Strategic Management (2023)

Strategic Management Definition

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 advantageCompetitive AdvantageCompetitive advantage refers to an advantage availed by a company that has remained successful in outdoing its competitors belonging to the same industry by designing and implementing effective strategies that allow the same in offering quality goods or services, quoting reasonable prices to its customers, maximizing the wealth of its stakeholders and so on and as a result of which the company can make more profits, build a positive brand reputation, make more sales, maximize return on assets, etc.read more.

Table of contents
  • Strategic Management Definition
    • Understanding Strategic Management
    • Process Of Strategic Management
      • #1 – Identifying Direction
      • #2 – Analyzing Resources
      • #3 – Framing Strategies
      • #4 – Implementing Strategies
      • #5 – Evaluating Effectiveness
    • Examples
      • Example #1
      • Example #2
    • Importance of Strategic Management
    • Frequently Asked Questions (FAQs)
    • Recommended Articles
Strategic Management (1)

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Key Takeaways

  • 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.

Understanding Strategic Management

Thestrategic management modeldeals 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.

Strategic Management (2)

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(Video) What is Strategic management? Strategic management Process, types.

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.

Process Of Strategic Management

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.

(Video) What Is Strategy? It’s a Lot Simpler Than You Think

#2 – Analyzing Resources

An organization must first arrange its resources to carry out specific tasks to reap thestrategic 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.

Examples

Let us understand the concept better with the below-mentionedstrategic 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 SWOTSWOTSWOT Analysis is an analytical tool to identify and evaluate an entity’s strengths, weaknesses, opportunities, and threats.read more (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.

(Video) A Plan Is Not a Strategy

Due to performance concerns, the economic slump, rising expensesExpensesAn expense is a cost incurred in completing any transaction by an organization, leading to either revenue generation creation of the asset, change in liability, or raising capital.read more, 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 competenciesCore CompetenciesThe core competencies in business refer to its resources and unique fundamental capabilities that distinguish it from market competitors. It is an essential component of marketing strategy leading to brand recognition and business growth. The concept serves to be useful for companies focusing on multiple product lines and operating more than one business unit at a time.read more 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.

Importance of Strategic Management

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.

Frequently Asked Questions (FAQs)

What is strategic management?

Strategic management aids a business in developing a model that includes specifics on existing resources and how to use them to achieve its goals. Also, developing appropriate solutions becomes easier with good communication, relevant data collection, and a complete understanding of the organizational culture.

(Video) The steps of the strategic planning process in under 15 minutes

Why is strategic management important?

Strategic planning and management give companies a competitive advantage and also help in the identification of possible opportunities. Furthermore, organizations gain insight into potential risks that could become roadblocks in the future.

What are the steps in the strategic management process or SMP?

The five steps followed in the strategic management process are as follows:
– Goal-setting or identification of the business vision and direction
– Resource analysis to select workforce and assign suitable tasks
– Formulating an action plan and strategies
– Executing plans and strategies
– Evaluating efficiency and effectiveness of strategies

Recommended Articles

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 BudgetingStrategic BudgetingStrategic Budgeting is a budget estimated by enterprises for long-term objectives with costs that take more than one year to achieve. Organizations prepare multiple budgets, and forecast short-term costs aligned with long-term costs, allocate and categorize funds depending on the activities.read more
  • Strategic AlliancesStrategic AlliancesA strategic alliance is a type of agreement between two companies to reap the mutual benefits of a specific project, in which both agree to share resources and thus result in synergy to execute the project, resulting in a higher profit margin.read more
  • Joint Venture vs Strategic AllianceJoint Venture Vs Strategic AllianceA joint venture is a business arrangement in which two or more parties pool their resources to complete a specific task. A strategic alliance, on the other hand, occurs when two or more parties complete a specific task while remaining independent.read more

FAQs

What is strategic management short answer? ›

Strategic management is the ongoing planning, monitoring, analysis and assessment of all necessities an organization needs to meet its goals and objectives. Changes in business environments will require organizations to constantly assess their strategies for success.

What are the 3 key areas of strategic management? ›

Strategic Management involves 3 steps: Planning, Execution & Monitoring.

What are the three questions strategic management intend to answer? ›

He taught that the three most important strategic questions each company must answer are: What is our business? (Mission) What will our business be? (The changing environment that we are certain about) What should our business be? (Vision)

What is the main purpose of strategic management? ›

Strategic management provides overall direction by developing plans and policies designed to achieve objectives and then allocating resources to implement the plans. Ultimately, strategic management is for organisations to gain a competitive edge over their competitors.

What is the goal of strategic management? ›

The primary purpose of strategic management process is to help the organization achieve a sustainable strategic competition in the market.

What are the 4 basic model of strategic management? ›

The four phases of strategic management are formulation, implementation, evaluation and modification.

What the are 3 C's of a strategic action? ›

The 3 Cs are: Company, Customers and Competitors - the three semi-fixed environmental factors in your market.

What is the core of strategic management? ›

Strategic management involves setting objectives, analyzing the competitive environment, analyzing the internal organization, evaluating strategies, and ensuring that management rolls out the strategies across the organization.

What are the 9 key terms in strategic management? ›

Before we further discuss strategic management, we should define nine key terms: competitive advantage, strategists, vision and mission statements, external opportunities and threats, internal strengths and weaknesses, long-term objectives, strategies, annual objectives, and policies.

What are key strategic challenges? ›

Common challenges of strategic planning

There are four main challenges when it comes to strategic planning: lack of ownership, poor communication, lack of alignment, and slow adoption. It's important to understand what's at the core of these challenges before we dive into solutions.

What is strategic management and example? ›

Strategic management requires setting objectives for the company, analyzing the actions of competitors, reviewing the organization's internal structure, evaluating current strategies and confirming that strategies are implemented company-wide. Strategic management can be either prescriptive or descriptive.

What is strategic planning in simple words? ›

Strategic planning is a process in which an organization's leaders define their vision for the future and identify their organization's goals and objectives. The process includes establishing the sequence in which those goals should be realized so that the organization can reach its stated vision.

What is strategic management quizlet? ›

Strategic management involves: developing a strategic mission or vision, setting objectives, developing strategies to achieve the objectives, implementing the strategies, and evaluating the results.

What is strategy management quizlet? ›

Strategic management process. a process that uses vision, goals and objectives, internal and external analysis, and implementation levers that can be used to help formulate and implement strategy. Strategic Management. the process by which a firm manages the formulation and implementation of its strategy.

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