What is strategic management and why is it important?
A business without long-term goals and objectives will struggle to set company direction, focus efforts and gain competitive advantage. To set and achieve these goals, it’s important to know what strategic management is and how to implement it.
Strategic management is the ability of an organisation to formulate and implement major goals and initiatives on behalf of its stakeholders, which may include shareholders, executives, employees, customers, communities and suppliers.
While setting goals may sound like a simple task, it certainly is not. Often, stakeholders have competing priorities and must consider everyone, while also ensuring that the firm is profitable and successful. For this reason, those undertaking strategic management in a business need to be suitably qualified with a master’s degree and, ideally, one that includes a strategic management specialisation.
With effective strategic management, organisations can thrive. For anyone interested in the discipline, here is more detail on what strategic management is and how it can drive better performance.
What is strategic management?
Put simply, strategic management is the management of a firm’s resources to successfully achieve its goals and objectives. It’s an action plan to ensure that performance targets are met and that the business continues to grow. Strategic management provides overall direction by developing plans and policies to achieve objectives and allocating resources to implement the plans. Ultimately, strategic management exists for organisations to gain a competitive edge over their competitors.
The concept of strategic management has its roots in 1950s economic theory based on industrial-organisational approaches. Peter Drucker, the father of modern management, believed that setting objectives and monitoring company growth should permeate the entire organisation, top to bottom.
Whether an organisation is small or large is irrelevant when it comes to strategic management. Even the smallest companies need to know how effective they are within their industry and take the appropriate actions to achieve their desired outcome for the future.
Why is strategic management important?
Strategic management is important from a financial and non-financial perspective for organisations of any size.
Specifically, strategic management is important in organisations because:
- strategic management helps an organisation move past short-term thinking and strategise the future of the company
- strategic management helps an organisation fulfil its responsibilities (especially if it’s a listed company), including regulatory and reporting obligations
- strategic management helps an organisation to establish and monitor its progress against long-term plans (as opposed to strategic planning, which is generally thought of as a one-time plan), resulting in greater operational efficiency and profitability
Benefits of strategic management
In a marketplace where workplaces are continually being disrupted through technological innovation, strategic management can be the key to delivering a solid bottom line.
Company executives with a strong grasp of their organisations’ products or services and an in-depth view of what their major competitors will do next can forecast and plan timely business decisions. It also means they can prepare for future opportunities and possible risks.
Developing a strategic vision requires an understanding of global trends, the competitive landscape and stakeholder expectations. Once a firm knows what its mission is, the right resources can be allocated to achieve that plan. Through strategic decision-making and a commitment to strategic planning, organisations can strengthen their long-term competitive position.
Apart from financial gains, strategic management can also boost workplace motivation. Setting effective goals for employees and involving them in organisational objectives can improve overall performance.
Studies show a dramatic increase in employee and business performance when goals align.
However, it’s not enough to just craft and execute a strategic management plan. Firms that continually measure and review the results of their strategic approach are more likely to achieve success and see improved financial performance. Firms that assess whether they’re performing according to their corporate blueprint can respond to fast-changing market forces. They can move the company along the strategic course they’ve already charted.
How to follow a strategic management process in four steps
Businesses need to understand what strategic management is and how to implement it. There are several stages in the strategic management process. While the outcome will look different from business to business, there are simple chronological steps that organisations can follow to put strategies into practice.
Step 1: Strategic intent
Successful execution of strategic management starts with strategic intent: defining the organisational objectives and using them as a benchmark to measure performance and progress.
An organisation’s vision and direction should be specific, actionable and measurable. This is the point at which companies outline their future business focus – whether that’s profitability, shareholder wealth or market leadership.
Step 2: Strategy formation
The next stage involves formulating a strategy, and this requires a company health check through a SWOT analysis. It’s where companies forensically examine themselves, looking at the environment they operate in: internally and externally. This strategic analysis focuses on company strengths, weaknesses, opportunities and threats. Through this process, an organisation can determine what it does better than its competition, what it needs to improve on and what advantages its competitors have. This will then help them develop ideas on how to outcompete rivals and respond to changing market conditions.
The strategy formation stage is also where companies determine where they are and where they want to be. Once an assessment is made, it’s time to implement the strategy.
Step 3: Strategy implementation
An organisational blueprint is a good start to strategic management, but it must be put into action. To ensure a company’s survival, growth and expansion, strategies must be put into practice. It’s estimated that more than 60 per cent of the strategies aren’t successfully implemented. Success requires:
- developing structures and systems
- allocating resources
- overseeing change management
- developing risk management strategies
- developing decision-making processes
- developing project management capabilities
- strengthening competitive capabilities
- communicating strategies
- managing human resources by aligning individual roles with performance objectives
- rewarding performance.
Execution of strategic plans allows organisations to explore new opportunities and brings into line all aspects of a company: people, strategy and operations.
Step 4: Strategy evaluation
The final stage of strategic management is to analyse and assess the results achieved through the strategic process. By measuring the performance of an organisational strategy, companies can decide whether to stay on course, make adjustments to actions or adapt to changing market conditions. This is an ongoing process that allows organisations to review performance metrics and put interventions in place if necessary.
Evaluation of the strategic plan gives a snapshot of possible failures and whether a change in direction is required in the overall company vision. It’s important for companies to periodically review their strategy and determine what’s working.
Examples of strategic management strategies
To succeed, every company needs to implement strategic management. This can look vastly different depending on the company.
Here are two examples of effective strategic management.
Tesla
Tesla, Elon Musk’s electric car brand, is an example of unique and risky strategic management.
To succeed in the car industry, it’s essential to service mass market, low-cost consumers. For example, customers usually want cars that cost less than AU$45,351. However, Tesla has succeeded by using a long-term strategy, creating an expensive car first.
By investing in building expensive electric cars and creating an enviable brand, Tesla has become one of the world’s most recognisable companies.
Airbnb
An adage of startups is that “everything must be scalable”. However, through clever strategic management, Airbnb proved that this doesn’t need to be true – at least at the beginning.
Airbnb started from humble beginnings when its founders decided to rent out some mattresses in their homes. It seemed like a decent concept, so they built a platform for others to do the same.
Initially, though, there weren’t many bookings. Those who had listed spare rooms took unattractive photos, and this meant they didn’t attract enough customers. The Airbnb founders took the unusual step of contacting hosts and asking if they could use their cameras to take professional photos.
While this solution certainly wasn’t sustainable or scalable, it worked. Those first few well-photographed listings resulted in substantially increased traction.
What are the skills required for successful strategic management?
Because of what strategic management is and how it’s implemented, leaders should develop the right skills to be effective. After all, it’s about making key decisions, overcoming obstacles and leveraging opportunities. Some of these skills include:
- Analytics. Strategic leaders need to be able to understand complex circumstances and variables when making decisions and creating strategies.
- Leadership. Strategic leaders should know how to effectively manage their teams and bring out the best in their employees.
- Communication. Strategic leaders need to engage with stakeholders and employees to facilitate their outlined strategies.
- Adaptability. Strategic leaders should engage in ongoing personal and professional development, challenging themselves and their teams to improve.
Strategic management: Helping companies succeed
Businesses of all sizes need leaders who understand how to manage, lead and successfully strategise to ensure that their organisations effectively manage change and deliver for stakeholders, now and in the future.
If you’re considering a strategic management career, then you need to make sure that you’re suitably qualified. VU Online’s Master of Business Administration (MBA) explores the impact that decisions, actions and processes have on business success.
Learn more about our online postgraduate courses. Get in touch with our Enrolment team on 1300 682 051.
