You must have come across numerous case studies of different businesses talking about how they successfully overcame their process-related challenges. But what is common among all of them? Their well-defined strategic management approach.
Strategic management is a popular concept among business owners and most firms understand its significance. Irrespective of their size, companies analyze their position and develop strategies to obtain financial and non-financial benefits. It helps meet the goals and vision of an organization, remain competitive, and survive all odds in the long run.
Strategic Management vs Strategic Planning
Strategic management involves formulating, implementing, evaluating, and improving strategies to achieve an organization’s long-term objectives, considering internal and external factors.
While strategic planning involves the proposal and formulation of schemes to achieve a target. In terms of management, strategic planning helps optimize an organization’s operations by identifying existing problems. Strategic planning is used for creating a focused, timely, and beneficial strategic management process.
Strategic management identifies actions to be taken, resources for allocation, appropriate time and the approach for executing the actions. Strategic planning’s function is to only identify the actions to be taken.
Strategic management focuses on producing strategic results while strategic planning focuses on optimal decision making. In other words, strategic management is action-oriented while strategic planning is analytical.
|Parameters||Strategic Management||Strategic Planning|
|Definition||Strategic management is the procedure of formulation and implementation of planned strategies to achieve business goals.||Strategic planning is the process of determination of organizational strategies based on target objectives.|
|Processes Involved||Strategy formulation, implementation, evaluation, improvement||Strategy proposal and formulation|
|Tasks||Identify relevant actions, resources, approach, & time||Identify actions|
|Focus||Producing strategic results, additional solutions, and customer segments||Making beneficial decisions|
What Is the Strategic Management Process?
Defining strategic management process, it involves strategy development, implementation and analysis. It is necessary to focus on every aspect of the strategic management process to accomplish your organizational goals and objectives.
- Goal Setting
First, decide the short and long-term goals of your organization. Think about the individual, team, and department-level tasks. You must know the impact of these task accomplishments on the organization’s goals in the future before delegating responsibilities.
- Environmental Scanning and Analysis
In this stage, information is gathered, scrutinized, and provided for strategic purposes. Evaluating the industry environment is necessary to be aware of the latest trends and competitors.
You will get a clear picture of the resources required to gain an edge over competitors. You must also continuously analyze your processes, employees, and resources to improve.
- Strategy Formulation
Strategies are created at business, corporate, and international levels depending on the finalized objectives. The decisions are made for the best use of available employee connections with suppliers, dealers, government, and consumers.
Strategies must help improve the company’s competitive position without resulting in huge expenses. The strategies should also not have negative legal, economic, social, or political consequences.
- Strategy Implementation
A strategy is worthless if not enforced timely. This stage includes distributing resources, designing the organizational structure, developing systems, and managing human resources.
To put the organization’s chosen strategy into action, good communication and managerial skills are of utmost importance. These skills can ensure that all the departments readily agree to and work towards implementing new strategies.
- Strategy Monitoring and SWOT Analysis
The final step includes constant monitoring and preparing a remedial plan to improve the outcome of strategies. Managers must do a SWOT analysis to identify strengths, weaknesses, opportunities, and threats that may affect the organization. This stage is crucial for an organization to progress without obstacles.
What Is the Need for Strategic Management?
Strategic management is critical for achieving organizational goals while overcoming all obstacles.
- Achieving Goals
Regardless of its sector and size, any company has numerous goals to achieve. These can be aimed at building industry leadership, international competitiveness, brand awareness, etc. Strategic management is crucial in successfully achieving all these goals.
- Overcoming Business Uncertainties
A business requires optimal investment and dedicated employees for its growth. However, business conditions keep changing, and companies have little influence over these factors.
Hence, there is no guarantee of profits in the future. Strategic management can protect companies from risks and employees from losing their jobs.
- Adopting New Technologies
Digital transformation of businesses is happening at a rapid pace worldwide. Customer demands are increasing, and innovations are being introduced constantly. Successful adoption and implementation of these technologies can be challenging and risky.
