Strategic Management

Strategic management is a business approach that is utilized to make the most efficient use of available resources in the process of operating a company. The idea behind any strategic management process is to evaluate the current status of the operation and all its individual components, identify whether those components are being utilized to best effect, and to develop and implement changes when and as necessary. When utilized properly, this approach can improve the overall performance of the company, move the business closer toward reaching its stated goals, and keep the cost of raw materials and other resources in balance with the returns generated by the business effort.

The foundation of any strategic management approach is to define the basic reason for the existence of the operation. This means developing a workable mission statement for the company, defining objectives that are in line with that mission statement, and developing policies and procedures that move the company closer to achieving those objectives. As part of the process, companies must take into account the resources on hand and those that can be acquired when and as needed, and determine how to use those resources to best effect.

Once the structure is in place, strategic management calls for making sure the defined policies and procedures are being observed in every area of the operation. Here, managers, overseers, and supervisors must be well-versed in the essentials of strategic management, and learn how to use the resources placed into their care to best effect. This often translates into knowing how to communicate with employees effectively, understanding the production process thoroughly and being able to articulate why a given process is important to the overall success of the operation. When this is the case, the task of allocating tasks and resources to best advantage is easier to accomplish, and enhances the chances for the business to perform at optimum efficiency.

Strategic management is not a concept that applies only in large companies. Even small businesses that employ no more than one or two people can benefit from the basics of this approach. While the exact nature of the processes and tasks required for operation will be different between a mom-and-pop retailer and a multi-national corporation, the general idea behind this management process will still be valid. By applying the principals to the real-life situation of the business, it is often possible to maximize use of available resources, minimize waste in the workplace, and ultimately have a positive effect on the bottom line of the company.

Strategic Management Process

The strategic management process is a way for businesses to build strategies that help the company respond quickly to new challenges. This dynamic process helps organizations find new and more efficient ways to do business. The four key elements are situation analysis, strategy formulation, strategy implementation, and strategy evaluation.

By addressing each element of the process in the order listed, companies can evaluate and re-evaluate situations as they develop, always checking to be sure the company has positioned itself optimally in the business environment. Situational analysis is the first and most vital part of business process management.

Situation analysis involves looking over the company’s external and internal environments and the context in which the company fits in those environments. It begins with observing the company’s internal environment, investigating how employees interact with each other at all levels. Often, organizations hold discussions, interviews and surveys to get a clearer picture of the current environment. To analyze the external environment, managers must look at the interactions between customers, suppliers, creditors, and competitors.

Managers should also consider which company needs are not being met. The types of challenges businesses face are numerous and varied, and they can involve processes like financial planning, staffing, employee performance, customer retention, sales projections and many others.

After a situational analysis is completed, it is time to formulate a strategy. This involves determining the company’s strengths to decide which strategies can be implemented. Strategies can be operational, competitive or corporate, depending on which part of the organization must implement them.

Operational strategies involve day-to-day operations, forming the processes and procedures by which the company does business. Competitive strategies involve finding ways to compete with a particular industry or business. Corporate strategies are long-term plans that govern the overall direction the company plans to take.

Strategy implementation is the third step in the strategic management process. It involves putting the formulated strategy into place. Management processes will focus on methods and procedures designed to execute their strategies and the order in which strategies should be implemented.

The final step in this process involves observing the results of an implemented strategy. In this strategy evaluation, the process comes full circle. This analysis is essentially the same as situational analysis, looking at the internal and external environments and the company’s context within them to determine if a plan should be reformulated.

 Stages of Strategic Management Process

There are many schools of thought on how to do strategic management, and academics and managers have developed numerous frameworks to guide the strategic management process. In general, the process typically includes five phases:

·         Assessing the organization's current strategic direction;

·         Identifying and analyzing internal and external strengths and weaknesses;

·         Formulating action plans;

·         Executing action plans; and

·         Evaluating to what degree action plans have been successful and making changes when desired results are not being produced.

