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.
According to the Cambridge English Dictionary, a strategy is a detailed plan for achieving success or the skill of planning for such situations
What is Strategic Management?
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.
The Basic Model of Strategic Management
While there are many approaches to strategic management, the process generally involves four stages.
1. Strategic analysis
This stage focuses on assessing a company’s current position. It involves analysing:
Key strategic models
A number of models have been developed to support strategic analysis. These include:
A SWOT Analysis
This business model looks at your company’s strengths, weaknesses, opportunities and threats. Opportunities include things like developing markets and new technology, while threats include issues such as supply chain problems and employee shortages.
A PEST Analysis
This examines the effect of political and legal factors, economic factors, social/cultural factors and technological factors.
Porter's Five Forces Model
This looks at five forces that could affect potential profits in a particular industry. These include competitive rivalry; the threat of new entrants; the threat of substitutes; the power held by customers; and the power held by suppliers.
2. Strategic choice
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.
Direction of growth
Directional strategies relate to a company’s attitude towards growth. There are three main options which include:
Method of growth
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:
3. Implementation of strategy
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:
4. Strategic evaluation
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.
We hope our guide to the strategic management process has shown how successful strategies can boost a company’s efficiency, performance and profitability. And if you’re keen to discover how strategic management models can be applied to practical work scenarios, why not take a look at our excellent range of management courses?