Strategic Management Process - The Strategy Story

Strategic management is an essential component of business success and involves setting a direction for a company and guiding it toward its objectives. The strategic management process consists of steps designed to identify and implement strategies to help a company achieve its goals.

The strategic management process is not linear but cyclical – each step provides information that feeds into the other steps, making adjustments as necessary.

Everything you need to know about “strategic management”

Here’s an outline of the typical strategic management process:

1st step: Mission and Objectives

The first step in the strategic management process, establishing the mission and objectives, is a foundational step that lays the groundwork for all future strategic decisions.

Mission: The mission statement concisely explains the organization’s reason for existence. It describes what the organization does, whom it serves, and how it differs from similar organizations. A well-crafted mission statement gives employees a clear direction and helps customers and stakeholders understand the organization’s purpose. Here are a few characteristics of effective mission statements:

Customer-oriented: They describe the company’s purpose in terms of the value or benefits it provides to customers rather than describing its products or services.
Motivating: They inspire employees and give them a sense of purpose.
Distinctive: They make clear how the company stands apart from its competitors.

For example, Google’s mission statement is “to organize the world’s information and make it universally accessible and useful.” This explains what Google does (organizes information), whom it serves (the world), and what makes it unique (making information universally accessible and useful).

Objectives: The objectives are specific, measurable, achievable, relevant, and time-bound (SMART) goals that the organization sets to guide its efforts and to provide benchmarks for assessing performance. Objectives should align with the company’s mission and vision. They could relate to various areas like sales, customer service, product development, market share, etc. For instance, a company might want to “increase sales by 10% over the next 12 months.”

Objectives serve multiple purposes:

Direction: They provide direction to the organization and help align the efforts of all departments and individuals.
Performance Evaluation: They serve as a standard against which the actual performance can be measured and evaluated.
Motivation: They motivate employees by setting a clear target for them to aim for.
Resource Allocation: They help decide where to allocate resources based on the more important objectives.

The mission and objectives are critical elements of the strategic management process because they help define where the organization is going (the mission) and how it plans to get there (the objectives). They provide a unifying focal point for the organization and help to guide decision-making at all levels.

2nd Step: Situation Analysis

Situation analysis, sometimes referred to as internal and external environment analysis, is a crucial step in the strategic management process. It allows a company to understand its current context to develop effective strategies.

Situation analysis generally involves evaluating both internal and external factors:

Internal Analysis: This involves evaluating an organization’s internal environment, including its resources, capabilities, and core competencies. It allows an organization to understand its strengths and weaknesses.

Resources: These include the company’s physical, financial, and human resources.
Capabilities: The company can do these based on its resources, processes, and past experiences.
Core Competencies: These unique capabilities give a company a competitive advantage in its industry.

Techniques such as a resource-based view (RBV) or a value chain analysis can be used to perform the internal analysis.

External Analysis: This involves evaluating factors outside the organization that could affect its performance, including opportunities and threats in its industry and the broader environment.

Industry Analysis: This involves examining the competitive forces in a company’s industry. Tools like Porter’s Five Forces model can be useful here. This model considers the competition among existing firms, potential new entrants, substitute products or services, suppliers’ bargaining power, and customers’ bargaining power.
PESTEL Analysis: This tool analyzes broader macro-environmental factors that can impact an organization. It considers Political, Economic, Social, Technological, Environmental, and Legal factors. PESTEL Analysis Framework: Explained with Examples
Opportunities and Threats: Based on the industry and PESTEL analysis, an organization can identify opportunities (environmental conditions that could benefit the company if leveraged properly) and threats (conditions that could hinder company performance). SWOT Analysis: Meaning, Importance, and Examples

The situation analysis results are often summarized in a SWOT (Strengths, Weaknesses, Opportunities, Threats) matrix. The SWOT analysis helps create strategies that align with a company’s strengths and opportunities and address its weaknesses and threats.

Understanding the current situation is necessary for setting appropriate goals and formulating strategies to enable the organization to achieve these goals. This is why a thorough situation analysis is important in strategic management.

3rd Step: Strategy Formulation

Strategy formulation is the third step in the strategic management process and one of the most critical stages. During this step, strategies are developed to determine the direction in which the organization should head based on its mission, objectives, and the analysis of its internal and external environments.

The strategy formulation step aims to create a strategic plan that leverages the company’s strengths and opportunities while addressing or mitigating its weaknesses and threats.

Key activities during the strategy formulation stage often include:

Identifying Strategic Alternatives: Several strategic alternatives can be considered based on the SWOT or PESTEL analysis. These could involve entering new markets, launching new products, alliances with other firms, cost leadership, differentiation, or focus strategies.
Strategy Evaluation: Each alternative is evaluated based on feasibility, suitability, and acceptability. The feasibility analysis checks whether the organization has the necessary resources and capabilities to implement the strategy. The suitability analysis checks whether the strategy would help the organization achieve its objectives. The acceptability analysis checks whether the strategy is acceptable to the stakeholders.
Choosing a Strategy: One or more strategies are determined based on the evaluation. This choice must consider the external competitive environment and the company’s internal capabilities and resources.
Developing the Strategic Plan: This detailed plan lays out the chosen strategy and how it will be implemented. It includes defining the strategic objectives, tactics, timelines, resource allocation, roles, and responsibilities.

