While some portrayals of business leaders in popular culture insinuate that business leaders make decisions based on their instincts, the truth is that successful leadership is much more calculated than that. While having good instincts can help, possessing technical knowledge, analytical skills, a future vision, and a command of strategic management will take your business acumen and ability to achieve success in the business world much further. So, what is strategic management, and how does it work?
What Is Strategic Management?
Strategic management is a style of business management that aims to make the most of a company's opportunities by optimally allocating resources. Strategic management involves an ongoing process of creating a future vision for a business. This means identifying opportunities and challenges, setting business goals, developing and implementing strategies, and measuring and evaluating results.
Strategic Management vs. Other Types of Management
Strategic management is highly focused on future business. It focuses on gaining a competitive advantage to achieve an organization's overall, long-term goals. Business leaders do not have to focus solely on strategic management, as effective leaders commonly combine strategic management principles with other forms of management, such as:
Operational Management
Operational management focuses on a business's present, evaluating and improving its daily operations and activities to more effectively and efficiently achieve its strategic goals.
Tactical Management
Tactical management is similar to operational management because it also focuses on improving a business's current operations. The primary difference is that tactical management focuses more on individual tasks (rather than operations as a whole) and adjusting processes to achieve specific, short-term goals geared toward long-term objectives. This form of management requires the ongoing measurement and evaluation of operational metrics so that a company can readily pivot and adapt as changes are needed.
Project Management
Project management is a much more granular form of management that focuses on individual projects, rather than a company as a whole. Project managers focus on the planning, execution, monitoring, and completion of specific goal-oriented tasks or objectives that have clear timeframes and earmarked resources.
Benefits of Strategic Management
An effective approach to leadership, strategic management can benefit businesses of all sizes in a variety of ways.
Clear Organizational Direction
With its emphasis on goal setting, strategic management provides a clear organizational direction within a business. Strategic management asks business leaders to evaluate the market, industry, economy, and environment and set goals based on the information they have. The entire organization, across all departments and levels, can then be oriented towards those goals. Strategic management creates a cohesive direction toward a common future vision for a business.
Better Decision-Making
When goals are clear and well-established, leaders can improve their decision-making by having a vision for the desired results. This enables them to continuously scan the business environment for changes that, with respect to their defined goals, could represent potential problems, challenges, or opportunities. Leaders can then make proactive leadership decisions designed to safeguard the company's financial health while accelerating it toward its goals.
Efficient Resource Allocation
Strategic management also facilitates the proper allocation of all types of resources. When you understand your goals and your plan for achieving those goals, you can prioritize the projects, objectives, and departments most crucial to meeting benchmarks and achieving long-term goals. This means you can budget strategically while also delegating the right jobs to the right people in your organization and providing tools and other resources to your employees who most need them.
Improved Competitive Advantage
Another benefit of strategic management is its aim of gaining and maintaining a competitive advantage. Strategic management asks business leaders to identify their unique selling proposition. In other words, business leaders must be able to answer questions like, "What makes your business, product, service, idea, or solution unique?" and "Why should a customer choose your business over your competition?"
Enhanced Flexibility and Adaptability
Strategic management prioritizes flexibility and adaptability as necessary qualities of successful businesses. This empowers business leaders to integrate strategies within their operational frameworks, ensuring continuous data collection, performance evaluation, and ongoing refinement of strategies, processes, and operations to optimize efficiency, effectiveness, and overall success.
Stronger Team Alignment and Engagement
With specifically defined goals set, an entire business can navigate and align in this clear direction for the business's future. This ensures that all departments and levels are working in the same direction with properly aligned benchmarks and goals. Additionally, this clear vision and direction help departments gain momentum and employees feel increasingly engaged with their work, as they have a clear understanding of how their daily tasks contribute to the organization's larger goals.
The 5 Steps of the Strategic Management Process
Five basic steps comprise the strategic planning process:
1. Define the Vision, Mission, and Goals
The first step for strategic leadership is to identify and articulate a future vision, mission, and goals. In this step, business leaders determine where they want the business to be in five or even ten years. How much growth do they plan to achieve and at what rate? Do they plan to expand into new markets or diversify their products or services?
After setting long-term goals, identify the short-term goals and benchmarks that must be met to achieve the long-term goals within the specified timeframe.
