What is Strategic Management?

Strategic management is closely related to achieving company goals. Its existence can guide in
anticipating when there are disturbances, both internal and external, which can affect the
company’s business activities. Next, the use of strategic management can be a guide in every
employee’s actions or decisions.

The use of strategic management covers various aspects, including, among others, competitor
strategy analysis, assessment of the company’s internal structure, strategy evaluation, and
determining that the company’s strategy implementation is going well. The process takes place
continuously to provide more efficient business operational efficiency, high market share, and
support the company’s profit level..

Strategic Management is defined as the formulation and implementation of the significant goals
and initiatives taken by the organization on behalf of their associate, depending on the internal
and external work culture in which the organization operates. It generally comprises the
organization’s objectives, goals, and policies representing the organization on the outer level.

What is Strategic Management?

Strategic management meaning is the art of developing, implementing, and evaluating strategies
with different functionalities that allow organizations to achieve their objectives. It is a constant
process of forming strategies and implementing them to achieve goals. This helps in dividing the
big plans into smaller and more achievable ones. With efficient strategy formulation and
implementation, achieving the goals becomes easy. There are two main objectives of strategic
management.

 To gain competitive advantage, to outperform the competitors and achieve market

dominance and
 To act as a guide to the organization to help survive the changes in the business
environment.

Strategic management covers the setting objectives for the company, keeping an eye on
competitors’ actions, reassessing the organization’s internal structure, evaluating present-day
strategies, and affirming the implementation of those strategies throughout the company. It is a
combination of strategic planning and strategic thinking. Strategic planning is the recognition of
achievable goals. Strategic thinking is the capacity to identify the organization’s requirements to
accomplish the goals pointed out through strategic planning.
There are two types of strategic planning – prescriptive and descriptive. The former strategic
management is the development of strategies in advance of an organizational issue. Descriptive
strategic management is making the strategies as and when needed. While most of the
companies’ upper management implements the strategy, others employ strategists who plan and
execute the strategy to improve company function.

What Is The Importance Of Strategic Management?

1. Identify Opportunities
Strategic management is necessary to identify opportunities. Tap into opportunities and
identify strengths and weaknesses by studying the internal structure of your organization.
Within every team, there’s unrealized potential that needs your attention. You may even
discover new ways to implement existing strategies.

2. Prepare For The Future

Strategic management helps you prepare for the future. Organizations can benefit from
understanding the importance of strategic management because it can help you prepare for
contingencies. A business environment is dynamic and fast-paced. Evolve and adapt your
strategies to keep abreast of vital changes in the business sphere.
3. Be Action-Oriented
Don’t become complacent in your management style. If you’re driven by action and purpose,
you can easily alter policies and business plans to drive the organization forward. A sound
action plan is sustainable and important for the growth and survival of your company.

4. Strengthen Organizational Structure

Working in a team is important to achieve shared goals. Each member is dependent on
another for guidance, especially in a stressful situation. This gives rise to the need for
strategic management. You can reflect on your organization’s internal structure and make
changes wherever you feel necessary. Only a strong organizational structure can endure
testing times.

5. Sustained Competitive Advantage

It’s necessary to have a sustained competitive advantage in today’s market. To do well
compared to other players in the market and avoid failure when faced with setbacks, build a
plan that’s viable and long-lasting.

company’s internal and external environments. Constructing a strategic vision with long-
term objectives in mind is useful for achieving organizational goals.
Three Levels of Strategy: Corporate Strategy, Business Strategy and Functional
Strategy
Strategy is at the foundation of every decision that has to be made within an organization. If the
strategy is poorly chosen and formulated by top management, it has a major impact on the
effectiveness of employees in pretty much every department within the organization. In our previous
article on ‘What is Strategy?!‘ we have already tried to define and explain what business strategy
refers to and what is NOT considered to be part of strategy. In this article, we will dissect strategy in
three different components or ‘Levels of Strategy‘. These three levels are: Corporate-level strategy,
Business-level strategy and Functional-level strategy. Together, these three levels of strategy can be
illustrated in a so called ‘Strategy Pyramid’ (Figure 1). Corporate strategy is different from Business
strategy and Functional strategy. Even though Corporate-level strategy is at the top of the pyramid,

