Key Elements of Strategic Management
Strategic management defines the objectives of an organization and all relevant policies and resources for easy implementation.
The strategic planning process occurs at the highest level. Top management officials and executives are tasked with devising a corporate strategy for their organization.
Strategic plans and effective strategic management help provide overall direction for your organization in a competitive environment.
This continuous process helps organizations take advantage of the changing environment that comprises various market segments.
The strategic management process comprises four major elements, which serve as steps that guide the development of new strategies to aid strategic decisions.
Here are the key elements of strategic management.
1. Situation Analysis
The situation is where relevant information is needed to create the organization's culture, mission, or vision statement.
In situation analysis, organizations must scan and evaluate the organization's performance, corporate strategies, and internal and external environment, alongside several methods to arrive at an internal analysis.
Observation and communication are the two effective methods commonly used. A comprehensive observation of the organization's internal environment is needed to implement this particular strategy successfully.
Organizations observe their business environment in various ways.
- Interactions between employees
- Interactions between employees and management
- Interactions between managers
- Interactions between management and shareholders
Discussions, conducting interviews, and surveys are effective techniques your organization should use to analyze the internal environment and how the organization performs during and after the strategic planning process.
Strategic planning has four phases: strategic analysis, formulation, implementation, and monitoring.
Besides the internal environment, organizations need to analyze their external environment, which comprises customers, suppliers, creditors, and competitors.
While analyzing the external environment, you need to determine the relationship between the organization and its customers, suppliers, and creditors and how much value it intends to provide to its shareholders.
Analysis of the organization's competitors helps it develop a competitive advantage. The organization is better informed and focuses its strategic plan to give the needed edge in the market.
2. Strategy Formulation
Strategy formulation is creating a new strategy for your organization based on SWOT analysis. Determine your organization's strengths, weaknesses, opportunities, and threats to help formulate a new strategic management plan.
You can break down strategy formulation into three levels based on the organizational structure.
Operational strategies are short-lived and are specific to various operational departments of the organization, such as human resources, finance, production, and marketing.
An example of an operation strategy is the human resources department hiring and training employees on how to increase human capital.
Competitive strategies involve methods specific to competing in a particular business or market. It requires extensive knowledge of industry competitors to achieve high-performance results.
Any business that focuses on competitive strategies needs to understand its competition's strengths and weaknesses to develop a complete strategy.
With competitive strategies, a business gains a competitive advantage over its industry competitors.
A corporate strategy is relatively long-term and determines the overall direction a company takes.
An example of a corporate strategy is a company implementing a corporate-level strategy across its strategic business units (SBU).
Important Strategic Formulation Terms
Whatever level of strategy you choose for your business, the important thing is to weigh the risks and benefits and ensure the benefits outweigh the risks.
For an effective strategic formulation, an organization needs to define the following relevant information to guide the operation of the overall strategy chosen.
Mission statements define the purpose and the reason for the survival of an organization and how it aims to serve society at large.
A mission statement usually distinguishes a company from the rest of the pack. It contains unique and distinct qualities that define the scope of operation, guiding how the company functions.
Many people confuse the mission and vision statement to mean the same thing. The vision statement focuses on the organization’s future, while the mission statement details the organization’s business, objectives, and plans to reach those objectives.
There are free mission statement generators that inspire you to create the perfect mission statement for your organization.
Objectives are the superior outcome of an organization's functions and list out all the items the organization wants to achieve. Once an organization attains its objectives, it successfully fulfills its mission.
Strategies make up a strategic plan and detail steps on how a company should accomplish its mission and set objectives.
All three corporate, operational, and competitive strategies are considered before an organization arrives at a strategy that best fits the company's vision and structure.
Policies are developed to guide the decision-making process for organizations as they link the formation and implementation stages of the strategic management process.
Correlative actions are required between employees' decisions and the company's mission, objectives, and strategies, which is why companies set policies.
3. Strategy Implementation
Strategy implementation is the phase where your formulated strategies are tested. All the steps, methods, and processes for executing your strategies fall under strategy implementation.
The order of implementing your strategies is equally important as the strategies themselves. It should be based on how important your organization needs them and the underlying issues.
Consider the approach to implementing your different strategies during their formulation. Before moving to the implementation stage, you must determine these strategies' effects.
For example, a company hires and trains employees as part of its strategy to increase its human capital. The company needs to consider how the training is delivered and the place, time, and cost of these training sessions before implementation.
Strategic implementation is the actionable step of the strategic management process and requires utilizing all the organization's resources to achieve its set goals.
During strategy implementation, management passes down the agreed-upon strategies to the managers, who then communicate the roles and responsibilities of each team member in implementing these strategies.
Smooth coordination between management and all stakeholders is necessary to successfully implement the organization's strategy. Make sure to identify and analyze all stakeholder interests.
4. Strategy Evaluation
Strategy evaluation determines how well the strategy has been implemented and whether the expected outcome is met at the end of implementation.
Suppose, during evaluation, the strategy was ineffective because it fell below par in delivering its intended results. In that case, the strategy can be reformulated, modified, and re-implemented.
Strategy evaluation requires management and employees to be involved in arriving at a balanced scorecard. Both parties offer different perspectives when evaluating the implemented strategy.
Challenging and realistic metrics that help measure performance should be part of your strategic evaluation. It helps measure how well your strategy has performed over time.
During strategy evaluation, organizations decide what areas of their strategies they want to evaluate and the method to use. After evaluating, they compare their result with the expected results and draw a conclusion based on the comparison.
Suppose there are shortcomings between the results obtained and the expected results. In that case, the company can decide on several corrective actions to control these shortcomings and ensure the strategy helps deliver on the company's goals and objectives.
A proper and thorough understanding of strategic management is required to set organizational goals and develop effective strategies. Implementing these strategies is how an organization achieves its goals and increases its competitive advantage.