Effective communication, data collection and organizational culture also play an important part in the strategic management process especially at large, complex companies. Lack of communication and a negative corporate culture can result in a misalignment of the organization's strategic management plan and the activities undertaken by its various business units and departments. Thus, strategy management includes analyzing cross-functional business decisions prior to implementing them to ensure they are aligned with strategic plans.

 Importance of Strategic Management in Business

Strategic management provides the framework for all the major business decisions of an enterprise such as decisions on businesses, products and markets, manufacturing facilities, investments and organizational structure. In a successful corporation, strategic planning works as the pathfinder to various business opportunities; simultaneously, it also serves as a corporate defense mechanism, helping the firm avoid costly mistakes in product market choices or investments.

Another reason for the importance of strategic management is that it provides a sense of direction so that organization members know where to expend their efforts. Without a strategic plan, managers throughout the organization may concentrate on day-to-day activities only to find that a competitor has maneuvered itself into a favorable competitive position by taking a more comprehensive, long-term view of strategic directions.

Yet another reason for the importance of strategic management is that it can help highlight the need for innovation and provide an organized approach for encouraging new ideas related to strategies. In addition, the process can be used to involve managers at various levels in planning, thus making it more likely that the managers will understand the resulting plans and be committed to their implementation.

Strategic management has the ultimate burden of providing a business organization with certain core competencies and competitive advantages in its fight for survival and growth. For example, Disney has been able to gain a competitive advantage in the family entertainment industry by creating amusement parks, movies, and products based on the renowned Disney characters.  It is not just a matter of projecting the future. It is not just a forecasting job; it is concerned with ensuring a good future for the firm. It seeks to prepare the corporation to face the future and even shape the future in its favor. Its ultimate burden is influencing the environmental forces in its favor, working into the environs and shaping it, instead of getting carried away by its turbulence or uncertainties. It is environmental uncertainty that makes strategy and strategic conduct essential in a business. The more intense the environmental uncertainty, more critical is the need for strategic management.

Finally, studies support the existence of a link between strategic management and organizational financial performance, although results have not always been consistent. According to Fred R. David, research studies indicate that organizations using strategic management concepts are more profitable and successful than those that do not. For example, a longitudinal study of 101 retail, service, and manufacturing firms over a 3-year period concluded that businesses using strategic management concepts showed significant improvement in sales, profitability, and productivity compared to firms without systematic planning activities; another study reported that up to 80 percent of the improvement possible in a firm’s profitability is achieved through changes in a company’s strategic direction; Cook and Ferris reported that the practices of high performing firms reflect a more strategic orientation and longer term-focus. High-performing firms tend to do systematic planning to prepare for future fluctuations in their external and internal environments. Firms with planning systems more closely resembling strategic management theory generally exhibit superior long-term financial performance relative to their industry.

Strategic planning and implementation have become a must for all organizations for their survival and growth in the present turbulent business environment. ‘Survival of fittest’ as propagated by Drawin is the only principle of survival for organization, where ‘fittest’ are not the ‘largest’ or ‘strongest’ organization but those who can change and adapt successfully to the changes in business environment. Just like the extinction of the dinosaurs who ruled the earth one time but failed to survive in change condition of earth natural environment many organizational giants have also followed the path of extinction failing to manage drastic changes in the business environment. Also business follows the war principle of ‘win or lose’, and not necessarily win-win situation arises in business world. Hence the organization has to build its competitive advantage over the competitors in the business warfare in order to win. This can be done only following strategic analysis, formulation and implementation.

References

https://www.smartcapitalmind.com/what-is-strategic-management.htm

https://searchcio.techtarget.com/definition/strategic-management

https://www.mbaknol.com/strategic-management/importance-of-strategic-management/

https://youtu.be/icqu2Kl1Imc

https://www.youtube.com/watch?v=eOFqekOF9ZI

https://youtu.be/_BajRnOCSKk

https://www.youtube.com/watch?v=d2GoZDOXzzw