Imagine starting a business, but that business has no direction and no long term goals and objectives.
Sound fanciful? Crazy? Impossible?
Perhaps, but unfortunately in some cases, it’s reality! Some entrepreneurs take their business day-by-day and fail to think strategically about the long road ahead.
A business without long term goals and objectives will fail to focus efforts, know how effectively they are performing in their industry and gain a competitive advantage.
This is just one of the reasons why strategic management is important. Strategic management strategies help businesses to find direction and grow through a process of assessment, evaluation and then development which can help to identify new business goals, set appropriate and achievable objectives, and help businesses to regain a competitive edge.
And in today’s fast moving society strategic management all but doubles in importance as changes – like 2020’s shift to remote work – can happen in an instant. Failing to assess and adapt to changes could be the difference between leading your industry, and trailing behind your competitors – something strategic management aims to prevent.
Let’s take a look at why strategic management is still important in 2021 by breaking down everything business owners need to know about the strategic management process.
What is Strategic Management?
Strategic management is defined as the analysis, assessment, and ongoing planning and monitoring of all the necessities a business needs in order to meet its goals and objectives.
To put it bluntly, Strategic Management is about describing and identifying the areas in which a business may be falling behind competitors, and then improving those areas in order to achieve better performance and reclaim a competitive advantage.
The twenty-first century society we are living in is a fast paced one, and this extends out to business environments and competitive landscapes too. Changes can happen within an instant, and businesses which fail to pivot can fall far behind competitors, damaging their revenue and halting their growth.
This is where the strategic management process can provide great assistance. The strategic management process helps businesses assess their present situation, aids them in the development of strategies, and then helps businesses to both deploy and evaluate the effectiveness and success of the implemented strategies.
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Why is strategic management important?
The below four reasons emphasise why strategic management is crucially important to businesses.
1. Environmental awareness
The strategic planning process involved in strategic management is all but invaluable to a business because it forces top-level management to be aware of changing business environments.
Our world today is fast paced and dynamic, and in a business sense this results in tangible changes like saturated markets full of expanding competition, consumer changes in both morality, taste and preference, i.e sustainability, and also technological advancements such as automation.
Such fast paced and significant changes do two things: Firstly, they open the business to new opportunities if it is well placed to take advantage of these, but secondly they also open the business up to new threats which could damage the business if it has underprepared. Either option leads to potential ramifications if the business has not assessed the environment, nor prepared accordingly.
Using strategic management however, the strategic planning process focuses the businesses attention to the new opportunities and threats and prepares the business to pivot to these by asking fundamental questions such as:
- What are the weaknesses of our organisation?
- What are our company’s competitors currently doing and what are they likely to do?
- Will any of our company’s products require changing?
- What is the cash flow of our organisation?
- What are the capital needs of our organisation?
- Do we possess an acceptable share of the market?
- Is our organisation moving in the right direction?
2. Mission definition
Strategic management also helps to identify the overall mission of the business, something of utter importance to all organisations.
A business mission defines what an organisation is, why it exists, and what its purpose is. In that purpose a mission could relate to either the function, the competitive advantages or the USPs of the business. A mission drives a business, and gives it something to build goals and objectives around.
Comprehensive understanding of an organisation’s mission also enables senior management to be better equipped to deal with an array of fundamental strategic issues stemming from the following questions:
- In what competitive area is our organisation based?
- What are our requirements for success within our competitive environment?
- Is the size of the organisation optimal for achieving success?
- What are our businesses strengths and weaknesses in our basic areas?
- Is our mission appropriate when considering our capabilities, desires and opportunities?
- How can our organisation capture consumer confidence?
- What is our organisation’s ethical posture concerning our consumers, suppliers, employees and creditors?
3. Creates long-range objectives
A third reason that strategic management is so important to businesses is its ability to formulate long term objectives specific to the business.
Statements such as “Our objective is to make a profit” are too generalised, and do not provide a specific enough direction for a businesses activities when compared to objectives such as achieving a 10% return on net capital.
In the strategic management planning process, specific objectives can be defined for sales figures, profit margins, share of market percentages, return on investments, and numerous other factors that top-level management can implement to effectively measure progress.
4. Specifies policies and strategies
Strategic management also helps businesses in specifying important policies and strategies which can make a difference to the deployment of business resources.
