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What is Strategic Management?

Every business strategize. It is an essential management process to strategize and prepare for different odds. Strategy in the simple sense of the word is a plan designed to achieve an objective and planning as we all know is the primary function of management that lays down the base for the entire business.

“Strategic management in essence is a fancy name given to the planning process in action. It involves the creation and execution of the major goals agreed upon by the top-level management of a business”.

Wikipedia defines Strategic management as,

Strategic management involves the formulation and implementation of the major goals and initiatives taken by a company’s top management on behalf of owners, based on consideration of resources and an assessment of the internal and external environments in which the organization competes.

Strategic Management

Why Strategic Management Is Important?

It is the sum total of all the clever decisions taking by the managers across the organization at different points of time for the benefit and success of the business. It is done primarily on the basis of the SWOT analysis.

SWOT is an acronym formed out of four aspects of a business that has to be analyzed Strength, Weakness, Opportunity, and Threat. The manager has to understand where the business excels (strength), where it struggles (weaknesses), where it can succeed (opportunity) and how it could fail (threats).

Doing this analysis a clear picture of what the business will face and will have to do will be formed and it is on the basis of this picture that the process continues.

How Often Should Strategic Management Activities Be Performed?

Strategic Management is the identification and illustration of the strategies that management implements in order to attain superior financial results for their organization, especially, in comparison to the competitors in the same industry.

Strategic management can also be observed as the set of decisions undertaken by a manager impacting the results of the organization’s competitive performance. Detailed analysis of the available information and creative utilization of resources (may not be unique) is necessary for making important strategic decisions.

While making strategic decisions, significant planning is required for both predictable scenarios as well as unpredictable situations.

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Strategic Management for Organizations

It can be beneficial for any organization, irrespective of their sizes since there is always room for improvement, and each organization possesses some unique strengths and opportunities which can be capitalized upon.

It ideally should be a continuous process and not a one-time evaluation or brainstorming exercise. It involves thoroughly studying competitors, understanding their approach, and unique selling points that have helped them achieve their places.

Also, rechecking their own organization’s strategies regularly determining their applicability and potential success/ threats in present market conditions.

Bigger strategic decisions provide overall future direction to the organization and should be based on thorough analysis. Continuous monitoring is further required that the organization is moving in the right direction and if any further steps are needed for more effective implementation.

Strategic Management for Employees

Strategic Management should aim at providing a strong perspective on the employees about their organization so that can better judge their fitment and map their long-term objectives to the organization’s overall direction. Strategic management can be used to manage employees so as to maximize the ability to achieve business objectives. Empowering the employees so that they can correlate well to organizational tasks and objectives, is a smart strategic move.

Further, strategic management makes employees capable of understanding the market reactions to the organization’s product and taking corrective measures for the organization. Employees can also gauge the effect of the factors which can influence their jobs or roles and can take necessary corrective steps.

There are several tools and concepts which are generally used for the analysis of softer aspects of the organization aiding to the derivation of impactful decisions.

Important Concepts of Strategic Management

1. SWOT Analysis

SWOT framework was initially used by Harvard and later popularized by Kenneth R. Andrews and it still remains a commonly practiced analysis tool.

SWOT Analysis should be conducted, i.e., identify Strengths, Weaknesses, Opportunities, and Threats for your organization and accordingly utilize strengths in the best manner, work over the organizational weaknesses, grab the upcoming opportunities and make a backup plan for identified threats.

2. Experience Curve

Coined by the Boston Consulting Group, the experience curve is a hypothesis that per unit product costs decrease gradually in the range of 15 to 25 percent whenever the cumulative production doubles in quantity. It has been confirmed by renowned organizations at different points of time. The decline in the costs can be attributed to numerous factors, including the learning curve, automation in the processes, and economies of scale.

Author Walter Kiechel identified several insights, such as a cost structure can always be improvised, varying costs structure in the same industry is a result of varying experiences of organizations, higher market share helps in cutting costs, etc.

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He wrote in 2010: “The experience curve was, simply, the most important concept in launching the strategy revolution…with the experience curve, the strategy revolution began to insinuate an acute awareness of competition into the corporate consciousness.”

Following are the other important concepts of Strategic Management:

 Features of Strategic Management?

