What is Strategic Management?
Strategic management is the process of the best use of organizational resources and the implementation of strategies to achieve expected goals and objectives. It is a set of commitments, actions, and decisions that gives almost positive results and sustainable competitive advantage.
Strategic management is all about taking decisions and actions regarding the formulation, implementation, and control of strategies to achieve organizational goals & objectives which are competitive and result in above-average returns, and ultimately secure the organization’s future through enhanced performance.
It ensures the best implementation of the strategy – strategies (corporate, business, and functional level strategies). It offers firms strategic means how to compete with the competition and sets the overall direction.
It is equally important for small as well as the big or medium organizations as competition is unexpected. It best links organizational resources with strategies and co-relates employees with an organizational plan, setting – as such managing effectively employees feel valued, motivated, and maximum productivity is achieved.
Strategic management is a continuous process that covers analyzing environments, setting goals & objectives, studying the market competition, forecasting, implementing, controlling, and effectively follow-up of results in order to maximize the chance to achieve targeted goals.
It includes a set of managerial decisons and actions that determine the long-term performance of the organization through resource allocation, environment analysis, and preparing the organization ready for change.
- Strategic management is the set of managerial decisions and actions that determine the long-run performance of the organization. – Wheelen and Hunger
- Strategic management includes understanding the strategic position of an organization, strategic choices for the future, and turning strategy into actions. – Johnson and Scholes
- The strategic management process is the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns. – Hitt, Ireland, and Hoskisson
Characteristics of Strategic Management
Strategic management is uncertain hence operates in an uncertain environment and also plans about both predictable and unpredictable contingencies. It is not the part of the organization, it is a whole organization, it talks, thinks, and acts for the whole organization, and is fundamentally based on sustainable improvement of the organization.
One of the main objectives is to create a healthy working environment incorporating various functional areas in the organization and also to build trust, more commitment, motivation, and satisfaction among all members.
It suggests managers be effective and efficient themselves and also intelligently influence employees to be the same. They need to do performs all organizational activities appropriately and in an appropriate manner.
Some of the main features/characteristics of the strategic management can be listed below:
- Directed towards the overall direction of the organization.
- Directed towards the overall goals and objectives of the organization.
- Includes multiple stakeholders in decision-making.
- Long-term implications.
- Sets both short and long-term objectives.
- The tradeoff between effectiveness and efficiency.
- Competitive advantage.
- Strategic fit.
- A means only.
Process of Strategic Management
It always aims at achieving organizational goals in the best possible manner. The process/model of strategic management begins with the development of a vision and mission for strategy implementation and control.
Each step has a significant role in order to compose an effective strategy and change in one step force the manager to also rethink or restructure other steps.
Development of Vision and Mission Statements
The first step in strategic management is to develop the vision and mission of the organization which it wants to achieve ultimately.
Vision is the future picture of the organization. It can or can not be achieved. It states the very long goal of the organization. Vision totally talks about the future, future, and future that could be about always more than 5 years.
The mission is considered is the present statement of the organization. It considers the present situation of the organization consisting of customers, suppliers, employees, etc. It is a means to support the vision.
External Environment Analysis
In this step, the external environment of the organization is analyzed, which is external in nature and is in uncontrollable nature. By doing so, various market opportunities and threats are identified, studied, and analyzed that likely affect the organization.
Effective analysis of likely threats and opportunities is crucial to best be safe from likely uncertain threats and best nurture the likely opportunities.
Internal Environment Analysis
The internal environment of the organization is analyzed to determine resources, capabilities, and core competencies. The internal environment is in the hand of the manager and can be controlled by him as he wants.
This step aims to perfect the study of the organization’s strengths and weaknesses that help the manager to be confident in what capabilities he has and what is not.
Develop Long-Term Objectives
Effective analysis of both steps internal and external environment helps managers to develop a feasible long-term objective. Long-term objectives mean what actually the organization wants to achieve can be in terms of financial and general objectives.
Such as strengthening marketing power, competitiveness, a certain percentage of profits, and future business prospects. Setting a long-term objective is the most integral part of strategic management.
Generate, Evaluate, and Select Strategies
Strategy is the means to achieve organizational long-term objectives. As there can be many possible alternative solutions or strategies to achieve defined organizational objectives at this level different strategies are generated such as operational, business, and corporate strategies – each strategy is evaluated, and one or two that most match long-term objectives are selected.
