Introduction to Strategic Management

“People often complain about lack of time when lack of direction is the problem.”

-Zig Ziglar

 

A company without a strong managerial team to lead it to success can be compared to a rudderless ship. No matter how hard the employees may work, without a clear goal in sight all the hard work is for vain. 

 

Setting up clear goals and objectives for a company and a good set up of a plan to achieve those goals would help the company soar high over its competitors and help the company make huge profits.

 

In this blog, one can learn about the process of strategic management which will help them to make their company a better one.

 

 

What is Strategic Management?

 

Strategic management is the setting up and implementation of strategies that can be implemented from the grassroot to the managerial level to achieve better performance and gain advantage over the competitors in the same industry.

 

The process of strategic management should not be taken lightly and thorough understanding of the organizational structure and outside environment is needed before proceeding.

 

The process of strategic management also helps to develop trust between the people of all hierarchies and make employees better understand their role in the company. This helps the employees to feel more at home and they are ready to work with renewed vigor. 

 

Strategic management is a continuous process and should be implemented from time to time so that the company does not remain stagnant. The process of strategic management helps a company achieve new heights and brings more profit to the company.

 

Also Read | Total Quality Management

 

Components of Strategic Management Process

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Strategic Management Performance System

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There are generally four phases in the process of strategic management which have been explained below :

 

Phase I : Environmental Assessment

 

An organization's environment consists of internal and external factors. During an environmental assessment, information is acquired about trends, patterns and relationships between an organization's internal and external environment. 

 

Scanning the information acquired helps to identify the source of new opportunities and threats. During the next phase of the plan, the organization can use the information to magnify the opportunities and diminish the threats. 

 

1. Internal assessment of the environment

 

Internal assessment of the environment includes analysis of the relationship between different employees, relationship between people of different hierarchies, brand potential, organization structure, relationship of the workers with shareholders, etc. These factors are the basic grassroots of any organization.

 

2. External assessment of the environment

 

External assessment of the environment can be further divided into three sub categories.

 

• Immediate environment

 

The immediate environment comprises the organization's close competitors. Assessment of the organizations in the same industry would help the organization to understand their strengths and shortcomings. 

 

The immediate environment can directly affect the company and one may use it to one’s advantage.the company’s suppliers also make up its immediate environment. 

 

If a company has good and trustworthy suppliers, then they have an advantage over their competitors. Therefore, screening the suppliers is necessary for a company to achieve its goals.

 

• National environment

 

The national environment refers to assessment of the national framework in the global environment. This will give the organization undue advantage over their competitors. 

 

A company itself cannot influence the national environment. It remains out of their hands. They can only examine and model their own company in such a way that they enjoy maximum profit.

 

• Macro environment

 

The macro environment may include social, legal, government, technological, macro-economic and international factors. These factors may be economic or non economic. 

 

Macro environment shows the strengths and weaknesses of the economy as a whole. Date on this particular environment has to be collected from various sources as it is not available readily. 

 

The macro environment plays a huge role in the financial development in the future years to come. Information about the external environment is essential to make a place in the industry as they affect the long term plans.

 

Since there are many environmental factors to keep track of, the organization should be quick on their feet and ready to accumulate all the needed information for the betterment of the company.

 

Also Read | Growth Metrics to Track

 

Phase II: Strategy Formulation

 

After assessment of the environment, the next step is formulation of a plan. A strategy is the most important tool required for success. Without a plan in place, a person has no way of achieving their goals and dreams.

 

The process of strategy formulation involves six major steps.

 

1. Formation of objectives

 

The company must know the common objectives that they are working towards. Setting up of long-term goals of the organization gives management a clear view of the finish line and the paths that they should take to reach there

 

2. Evaluation of environmental assessment

 

The next step is evaluation of internal and external assessment of the organization that has been done beforehand. Environment assessment shows the organization their own strengths and weaknesses as well as their competitor's strengths and weaknesses. 

 

Identifying their faults and working on them would help the organization to thrive. This also helps the organization to predict their competitor's next moves and as a result they can always stay one step ahead of their competitors.

 

3. Setting up of quantitative targets

 

In this step, quantitative targets can be set up for the objectives sought by the organization. Analyzing their long term customers in reference to their products and specific departments would help them to do so.

 

4. Divisional Planning

 

Sub-category planning is done for the organization in this step. The plans for different departments of the organization are set up keeping in mind the desired output of each department. Analyzing macro-economic factors done in environmental assessment would help in this step.

 

5. Performance analysis

 

Previous performance of the organization is done in this step and the shortcomings, if any, are identified. This will help to bridge the gap between real output and desired output. This helps the organization to make plans to improve the quality of work in order to reach their future goals.