Policies and strategies provide a framework, mostly for managers, in which senior management decisions can be made in consistent accordance with the identified mission, defined purpose, and objectives of the organisation.
The significance of specifying the overall master policy or strategy is that it provides an actionable roadmap that senior management can follow in order to continuously survey the business environment, determine the nature of the business, work toward achievable goals and to devise and deploy strategies that achieve sub-objectives that continually achieve organisational purposes.
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What are the five stages of the strategic management process?
The strategic management process comes in five stages, but these stages are more than just a simple roadmap to follow: They are a philosophical approach to the overall cohesion of the business.
The strategic management process works at its most effective and successful when everyone within each layer of the organisation understands the overall strategy.
1. Set goals
The first stage is to define the mission, vision and value statements of the organisation and then set organisational goals which work in conjunction with the identified mission and vision. Defining the business mission and vision can be performed by combining the external analysis of the business environment (PESTEL) with the internal analysis of the business (SWOT).
There are three key steps in this first stage:
- The first is to define both the short and long term organisational objectives.
- The second is to identify how your organisation will accomplish each objective.
- The third is adapt the process for each member of staff by giving an employee a task in which they will succeed. Keeping the goals detailed and realistic will aid this achievement.
The concluding step in this stage is to then craft a mission statement that succinctly details the organisation’s goals to both the businesses staff and shareholders.
The second stage is to gather important information that can be analysed in accordance with its relevance to accomplishing the business mission.
The analytical focus should be that of understanding the needs of the business as a sustainable entity, and identifying both its strategic direction and initiatives that can help the business to grow.
Identify external or internal issues that can affect the business goals and objectives, as well as strengths and weaknesses of the organisation and threats and opportunities that the business could encounter as it grows.
3. Formulate a strategy
The third stage is to formulate a strategy in accordance with the information gathered from the previous analysis, as well as that that was derived from both the PESTEL and SWOT analyses.
To formulate a strategy, businesses must:
- Determine the current resources available to the business that can help it to reach the predetermined goals and objectives
- Identify areas in which the business must seek external resources in order to support its goals and objectives
- Define goals and objectives based on identified strengths and weaknesses of the organisation
- Formulate tactical and realistic plans to achieve the goals and objectives
- Prioritise the tactics that will ensure achievement
- Continue to assess the external environment and adapt to any changes which could affect the organisation in achieving its objectives
4. Implement your strategy
In stage four, the planning stops and the action begins. Businesses can have a thorough plan, but it still will not achieve desired outcomes if the implementation is not seamless.
Strategy implementation affects everyone in the organisation, and so employees must be clearly aware of their particular duties, responsibilities and authorities. If employees feel they are underprepared in set areas, management must provide additional training to help to meet objectives during this stage and resources such as funding should be allocated.
The success in this stage is entirely dependent on employees being given the correct tools and the right support to both implement the plan and also to be engaged enough to make it work.
See our X Best Employee Engagement strategies here.
5. Evaluate the performance of your strategy
Performance measurements are the final, yet most important, stage. Performance measurements help to determine whether key milestones are being met, and help to identify if corrective actions must be taken.
If results are varying from the strategic plan, reexamine the business’s goals or the measurement criteria. Remember that strategic management is about change, assessment and evaluation and it’s about making the correct decision at the correct time.
If the strategy is not working, loop back to Stage 2 and formulate a new plan, or make changes to the organisational structure where necessary. These changes could include retraining employees or even changing duties or responsibilities.
Internal and external issues are constantly evolving, and therefore any data gained in this stage (even if not successful) should be retained because it will help to build the foundations of any future strategies.
Strategic management is crucially important to businesses because it equips them with an incredibly useful tool: Adaptability.
In strategic management processes organisations are encouraged to trial new things, to develop strategies in line with updated or changed business objectives, and most importantly to pivot the business in order to meet these changes. There is no harm or weakness in admitting when something is not working and changing it so that it does, and strategic management benefits businesses with this opportunity so that they can not only survive in their sector, but thrive and most importantly: Grow.
At Growth Idea we know a thing or two about growing businesses, and we’ve helped organisations to unlock their growth potential by understanding and assessing each level of their business. If you want to help your business reach new heights throughout 2021, book your free business strategy review with us today.