What is Strategic Management? Process, Importance & Best Approaches
Table of Contents
- jaro Education
- 29, June 2024
- 7:00 pm
Strategic management is the foundation for propelling your organisation to new heights of success. The related notion entails making critical judgements and acting appropriately. These administrative processes move an organisation toward its ultimate goals, which are to maximise product conversion and provide expected returns on investment.
Strategic management can help an organisation gain a competitive edge over others, improve its market share, and plan for future objectives. Let us dive deep into the basics of strategic management, the importance of strategic management, the phases, and the approaches.
What is Strategic Management?
Strategic management refers to the formulation and execution of plans that aim at assisting an organisation to realise its goals and objectives. It may involve strategy-making, organisational structure, resource planning, change guide practice, and controlling resources and processes.
Strategic planning is a process that entails finding business challenges, selecting the strategy, tracking progress, and finally changing the strategy implemented in order to maximize performance. It is a process that entails the deployment of such tools as SWOT (strengths, weaknesses, opportunities, and threats) analysis to determine the location of opportunities and threats between the organisation, its competition, and the market in general.
Strategic management occurs at higher levels, including an organisational level of leadership activity, but it also operates at the department or team level.
What is the Importance of Strategic Management?
Assume that you wish to go somewhere with your friends on a road trip to Goa starting from Delhi. I mean, you just don’t get into the car and begin driving, right? You plot the way, reserve accommodation, enquire about the weather, and even enlist food stops on the way. That’s strategy.
And do the same to a business.
Strategic management is the business route or route map. It is the process of determining how to set a goal, how to achieve it, and how to stay on track despite setbacks.
Why is this so important? Let’s simplify with a real-life example most of you know: Amul.
Real-life: AMUL- Taste of India
*Wikipedia
Amul is an Indian dairy brand that is most beloved. But what you may not have known is that in the 40s, Indian farmers were having trouble getting adequate payments on their milk.
It was then that a few of the farmers in Gujarat, together with Dr. Verghese Kurien, launched a cooperative. They did not deal with milk only, but they developed a strategy for the long run:
- They eliminate the middleman.
- Established a powerful chain of supply.
- Quality and price oriented.
- Gradually introduced new products such as butter, cheese, and ice cream.
A textbook’s perfect strategic management, combined with foresight and timeline planning, transformed a small movement into a brand worth billions of rupees.
Now, Amul is up against world dairy giants, and they win.
So, Why is Strategic Management So Important? It Provides Direction, Helps You Understand Your Market, Reduces Risks, Encourages Innovation, and aligns everyone on the Team. and Supports Long-Term Growth.
5 Essential Steps of the Strategic Management Process
The path of carrying out strategic management is subject to a lot of schools of thought. Academicians and managerial experts have devised a number of frameworks that are used in the process of strategic management. However, there are differences, and at the same time, the process generally implies five steps:
- Identify direction: Determine the present strategic direction of the organization. Find out its mission and long-term vision, and also its objectives and goals. Leadership must be in a position to accurately describe the purpose that the organization is undertaking.
- Analyze environment: Put names to the identifications and analysis of aspects of both internal and external environment. Apply instruments like SWOT analysis to analyse the values, shortcomings, chances, and threats in those surroundings.
- Develop strategy: Develop an action plan including how the organization is going to achieve its objectives and the resources to achieve the objectives, bearing in mind what was discovered during the analysis stage. Implement performance indicators of success, too.
- Execute strategy: Implement the plan with the resources that have been outlined in the previous step. Effective communication and leadership are a must. The implementation of the plan has to be checked step by step, and the problems are to be solved when they occur.
- Evaluate implementation: Keep on evaluating different components of the plan to evaluate the level of success of each of them by applying the performance measurement selected in the development phase of strategic management. When the results needed are not attained, then the strategy should be readjusted.
At large complex firms, effective communication, data collection, and What-is-Strategic-Management-Process,-Importance-&-Best-Approaches and poor corporate culture may lead to a mismatch between the strategic management plan of the organization and the activities that are performed by its business units and departments. Cross-functional business decisions must also be evaluated by the leadership before being executed, in case they are in agreement with the strategic plans.
What are the Main Elements of Strategic Management?
Strategic management has not been a one-size-fits-all strategy. There are, however, some key things that have been discovered to be critical. These are goal setting, industry and organizational analyses, formulation of the strategy and implementation of the strategy, and strategy measurement, monitoring, and controlling.
How Can You Choose the Right Strategic Management Approach?
Selecting the right approaches of strategic management involves going through an under-selection process of the best approach for your type of business, target, and the environment in which you are operating. It is not the question of the most popular method; it is the question of using the one that will help you evolve smartly and sustainably.