 

6. Finalization of strategy

 

This is the last step in formulation of strategy. After analyzing all the aspects of the organization and setting up sub-plans for the organization and understanding the strengths and weaknesses of the organization, the final strategy comes into place.

 

Also Read | Business Process Mapping

 

Phase III: Strategy Implementation

 

The process of implementing is adopted the strategy formulated in order to achieve the desired goals. No matter how good a strategy might be, it will fail if it is not implemented correctly. 

 

Proper implementation of a strategy depends on both the managerial team and the employees of a company. Structuring of the strategy and controlling the strategy are the main components of implementation.

 

1. Organization structure

 

In the process of strategy implementation, tasks are divided between the employees to achieve the desired long term goals. Quality of the work, efficiency and customer satisfaction is kept in mind while allocating tasks.

 

2. Control system

 

Employees need motivation to achieve their goals. An adequate control system would help managers to motivate their employees, receive feedback from employees regarding any shortcomings and analyze the performance. 

 

Adoption of new policies and programs would help the organization to reach their desired goals. The process of implementation of strategy may also harm the organization if not done correctly. This may result in dissatisfied employees, therefore this step is very crucial.

 

Also Read | Resource Management

 

Phase IV: Performance Evaluation

 

Evaluation of performance shows the overall effectiveness of the strategy and helps the organization identify whether they were successful in implementing the strategy and achieving their goals. This is the final step in the process of strategic management. Evaluation of performance also shows future scope of the strategy and judging whether the strategy adopted was valid or not.

 

Performance evaluation consists of the following major steps:

 

1. Fixing a standard

 

Setting up a standard for evaluation is the first step. The organization can make use of quantitative and qualitative criteria for the assessment of performance.

 

• Quantitative criteria includes determination of ROI, cost of production, earning per share, net profit, rate of employee turnover, etc.

 

• Qualitative criteria includes risk taking potential, flexibility, skills, etc.

 

2. Performance measurement

 

Comparing the actual performance with the standard performance helps in measuring the performance. Financial statements like profit and loss evaluation, balance sheets, etc help to measure the performance. Choosing the right time for measurement of performance is absolutely important to achieve the best possible results.

 

3. Analysis of Variance

 

Comparing the actual performance with standard performance shows us the variation observed. Analysis of variance shows us either positive or negative deviation. 

 

A positive deviation shows us that the strategy was successful and a negative deviation is a cause for concern since it tells us that our strategy is failing. 

 

The variance may move in either direction depending upon the implementation process. Therefore, one must be ready to face the outcome of an unsuccessful strategy.

 

4. Corrective action

 

In case of a negative deviation from the standard performance, one may analyze the factors which led to such a state. Identification of the factors would help to show how to move in the future. 

 

Lowering the standard is also a valid approach. In case of no other choice, starting from the beginning of a strategic management system is the only choice. If one hits rock bottom, there is no way to go but up.

 

Advantages of Strategic Management

 

There are many advantages of implementing a strategic management process. It helps the company to better understand their consumers needs and helps the company to achieve success. 

 

There are many financial and non-financial advantages of strategic management.

 

1. Financial advantages

 

It is undeniable that Strategic Management brings many financial benefits to a company. Studies have shown that companies which implemented this process are more profitable than companies who did not implement it. 

 

Profitable companies are not dragged down by their failure and make better decisions for the company. This results in more growth for the company.

 

2. Non-financial advantages

 

Companies which implement Strategic Management processes are more aware of the internal and external environment of the company. This helps to build a good internal network in the company as well as keeps a company informed about their competitors and any threats which may arise because of them.

 

Implementation of the strategic management process brings a company better long term success and prosperity in the market.

 

Also Read | What is Goodwill and How is it Calculated?

 

 

Limitations of Strategic Management

 

1. Strategic Management may prove to be restrictive in some cases and make a company stagnant in its growth. In a dynamic work culture, strategic management cannot be implemented. 

 

Some situations are too complex to be solved by some general guidelines and in such cases, strategic management may fall short.

 

2. Some goals are highly unlikely to be met with a basic plan. We all know the saying ‘Do not count your chickens before they are hatched’. Dreaming up unachievable dreams with a lackluster plan may bring about the demise of a company. 

 

Sometimes, even with a good plan in place, people are not able to implement the strategy properly and they are not able to meet their goals. This may cause them to be disheartened.

 

3. Some companies may not have the proper resources to properly execute their plans and fall short. Therefore, a strategy which is attainable should be sought after by the managerial team and this will cause the company to grow.

 

With increase in competition, many companies have started adopting the process of Strategic Management. For the ones who have not adopted it yet, it is high time for them to do so because this can ensure long-term success.