What is Strategic Management and Why Do You Need to Know?

Strategic management often plays a key role in a business’s long term success. Companies that engage in the process are generally more profitable and their employees tend to be more productive. But what exactly is strategic management and how does it make such a difference? 

Keep reading as we demystify this popular approach to business.

Strategic management is a management system which aims to help companies develop so that they can maximise their strengths, fulfil their potential and gain a competitive advantage. It’s an ongoing business process which involves defining a company’s mission, evaluating their competitors, identifying the direction they’re moving in and setting long-term goals.

Once goals have been set, the next step is to identify the strategies and management techniques that can be used to achieve them. Any strategic planning that takes place at this stage needs to allow for possibilities such as unpredictable events, new innovations, fresh products and the emergence of new markets. When strategies have been identified, they are implemented and regularly evaluated.

The concept of strategic management originally sprang from the economic and social debates of the 1930s and 40s. During the following decades, influential figures such as Peter Drucker elaborated on the original concept, until strategic management was finally recognised as a formal discipline.

While there are many approaches to strategic management, the process generally involves four stages.

This stage focuses on assessing a company’s current position. It involves analysing:

A number of models have been developed to support strategic analysis. These include:

This stage focuses on generating strategic options. The two key issues that strategists need to take into consideration are the direction of growth and method of growth.

Directional strategies relate to a company’s attitude towards growth. There are three main options which include:

These strategies relate to how a company achieves growth. There are two options:

When a company is deciding on its strategic approach, there are at least ten key questions to consider:

To successfully implement a new corporate strategy, company leaders also need to consider how they will manage changes to systems, structures and employees. Change management is crucial because people are often resistant to change, particularly if it involves job losses, changes in company culture or new routines.

Sharing strategic approaches and explaining the reasons behind any changes can help senior managers to overcome this resistance. When it comes to specifying changes, many strategic managers motivate their employees by creating an action plan. This should state:

The evaluation stage enables managers to find out whether a particular strategic decision is resulting in a sustainable competitive advantage. If performance data and activity reports show that it’s not, changes can be made.

Return on Investment (ROI) is the most commonly used measure of company performance, as it produces a single figure that can be compared with competitors. It also shows how well managers are using company assets to create profit.