There are two main approaches to strategic management, which are opposite to each other, but they complement each other in some ways:
- The Industrial Organisational Approach
This approach is based on economic theory, and it is associated with issues such as resource allocation, competitive rivalry, and economies of scale.
There are a few assumptions as well, which include rationality, profit maximisation, and self-disciplined behaviour.
- The Sociological Approach
This approach deals primarily with human interactions. Here, the associated assumptions include satisfying behaviour, bounded rationality, and profit sub-optimality. An example of an organisation that follows this approach is Google. Furthermore, the techniques of strategic management can be visualised as:
- Bottom-up processes: Here, employees make suggestions to their leaders, who then pass on the finest ideas to higher-level management strategies. This is frequently performed through a capital budgeting procedure. Proposals are evaluated using financial criteria such as return on investment and cost-benefit analysis. Cost underestimation and benefit overestimation are common causes of inaccuracy. The agreed suggestions serve as the foundation for a new strategy, which is carried out without the need for a huge strategic design or a strategic architect.
- Top-down processes: The particular approach is the most common option by far. Here, with the help of a strategic planning team, the CEO decides and makes plans regarding the overall direction that the organisation should consider moving forward.
- Collaborative processes: This approach tends to recognize the expanding nature of strategic decisions. Several organisations have begun to experiment with this technique. orper mattis, pulvinar dapibus leo.
Hierarchy of Strategic Management
In the majority of organisations, there exist multiple levels of management strategies.
Strategic management is the topmost, out of all the levels, as it is the broadest, applying to all parts of the corporation and also incorporating the longest time horizon. It gives direction to corporate goals, culture, values, and missions. There are typically business-level competitive strategies and functional unit strategies that can be put under this broad corporate strategy:
- Corporate strategy: It refers to the overarching strategy of the diversified firm and answers queries like “In which businesses should we compete?” and “How does working in various companies produce synergy and/or contribute to the corporation’s overall competitive advantage?”
- Business strategy: It refers to the combined strategy of a single business company or strategic business unit (SBU) of a multinational enterprise. According to Michael Porter, a company must establish a business strategy that involves either cost leadership, differentiation, or focus to gain a sustainable competitive advantage and long-term success in its selected venues or sectors.
- Functional strategy: It consists of marketing strategies, human resource strategies, new product development strategies, legal strategies, financial strategies, supply chain strategies, and information technology management strategies. The emphasis is on short- and medium-term plans, and the scope is confined to each department’s functional responsibilities. Each functional department strives to contribute to the achievement of general company objectives; hence, their plans are influenced by larger corporate strategies.
- Operational strategy: Peter Drucker’s management by objectives (MBO) philosophy promotes this additional level of strategy. It has a relatively restricted emphasis and just deals with day-to-day operational tasks like scheduling criteria. It must operate within a budget but is not permitted to change or establish that budget. Operational-level strategies are influenced by business-level strategies, which in turn influence corporate-level plans.
Many organisations believe that a functional organisational structure is inefficient for organising operations; hence, they are reengineered around processes or SBUs. A strategic business unit is a semi-autonomous entity that typically manages its budget, new product decisions, hiring decisions, and pricing settings. Corporate headquarters treats an SBU as an internal profit centre.
Various Stages/Phases of Strategic Management Process
Strategic management encompasses management of an organisation’s resources, analysis of internal and external forces, and development of strategies to realise objectives and futuristic goals. There are various perspectives on how to implement strategic management. Leaders have generated multiple frameworks to guide the strategic management process. Though there are a lot of differences, the process typically includes five phases of strategic management strategies:
| Phase | Description | Example |
| 1. Goal Setting | Define the company’s mission, vision, and long-term objectives | Startup sets a 5-year goal to become the top eco-friendly fashion brand |
| 2. Analysis | Understand the internal and external business environment | A retail firm, strong in offline sales, struggles with online reach |
| 3. Strategy Formulation | Create a plan based on goals and analysis. | A company decides to expand into Tier-2 cities with affordable pricing |
| 4. Strategy Implementation | Put the strategy into action by aligning people and resources | Launch of a new product with a digital marketing campaign. |
| 5. Evaluation and Control | Measure performance | Sales review shows low traction; pricing is revised, and the audience is retargeted |
Final Words
A Strategic Management course is an organised and comprehensive endeavour that aims to provide people, teams, or organisations with the knowledge, skills, and tools required for effective strategic management. Such courses often include a wide variety of issues relevant to planning, executing, and assessing strategies for achieving corporate objectives.
It is, thus, more than just a learning experience; a catalyst for professional advancement. You can opt for the Professional Certificate Programme in Strategic Management, and by improving your strategic thinking, leadership abilities, and industry knowledge, you may position yourself as a valued asset to any firm.
As the corporate world evolves, people with strategic management knowledge will drive innovation and success.
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