Strategic management is the ongoing planning, monitoring, analysis and assessment of all that is necessary for an organization to meet its goals and objectives. Changes in the business environment require organizations to constantly assess their strategies for success. The strategic management process helps organizations take stock of their present situation, chalk out strategies, deploy them and analyze the effectiveness of the implemented management strategies.
Strategic management concepts
Strategic management is predicated on an organization's clear understanding of its mission, or purpose for existing; its vision for where it wants to be in the future; and the values that will guide its actions. It requires a commitment to strategic planning, the subset of business management that involves an organization's ability to set both short- and long-term goals and plan the strategic decisions, activities and resource allocation needed to achieve those goals.
A process for managing an institution's strategies helps organizations make logical decisions and develop new goals quickly in order to keep pace with evolving technology, market and business conditions. Strategic management can, thus, help an organization gain competitive advantage, improve market share and plan for its future.
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Five 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. (See Value of organizational culture.) Thus, strategy management includes analyzing cross-functional business decisions prior to implementing them to ensure they are aligned with strategic plans.
Types of strategic management strategies
The modern discipline of strategic management traces its roots to the 1950s and 1960s. Prominent thinkers in the field include the Austrian-born American management guru Peter Drucker, sometimes referred to as the founding father of management studies. Among his many contributions was the seminal idea that the purpose of a business is to create a customer, and what the customer wants determines what a business is. Management's main job is marshalling the resources and enabling employees to efficiently address customers' evolving needs and preferences.
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The focus on the customer, reinforced in the 1980s by Harvard Business School professor Theodore Levitt, was different from a previous emphasis on production as the touchstone of management strategy -- i.e., creating a product of high quality ensured success.
Distinctive competence, a term introduced in 1957 by sociology and law scholar Philip Selznick, underscored the idea of core competencies and competitive advantage in strategic management theory. Frameworks for assessing the strengths and weakness of an organization in relation to the threats and opportunities in its external environment were developed. (See SWOT analysis).
Canadian management scientist Henry Mintzberg concluded that the strategic management process was more dynamic and less predictable than management theorists had thought. In his 1987 paper, "The Strategy Concept I: Five Ps for Strategy," he argued "the field of strategic management cannot afford to rely on a single definition of strategy." Instead, he outlined five definitions of strategy and their interrelationships:
- Plan: Strategy as a consciously intended course of action to deal with a situation.
- Ploy: Strategy as a maneuver to outwit a competitor, which can also be part of a plan.
- Pattern: Strategy stemming from consistency in behavior, whether or not intended and which can be independent of a plan.
- Position: Strategy as a mediating force or match between the organization and environment, which can be compatible with any or all of the Ps.
- Perspective: Strategy as a concept or ingrained way of perceiving the world -- e.g., aggressive pacesetter vs. late mover -- which can be compatible with any or all of the Ps.
A SWOT analysis is one of the types of strategic management frameworks used by organizations to build and test their business strategies. A SWOT analysis identifies and compares the strengths and weaknesses of an organization with the external opportunities and threats of its environment. The SWOT analysis clarifies the internal, external and other factors that can have an impact on an organization's goals and objectives.
The SWOT process helps leaders determine whether the organization's resources and abilities will be effective in the competitive environment within which it has to function and to refine the strategies required to remain successful in this environment.
Balanced scorecard in strategic management
The balanced scorecard is a management system that turns strategic goals into a set of performance objectives that are measured, monitored and changed, if necessary, to ensure the strategic goals are met.
The balanced scorecard takes a four-pronged approach to an organization's performance. It incorporates traditional financial analysis, including metrics such as operating income, sales growth and return on investment. It also entails a customer analysis, including customer satisfaction and retention; an internal analysis, including how business processes are linked to strategic goals; and a learning and growth analysis, including employee satisfaction and retention, as well as the performance of an organization's information services.
As explained by the Balanced Scorecard Institute:
"The system connects the dots between big picture strategy elements such as mission (our purpose), vision (what we aspire for), core values (what we believe in), strategic focus areas (themes, results and/or goals) and the more operational elements such as objectives (continuous improvement activities), measures (or key performance indicators, or KPIs, which track strategic performance), targets (our desired level of performance), and initiatives (projects that help you reach your targets)."
Value of organizational culture
Organizational culture can determine the success and failure of a business and is a key component that strategic leaders must consider in the strategic management process. Culture is a major factor in the way people in an organization outline objectives, execute tasks and organize resources. A strong organizational culture will make it easier for leaders and managers to motivate employees to execute their tasks in alignment with the outlined strategies. At flat organizations, where lower-level managers and employees are expected to be involved in the decision-making and strategy, the strategic management process should enable them to do so.
It is important to create strategies that are suitable to the organization's culture. If a particular strategy does not match the organization's culture, it will hinder the ability to accomplish the strategy's intended outcomes.
Benefits of strategic management
Strategic management is generally thought to have financial and nonfinancial benefits. A strategic management process helps an organization and, in particular, its leadership, to think about and plan for its future existence, thus fulfilling a chief responsibility of a board of directors. Strategic management sets a direction for the organization and its employees. Unlike once-and-done strategic plans, effective strategic management continuously plans, monitors and tests an organization's activities, resulting in greater operational efficiency, market share and profitability.