Business-level strategy
The Business-level strategy is what most people are familiar with and is about the question
“How do we compete?”, “How do we gain (a sustainable) competitive advantage over rivals?”.
In order to answer these questions it is important to first have a good understanding of a business
and its external environment. At this level, we can use internal analysis frameworks like
the Value Chain Analysis and the VRIO Model and external analysis frameworks like Porter’s
Five Forces and PESTEL Analysis. When good strategic analysis has been done, top
management can move on to strategy formulation by using frameworks as the Value
Disciplines, Blue Ocean Strategy and Porter’s Generic Strategies. In the end, the business-level
strategy is aimed at gaining a competitive advantage by offering true value for customers while
being a unique and hard-to-imitate player within the competitive landscape.
Functional-level strategy
Functional-level strategy is concerned with the question “How do we support the business-level
strategy within functional departments, such as Marketing, HR, Production and R&D?”. These
strategies are often aimed at improving the effectiveness of a company’s operations within
departments. Within these department, workers often refer to their ‘Marketing Strategy’, ‘Human
Resource Strategy’ or ‘R&D Strategy’. The goal is to align these strategies as much as possible
with the greater business strategy. If the business strategy is for example aimed at offering
products to students and young adults, the marketing department should target these people as
accurately as possible through their marketing campaigns by choosing the right (social) media
channels. Technically, these decisions are very operational in nature and are therefore NOT part
of strategy. As a consequence, it is better to call them tactics instead of strategies.

Corporate-level strategy
At the corporate level strategy however, management must not only consider how to gain a
competitive advantage in each of the line of businesses the firm is operating in, but also which
businesses they should be in in the first place. It is about selecting an optimal set of businesses
and determining how they should be integrated into a corporate whole: a portfolio. Typically,
major investment and divestment decisions are made at this level by top management. Mergers
and Acquisitions (M&A) is also an important part of corporate strategy. This level of strategy is
only necessary when the company operates in two or more business areas through different
business units with different business-level strategies that need to be aligned to form an
internally consistent corporate-level strategy. That is why corporate strategy is often not seen in
small-medium enterprises (SME’s), but in multinational enterprises (MNE’s) or conglomerates.

Example Samsung
Let’s use Samsung as an example. Samsung is a conglomerate consisting of multiple strategic
business units (SBU’s) with a diverse set of products. Samsung sells smartphones, cameras, TVs,
microwaves, refrigerators, laundry machines, and even chemicals and insurances. Each product or
strategic business unit needs a business strategy in order to compete successfully within its own
industry. However, at the corporate level Samsung has to decide on more fundamental questions like:
“Are we going to pursue the camera business in the first place?” or “Is it perhaps better to invest
more into the smartphone business or should we focus on the television screen business instead?”.
The BCG Matrix or the GE McKinsey Matrix are both portfolio analysis frameworks and can be
used as a tool to figure this out.

Characteristics of Strategic Management

The following are the characteristics of strategic management:

 Involvement of top management

 Handles long-term issues
 Offers competitive advantage
 Future-oriented
 Long-term implications
 It affects operational challenges positively
 Organisation-wide impact
 It tends to be complex
 Facilitates strategic implementation

Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of collecting,

scrutinizing and providing information for strategic purposes. It helps in analyzing the
internal and external factors influencing an organization. After executing the environmental
analysis process, management should evaluate it on a continuous basis and strive to improve
it.
2. Strategy Formulation- Strategy formulation is the process of deciding best course of action
for accomplishing organizational objectives and hence achieving organizational purpose.
After conducting environment scanning, managers formulate corporate, business and
functional strategies.
 3. Strategy Implementation- Strategy implementation implies making the strategy work as
intended or putting the organization’s chosen strategy into action. Strategy implementation
includes designing the organization’s structure, distributing resources, developing decision
making process, and managing human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy management process.
The key strategy evaluation activities are: appraising internal and external factors that are
the root of present strategies, measuring performance, and taking remedial/corrective
actions. Evaluation makes sure that the organizational strategy as well as it’s
implementation meets the organizational objectives.
These components are steps that are carried, in chronological order, when creating a new
strategic management plan. Present businesses that have already created a strategic management
plan will revert to these steps as per the situation’s requirement, so as to make essential changes.

Components of Strategic Management Process

Strategic management is an ongoing process. Therefore, it must be realized that each component interacts with the
other components and that this interaction often happens in chorus.

STRATEGIC INTENT

The foundation for the strategic management is laid by the hierarchy of strategic intent. The
concept of strategic intent makes clear WHAT AN ORGANISATION STANDS FOR
HARVARD Business Review, 1989 described the concept in its infancy HAMED AND
PRAHALAD coined the term strategic intent.

Vision serves the purpose of stating what an organization wishes to achieve in the long run.

Mission relates an organization to society.

Business explains the business of an organization in terms of customer needs, customer groups

and alternative technologies.

Objectives state what is to be achieved in a given time period.

VISION

It is at the top in the hierarchy of strategic intent. It is what the firm would ultimately like to
become.
KOTTER description of something (an organization, corporate culture, a business, a
technology, an activity) in the future. The definition itself is comprehensive and states clearly the
futuristic position.

