Strategic management talks about how a company can achieve its long-term goals. Competition is increasingly dynamic, and challenges are changing. Technology, economics, geopolitics, and social change have new consequences for the competitive landscape. And it’s all outside the company’s control.
Often, companies cannot rely on past success strategies as a guide for the future. For this reason, strategic management provides the foundation for management towards future success.
In this section, you will study the definition of strategic management, its stages, objectives, and characteristics.
Definition of strategic management
Strategic management is about formulating, implementing, and evaluating strategies. It directs companies to create value and achieve a sustainable competitive advantage. When doing it successfully, we say the company has a strategic competitiveness.
The company builds competitive power by maximizing internal resources and capabilities. Both form core competencies, which not only give the company an edge but are also difficult for competitors to copy.
To build competitive power, companies need to consider the environment in which they operate, including:
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- Broad environment such as politics, economics, social demography, technology, environmental, and legal (PESTEL)
- Competitive environment such as rivalry among existing companies, barriers to market entry and exit, the threat of substitutes, bargaining power of buyers, and the bargaining power of suppliers.
Implementing strategic management requires an understanding of the company’s vision, mission, and values. It also requires a commitment to planning and implementing the strategy.
Various academic texts offer various steps for the strategic management process. And, in general, they cover the following four steps:
- Formulating the company’s long-term goals and future position
- Developing policies and strategies to achieve goals
- Implementing policies in all organizational functions
- Reviewing performance and revisiting performance existing policy and strategy
Formulating vision and mission is the beginning of the strategic management process. The company must know what competitive position it wants in the future. Also, the question companies need to answer is what values will the company build.
The initial process is indeed relatively abstractive and imaginative. Thus, it requires a visionary. The process may require brainstorming among company executives.
After determining the vision and mission, the company audits the company’s position. It is by analyzing the company’s strengths and weaknesses. To do this, the company must also consider opportunities and threats in the business environment. Two tools during this process are SWOT analysis and scenario analysis. This stage must lead to the statement of strategic intent and strategic plan.
Next is implementation. The company will need an adequate allocation of resources. It also needs to establish an appropriate organizational structure. Included in this stage is the determination of short-term targets and tactics that support long-term goals.
Finally, companies must also establish mechanisms for evaluating and re-evaluating policies and strategies. The evaluation will be more frequent for short-term targets and tactics. Furthermore, companies also need to review whether current policies and strategies are still applicable to the current business environment.
The process returns to the second stage. And sometimes, companies may also start from step one because the business environment has changed a lot, for example, because of technology disruption. The change forced executives to rethink their long-term goals.
Strategic management includes a comprehensive and iterative set of processes. The company runs it so that it can systematically coordinate and align resources and capabilities with its vision and mission. The goal is to build a sustainable competitive advantage.
Strategic management activities transform static plans into dynamic and repeatable systems. It provides feedback and harmonizes every decision making in the organization. The process also allows programs to develop and grow in the face of a changing business environment.
Strategic management determines the structure and activities of the organization in the long run. It combines several elements:
- Management processes related to making and modifying strategies.
- Management decisions, especially in utilizing internal strengths to exploit external opportunities and minimize the impact of external threats on the weaknesses of the company.
- Time horizon, which is to focus on creating long-term value rather than short-term. And, it needs to support the alignment of policies, strategies, and short decision making.
- Right organizational structure to support long-term goals.
- Organizational activities, each choice must reflect a long-term strategy.
Why is management strategy important
Some of the leading companies have failed and destroyed. Their competitiveness fails to recognize and respond to changes in the business environment. They are often too satisfied with short-term satisfaction and are reluctant to adapt. They use unrealistic or outdated criteria to assess internal strengths and weaknesses. That makes their old strategy irrelevant to the new business environment.
Strategic management is the foundation to overcome these weaknesses. It acts as a basis for all the company’s critical decisions by preparing future changes. That way, the company could maximize opportunities and minimize threats.
The relationship between competitive advantage and strategic management
Strategic management is a vehicle for future goals. We can say, strategic management is a vehicle to address long-term goals. Meanwhile, competitive advantage is the technology of the vehicle. The better the technology, the easier and faster the company reaches its goals.
Basically, a competitive advantage is about creating value better than competitors. It utilizes the company’s resources and capabilities. According to Porter, two alternative strategies are for producing competitive advantages: differentiation or cost leadership.
Differentiation emphasizes producing products that consumers are willing to pay more for. Companies can achieve this through various combinations of quality, reliability, superior customer service. In short, consumer satisfaction with products lies in the non-price factor.
Meanwhile, the cost leadership strategy is to offer prices lower than the industry average. To do this, a company needs to have a lower cost structure than its competitors. Consumers are satisfied because they can buy at a lower price.
Benefits of strategic management
An increasingly dynamic business environment requires companies to reassess their strategies. In this case, strategy management is useful for:
- Guiding to develop a comprehensive competitive strategy
- Assisting management in formulating sustainable competitive advantages and creating value for stakeholders.
- Providing short-term guidance on what organizations and their employees should and should not do.
- Ensuring short-term achievement does not sacrifice long-term corporate value.