Only selecting the most feasible strategies is not enough, they must be implemented. In this step, the selected strategy or strategies are translated into action. In fact, the essence of strategic management lies in the implementation of strategy or strategies.
Strategy Evaluation and Control
Once the strategy is implemented it should be checked over time. The performance of the implemented strategy should be evaluated and control measures should be taken when the strategy does not work well or goes the way it should.
Importance of Strategic Management
Strategies are means to sustain an organization for longer. The importance of strategic management can be felt here – if the strategy can not be implemented rightly the goals of the organization can not be achieved, if this happens the organization is no more.
The other importance can be mentioned below:
Effectively Implement Strategy
It is a means to implement a strategy effectively that guarantees positive results. By incorporating all the organizational factors – employees, resources, goals, objectives, etc. in a proper manner the effectiveness in strategy implementation is gained.
Competitive advantage means considerably higher profits over the profits of competitors. Strategies help managers uniquely serve customers better than competitors which results in a competitive advantage for the firm.
Synergy can be best convinced as 2+2=5. When organizational parts interact to produce a joint effect that is greater than the sum of the parts acting alone, synergy occurs. Synergy can create additional value to existing resources enhancing the overall organizational performance.
It provides employees with a more comprehensive attitude, allowing them to better grasp how their job fits into the overall organizational plan and how it is connected to other members of the business. It is the skill of managing personnel in such a way that their ability to achieve corporate objectives is maximized.
In addition, it also increases the overall effectiveness of the organization.
Exploits Core Competency
A core competency is an organization’s activity or process that provides a source of competitive advantage. Efforts in strategic management are always focused on enhancing core competencies.
All the best results achieved by the organization depend upon how it has managed the available as well as scarce resources. It ensures intelligent allocation and utilization of resources among all the crucial parts of the organization resulting in increased productivity and customer value.
The other importance of the strategic management can be pointed out below:
- Deliver value
- Deals with opportunity and threats
- Strategic fit
- Competitive capability
- Organizational unity
- Manage and anticipate change
- Fill the organizational gap
- Long-term success, etc.
Factors Affecting Strategic Management
Strategic management is mainly concerned with the development of the long-term horizon of an organization for a sustainable competitive advantage. It’s changing with the change in the dynamics of world economies. There are several other factors that are affecting modern strategic management. They are:
Globalization is the process of integrating people, businesses, and governments from many countries. It refers to the growing economic, sociocultural, demographic, political, and environmental interdependence of many parts of the world.
Firms are forced to compete globally for finance, human resources, and technology as a result of globalization. It also encourages cross-border acquisitions and mergers. Multinational corporations’ attention is turning to emerge economies with large populations and growth potential.
Most businesses compete fiercely for market share, labor, cash, and technology. Price, quality, and innovation are the key focuses of competition. It forces businesses to cut expenditures on a regular basis. It also means a reduced profit margin and a shorter product life cycle.
The World Wide Web has grown at a breakneck pace in recent years. It has assisted buyers and sellers in finding each other, regardless of their location or size. Businesses can now grow their global footprint at a lesser cost than ever before.
It has also made it possible for corporations to effectively coordinate and control a globally distributed production chain.
Traditional production fundamentals such as labor, capital, and technology are no longer drivers of an economy’s power. Knowledge now underpins the products and activities. As a result, the intensity of knowledge is increasing.
Human resources are becoming more important than traditional resources as a result of this transformation. Firms now compete based on their knowledge. The market worth of a company is becoming increasingly detached from its tangible assets, as seen by the balance sheet.
Corporate Social Responsibility and Sustainability
Corporate social responsibility (CSR) refers to a company’s voluntary efforts to benefit society. It usually entails operations that aren’t directly related to financial gain or legal compliance. It focuses on a company’s obligation to a variety of stakeholders other than shareholders and investors. The concept of corporate social responsibility (CSR) is founded on the idea that businesses can no longer operate in isolation from the rest of society.
Governments all throughout the world are promoting CSR in a variety of ways. Concerns about global warming have prompted several businesses to review their energy consumption. Today’s businesses view CSR as a means of enhancing their public image and ensuring their long-term viability.
Hence from the above discussion, we can conclude that strategic management is the professional way to set, implement, and oversee strategies by maximizing the likely chances of achieving organizational goals. It is a means to set and achieve the long-term direction of the organization. And, in order to get a promised result from strategic management, a manager should connect all of his organization’s parts with plans in a proper manner.