What Is Strategic Management? Benefits, Process, and Types

Strategic management means looking ahead. It’s not only about addressing today’s problems but also those of tomorrow. Essentially, it helps a company declare its purpose, know its competitors, and set its destination. It provides the framework to build a roadmap, which signifies that every employee and every department is on the same page; cohesion breeds focus and provides a competitive edge. Think of the company as a ship adrift in the ocean, with no clear direction. Now, consider the company as a ship, sailing with a clear destination and a skilled Captain.

The strategic management process is a never-ending cycle of planning, implementation, and assessment that an organization employs to achieve long-term goals. This is a proactive approach that enables the organization to respond to changes in its external and internal environments, thereby increasing its chances of being competitive and successful.

The 3 Main Stages of the Process
This process is generally categorized into three main stages; each stage is a part of a loop that must be realized in the process of strategic management, as strategy remains fluid.

1. Strategy Formulation: This is the stage of planning. During this stage, the organization defines its mission, vision, and objectives. This involves a thorough environmental assessment, which focuses on the organization’s strengths, weaknesses, opportunities, and threats (commonly known as a SWOT analysis). The leadership team then uses the SWOT information to develop a specific, long-term direction for the company regarding what markets to compete in, what products to offer, and how to compete in the marketplace.
2. Strategy Implementation: This is the action stage. After a strategy has been formulated, it must be put into motion. This requires decisions and actions associated with the diffusion of resources, organization composition, and the culture of the organization to support the strategy. As implementation relies on the collective effort to achieve company objectives, it needs to be imbued with a proficient effort in the use of leadership, management of people, organization of resources, and effective communication so that each employee has an optimal understanding of their respective roles to maximize the company objectives.
3. Strategy Evaluation: This is the stage of monitoring. A strategy can only be effective if it’s working. In the stage of strategy evaluation, a company is comparing its performance against its goals. This is done through an evaluation of both internal and external factors, key performance indicators (KPIs), and external compliance. A strategy is a work in progress, continually receiving feedback. This loop establishes the base for the company to adjust toward and bring it back on track. This feedback is constantly evaluated, even if there is no external change, because the goal itself could be unexpected.

Strategic management is essential for cultivating business growth because it serves as the pathway to success for any company. Without strategic management, a business is merely responding to situations instead of taking the proactive initiative. Essentially, it’s the difference between existing as a business and growing as a business.

Gaining a Competitive Advantage
In most industries today, it is imperative for a business to instill in its employees to be one step ahead of its competitors. Organizations today rely on organized, strategic management to help their businesses carefully analyze each market segment, take the business’s strengths from market analysis, and develop a plan to proactively build those strengths into their business model. This is achieved through organizational excellence, examining the weaknesses of competitors, and developing strategies (either by acquiring a unique product, exceptional customer experience, or producing more efficiently) to disrupt the market and develop a sustainable competitive advantage.

Focus Efforts and Resources
Determining the appropriate strategic plan to achieve your desired company goals enables you to motivate everyone, from leadership to staff, to work toward that objective. This will limit waste to the organization from employees (of either money, time, or talent) on activities that are not aligned with your company’s goals for long-term vision. Mobilizing the resource allocation to the mix of things that will likely have the most impact by improving operational effectiveness and return on investment to build ongoing growth.

Adapting to Change and Reducing Risk 
Change is consistently present in the business world, whether from advancing technology, shifting consumer demands, or changing economic conditions. As a dynamic process, strategic management provides a framework for a company to look ahead and prepare for change. By regularly auditing business performance and evaluating the current market, the company can scan for changes and potential threats to the business and the industry in which it operates. This early detection allows the company to adapt and adjust its strategy sooner and help mitigate risk, and put itself in a better position to take advantage of any new trends that might be occurring.

Consider the benefits of strategic management as the master ingredient in the development of a company. It is more than just a cool business word; it is an actual structure that provides a business with a true, tangible differentiation. With a strong strategy, a company can be rewarded for more than just focusing on what to do on a particular day, with fabulous rewards contributing to growth and success.

