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Management strategies are roadmaps that help you navigate the complex and often opaque waters of management. They can provide you with a clear path to follow, whether you’re moving toward specific goals (like increasing a customer base) or attempting to anticipate future challenges.
Management strategy is a set of well-defined policies for accomplishing organizational goals. For example, if you’re the leader of a small business, you might have strategies for controlling costs, increasing revenue, and expanding your operations into new markets. However, the reality is more complicated than that.
A management strategy is a carefully thought-out plan for the future – but it doesn’t have to be a written document or even an explicit set of strategies. It can simply be a set of important goals for your organization. As long as you and your team members are committed to those goals, you can claim to have a valid management strategy.
What are management strategies?
Management strategies are an essential part of any business, large or small – they can be a broad or very specific concept. Broadly, it is the concept of managing a business in such a way that it achieves its goals. More specifically, these strategies are techniques employed by leaders to help guide their organization towards targeted goals.
The implementation of management strategies is used to help businesses accomplish its long-term goals. These goals may include increasing profits, remaining in control of inventory costs, increasing sales, or finding new customers.
What is a strategy?
Strategy can be defined as a system of ideas and methods for achieving a specific goal, especially within an organization, industry, or state. Thus, strategy is the road map for achieving organizational goals. It is the concept and road map that tells us what we should do, how we should get there, and how to deal with the uncertainties and unexpected events that will confront us along the way.
Strategy provides the blueprint for what an organization must do to achieve its goals, which product or service it will produce, how it will compete with other players in the industry, and how it will behave during economic shifts.
A strategy doesn’t necessarily have to be long-term, it could be something as simple as an idea that the manager does or does not implement. But it has to have a purpose. So in the simplest of terms, strategy is the plan of action for achieving your organization’s goals.
The thing about a good business strategy is that it’s not a static document – a great strategy, in fact, never peaks – it’s constantly evolving with the ever-changing environment and pace of your industry, keeping you one step ahead of your competitors.
The word “strategy” is sometimes confused with “tactic.” A strategy is a grand approach that an organization pursues over time. A tactic is a specific action taken in the short run based on the overall strategy.
Strategic management concepts
Strategic management concepts provide the road map for an organization to position itself to market and consumers, and ensure that it follows the right strategy for business success.
Strategic management is a set of operations, strategies, and processes used by a business to ensure it is on the right track to success. This model allows businesses to analyze their current strategy, and determine if it needs to be updated or altered.
Strategic management is a process that consists of several activities, including assessing market attractiveness (through SWOT analysis), business positioning, selecting a business strategy, implementing the strategy, monitoring performance, and modifying the strategy or adding new strategies as required.
Essentially, strategic management is about ensuring that the various components of an organization’s operations align with one another for the organization to succeed.
Strategic planning
Strategy planning provides the direction for the organization. It spells out what will be done and how it will be done to achieve the organization’s goals. It describes a “vision” of where the company will be in five or ten years, and how it plans to get there.
Strategic planning helps you define and achieve your goals. Whether to improve profitability, enhance market share or streamline internal processes, an organization needs a strategy to operate effectively.
It helps with planning by providing a general framework within which specific goals and plans are developed. Strategic planning makes resource allocation decisions by providing an overall macro-picture of where resources should be spent or invested.
The five stages of strategic planning
The overall purpose of strategic planning is to manage an organization in such a way that it achieves its purpose and vision. To do this, you must create a firm-wide consensus about what the organization is trying to accomplish and how it will achieve its goals.
There is a five-stage process to achieve strategic planning within an organization. They are: Goal-setting, analysis, formulation, implementation, and control. We’ll go through every one of them, starting with Goal-setting.
Goal-setting
This is the process by which management determines what it wants to achieve in any given year, and then lays out a series of incremental steps toward those goals. Goal-setting clarifies the vision of the organization.
The goals themselves may be quantitative, such as return on investment targets, or they may relate to qualitative measures such as customer satisfaction. When this process is well done, the plan is easy for employees to understand and internalize, because they’re provided with clear expectations for measuring performance. It’s in the management’s interest to make sure those expectations are realistic.
In the context of goal-setting, incremental steps are often called goals. The most important thing to remember about goals is that they should be measurable. Simply saying “I want to make more money” is an easy statement to make, but not as simple to quantify or track.
As part of setting those goals, you have to write down your objectives as a manager. Such as:
– To bring in new revenues that equal $5 million over the next three years.
– To bring down the gross margin from 33% to 28% over the next five years.
– To cut costs by $2 million.
There should be a list of actions on what each department has to do to meet these goals.
Goal-setting is not just about setting targets but also about accountability, which is why each step needs to be timed, measurable, and verifiable.
Having all the money and time to build or grow a business is not what matters the most; it’s also important to have clear goals that help you know how you will allocate those resources.
