Strategic Management - Know The Purpose, Importance, Definition and Process

The word strategy is derived from the Greek word “stratigos”, which means “general”, i.e., a leader or commander in the army. In the modern-day, this term has a different purpose: a general plan for achieving one or more uncertain long-term goals.

Every establishment has its own set of goals and objectives. These goals and objectives are made according to the organization’s capabilities and will to expand. However, just making these goals is not enough you also need to execute them well. Thus, the company needs to take necessary steps to reach such goals. Such measures undertaken by the company are known as strategies.

How to define Strategic Management?

Strategic Management is defined as the formulation and implementation of the significant goals and initiatives taken by the organization on behalf of their associate, depending on the internal and external work culture in which the organization operates. It generally comprises the organization’s objectives, goals, and policies representing the organization on the outer level.

What is Strategic Management?

Strategic management meaning is the art of developing, implementing, and evaluating strategies with different functionalities that allow organizations to achieve their objectives. It is a constant process of forming strategies and implementing them to achieve goals. This helps in dividing the big plans into smaller and more achievable ones. With efficient strategy formulation and implementation, achieving the goals becomes easy. There are two main objectives of strategic management.

• To gain competitive advantage, to outperform the competitors and achieve market dominance and
• To act as a guide to the organization to help survive the changes in the business environment.

Strategic management covers the setting objectives for the company, keeping an eye on competitors’ actions, reassessing the organization’s internal structure, evaluating present-day strategies, and affirming the implementation of those strategies throughout the company. It is a combination of strategic planning and strategic thinking. Strategic planning is the recognition of achievable goals. Strategic thinking is the capacity to identify the organization’s requirements to accomplish the goals pointed out through strategic planning.

There are two types of strategic planning – prescriptive and descriptive. The former strategic management is the development of strategies in advance of an organizational issue. Descriptive strategic management is making the strategies as and when needed. While most of the companies’ upper management implements the strategy, others employ strategists who plan and execute the strategy to improve company function.

Importance of Strategic Management

Strategic management is significant for all organizations regardless of their type and size as it is related to the achievement of the goals and objectives of the organization. Here are some of the crucial points why strategic management is important:

• Aligning the goals – Through strategic management, it can be ensured that everyone in the organization is working in the same direction.
• Allocation of the resources – to make the most out of the available resources, strategic management will help to allocate the resources effectively.
• Measuring performances – strategic management will help to measure the performances of the organization against the set goals and objectives by establishing benchmarks to identify the progress.

Now, that the importance of strategic management is clear let’s move forward with its purpose.

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What is the Purpose of Strategic Management?

Strategic management gives a competitive edge to the organizations and aids in achieving the goals. This gives a futuristic look towards the performance, and the growth becomes sustainable. It also helps to unify the employees and the management, and thus, the workplace works in a unified manner.

Strategic management is a constant process of formulating strategies and implementing them to achieve goals. This helps in dividing the big plans into smaller, more achievable ones. With efficient strategy formulation and implementation, achieving the goals becomes an easy task. It helps any organization to make its goals more clearly organized. Therefore, it is considered as a skill and also as an art. Strategic management is viewed as a skill because a person can learn the techniques as a branch of knowledge. On the other hand, it is also referred to as an art, as it deals with the judgement and thought of the uncertain future. Therefore, every organization needs to implement strategic administration in its management practices.

Why is Strategic Management Necessary?

Strategic management helps the person in charge of decision-making get secured with management tools or to expect the changes by guiding the organizational activities on the right path. In addition, strategic management’s practice lessens the operational risk by assisting the enterprise to innovate in time and take action beforehand. The following are why strategic management is vital in the organization.

Helps to Anticipate the Changes

As discussed above, strategic management requires the manager to study the company’s future and the market. Researching the future continuously. The managers can anticipate the change. When done effectively, strategic management can lead the organization to proact to a change or even bring around the change in the market. Strategic management lets the companies make decisions based on detailed forecasts and not impulsive reactions. It enables the firm to take measures at a primitive stage of a new trend and reckon the lead time for efficient management.

Clarity in Objectives and Direction

Strategic management renders a strong inducement for the employees and management to attain company objectives. Strategic management also guarantees that the top executives have a united opinion on strategic problems.

Increases Employee Efficiency

The employees at all levels are included in the strategic management process. As a result, the employees feel more engaged and motivated to work. Necessary training is provided to the employees, and the inter-process of strategy implementation is done through the employees. This increases the efficiency of the employees. With a strategic workflow the performance management of the organizations is benefited. When the employees feel they are a part of the organization’s more astonishing view and are considered necessary to fulfill the organizational goals, they will be willing to give their best to the company.

Rises Profitability

The business unit’s profitability depends upon the maximum utilization of the available resources. Therefore, the managers can make full use of financial resources and use maximum labor capacity to increase the unit’s productivity and profitability with the help of strategic management.

Reduces Expenses

Strategic management helps the organization to reduce its expenses on unnecessary investments. For example, the fixed capital of any company is the amount invested in its fixed assets. With the help of strategic management, the managers may decide whether it would be profitable to invest in these fixed assets or rent them to decrease the fixed capital investment.

Fills the Organizational Gap

An organizational gap is an activity from departmental activities not assigned to any employee. If such allotment is left out mistakenly, no employee can be held responsible for it. Because of the constant interaction and communication undertaken within the strategic management process, every employee receives equal work. Due to this reason, organizational gaps that delay the business’s goal-achieving capability can be avoided entirely. With strategic management, this hurdle is conquered.

