Strategic Management Insight | All You Need To Know About Strategic Management

Strategic Management & Strategic Planning

By Ovidijus Jurevicius | 13.02.2013

Definition

  1. Strategic management can be defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives.”[1]
  2. “An integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage.”[2]
  3. Strategic management includes understanding the strategic position of an organisation, making strategic choices for the future and managing strategy in action.”[3]
  4. Strategic management is defined as the process by which managers of the firm analyze the internal and external environments for the purpose of formulating strategies and allocating resources to develop a competitive advantage in an industry that allows for the successful achievement of organizational goals.”[4]

What is that strategic management?

Various definitions are used to describe the subject, but few give a full and easy to understand answer. The combination of all 4 definitions used previously gives us a much clearer view of what the subject is:

Strategic management is a continuous process of strategic analysis, strategy creation, implementation and monitoring, used by organizations with the purpose to achieve and maintain a competitive advantage.

The general purpose of doing it is to combine the energy of organization’s functional areas into one focused effort to achieve superior performance. It is usually done through the many steps of the process.

In essence, it answers the following 3 questions:

  • Where the organization is at the moment?
  • Where does it want to go?
  • How it will get there?

Strategic management is not about predicting the future, but about preparing for it and knowing what exact steps the company will have to take to implement its strategic plan and achieve a competitive advantage.[5]

The difference between strategic management and strategic planning

Both strategic management and strategic planning terms mean the same! The difference is that the latter one is more used in the business world while the former is used in the academic environment.

According to David,[1] strategic planning is sometimes confused with strategy formulation, because strategic plan is constructed in this stage.

Importance of strategic planning

Requirement for sustained competitive advantage. Competitive advantage is what keeps great organizations ahead of their competitors. Rothaermel[2] pointed out that the company, which has a competitive advantage, performs financially much better than other companies in the industry or better than the industry average. Some companies may achieve it without thorough strategic plan but for the most players out there it is vital to plan strategically, i.e. analyze, create, implement and monitor, and do this continuously. It is not guaranteed that companies will ever achieve competitive advantage conducting strategic planning but it is an essential process if the company wants sustain it.

Views things from broader perspective. The other reason why the organizations don’t simply rely on their finances, marketing or operations functional areas to create competitive advantage is that managers of each area often view things only from their own specific angle[3], which is too narrow view for the whole organization to rely upon. Only the managers (e.g. CEOs or strategic planners) who see the whole picture of the company and its surrounding environments can make the decisions that bring the competitive advantage.

Facilitates collaboration. Nowadays, most companies involve middle managers of functional areas into the process of formulating strategic plan. Middle managers are the people who implement the strategies set out in a plan and if they aren’t involved in making the plan, then they aren’t so committed to support it.

Thus, strategic planning is used to achieve the competitive advantage and to integrate all the functional areas of the company by facilitating the communication between the managers of all levels.

Benefits

  1. Defines a company’s vision, mission and future goals.
  2. Identifies the suitable strategies to achieve the goals.
  3. Improves awareness of the external and internal environments, and clearly identifies the competitive advantage.
  4. Increases managers’ commitment to achieving the company’s objectives.
  5. Improves coordination of the activities and more efficient allocation of company’s resources.
  6. Better communication between managers of the different levels and functional areas.
  7. Reduces resistance to change by informing the employees of the changes and the consequences of them.
  8. Strengthens the firm’s performance.
  9. On average, companies using strategic management are more successful than the companies that don’t.
  10. Strategic planning allows the organization to become more proactive than reactive.

Limitations

Although strategic management brings many benefits to the company it also has its limitations:

  1. The costs of engaging in it are huge.
  2. The process is complex.
  3. Success is not guaranteed.

Above are the reasons why small and medium enterprises are usually reluctant to have their own strategic departments.