1. Conscious Process

Strategies are a product of the developed conscience and intellect that we humans proudly possess and employ. Strategic management implies the usage of the brain and the heart and is not a routine ever-continuing process. It requires great skill and experience to be carried out effectively and requires a full application of one’s conscience.

2. Requires Foresight

The future is uncertain. We cannot predict what will happen. However, on the basis of the information that is available to us, we will be able to presume certain things about the future.

For instance, a discovery that the item XYZ causes cancer can allow us to make a very reasonable presumption that the item XYZ will be banned in the near future. This presumption thus allows us to not make any investment in anything directly related to XYZ.

This is a very obvious presumption but most presumptions aren’t and the information so available also doesn’t in the face of it be necessarily valuable. This is where strategic management as a process requires foresight. The manager has to be able to foresee what would happen from the limited and often ambiguous signs he procures from the world.

3. Dependent on Personal Qualities

The above two considerations make it amply clear that Strategic Management is heavily dependent on the personal qualities of the managers occupying the top-level positions.

These personal qualities including skills and experience obtained over years of employment and observation cannot be imparted by training or coaching classes and require practical exposure for extended periods of time unless the person is born with the talent of strategizing (which is rare).

4. Goal-Oriented Process

The process of Strategic Management is a goal-oriented process. The process is done with the intention and goal of analyzing the various elements through SWOT analysis and other tools and to develop a plan or strategy that effectively allows the business to maneuver itself around every hurdle and make use of its strength.

This process also plays the role of making all other functions of the business goal-oriented as well.

5. Facilitates decision making

Strategic Management plays an integral role in making important decisions. Whenever a manager has to make a decision he has to think about the bearing of such a decision on the overall strategy and the business’ trajectory.

Thus the strategies developed to act as a guide to making efficient and accurate decisions.

6. Primary Process

Strategic Management is the primary process in any business. The strategies that the business has to apply in its activities is developed at the initial stage itself and only after the creation of the strategy that other processes commence by making the strategy as its basis.

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7. Pervasive Process

Strategic Management is a pervasive process seen in all levels of the business.

The core strategies are formulated for the entire business by the top-level management and strategies to efficiently achieve the overall goal so laid down by the top-level management is developed through the various lower business units.

8. Allows for Risk Management

Risk management can be considered as a subset or a specific form of strategic management. Risk is the probability of a future loss and risk management involves formulating various strategies to combat the risks making risk management a form or variety of strategic management.

Strategic management in this form allows for identifying and eliminating the risks posed by various hazards to the business.

9. Drives Innovation

The development of strategy is not a simple process and requires making the best out of often very restrictive situations. This drives innovations and allows managers to approach problems from different angles and solve problems more efficiently. After all, necessity is the mother of all inventions.

Strategic Management as a process is quite complicated and requires years of experience and inherent skills to be carried out efficiently. The process is pervasive and is central to any business. It is a discipline in itself and requires more study for enthusiasts wanting to pursue management.

Limitations of Strategic Management

A contrary view on strategic management is that it significantly limits the manager’s discretion in a dynamic market landscape.

Strategies are developed to provide direction to the organization, and guidance on how to respond to adverse or favorable situations, however, there are certain elements that are completely left out from the consideration.

According to Mintzberg “Strategy is a categorizing scheme by which incoming stimuli can be ordered and dispatched.” Since a strategy drives the organization in a particular direction, the approach may not be any more valid due to changes in circumstances. Mintzberg further said, “Strategy once established is a force that resists change, not encourages it.

Some experts, in turn, promote an iterative approach, which is a repetitive learning cycle [rather than] a linear progression towards a clearly defined final destination.

Woodhouse and Collingridge suggested that true strategy should ideally follow the “intelligent trial-and-error” concept in spite of adherence to pre-decided strategic plans.

Other expert quotes include: “Strategy should be seen as laying out the general path rather than precise steps”. “Means are as likely to determine ends as ends are to determine means.” “The objectives that an organization might wish to pursue are limited by the range of feasible approaches to implementation.”

About Sonia Kukreja

I am a mother of a lovely kid, and an avid fan technology, computing and management related topics. I hold a degree in MBA from well known management college in India. After completing my post graduation I thought to start a website where I can share management related concepts with rest of the people.