Strategic Management: Definition, Process & Benefits

Wondering what is the secret to long-term business success?  The answer: a successful business strategy that helps you meet your long-term financial goals.

We break down the formula for effective strategic management in this detailed blog.

What is Strategic Management?

Strategic management is the process of developing and implementing plans and strategies to help a business achieve its goals. It includes creating the strategy, planning structures and resource allocation, change management and measuring performance and implementation. 

The entire process can be broken down into 3 major steps:

1. Setting goals and objectives
2. Creating a plan of action
3. Allocating resources

What Does Strategic Management Involve?

Strategic management and planning involves identifying business challenges, planning and executing strategy to solve these challenges and improve business performance. Strategy analysts and managers use tools like SWOT and Scorecards in strategic management.

Strategic management is important to ensure that resources are allocated correctly at both the organization level and department-wise. Strategic management initiatives need to be planned for both the business at large and individual teams.

Benefits of Strategic Management

Strategic management is more a way of life. It’s a school of thought that the best managers subscribe to. But why? Let’s look at why it’s important to manage resources in a strategic, well-planned out way.

Improved decision-making

Strategic management provides a framework for better decision-making by allowing leadership to assess the potential impact of their decisions on the overall strategic objectives of the organization. 

Enhanced collaboration

Strategy management encourages collaboration between departments and functions ensuring that everyone is working toward the same goals and objectives. 

Better organizational performance

Strategy management also helps organizations to focus on the areas that need improvement, identify the best ways to achieve their goals and objectives, and measure progress. 

Effective resource allocation

Strategic management encourages organizations to use their resources more efficiently by allocating resources to the most important areas. 

Increased customer satisfaction

Strategy management helps organizations to better understand their customers and develop strategies to meet their needs.

5 Stages of Strategic Management Process

There are 5 steps in strategic management:

1. Identify goals and business direction
2. Analyse current situation
3. Create a strategy and plan
4. Implement the strategy
5. Evaluate the results

Let’s understand each step in more detail:

1. Identify Goals and Business Direction: All business processes should be focused on achieving a certain goal. Whether this is overall profitability or one particular acquisition, it is imperative to be clear on this goal right from the beginning.
2. Analyse Current Situation: Use tools like the SWOT analysis to understand whats working with the current system and what needs improvement. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. This strategic analysis helps with insight into the internal (strengths and weaknesses) and external (opportunities and threats) factors that are likely to either contribute to or prevent business growth.
3. Create a Strategy and Plan: This step is the most important – it involves coming up with the actual strategy on how to allocate the business’s resources in the most efficient way. Resources here include employees, money, or machinery. The plan should be SMART – Specific, Measurable, Achievable, Relevant and Time-bound. 
4. Implement the Strategy: Once the strategies have been formulated, the next step is to put the plan into action. Start by communicating the strategy and plan of action to all levels of management, and ensure you monitor all progress made.
5. Evaluate the Results: The final step of strategic management is to evaluate and assess the effectiveness of the implemented strategies. This involves measuring the strategies’ results and making changes as and when needed. If the organization fails to achieve its goals, you can adjust the strategy and re-implement it. 

Types of Strategies Used in Strategic Management

1. Business Strategy: A business strategy focuses on developing a long-term plan of action to achieve a company’s goals, such as increasing profits or market share. It involves analyzing the current market and competitors, creating a strategic vision, and setting objectives and goals.
2. Corporate Strategy: Corporate strategy is a plan of action that defines how a company will reach its goals and objectives. It involves analyzing the current environment, identifying strategic goals and objectives, and determining the best way to meet them. 
3. Competitive Strategy: Competitive strategy is a plan of action that companies use to gain an edge over their competitors. It involves analyzing competitors, identifying their strengths and weaknesses, and devising strategies to capitalize on opportunities and reduce threats. 
4. Innovation Strategy: Innovation strategy is the process of developing new products, services, and processes that can give a company a competitive advantage. It involves identifying customer needs, brainstorming ideas, developing prototypes and testing them. 
5. Operational Strategy: Operational strategy focuses on how to optimize resources and processes in order to create value and achieve organizational goals. It involves analyzing current operations, setting goals and objectives, and creating plans to reach those goals.

Popular Approaches of Strategic Management

SWOT Analysis

SWOT analysis is a framework used to assess a company’s competitive position and to create strategic planning. It stands for strengths, weaknesses, opportunities, and threats. The SWOT analysis evaluates internal and external variables as well as present and anticipated future situations.

A SWOT analysis is intended to help you take a practical, fact-based, and data-driven look at the advantages and disadvantages of a company, its efforts, or its sector. The organisation must avoid preconceived notions or grey regions and concentrate on real-life circumstances in order to maintain the analyses’ accuracy. Companies should use it as a reference rather than a strict prescription.

Balanced Scorecard

A balanced scorecard framework helps organisations optimise their internal processes to enhance their external output. It uses historical performance as a key indicator and suggests different ways for companies to make informed decisions in future.

A balanced scorecard has four points: learning & development, company processes, customer perspectives, and financial data. Since the vision and strategy of a corporation are formed on these four components, it becomes important for the company leadership to analyse the information gathered through this scorecard.

Why is Strategic Management Important?

Strategic management is important because it guides organizations on how to meet their long-term goals. 

1. It instils agility in organizations to deal with external environments & change.
2. Strategic management enables organizations to evaluate their current performance and devise ways to improvise.
3. Having a strong strategy based on deep market research helps organizations remain competitive, as well as identify opportunities for growth.
4. Strategic management improves efficiency by helping organizations align their goals with resources.

Strategic management has a significant impact on businesses. An effective strategy can lead to increased profitability, improved competitive advantage, better customer relationships & increased organisational efficiency & productivity. 

It can also help to attract and retain talented employees, identify and develop new markets, and ensure the sustainability of the business. A successful strategy can lead to improved efficiency, better decision-making, and higher employee morale. Overall, strategic management can help businesses to be more successful and competitive in their respective markets.

Real Life Examples of Strategic Management

A good example of strategic management in real life is Starbucks. In 2008, Starbucks faced strong competition from fast food chains like McDonald’s and was affected by the ongoing financial crisis.

To solve this issue, Starbucks implemented the “My Starbucks Idea” programme, where customers could directly share feedback and suggestions with management. By listening to their core audience, Starbucks gained valuable insights into what truly mattered to their customers.

This strategic move led to several changes that improved the customer experience. Free Wi-Fi, comfortable seating, and the popular rewards program were all born from this initiative. By focusing on what its customers valued, Starbucks was able to turn things around and solidify its market position.

Here’s how Starbucks’s strategic moves align with SWOT analysis.

SWOT Analysis:

• Strengths: Brand recognition, loyal customer base, global presence.
• Weaknesses: Limited menu options, high prices compared to competitors, long wait times.
• Opportunities: Improve customer experience, expand product offerings, leverage technology.
• Threats: Competition from fast-food chains, rising operational costs, economic downturn.

Strategic Financial Management

Most businesses struggle with proper management of their finances. Fragmented, disconnected finances result in poor decision-making and a lack of financial visibility.

RazorpayX allows businesses to manage all these functions from one single dashboard.

• Manage payments to employees, customers and vendors
• Manage your current account
• Automate and schedule payments
• End-to-end supply chain management
• Payroll and HRMS management

Frequently Asked Questions