1. Better Decisions

When a company doesn’t have a strategy, it tends to make quick decisions or react to its competitors, which can lead to inconsistent outcomes and unintended waste. Strategic management provides a straightforward business direction or a strategy with guiding principles that dictate expected business actions. When a company adopts strategic management, one has the means to ensure each major decision (i.e., launching a new product, expanding into new markets, etc.) aligns with the company’s long-term plans/vision. In other words, strategic management takes away the guesswork and leads to choices aimed at consistent and predictable success! 

2. More Proactivity, Less Reactivity

Most businesses spend their time concentrating on reacting to their competitors or the latest market changes. Strategic management works to reverse this situation. Organizations that adopt strategic management rethink the competitive landscape and where they may be in the future. A company focused on observing its competitors through strategic management will outpace its competitors every time that an opportunity exists. Strategic management offers business opportunities to engage in innovative practices, change, and respond to opportunities with an ability to identify business opportunities that competitors do not even see coming!

3. Better Employee Alignment and Motivation 

When employees are on the same page as the company’s strategy, they have a stronger sense of purpose. A well-written strategic management plan explains the objectives of the company while clarifying each component and what each person does to support the objectives of the company. This also develops a more motivated and engaged employee base, as employees will recognize they are supporting the success of a mission they care about.

4. Effective Use of Resources

All businesses have limitations on their resources, be they capital, time, talent, or any other component in the business. A good strategy serves as a lens to help the company filter together all of its initiatives and assists the company in ensuring that it can concentrate attention on the initiatives that return the best return on investment. This focus on the most important initiatives helps to ensure that we do not stretch ourselves too thin on low-priority initiatives. Instead, we can focus much of our precious limited resources on the initiatives that really matter relative to achieving the strategic objectives of the company, and help to ensure the company is getting the most effective use of its limited resources while growing quicker than it would otherwise.

Although the theory of strategic management has a strong framework, its actual worth can be perceived through an example. It is also rather useful to study the examples of the companies that have managed to employ strategy and use it to overcome certain obstacles, innovate, and gain dominance over the market. Let us examine the way the most successful businesses in the world have applied strategic management to stay successful.

Apple Differentiation Strategy 
The one company that has greatly hinged its success on a strong differentiation strategy is Apple. Rather than undercutting the price, Apple‘s strategic management has continually worked towards influencing the development of a coherent ecology, where its products are both technologically sophisticated and aesthetically appealing and incredibly convenient to use.

Corporate-Level Strategy Statement: Be the personal technology leader. Apple was strategic in product diversification, where it made a transition of its products beyond computers (Macs) to music players (iPods), smartphones (iPhones), and wearables (Apple Watches).

Business-Level Strategy: Differentiation. The products of Apple are famous for being unique in terms of design and integration. This enables the firm to charge high prices and develop rabid brand loyalty.

Functional-Level Strategy: The advertising and retail concepts that the company uses are textbook material on this. Their flashy retail stores give customers a unique experience, and their advertising is aimed at the benefits and emotional attachment to the product rather than the specifications of the product.

The DVD-to-streaming transition at Netflix changes
Netflix offers an impressive example of how to change the strategy to a shifting market. The firm began by offering a DVD rental business, which competed with Blockbuster with an improved business model. But their leadership knew that the change towards digital streaming was coming and made a radical strategic shift.

Corporate-Level Strategy: Making the decision to abandon physical media and instead rely on streaming was an ambitious strategic step by Netflix that changed the way the company operates. It evolved to become a technology and content provider as opposed to a logistics company.

Business-Level Strategy: They applied a differentiation strategy through their subscription service that had an immense and ever-growing library of content. Their approach was a totally different manner of consuming media, and it gave them a huge competitive advantage.

Functional-Level Strategy: Netflix’s original content strategy is a significant element of its functional-level strategy. They used their spending power and billions of dollars to produce original movies and series, which created exclusive content that made them stand out among competitors, and decreased their dependency on third-party studios. This farsighted thinking enabled them to take over the streaming market.

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