Strategic management helps organizations remain competitive as they integrate new processes and manage operations. It also helps in upskilling employees by enabling them to learn about new technologies.
- Fulfilling Social Responsibility
In today’s world, employees and consumers give a lot of value to an organization fulfilling its social responsibilities effectively. Strategic implementation can ensure that the company completes its planned tasks efficiently.
Fulfilling corporate social responsibility (CSR) is not only mandated by law but can also act as a unique proposition for an organization and sets it apart from its competitors.
- Beating the Competition
When you see old and new industry players profit and grow, you are quite likely to formulate your strategies and implement them. Strategic management helps businesses keep track of global trends and prevents them from becoming obsolete.
Characteristics of Strategic Management
Strategic management helps implement a long-term plan for strategy creation and improvements to achieve organizational goals. The main characteristics of strategic management are:
- Addresses the top management
Strategic management requires professionals in senior managerial roles to make decisions. There is a need to allocate resources and make decisions that can impact operations in several departments.
- Substantial resource requirements
Strategic management needs several resources such as workforce and logistics over a long period. Different departments in the organization are allocated and reallocated resources and responsibilities in this period.
- Dynamic business environment
Strategic management takes place for the long term in a changing business environment. This change can be economic, political, legal, technological, social or cultural.
Strategic management requires solving potential complex and uncertain situations. You select the most promising option among the strategic choices based on future predictions and projections.
- Multi-functional, long-term consequences
Strategic management impacts multiple business areas and long-term growth of the business. Once committed to strategic management, businesses are likely to achieve greater success.
Benefits of Strategic Management with Examples
Some of the advantages of implementing a strategic management system are discussed here.
What are the Financial Benefits of Strategic Management?
Strategic management results in higher profits, sales, and productivity in firms. Main financial benefits include:
- Profitability Management
Strategic management enables senior executives to get feedback from department heads. This feedback helps them understand the bottlenecks at different hierarchy levels in the organization and take relevant action to improve profits.
Based on existing conditions, the senior management can develop their strategic vision and improve financial gains. Consider the example of South Korea based LG Electronics. The company faced stiff competition and low profitability almost two decades ago.
Its pricing strategy to offer products at lower costs in rural areas helped increase revenue and sales volumes. It also worked on improving brand visibility, which made LG a household name in many countries.
- Solvency Planning
Since strategic management deals with long-term goals, leaders analyze the existing assets, liabilities, and net worth in the balance sheet to know whether they can meet expenses in the long run.
The organization takes all necessary measures to optimize the asset-debt ratio and maintain solvency. Solvency planning is necessary to accomplish goals like growth and expansion.
- Liquidity Monitoring
Strategic management allows companies to ensure that their cash flow aligns with their long-term goals. They check it by constantly tracking cash flow statements or liquidity reports.
A company facing the liquidity crisis often strains its relationship with vendors due to delayed payments. Businesses can undertake activities that result in monetary gains for performing operations by knowing about the situation on time.
For example, the electric vehicle (EV) manufacturer Tesla partnered with Panasonic for lithium batteries. The company also opened a factory to facilitate battery production.
Later, it acquired battery manufacturer Maxwell Technologies. The aim was to cut down battery costs and decrease the selling price of the vehicle to customers. This helped improve cash flow.
- Improved Revenue Generation
Strategic management enables the senior management to make necessary changes in the existing operating processes. By looking at competitors’ strategies, the company can develop better ideas and tweak its processes to outperform them.
It helps them look for innovative ideas that can bring long-term benefits to the company in terms of revenue. It also helps bring more investors and maintain relationships with the existing ones.
- Prevents Legal Risks
The companies can include employee-related policies, conflict of interest policies for board members and other partner stakeholders, and other internal controls as part of the strategic management process.
They can consult their insurance provider, attorney, and other professionals who can help maintain legal compliance. Consultation helps avoid the risk of penalties due to failure in fulfilling legal obligations.
What are the Non-Financial Benefits of Strategic Management?
