There have been a lot of companies that have been either shined in the business world or faded away with time. Apple, for instance, a company that kept up with the digital transformation, in fact led the innovation in different areas was one of the companies that have shined in the last decade. On the other hand, the example of Nokia which could not adapt to the transformation in the phone sector was vanished with time. The key factor that either keeps a company a successful one or makes it disappear is mainly the strategy of the company and how it manages it – a.k.a. ‘strategic management.’
- What is strategic management?
- Strategic management concepts
- Why is strategic management important?
- What is strategic management process?
In today’s article we will mainly cover what this wand called strategic management is that helps the businesses either grow or fail. In addition, we will talk about the main characteristics of it and why it is important. Afterwards, we will also define the strategic management process and we will summarize what we have talked about. That is the roadmap that we will go through and now let’s start with the definition.
What is strategic management?
Before going deep into the definition of strategic management let’s start with strategy itself. A strategy is a plan of action designed to achieve a long-term or overall aim according to Lexico Dictionary powered by Oxford. If we think about the term in a business environment and define it as a management of the company’s resources in order to achieve certain objectives, then we have the term strategic management. The term is mainly used to define the action plans that help us reach the objectives within the company. The broad definition of the word also covers setting the objectives itself. The main expected outcome strategic management enhances is competitive advantage. Competitive advantage is basically the advantage that a business holds over its competitors in the same market. A true implementation of strategic management may help the company become the leader in the market.
Strategic management concepts
Some concepts would enhance our understanding of strategic management thanks to strengthening our base knowledge about the issue. These concepts may include:
- SWOT analysis
- Experience curve
- Competitive advantage
- Value Chain
SWOT analysis is the acronym for Strengths, Weaknesses, Opportunities and Threats. It composes of basically the factors that are internal to the company which are the Strengths and the Weaknesses. The Opportunities and the Threats are the external factors that the company determines according to the market. SWOT analysis may help the company to come up with a business strategy knowing its strong and weak sides and where there are chances in the market and dangers. For instance, a company would like to invest more in advertisement if it is a strong suit for the company and there are opportunities in the market. On the other hand, if the company is weaker in POP marketing and there are more threats from the competitive companies, then the budget allocated to this type of marketing activities would be smaller.
Experience curve is a concept that was developed by Boston Consulting Group in 1966. It basically puts forward that whenever the production doubles the cumulative production cost related would decrease by 15% – 25%. Experience curve is another subject that one company should keep in mind when coming up with an action plan. The employees that the company has will be experienced with the time and the work done would increase significantly in the given time. That’s why if the company wants to keep the competitive advantage in a certain market, then it should aim for more with time.
Competitive advantage is the advantage that a particular business holds against all competitors in a certain market. This advantage could be in terms of lower cost or differentiation. This advantage mainly stems from the SWOT of companies. The strengths of the company such as resources and workforce or the opportunities that the company has such as marketplace would determine whether the company would have a competitive advantage over its rivals. Therefore, it is a crucial factor to bear in mind while thinking about the strategy.
The value chain could be basically defined as the chain of activities that are performed by a business to deliver a valuable product or service for the market. These could be the marketing activities that are conducted, the supply chain of the products or the production processes. The better alignment of the elements in the value chain would allow the company to increase its potential to become advantageous competitively in the field that the company is operating. Hence, the knowledge of the value chain is also a crucial element of the strategy.
Why is strategic management important?
Alright now you know the definition of strategic management and some concepts about it. The question why it is important and it has become a hot topic in the business world is another issue that we will cover. We have already talked about the examples of two companies “Nokia” and “iPhone”. In our example, one company that applied the concept better with strategic goals have shined in the business world, while the other vanished. Managing a company strategically helps you mainly in two ways which are planning and resource allocation.
It helps you plan your activities
The main reason that a company carries out strategic management is to build a roadmap. This roadmap would lead the company to the particular results. Planning is actually building this roadmap in terms of branching out the objectives and key results to follow. Thanks to strategic management, one can come up with this road map consisting of the objectives and key results. This would help the company grow in a defined course.
