What Is Strategic Management? 4 Strategic Management Tools

Strategic management, or strategy management, is the process of formulating and implementing initiatives to achieve an overarching business strategy. The primary goal of strategic management is resource allocation—creating an action plan for how the organization will budget resources to leverage its competitive advantage and achieve organizational goals. Strategic management also involves measuring the success of an organization’s strategy over time and making strategic decisions that align the company’s strategy with its core competencies.

There are many benefits to implementing a strategic management initiative:

• Strategic management provides a sustainable competitive advantage. Proactive strategy formulation results in staying steps ahead of other players, even in the most competitive environments.
• Strategic management leads to more harmony within an organization. Strategic management provides a framework for strategic decision-making that involves high-, mid-, and low-level employees. This can result in a greater sense of company-wide harmony, as employees are less dependent on the chief executive officer (CEO) for direction.
• Strategic management adapts to changes in the external environment. Strategic planning involves preparing for changes in the business environment. It also prepares a company for potential disruptions by anticipating external opportunities and threats by having action plans in place.

There are several types of strategic management frameworks that are useful for developing corporate strategy.

1. 1. SWOT Analysis. A SWOT analysis is an internal analysis tool that businesses use to evaluate internal and external positives and negatives. SWOT stands for "strengths, weaknesses, opportunities, threats." The first two components of a SWOT analysis—strengths and weaknesses—refer to internal factors within an organization. The latter two components of a SWOT analysis—opportunities and threats—represent external factors that might affect the organization.
2. 2. Operational Scorecard. An operational scorecard, also called the balanced scorecard (BSC), is a management system that helps track the performance of a team and the progress of an objective in an organization. This performance measurement system outlines four dimensions for measuring progress—a financial perspective, consumer perspective, internal perspective, and learning/growth perspective. A manager or stakeholder can use an operational scorecard system to track and manage numerous projects or initiatives at once to ensure they are all hitting the right metrics or strategic objectives for optimal strategic performance.
3. 3. Value chain analysis. A value chain refers to the entirety of logistical efforts and processes that a business engages in to produce a completed product or service. Michael Porter, an economic theorist and Harvard Business School professor, created a method of evaluating the value chain in his 1985 book Competitive Advantage: Creating and Sustaining Superior Performance. Businesses can perform a value chain analysis to examine the efficiency and cost-effectiveness of how their systems support one another to create products quickly and economically and maximize profit. Porter's value chain is divided into five primary activities—inbound logistics, operations, outbound logistics, marketing and sales, and service, and four secondary activities that support those primary activities (procurement, human resource management, technological development, and infrastructure).
4. 4. Risk management. Risk management is a type of business initiative used to identify risk—including market risk, safety risk, IT risk, and legal liabilities—and implement management strategies to promote risk reduction.

There are several steps involved in the strategic management process.
1. Evaluate your current strategy. Start by gathering input from senior management and key stakeholders to assess the existing strategies.
2. Perform analysis. Use a strategic management framework, such as SWOT analysis or an operational scorecard, to determine areas that need improvement for your organization to reach its short-term and long-term goals.
3. Formulate an action plan. Clear, actionable steps are crucial to the strategy development process. Clearly define your organization’s goals and the steps required for meeting them, including the allocation of resources, employee training, and key metrics for evaluating success.
4. Implement and execute the plan. A plan is worthless without proper implementation of strategy. Monitor the actions of all stakeholders to ensure the action plan is properly executed.
5. Evaluate the new strategy. After the implementation stage is complete, evaluate the strategy's overall effectiveness. Have the desired metrics been achieved? Revisit the strategic planning process if further improvements are required.

Here’s an example of what the strategic management process could look like:

A beverage company is looking to increase its market share. Company executives decide to launch a new line of flavored water. Before commencing with production, they initiate a strategic management process. They evaluate their current pipeline for launching new products and perform a SWOT analysis. They find that their biggest strengths are in their robust supply chain process, while their weakness lies in their marketing strategy.

The next step is creating a clear and achievable strategic plan to capitalize on the organization’s strengths. Company leadership works with all relevant stakeholders and strategists to create a detailed resource allocation plan, a timeline from initial product development to launch, and metrics for evaluating success (let’s say a five percent increase in market share). They also decide to tweak the organizational structure of the marketing department to promote better communication with other teams. Thirty days after the launch of the new product line, the company reviews the performance of the campaign and makes adjustments accordingly.

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