Strategic planning mood board

Strategic management theories: supporting leaders to achieve their business objectives

Modern, turbulent business environments demand business leaders to develop approaches that can respond to change, adversity and unpredictability. Leaders who fail in this endeavour are likely to find their businesses outcompeted, outmanoeuvred, and obsolete.

Top management executives are cognisant of this and are keen to design and develop methods of avoiding this fate. Dynamic capabilities – an organisation’s ability to adapt to the environment in which it finds itself – together with strategic, plan-focused leadership may hold the answer.

What is strategic management?

Successful leaders ensure that company resources are used in the best possible ways to achieve both short-term and long-term business objectives. Strategic management is a universal business strategy which drives the organisation toward these objectives.

Strategic management is the highly organised, continuous process of planning, monitoring, and adapting progress towards a company’s objectives and ambitions. It enables businesses of all types and sizes to evaluate their overall progress and performance and make adjustments to their operations and activities to better align themselves with their goal-orientated roadmaps.

Responsive, continuous strategic management allows businesses to remain resilient in ever-evolving environments and situations. Changes in both internal and external business environments – from staffing issues, to new industry regulations, to shifting customer demands – can happen at any time. A business which can alter its course of action by flexibly leveraging resources, assets and other core competencies in response to change and adversity is well-placed to remain on track and enjoy superior performance, while simultaneously managing its transaction costs.

There are a number of other key benefits to strategic management and strategic decision-making:

  • Stakeholders are aligned with business objectives, facilitating operations and establishing a shared, cohesive corporate culture
  • Businesses are more likely to achieve their desired ambitions, goals, and key performance indicators (KPIs)
  • Performance can be measured, monitored, and managed in line with planned targets
  • Systems, processes, and business units and activities are better aligned with the wider vision
  • Cost savings are made due to better allocation of resources and return on investment (ROI)
  • Businesses are able to develop in a structured manner and grow in resilience, sustainability, and flexibility
  • Key activities and projects such as the launch of new products or services can be prioritised according to the overarching plan.

A direct result of these strategic planning benefits is an increase in competitive advantages. 

What are the main strategic management theories?

There are various schools of thought in the field of strategic management:

  • Profit‐maximising and competition‐based theory – the main business objective is to maximise long-term profit and develop a sustainable competitive advantage over other businesses. This industrial-organisation (I/O) perspective deems external market positioning as the most important factor incompetitiveness.
  • Resource‐based theory – a company’s competitive advantage is found in its internal firm resources, competencies, and capabilities rather than its positioning in the external environment.
  • Survival‐based theory – the concept that an organisation must continuously adapt to its competitive environment if it is to survive.
  • Human resource-based theory – the notion that human factors of an organisation are the most critical elements in the strategic process.
  • Agency theory – the importance of the underlying relationships between company owners and company managers, in this context referred to as shareholders and agents.
  • Contingency theory – businesses should design an appropriate management strategy for the situations and conditions they is no isolated, best approach to organisational management.

Gary Hamel and C. K. Pralahad’s strategic intent theory is based on the concept that ‘Western companies focus on trimming ambitions to match resources.’This strategy only searches for advantages that can be sustained. In contrast, Japanese corporations ‘leverage resources by accelerating the pace of organisational learning,’ a methodology that enables them to conceptualise and achieve bigger goals. Motivating workforces with  global vision reinforced by strong leadership may prove a more useful strategy that doesn’t set its own limitations and constraints.

The key tenets of strategic intent are:

  •   capturing the essence of winning
  •   stability over time
  •   setting targets that inspire personal effort and commitment.

Ultimately, the competitive strategy and theory chosen by any leadership team will differ based on its assessment of what the business requires to reach its goals. Whatever the chosen approach, most businesses will do well to factor in Michael Porter’s three strategies to maximise competitive advantage: cost leadership, differentiation, and market segmentation. Additionally, Porter highlights the importance of evaluating the substitutes of any organisation’s products or services.

What is the strategic management process?

Strategy formulation should underpin and inform an organisation’s business model. It generally includes four key steps which apply to both new businesses and established organisations:analysis, formation, execution, and evaluation and control.

  1. Analysis. First, identify and clarify business intentions in line with the organisational mission statement. Use a SWOT analysis to investigate the correlation between the intentions and current performance, gather data and information from stakeholders, and conduct risk management evaluations. This information, together with a clear idea of company objectives, will inform the strategic approach.
  2. Formation. Design a SMART (specific, measurable, achievable, realistic, and time-bound) action plan based on achieving the objectives to serve as a framework for activities, resource allocation, contingencies, and other considerations.
  3. Execution. Once all stakeholders are up-to-date with the plan and resources are where they need to be, the plan can get underway. For example, business processes in need of restructuring are reorganised in line with the plan and ready to go.
  4. Evaluation and control. Assess progress so far, benchmarking any progress made against the original objectives and goals. Depending on the outcome, corrective action and alternative plans may be required.  

Remember: each action should be purposeful and intended to bring business activities  into alignment with overarching strategic objectives. In-depth research and articles detailing the process – as well as wider expertise in the field of management strategy – can be found in the Strategic Management Journal, the Journal of Management, and other leading international journals.

The balanced scorecard

Robert S. Kaplan and David P. Norton’s balanced scorecard (BSC) provides a quick, detailed insight into overall company performance, enabling leaders to gain an objective view of the firm.

Examining performance through the scorecard’s four key measures – financial analysis, customer analysis, internal analysis, and learning and growth perspectives – offers holistic feedback that allows business owners to make strategic changes in a timely manner. Additionally, it exposes key areas that require urgent intervention and informs how action plans may be revisited and redeveloped in light of organisational performance and health.

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