Interesting Facts to Know about Strategic Management

• More than 97% of employers feel that strategy implementation is challenging than strategy formulation.
• 67% of the employers have stated that their organizations successfully craft the best strategies. However, only about 45%-47% of them succeed in their implementation.
• More than 65% of the formulated strategies fail due to a lack of proper implementation.
• While 18% of the employers say that hiring candidates with the necessary skills to drive the strategy’s implementation is a high priority, 11% of the employers are developing and enhancing such skills in the already existing employees.
• More than 60% of the companies that have established a formal process to manage the strategic decisions have out-performed their competitors.
• Only about 20% of the companies review their strategic decision’s execution monthly.
• About 4% of the strategic management’s potential is lost due to the lack of defined accountabilities.

How to Formulate Strategy?

Strategic management makes it necessary to dedicate to strategic planning. Strategic planning symbolizes an organization’s capability to its short term and long term objectives and ascertain the measures that need to be taken to accomplish those goals. Here are the seven stages in the process of strategic management:

Setting Goals

The first stage of strategic management is to set the goals that the company wants to achieve. This step includes setting up both the long term and short term goals. Next, the manager should share these goals with the whole organization and explain how they will impact its future. Each team member gets a sense of purpose for their jobs and feels engaged.

Gathering Information

The next stage is gathering all the necessary data and information. This information will be an inherent part of the organization’s vision and mission. The information regarding what changes might come in the future, the market share of the organization, the competitors’ market share, etc. are all the questions that need answers.

Analyzing Situation

After gathering the necessary information and defining their vision and mission, the next stage is to assess the present situation. This stage analyses the internal and external environments of the business and assesses its competitors. Finally, the managers should categorize all the information based on its relevance to the current situation with all the information in hand.

Formulating Strategy

After a thorough study of the information and the situation, the manager must formulate the strategy. The strategy thus made should be clear and transparent. Having a vague plan is worse than having none because it creates a loss of direction among the employees, leading to inefficiency and incomprehensibility.

Implementing Strategy

The best way to determine if the strategy works or not is to implement it. The most critical skills at this level are managerial skills. Communication of the strategy is inevitable, along with an explanation of each employee’s role. The new design must receive support all over the organization to be effectively implemented.

Monitoring Strategy

After implementation, it is essential to monitor the strategy’s success continually. But, first, the manager must check if the strategy gives positive results. Then, after testing them out on a smaller level, the plans should consistently be implemented. This provides stable growth, helps employee retention, and doesn’t affect the organization on a more significant level. Additionally, you can monitor your employees efficiently on a lower level.

Making Changes

If the strategy results in some adverse effects, the manager should reconsider the same and make necessary changes. On the other hand, if the process is working fine, the manager can anticipate future problems to create strategies.

Various Types of Strategy Employed in Business Setting

While forming a strategy, some things should be recognized and kept in mind to perform better. Such as the organization’s initial goal, futuristic requirements, and the ultimate way to stand out from the crowd. Once these objectives are cleared, many types of business strategies help you stay realistic and grow in the market space. Some of them are listed below;

Structuralist Strategy

Structuralist strategy is building the business functioning around the existing market space while using the industry structure for your advantage. For example, a company is implementing a strategy to increase the sales of a current product.

Growth Strategy

A growth strategy is implemented when new products or features are released or if a business is entering a new market space. For instance, adding an online addition to an already existing company in an offline world can be one of the growth strategies of an organization.

First Mover Advantage Strategy

A strategy where the product or company gains the advantage by being the first to provide a particular service or product. For example, eBay is the first online auction service that matches the buyers and the sellers of all types.

Cost Leader Strategy (Red Ocean Strategy)

A cost leader strategy is a way to set your product’s competitive pricing, which sets your product apart from other businesses. As a result, you can charge the least amount for a product while flexible and profited. For example, Amazon implements a cost leadership strategy by providing extensive warehousing facilities, cutting the physical economies on the scale.

Differentiation Strategy (Blue Ocean Strategy)

Differentiation enables your organization to take up a creative space by offering a unique product, charging for the innovative product, and putting up a premium section for your product. For example, Ever since its launch, Apple has been a unique product regarding product design, operating system, and such other noticeable features.

Price-Skimming Strategy

Price skimming strategy is to price a product in the initial range to cover the manufactural, marketing, and product price. After that, when similar products are introduced, the price range decreases compared to the initial cost to retain the product’s competitive edge. For example, Nike has higher-priced products when launched for the customers who need them, but later on, the price drops still the sales are consistent as the lesser price attracts people.

Acquisition Strategy

The acquisition strategy promotes a product’s growth by purchasing another product and having control over it. Although it can be very complex at times, legal and finance professionals might be helpful in your team. Social media campaigns and influence marketing of sephora is the real example of this strategy.

Focus Strategy

Focus strategy targets a market segment through any of the already covered methods. However, sometimes it becomes helpful to focus on a particular piece rather than the whole market space. For example, Coca-Cola’s diet-coke was one of the cleverest products that promoted the brand for people with diabetes and people who prefer low sugar beverages.

Conclusion

Planning for the organization’s short term and long term future is essential for operating a successful business. The concept of strategic management is the first step towards your final goal. To practice strategic management effectively, one must possess the necessary skills to understand the company as a whole, understand its operating environment, develop the strategies suitable with such background, implement the design, and evaluate, control, and amend the strategy implemented. Strategic Management is broad and covers all functions, and thus it attempts to incorporate the knowledge and experience gained in various structural areas of management.

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