Situation analysis
A situational analysis is a review of the forces that affect your business – the external environment you operate in as well as the internal factors that affect your strategic direction. A critical part of this process is identifying all the major stakeholders in your business – not just customers and competitors, but shareholders, lenders, government bodies, suppliers, and so on.
The situational analysis identifies the key challenges and threats facing your enterprise – changes in market conditions or competitor actions that may require a different strategic direction or even threaten your very existence.
It also identifies opportunities to grow or improve your business – factors such as changes in customer needs, emerging technologies, and new government policies. This information will dictate the overall strategic direction of your enterprise.
It’s important to understand what’s going on – what trends are driving your market and how your company is positioned within it.
A situation analysis evaluates the current situation. It gives a clear picture of the organization’s situation, where it stands in the market and its future outlook.
To improve the company’s performance and strengthen the market position, it is essential to have a clear idea of the company’s strengths and weaknesses.
The company situation analysis confirms the current strengths and weaknesses of your business, which in turn helps in identifying areas of improvement.
Situation analysis is essential in management strategies as it gives you a view of the current situation and helps you set goals for the future to achieve. It is definitely essential for organizations that want to be prepared for what is ahead. You can use situation analysis to evaluate different scenarios and find the most likely outcome.
When creating scenarios, the steps you take are:
1. Look at the Information you already have.
2. Assess new information.
3. Come up with scenarios based on your information.
4. Choose an appropriate option out of your chosen scenarios (this may be adapting your existing policies as they are or changing them depending on what the new information reveals).
5. Monitor the results, adjust if necessary, and keep moving forward.
The first part of the situation analysis is a SWOT (strengths, weaknesses, opportunities, and threats) analysis. It is an analysis method that has been in practice for a long time and has proven its worth thousands of times. This analysis method helps identify key opportunities and threats that affect the company.
SWOT analysis also helps identify internal and external opportunities, and threats (competition) for the company. To understand the context of the situation, it is crucial to analyze the state of competition, as this will provide a good indication of what a company can hope to achieve. A competitive analysis is nothing more than an examination of the company’s direct competitors.
Many other relevant tools can be applied in addition to SWOT, depending on the circumstances at hand, including:
1. PEST analysis – Political, Economic, Socio-cultural, and Technological factors affecting our environment.
2. Core competence analysis – A rigorous analysis of the company’s competitive advantage and ability to outperform competitors in a given market segment.
3. Porter’s five force analysis – A framework to understand how powerful or influential a company or a particular market segment can be.
4. Market segmentation and scenario forecasting – A powerful methodology to evaluate the evolution of submarkets and their potential for growth or decline.
Other steps in creating a situational analysis is to collect all of your current information. This includes statistics, forecasts, reports, and other relevant data (PEST or PESTLE analyses can be useful in this context). Next, look at any new data – focus groups or interviews that you may have done, they would all be pertinent data here. Once you have looked through your old and new data, create a list of potential scenarios based on your data. Choose one that is most likely to come true from these scenarios and develop policies based on that scenario. Monitor the situation as it develops and adjust the policies if necessary.
Strategy formulation
Strategy formulation involves making choices among alternative courses of action to achieve a particular objective. Thus, strategy formulation is necessary when there are many possible courses of action which could be taken to achieve a particular objective.
To some degree, choosing the most appropriate strategy is a matter of experience, good management, and trial and error.
Businesses can choose to develop products or services they hope will appeal to customers. If a company develops a unique product or service that no one else has, and enough people support it till it becomes a successful business, it is classified as having ‘created’ its market. The classic example is the Apple iPod digital music player introduced in 2001. No one had made a device like it before, and suddenly iPods were all the rage.
The selection of a strategic course of action involves identifying objectives that the organization should be pursuing, identifying alternative strategies for achieving those objectives, and selecting among the alternatives that will allow the firm to best achieve its objectives. Importantly, strategy formulation requires managers to balance the chance of successful implementation with the potential advantage that will be gained if the course of action is implemented successfully.
The formulation of strategies involves a process that allows businesses to identify the multiple choices that are available and the range of potential outcomes. It’s an exercise that requires analyzing a broad range of factors that need to be considered in the context of the environment in which you are operating. The strategy formulation process has five main stages:
1. Identification of the business goal.
2. Assessment of the market situation.
3. Analysis of alternative courses of action.
4. Segmentation of options into those acceptable and those not acceptable.
5. Formulation of the chosen strategy.
Another similar effective way of creating strategy formulation involves the following activities:
1. Defining the purpose of the business activity.
2. Understanding the current situation.
3. Identifying the core competencies appropriate to the situation.
4. Formulating alternative courses of action.
5. Evaluating what is required to implement each strategy.
6. Selecting a course of action and measuring its performance.
Strategists may choose to do some or all of these, with the level of detail depending on the nature of the situation and the strategic issues at stake.
Strategy implementation
The fourth phase of the planning process is strategy implementation. After you’ve developed a strategy, you must transform it into tasks and a time frame to complete them. You can’t manage what you don’t measure, so it’s important to set specific goals and performance metrics to know whether the strategy is actually working.
