, opportunities, and threats) is a valuable tool that the organization can use to analyze its strengths and weaknesses and identify its opportunities and threats. The analysis is used to identify and analyze both internal and external factors that have an impact on the organization. Below is a description of SWOT analysis and questions that can inspire your analysis.
Strengths are concerned with the positive attributes of your organization. These are things that you can control.
- What business processes and activities are successful?
- What assets does your team have, such as knowledge, network, skills, education, and reputation?
- What physical assets do you have, such as equipment, technology, customers, cash, and patents?
- What are competitive advantages over the competition?
Weaknesses are concerned with the negative factors that deviate from your strengths. Therefore you need to deal with them to be competitive.
- Are there things that your business needs to be competitive?
- What business processes need improvement?
- Are there tangible assets that your company needs, such as money or equipment?
- Are there gaps on your team?
- Is your location ideal for your success?
Opportunities are composed of external factors in the organization’s environment that will lead to its success.
- Is your market growing and are there trends in the market that will make people buy more of your products or services?
- Are there new events that your company may be able to take advantage of to grow the business?
- Are there new changes to regulations that might influence your company positively?
- If your business is up and running, do customers think highly of you?
Threats consist of external factors that the organization has no control over. Therefore, you should come up with a contingency plan on how to deal will them if they occur.
- Are there potential competitors who may enter your market?
- Will suppliers always be able to supply the raw materials you need at the prices you need?
- Could future developments in technology change how you do business?
- Is consumer behavior changing in a way that could negatively impact your business?
- Are there market trends that could become a threat?
Benefits of strategic management
The importance of strategic management to an organization is discussed below:
- It helps an organization to be proactive rather than reactive. It helps an organization to foresee the future and prepare accordingly.
- It acts as a sense of direction. It helps in developing realistic goals and objectives that are in line with the vision and mission statement.
- It improves operational efficiency. A strategic plan enables managers to develop a road map through which the goals can be achieved.
- It helps to increase the market share and profitability of the business. Through strategic management, an organization can receive valuable insight concerning market trends which may have a positive impact on its profitability.
- It makes the business more durable as it acts as a competitive advantage.
Strategic management notes
Strategic management pdf is available here. The notes will improve your understanding of strategic management and its significance to business.
We hope that you can now define strategic management and describe its process. The above information is essential for you if you are a manager or aspiring to become one. It will guide you in making strategic decisions that will see your business succeeding in the industry and become profitable despite the environmental changes.