The best strategic managers set SMART goals, which are defined as specific, measurable, attainable, relevant, and timely.
2. Analyze the Internal and External Environment
Once goals have been identified, leaders need to analyze the business and its environment to understand the forces that affect it and potentially impact its goals. The company should also analyze its competition to determine what it will need to do to remain competitive in the market.
3. Formulate the Strategy
Next, formulate a strategic management plan. In this step, strategic managers determine how they will achieve their goals. They will need to define their organizational structure by identifying the resources, people, tools, supplies, and technology they will need to carry out tasks, advertise effectively, and retain customers. Additionally, a plan should be established to collect, organize, and report financial and operational data, ensuring accurate performance evaluation.
4. Implement the Strategy
Once the goals are set and the strategy has been formulated, it's time to execute the plan through your business's daily operations. Use your budget, hire people, acquire supplies and equipment, and put your tools to use.
5. Monitor and Evaluate Progress
Identify the key performance indicators (KPIs) relevant to your business's operations, performance, financial health, and goals, and utilize your data collection and reporting system to facilitate data-driven decision-making. As you track your business's metrics, you can determine the success of each process and plan to determine how well it moves you toward achieving your goals. Make adjustments and changes to your overall business strategy when necessary to improve operational efficiency and strategic success.
Theories of Strategic Management
While the above steps outline the general flow of strategic management, there are several different specific theories and approaches to strategic management.
Porter's Generic Strategies
Porter's generic strategies identify three fundamental methods for achieving a competitive advantage. The generic competitive strategies (GCS) include cost leadership, differentiation, and focus.
Resource-Based View (RBV)
RBV emphasizes the importance of understanding a business's internal resources and capabilities to leverage individual powers and competencies for competitive advantage.
Blue Ocean Strategy
The Blue Ocean Strategy focuses on accessing "blue oceans," which are new, untapped markets or sectors with minimal or non-existent competition.
Mintzberg's Emergent Strategy
An emergent approach to strategy is one where managers develop strategy over time, as actions and environmental changes accumulate. This strategy becomes more of a response to conditions than an anticipation and planning for conditions. Many businesses begin with a deliberate, pre-planned strategy and allow it to evolve into a more emergent strategy as conditions shift.
Game Theory
In strategic management, game theory takes into account the actions and effects of other players (i.e., competitors), recognizing that the outcomes for one business largely depend on the actions that other companies take.
Strategic Management Frameworks
Strategic management frameworks are actionable plans that business leaders can apply to their operations and strategic planning processes.
SWOT Analysis
Strategic management requires the routine analysis of strengths, weaknesses, opportunities, and threats (SWOT). SWOT analysis provides a framework for understanding a business's current position and future potential.
Porter's Five Forces
From the same business expert (Michael Porter) who brought us Porter's generic strategies comes the Five Forces. This framework looks at five external forces that impact business success:
- Competition among existing rivals
- The threat of new entrants into an industry
- Supplier power
- Buyer power
- The threat of substitute products or services
Understanding these forces enables business leaders to understand better threats and weaknesses as well as their market position and potential profitability.
PESTEL Analysis
Another framework for evaluating factors that impact business, PESTEL analyzes the following:
- Political
- Economic
- Social
- Technological
- Legal
- Environmental
VRIO Framework
This framework looks inward to evaluate capabilities and resources by analyzing:
- Value
- Rarity
- Imitability
- Organization
Balanced Scorecard (BSC)
The BSC management framework uses a scorecard of diverse metrics to translate strategic vision into performance numbers that evaluate finances in addition to customers, processes, learning, and growth.
Why Is Strategic Management Important?
Strategic management is vital for business leaders because it provides direction, strengthens competitive advantage, aligns an organization around a common vision and goals, and facilitates flexibility to maintain relevance in business.
Prepare Yourself for Strategic Leadership Roles With a Degree From Champlain College Online
The Business Management program at Champlain College Online offers students a dynamic and comprehensive schedule of coursework designed to prepare them for leadership in the business world. From acquiring practical skills in classes like Managerial Accounting and Principles of Business to strengthening management and leadership principles in courses like Strategic Business Negotiation, Conflict Engagement, and Values-Driven Strategy, students emerge with a complete set of core competencies and tools to help them succeed in the business world.
To learn more about CCO's online Business Management bachelor's degree program, we welcome you to contact our admissions office today.
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