Strategic management allows an organization to be more logical, rational, and systematic in its strategies.
- Revitalize Human Resources
Strategic management often includes proactive staffing practices that help hire the best talent and be more competitive. Companies can prepare detailed job descriptions, improve recruiting practices, provide 360-degree feedback, and take other steps that reduce turnover and boost employee satisfaction.
According to a case study published on Kesko Ltd., a trading sector company, the strategy development started from a generic level and was later devised at field level for different industries. Due to mutual trust and cooperation among the involved members, the company witnessed growth in sales, customer numbers, and market share.
- Identify Problems
Strategic management enables a detailed analysis of the organization’s strengths, weaknesses, opportunities, and threats. Based on the problems, the company can take relevant actions like changing the pricing model, recruiting more staff, adding distribution channels, etc.
For example, a new competitor opening a shop nearby can be a threat to your business. You can plan loyalty campaigns, discounts, special offerings and other strategies on time to keep your customers away.
- Better Decision Making
You can make better decisions in a shorter time with strategic management. For example, if you get the opportunity to take up a new project, you can make a better decision whether to invest resources in it or not. Given that a project aligns with your ideas, you can plan and allocate resources to the project.
- Improved Understanding of Competitors’ Strategies
Strategic management enables organizations to learn all the practices followed by their competitors. They can then implement their strategies without imitating them. This move can help in strengthening your business and meeting brand awareness goals.
For instance, HP maintained competitive advantage over the years by refining the marketing strategy and re-branding from time to time. This helped ensure that its products met its customers’ evolving technological needs.
- Higher Stability
By selling into new markets, acquiring new businesses, and adding new products, you reduce your dependency on individual entities. Your profits do not depend on the success of a single product or client.
If you have just a few clients, you might have to work completely on their terms to prevent your business from shutting down.
Limitations or Disadvantages of Strategic Management
- Uncertain Future
Strategic management is based on anticipating the future environment and making plans accordingly. Companies can only use the available database to analyze the environmental factors.
However, unforeseen situations may invalidate a strategy. The best way to prevent this situation is to follow an approach that is not highly dependent on future predictions.
- Not a cost-effective process
Before implementing a strategic management process, companies need to analyze the cost to benefit ratio. Several small companies and non-governmental organizations find it difficult to bear the costs of implementing strategic management.
Many times, there are additional costs of hiring external consultants. Such companies require assistance from funding agencies and other volunteering organizations.
- Difficult implementation
Strategic management is a team effort and if anyone does not fully understand it, things can go wrong and affect the business adversely. There might be internal disputes or a lack of adequate support from members in the management. It would be best if you have a strong leadership and proper resource allocation to achieve your goals.
- Lacks flexibility
Strategic management involves following a set of rules for a long period. The organization only takes up new opportunities that align with the implemented strategies. This restriction makes the process rigid and frustrating at times.
Strategic management is a highly beneficial process that can be applied to most organizations, given that you plan and implement it appropriately. If you know how to use it for your benefit, there are no inherent problems.
- What are the 5 stages of strategic management?
The five stages of strategic management are planning, analysis, strategy formulation, strategy implementation, and strategy monitoring.
- What are the four types of strategy?
Strategies can be classified into four types as corporate level, business level, functional level, and operational level strategy.
- What are strategic management tools?
Strategic management tools help create frameworks for strategic analysis and assist an organization in the formulation and implementation of strategies.
Some of the tools for strategic management include SWOT Analysis, Gap Analysis, Porter's 5 Forces, PESTEL Analysis, Four Corners Analysis, and more.
- Why is strategic management important?
Strategic management provides an overall direction to plan and take necessary actions for achieving your company’s long-term objectives.
- What are the financial and non financial benefits of strategic management?
The financial benefits of strategic management involves Profitability Management, Solvency Planning, Liquidity Monitoring, and Improved Revenue Generation.
On the other hand, non-financial benefits of strategic management includes Human Resources Revitalization, Problem Identification, Decision Making, Understanding Customer Strategies
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