Definition
Strategic management is the process of planning, monitoring, analyzing and assessing a business’s strategy to meet its goals and objectives. It involves the formulation and implementation of the major goals taken by an organization’s top management based on consideration of resources and an assessment of the internal and external environments. Essentially, it’s a comprehensive approach to managing a business to ensure long-term success and growth.
Key Takeaways
- Strategic Management is a comprehensive approach to formulating and implementing a company’s direction and goals. It involves establishing long-term objectives, analyzing the competitive environment, analyzing the internal organization, evaluating strategies, and ensuring that the strategies are rolled out across the organization.
- It includes the strategic planning process during which a company determines its vision, mission, and strategic objectives. This process is critical because it establishes the foundation of the company’s decisions and allocation of resources.
- Strategic Management doesn’t only revolve around planning for future but also includes analysing and adjusting with the changing scenarios or unforeseen circumstances. It’s an ongoing process and assists businesses to continuously remain competitive while adapting to an ever-changing financial environment.
Importance
Strategic management in finance is vital because it provides a roadmap for an organization to align its business activities to its objectives and goals.
It involves planning, analyzing, and decision-making processes to ensure effective management of financial resources and ensure profitability.
Strategic management helps organizations track their financial performance and make necessary changes based on market trends, industry standards, and other financial indices.
It is also crucial for risk management, as it allows organizations to forecast financial risks and to prepare accordingly.
In essence, strategic management allows a company to have a clear financial direction, aiding long-term sustainability and growth.
Explanation
Strategic Management is essentially a tool that entities utilize to ensure they’re progressing in the desired path towards their objectives. Its principal purpose is to provide a structured, systematic approach for solving complex problems and issues related to the direction of an organization. One significant advantage of strategic management is that it enables the organization to integrate all its departments and functions into a cohesive whole, coordinating actions in a way that promotes efficiency and synergy.
Employed correctly, it helps navigate an organization through both predictable and unanticipated changes in the business environment, enabling sustained growth and resilience. Strategic Management plays an instrumental role in determining the firm’s future by defining the vision, mission, and strategic objectives. By employing key techniques such as SWOT analysis, PESTEL analysis, among others, the system identifies opportunities, threats, strengths, and weaknesses pertinent to the organization—thereby facilitating informed decision-making.
This information aids in planning and implementing strategies to leverage opportunities, overcome or platform weaknesses, mitigate threats, and ultimately accomplish the determined objectives. Hence, strategic management is an essential tool, particularly in an unpredictable business environment. Through continuous monitoring and assessment, necessary adjustments can be made in the strategies, ensuring the organization remains adaptively fit and competitive.
Examples of Strategic Management
Starbucks – The company’s strategic management has been key to its success. Starbucks uses a mix of unique strategies that allows them to not only differentiate from competitors, but also increase profits. These include an emphasis on creating a unique and relaxing in-store experience, a focus on ethically sourced and high-quality coffee, and constant menu innovation. Furthermore, the company continuously expands and diversifies its product offerings to keep up with market demands and trends, such as tea, smoothies, baked goods, and even alcohol.
Apple – Apple’s strategic management includes a portfolio strategy, under which they develop and sell a suite of products that integrate with each other, leading to a strong customer base that invests in their entire ecosystem. They also focus on innovation strategy by creating cutting-edge, user-friendly products that consumers are willing to pay a premium for. Apple also capitalises on its strong brand identity and customer loyalty.
Amazon – This online retail giant stands as an excellent example of strategic management. Their strategy of consistently investing in new business sectors and keeping prices competitive has allowed them to dominate the e-commerce market. They have diversified into cloud services, media streaming, electronics production, and even groceries with the purchase of Whole Foods. Amazon also focuses heavily on customer service, offering convenient and quick delivery options, thereby attracting a broad customer base and securing repeat business.
FAQs on Strategic Management
What is strategic management?
Strategic management is a comprehensive approach to formulating and implementing a business’ main goals and initiatives, taking into consideration the company’s resources, the environment in which it operates, and its internal and external situation. It involves defining the organization’s strategy or direction and making decisions on allocating resources to execute these strategies.
Why is strategic management important?
Strategic management is crucial because it promotes business growth, prevents decline, and allows the organization to meet its set goals and objectives. It provides a sense of direction and outlines measurable goals. Strategic management is powerful and can have a significant impact on a company’s performance.
What are the key elements of strategic management?
The key elements of strategic management include Environmental Scanning, Strategy Formulation, Strategy Implementation, Evaluation and Control. Each of these components is considered a step in the process of strategic management.
What is the difference between strategy and strategic management?
Strategy refers to the plan of action designed to achieve a particular goal whereas strategic management is the comprehensive collection of ongoing activities and processes that organizations use to systematically coordinate and align resources and actions with mission, vision, and strategy throughout an organization.
Who is responsible for strategic management in an organization?
Generally, the board of directors and executive management team of an organization are responsible for strategic management. They set directions for the organization, decide on resource allocation, and ensure the smooth execution of all strategies.
Related Entrepreneurship Terms
- SWOT Analysis
- Competitive Advantage
- Corporate Strategy
- Resource Allocation
- Business Model
Sources for More Information
- Investopedia: An extensive source for financial and investment terminology and principles. Find in-depth articles and video tutorials.
- McKinsey & Company: A worldwide management consulting firm with articles and insights about a wide range of financial topics, including strategic management.
- Financial Times: Offers financial news and comprehensive articles on global financial matters. Look out for their in-depth articles about different aspects of strategic management.
- Harvard Business Review: Provides articles and advice for executives on strategic management and other business-focused topics. Premium content may require subscription.