You can never overestimate how important it is to have a solid implementation plan in place. It’s not uncommon for companies to have an effective plan in place, only to at the execution stage due to lack of planning and attention on the implementation front.
Mastering the strategy implementation phase can be a challenge, because you’ll need to take the broad view of the organization and progress made thus far and apply it to the day-to-day, concrete details of your business. The implementation phase is about putting the actions back into your strategic plan and actually accomplishing them.
Implementing a strategy is an eight-step process:
1. Map out the specific steps to reach the desired outcome. This task is tactical in nature, but it’s essential to successful implementation.
2. Set expectations and create an official timeline. Strategy time frames run from short to long-term, with short-term usually lasting a year or less and long-term strategies lasting more than a year. For example, if your company is looking to move into a new market, a long-term strategy might take several years to mature. If your company is looking to launch a new product line, that product launch would happen within one year or less and is considered a short-term strategy.
3. Decide whether you’ll use a top-down or bottom-up approach – With this step, you’ll decide whether you’ll implement your strategy from the top-down (executive leadership) or the bottom-up (employee-led teams). This decision hinges on your company’s size. Large companies with multiple levels of management typically implement strategies from the top down, while small companies use bottom-up teams.
4. Determine where the strategy will be executed and identify what needs to be done, how long it will take, who will do it and what it will cost.
5. Work with all tools at your disposal – checklists, meetings, and online collaboration tools to ensure everyone is on the same page.
6. Reassess your time frame and strategy as you encounter new information along the way.
7. Determine key performance indicators to track success. A KPI is a crucial tool for determining whether your implementation is on-target
8. Determine how you’ll fund the implementation activities.
Strategy evaluation
Strategy evaluation helps you determine whether you’re on track to achieve your objectives. The final stage of the strategic management process concerns evaluating and learning from the inputs and outputs produced by the other four stages. Strategic evaluation looks at how effective a company’s strategies have been in achieving their initial objectives and the benchmarks they set for themselves. It also helps identify whether the strategy needs to be adapted to achieve greater results.
After implementing your strategies, your company will begin to face challenges and obstacles that will influence your tactics and plans. At this stage, it is important to determine if the strategies are working and whether you need to make adjustments.
First, you’ll confirm or challenge whether the objectives are still viable. If they are, you will assess whether the strategy is working as expected. If the scenario has changed, then it’s time for you to update the objectives and revisualize your strategy. Remember, the strategy is a living, breathing framework that can be updated at any point.
A strategy’s success is measured by how it meets the goals that you set out to achieve.
If the strategy is working as expected, you should be hitting all or most of your benchmarks. But if your strategy isn’t producing the desired results, you need to evaluate it and determine whether it should be modified or scrapped altogether if necessary.
Sources of error in strategies
The best strategies are forged from a deep understanding of your business environment. And the very best are always driven by some form of vision and a solid strategy to deliver on it. Many businesses get this far successfully, but then allow common errors to creep in before implementing their strategy.
Poor analysis is a common source of error in strategy – of all the errors in strategy, the least recognized and most damaging are probably those errors in error analysis. If you don’t find out where and how you go wrong, you’ll continue to do so again, and again.
You can’t create a good strategy without first conducting a good situational analysis.
Another commonly made error when it comes to developing a strategy is simply not to do it. But if you’ve decided to incorporate a strategy into your decision-making, then avoid the error of focusing on “means” rather than “ends.” There must be a clear and logical connection between the intended objective and the strategy you’re formulating to achieve it.
The most common problems in a strategy fall into four categories:
1. The strategy doesn’t solve your problem
2. The strategy is not aligned with your business mission
3. The strategy doesn’t have a clear objective
4. There are gaps and weaknesses in the strategy.
Benefits of strategic management
One of the key benefits of strategic management is increased profitability. Strategic management can develop the organizational capabilities to deliver superior product and customer value that results in greater profitability than what a firm could achieve through traditional forms of management. There are several ways through which strategic management can result in increased profitability. It can increase revenue, decrease costs, or both.
Another key benefit of strategic management is that it ensures businesses have the right goals in place, and the resources necessary, to ensure that they are moving towards those goals in the most efficient manner.
Small businesses typically do not survive because they do not know how to manage themselves. Other times the businesses fail because there is no strategic direction from the owners, who may not know how to run a business or even be sure what their business should look like.
Strategic management is an approach that ensures small businesses have a clear direction so that it’s more likely to survive and achieve its goals. It’s an important part of business management, and has a wide range of benefits for an organization. For example, strategic management creates a structure for the organization, as well as determines the kind of products and services that it offers.
Strategic management also benefits companies by increasing their competitive advantage and allowing them to maintain control over their business.
Businesses involved with strategic planning are more aware of external competitors’ threats facing the business as well as their own strengths that can help them sustain those threats or attacks.