What is Strategic Management? Why is it important?

Different types of companies and non-profit organisations make use of strategic management to meet their goals and objectives. It is an umbrella term used to describe different facets of management, like planning, organising, and executing business strategies. It also involves the evaluation of the existing company policies to understand the limitations and devise ideas to improve the company’s efficiency.

If you want to understand what is strategic management, you are at the right place!

This article will shed some light on strategic management, its types, and the implementation process. It will also help you understand the importance of strategic management in organisations. 

What is Strategic Management?

Strategic management manages an organisation’s resources to meet its goals and objectives. It involves different aspects like setting the objectives for the company, analysing the competitive and internal environment, and developing strategies to strike a balance among all three. It also involves formulating different strategies that help the company in remaining relevant. 

There are different approaches to strategic management. While some organisations believe in a prescriptive approach to strategic management, another set believes a descriptive approach is more suitable. When businesses take a prescriptive approach, they come up with an outline of how strategies should be developed. On the other hand, a descriptive approach focuses on implementing the strategies.

What is Strategic Management Process?

The strategic management process involves five critical steps. Let’s have a look at each of these steps in detail:

Identifying the Direction

Before creating any strategies, deciding on the common objectives the company must strive to achieve is important. Once you have a clear vision and know the purpose of incorporating an organisation, you can set your goals without hassle. 

A business has both long-term and short-term goals. Firstly, decide on your long-term goals. You can create short-term goals in the same direction based on your long-term goals. It is important to bring all the important stakeholders together for the goal-setting process. During this phase, the company must also decide on its vision and the mission it is trying to accomplish in the long run. 

Analysing the Resources in Hand

Before you formulate any strategies to implement strategic management, you must have an overview of the resources you have at your disposal. If there is a resource shortage, you should devise a plan to arrange those resources. 

In this step, you must also analyse the external and internal forces that impact your business. The analysis will give you a better picture of where the organisation stands today and where it needs to go in the future. You can use different analytical tools like SWOT analysis to analyse without hassle. 

Curating Strategies

Once you have the analysis results with you, you can start creating the strategies for the company. These strategies will outline a path for the company to meet different business objectives. You need to define an action plan that caters to all the long-term and short-term objectives of the company. 

You also need to plan the resources to help you implement the strategies. You need to identify the key stakeholders who will help you curate and implement the strategies. 

Implementation

When you curate the strategies, you must define the steps to implement them. You must ensure that all your human resources are well-aligned with the company’s strategy so that they can contribute efficiently to implementing the strategies. 

Communicate all the strategies clearly to all the important stakeholders to help bring all the core competencies into action. Implementing strategies is a continuous process, so you should design the flow of events accordingly. 

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Evaluation of the Effectiveness of the Strategies

The evaluation stage is considered the final stage of strategic management. Post the strategy implementation, you need to evaluate the effectiveness of the implemented strategies. You should develop a metric to test the application of different strategies. Simultaneously try to identify the strategies that are not working so that you can replace them with better alternatives. 

Businesses operate in a dynamic environment, so your strategies must remain relevant. Sticking to proven, relevant strategies in different business environments and developing strategies designed to meet the company’s current needs would be best. 

Types of Strategic Management Tools

Different strategic management tools aid you in implementing strategic management throughout the company. These tools are designed keeping the dynamic business environment and the pertinent business needs in mind. Let’s have a look at some of these tools that come in handy. 

SWOT Analysis

SWOT is an acronym that stands for strengths, weaknesses, opportunities, and threats. The analysis helps you in factoring both the external and the internal elements that affect a business. The strengths and weaknesses talk about the internal factors that are at play in a company, while the external factors include opportunities and threats. 

While the internal factors fall within the purview of the company’s control, external factors are not under the company’s control. Choosing a facilitator who can complete the activity is important to conduct a SWOT analysis. Now, you have to identify the strengths of the company. Once you chalk out the strengths, try probing deeper into systems and processes to determine the company’s weaknesses.

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Balanced Scorecard

The balanced scorecard method is another popular tool for carrying out strategic management. You can use this method to understand which elements of your business could be made better with the company’s intervention. Here, the performance evaluation is carried out by dividing the process into four heads, known as legs. These legs include:

• Learning and growth: The company’s human resource department oversees this leg. They will help you understand the type of training already given to the employees so you can plan the next set of activities accordingly. 
• Business processes: To assess the product quality or the services offered, you need to evaluate your business process. A full-scale review will give you an overview of effective the processes are. 
• Customer perspectives: Knowing what customers think about your product shows you what they think about its quality, pricing, and other things that customers can buy. Therefore, understanding customer perspectives is important. 
• Financial data: You must obtain all the important financial data from your accounting personnel and try to understand important metrics like sales, revenues, and sources of income. 

Porter’s Five Forces Model

Porter’s Five Forces Model is one of the most popular strategic management tools. Michael Porter, a coveted researcher from Harvard Business School, designed it. As per the model, five forces govern the competition of the company. These five forces include the following:

• Risk of entry by potential competitors: It talks about companies currently not part of the industry but has a fair chance of entering it anytime soon.
• Rivalry among current competitors: The existing rivalry among the current competitors is also a huge threat to the company’s profitability.
• Bargaining power of the buyers: Buyers are the end-consumers of the products. The final sale of the product depends on the choice of the buyer.
• Bargaining power of the suppliers: When considering the input price, it is important to factor in suppliers’ power. 
• The threat of substitute products: While substitutes are not the same as your product, they can replace it. 

Importance of Strategic Management

Strategic management assists firms in recognising possibilities that occasionally present themselves in addition to preparing them for market competition. Businesses also learn about potential threats that could harm them in the long run. Companies can successfully navigate obstacles and expand by developing and implementing plans step-by-step.

The following points also highlight what is the purpose of strategic issue management. 

• The organisation’s past strategy will guide future decisions made by the organisation.
• Plans are created considering current market trends, giving organisations a competitive edge in a shifting market.
• It aids in selecting effective people and recognising their work, enabling them to advance alongside the organisational progress.
• Process, workforce, and strategy coordination ensure that strategies align with corporate objectives.

Benefits of Strategic Management

There are several benefits of implementing strategic management in an organisation. Some of these benefits are as follows:

Gaining a competitive advantage

When you implement strategic management, your company gets a competitive edge. Strategic management ensures that the business is ready for the dynamic environment. 

Meeting all the goals

With strategic management, achieving the short-term and long-term goals of the company becomes easier. It helps you devise steps to achieve a particular goal effectively and efficiently. 

Providing a sustainable growth

It has been demonstrated that strategic management improves organisational performance, which promotes the organisation’s growth. 

Building a cohesive organisation

Company-wide objective implementation and communication are essential components of strategic management. A company where employees work together to pursue a goal is more likely to succeed in that endeavour

Building awareness

Strategic management entails planning for the future of the business. Managers continuously practising this will be better knowledgeable about market trends and difficulties. They will be more equipped to deal with issues in the future by putting strategic planning and thinking into practice.

Conclusion

Strategic management is a very important facet of running a business. To better understand it, you can enrol in the Executive Doctor of Business Administration by upGrad. The course is launched in collaboration with the Swiss School of Business & Management, Geneva. The course lasts 36 months, and you must dedicate 10 hours every week. This course is ideal for working professionals who are in any managerial role.