Advantages of Having a Vision 

o They foster experimentation.

o Vision promotes long term thinking

o Visions foster risk taking.

o They can be used for the benefit of people.

o They make organizations competitive, original and unique.

o Good vision represent integrity.

o They are inspiring and motivating to people working in organization.

 MISSION

The mission statements stage the role that organization plays in society. It is one of the
popular philosophical issue which is being looked into business mangers since last two
decades.

Characteristics 

(i)      A mission statement should be realistic and achievable. Impossible statements do

not motivate people. Aims should be developed in such a way so that may become feasible.

(ii)     It should neither be too broad not be too narrow. If it is broad, it will become
meaningless. A narrower mission statement restricts the activities of organization. The
mission statement should be precise.

(iii)     A mission statement should not be ambiguous. It must be clear for action. Highly
philosophical statements do not give clarity.

(iv)    A mission statement should be distinct. If it is not distinct, it will not have any
impact. Copied mission statements do not create any impression.

(v)     It should have societal linkage. Linking the organization to society will build long
term perspective in a better way.
 (vi)    It should not be static. To cope up with ever changing environment, dynamic aspects
be looked into.

(vii)    It should be motivating for members of the organization and of society. The

employees of the organization may enthuse themselves with mission statement.

(viii)   The mission statement should indicate the process of accomplishing objectives.

The clues to achieve the mission will be guiding force.

Mission vs Purpose

The term purpose was used by some strategists. At some places, it was used as synonymous to
mission. A few major points of distinction are as follows:

(i)      Mission is the societal reasoning while the purpose is the overall reason.

(ii)     Mission is external reasoning and relates to external environment. Purpose is internal

reasoning and relates to internal environment.

(iii)     Mission is for outsiders while purpose is for its own employees.

 OBJECTIVES AND GOALS

 Ob
jectives refer to the ultimate end results which are to be accomplished by the overall plan over a
specified period of time. The vision, mission and business definition determine the business
philosophy to be adopted in the long run. The goals and objectives are set to achieve them.

Meaning

Objectives are openended attributes denoting a future state or out come and are stated in general
terms.

When the objectives are stated in specific terms, they become goals to be attained.

In strategic management, sometimes, a different viewpoint is taken.

Goals denote a broad category of financial and non-financial issues that a firm sets for it self.

Objectives are the ends that state specifically how the goals shall be achieved.

Difference between objectives and goals.

· The goals are broad while objectives are specific.

 · The goals are set for a relatively longer period of time.

· Goals are more influenced by external environment.

· Goals are not quantified while objectives are quantified.

Need for Establishing Objectives

        Objectives provide yardstick to measure performance of a department or SBU or

organization.

·        Objectives serve as a motivating force. All people work to achieve the objectives.

·        Objectives help the organization to pursue its vision and mission. Long term
perspective is translated in short-term goals.

·        Objectives define the relationship of organization with internal and

external environment.

·        Objectives provide a basis for decision-making. All decisions taken at all levels of
management are oriented towords accomplishment of objectives.

What Objectives are Set

Profit Objective – It is the most important objective for any business enterprise. In order to earn
a profit, an enterprise has to set multiple objectives in key result areas such as market share, new
product development, quality of service etc. Ackoff calls them performance objectives.

 Marketing Objective may be expressed as:  “to increase market share to 20 percent within five
years. or “ to increase total sales by 10 percent annually. They are related to a functional area.

 Productivity Objective may be expressed in terms of ratio of input to output. This objective

may also be stated in terms of cost per unit of production.

 Product Objective may be expressed in terms of product development, product diversification,

branding etc.

 Social Objective may be described in terms of social orientation. It may be tree plantation or

provision of drinking water or development of parks or setting up of community centers.

 Financial Objective relate to cash flow, debt equity ratio, working capital, new issues, stock
exchange operations, collection periods, debt instruments etc. For example a company may state
to decrease the collection period to 30 days by the end of this year.
Human resources objective may be described in terms of absenteeism, turnover, number of
grievances, strikes and lockouts etc. An example may be “to reduce absenteeism to less then 10
percent by the end of six months.

Process of Setting Objectives 

 (i)      Environmental forces, both internal and external, may influence the interests of various
stake holders. Further, these forces are dynamic by nature. Hence objective setting must consider
their influence on its process.

 (ii)     As objectives should be realistic, the efforts be made to set the objectives in such a way so
that objectives may become attainable. For that, existing resources of enterprise and internal
power structure be examined carefully.

(iii)     The values of the top management influence the choice of objectives. A philanthropic

attitude may lead to setting of socially oriented objectives while economic orientation of top
management may force them to go for profitability objective.

(iv)    Past is important for strategic reasons. Organizations cannot deviate much from the past.
Unnecessary deviations will bring problems relating to resistance to change. Management
must understand  the past so that it may integrate its objectives in an effective way.