Strategy formulation requires a clear understanding of the organization’s mission and objectives, a comprehensive analysis of its internal and external environments, and a good measure of foresight about future market trends and changes.

Once the strategy is formulated, the next step is strategy implementation, where the organization mobilizes its resources and executes the strategic plan. Remember, strategy formulation and implementation should be a dynamic and flexible process that allows for adjustment based on feedback and changes in the business environment.

4th Step: Strategy Implementation

Certainly, strategy implementation is the fourth step in the strategic management process and involves putting the developed strategies into action. It’s the stage where planning meets execution. Although it comes after strategy formulation, it is often considered the most challenging step in the strategic management process.

Here are the key aspects involved in the strategy implementation process:

Mobilizing Resources: At this stage, the necessary resources—financial, human, and material—are allocated to support the strategy. This may involve securing funding, hiring or training staff, or investing in new facilities or equipment.
Establishing Organizational Structure: The organization’s structure may need to be adjusted to facilitate strategy implementation. This could involve creating new departments or teams, changing reporting relationships, or developing new roles.
Executing Strategic Plans: The specific actions outlined in the strategic plan are executed. This includes launching new products or services, entering new markets, or initiating new processes.
Setting Performance Metrics: To track progress and ensure the strategy is moving the organization toward its objectives, key performance indicators (KPIs) are established. These metrics provide a way to measure success and identify areas for adjustments.
Monitoring Progress: Strategy implementation is not a “set it and forget it” process. Regular monitoring is essential to ensure that actions have the intended effect and to identify necessary adjustments. This might involve regular reporting, meetings, or reviews.
Change Management: Strategy implementation often involves change, and managing this change is a critical aspect of this step. This might involve clear communication about why changes are being made, what they involve, and how they will benefit the organization. Additionally, providing training and support to help employees navigate changes can also be a key aspect of this stage.

Strategy implementation requires strong leadership, clear communication, and managing change effectively. It’s the step where conceptual and strategic planning is transformed into practical, actionable steps. Even the most brilliant strategy can fail if it’s not implemented effectively, so this stage is critical in the strategic management process.

Strategy Implementation: Process, Models & Example

5th Step: Strategy Evaluation and Control

Sure. Strategy Evaluation and Control is the fifth step in the strategic management process. It involves the continuous assessment of the progress toward achieving the strategic objectives and determining if the implemented strategy is meeting expectations or if adjustments are needed.

Here are the primary elements involved in this phase:

Performance Measurement: Key performance indicators (KPIs) defined during the implementation phase measure the strategy’s effectiveness. These could be financial metrics (like revenue, profit, and return on investment), customer-related metrics (like customer satisfaction and market share), internal process metrics (like operational efficiency and product quality), or learning and growth metrics (like employee satisfaction, training effectiveness).
Comparing Actual vs. Expected Results: The organization’s actual performance, as indicated by the KPIs, is compared with the expected results or targets. This comparison helps to identify any deviations from the plan and understand their causes.
Identifying Deviations: If there are significant deviations from the expected results, it’s important to understand why these have occurred. Deviations could be due to changes in the external environment (like market conditions, competition, and technology) or internal factors (like resource availability and execution issues).
Taking Corrective Action: Based on the analysis, corrective actions are taken. This could involve making minor adjustments to the strategy or its implementation, or it could require a major overhaul if it’s not delivering the desired results.

Strategy Evaluation and Control is a crucial step that ensures the organization remains on track to achieve its objectives. It creates a feedback loop to the strategy formulation and implementation steps, allowing continuous improvement and adaptation to changing circumstances. Regular evaluation and control help the organization to stay agile and responsive to both internal and external changes.

6th Step: Feedback and Adjustment

Feedback and adjustment are integral to the strategic management process, ensuring the strategies remain relevant and effective in a dynamic business environment. This process is often considered the final step, but it’s part of an ongoing cycle. Here are the key elements of this phase:

Feedback: This involves collecting information about the company’s performance and the strategy’s effectiveness. The feedback could come from a variety of sources, including employees, customers, stakeholders, market research, or the performance metrics defined during the strategy implementation phase.
Analysis: The feedback is then analyzed to identify trends, opportunities for improvement, and potential issues. The organization examines what’s working well and what’s not, whether goals are being met, and whether the strategy is still aligned with the company’s mission and objectives.
Adjustment: Based on the feedback and analysis, the company then makes necessary adjustments to the strategy or its implementation. This could involve fine-tuning certain tactics, reallocating resources, changing processes, or in some cases, redefining the strategy entirely.
Communication: Any changes to the strategy or its implementation are then communicated to relevant stakeholders. This ensures everyone in the organization understands the changes and why they were made, which is crucial for effective implementation.
Continuous Monitoring: After adjustments are made, the company continues to monitor performance and collect feedback, creating a continuous improvement cycle. This ongoing process helps ensure the strategy stays relevant and effective in a changing business environment.

The Feedback and Adjustment phase emphasizes that strategic management is not a static, one-time process but a dynamic, ongoing cycle. It allows the organization to be agile and responsive, adapting its strategies to achieve its goals and objectives in a constantly evolving business landscape.