Let’s cover the topic of digital transformation in the business today. Using digital channels is attracting much more customers. Each demand of customers is just a click away from them. The companies that involved the digital transformation into their roadmap when it first appeared in the business world are the ones that have become the leaders of their market. On the other hand, the others have slowly disappeared from our everyday lives which did not think strategically when taking their course of actions.
It helps you allocate your resources
Resource allocation is allocating the manpower and the budget for the intended objectives. Clear understanding of the main goals that you want to achieve and the objectives to follow would help you rank the objectives according to their strategic importance. Resource allocation is the next step. The objectives with higher importance would be the ones that you will allocate more resources. Think about again the case of a digital transformation in the business world. Now that you will have more objectives related to this issue. Hence, you will need more employees and budget to work on it. You may build up even new teams according to your objectives that would help you work on that way.
What strategic management is and why is it important are the topics that we have covered so far. The next thing to talk about is how you can manage strategically. To be able to do this, one needs to know about the process which we will talk about now.
What is strategic management process?
Strategic management consists of different phases. The first step is basically defining the vision, mission and objectives of the business. Formulating the strategy is the next phase of the process. Afterwards, you need to implement this strategy into your business. The last phase of the process is the control and evaluation of the strategy. Now, let’s talk about each phase in detail.
Definition of the levels of strategic intent
This level mainly includes defining the vision and mission of your company and setting the objectives of your business. Vision is basically what you want to achieve in the big picture. Mission might be defined as general statement of how you will achieve that particular vision. Objectives are the milestones that would help you achieve the final goal.
The vision statement of Microsoft at its foundation was a computer in every desk and in every home. This is what the company wanted to achieve comprehensively. Since the digital transformation of the world is now at a new level, the vision and mission statements of the company has also changed. The mission statement of the Microsoft is now to empower every person and organization on the planet to achieve more which is highly correlated to the current vision to help people and businesses throughout the world realize their full potential. Objectives would be set, in order to achieve the final goal of the company following their mission. These objectives might be selling a certain number of computers in a particular region, or increasing the market share to achieve the vision of being at every home.
Formulation of strategy
In this step of the process what the business does is mainly building the strategy. It evaluates the environment in which it operates and the organization. SWOT test that we mentioned before is a great way to see the opportunities and dangers in the environment while evaluating the strengths and weaknesses of the company. The information provided by the analysis help the company come up with different strategies to achieve the goals in the environment. These possible strategies are evaluated by the senior management to see whether they are effective and implementable or not. Afterwards, the company chooses the strategies to follow and forms the strategic plan.
Implementation of strategy
The company implements the strategies that are formulated in this phase. To better illustrate, the strategies to follow are mainly allocated to the workforce. The business either chooses or forms the teams to work upon achieving certain objectives and constructs the timeline of the projects. The budgets for the projects are also allocated in this step. This step basically is the integration of the strategy and the company.
Evaluation and control of strategy
The company defined the vision, mission and objectives. It also built strategies to achieve these goals and implemented those strategies with the workforce and the budget. Now, the next phase of the strategic management process starts which is the control and evaluation. The managers should control and evaluate how well a project is proceeding and whether they need to recreate a new strategy to achieve the goal or not. If the objectives are seeming to be too easy or too hard to achieve then there needs to be an alteration. Otherwise, the former steps are formulated good and the company is on the right track.
Strategic management is the management of the company’s resources in order to achieve certain objectives. There are some concepts that enhance our understanding of the issue such as SWOT analysis, experience curve, competitive advantage and value chain. The strategic management is crucial for a company because it helps you plan your activities and allocate your resources. The process of managing a company strategically consists of steps which are definition of the levels of strategic intent, formulation, implementation and evaluation of the strategy.
Now you have a clear comprehension of the subject and ready to formulate your own strategic plan for your company. Although, you may form your plans in a traditional way there are also some software that helps you form your strategies and keeping track of your business such as Prosoftly.