How to Define the Components of Strategic Management

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If you want your company to be successful, draw up a strategic plan. Why? Because a company with its direction defined by a well-thought-out strategic plan is significantly more likely to achieve its goals.

Strategic plans bring everyone together in the pursuit of common goals. It creates a team effort, rather than all employees working for their individual self-interest.

The seven steps of the strategic management process include the following components.

A Vision Statement

The first component of the strategic management process is a vision statement that describes where you want the company to be in the future—generally the next three to five years. It sets the overall direction of the business and describes what the company does and why it does it.

The vision statement aligns the efforts of employees toward common and focused goals. It inspires the people who work for the company and attracts investors who want to be a part of the organization.

A Mission Statement

While a vision statement addresses the future, a mission statement describes what a company does today. It describes the organization's reason for existing and doing what it does. It defines what the organization wants to accomplish and how it intends to do that.

For example, Harley-Davidson's mission statement says that the company wants to give its customers the best motorcycling experience by offering a complete line of motorcycles and related products and services.

A Statement of Core Values

Core values define the principles and beliefs of how a company deals with its employees, customers and suppliers. They're guiding principles that are part of the strategic plan and never change. It defines good behavior and its business philosophy and prohibits inappropriate courses of action. Better-quality employees are more attracted to companies that share their passions and beliefs.

A SWOT Analysis

A SWOT analysis is an examination of the company's strengths, weaknesses, opportunities and threats. It identifies where the company is now and the issues that need to be incorporated into the strategic plan.

This type of analysis forces management to make realistic assessments of the company's strengths and weaknesses and its ability to achieve its long-term vision and mission. It helps to identify the financial resources and manpower that will be needed to reach the long-term goals.

Long-term Goals

Long-term goals take the mission statement a little further with more details about how the broader goals of the company's mission will be achieved over a three- to five-year timeline.

An example could be a long-term plan to increase revenues by developing and adding more products. The next steps would be to further define the plan with yearly objectives and action plans.

Yearly Objectives of Long-Term Goals

Objectives are the measurable results of the long-term goals as defined by the vision and mission statements. They specify the amount that must be achieved by certain dates and have benchmarks to mark the progress along the way.

Objectives should meet the SMART criteria: specific, measurable, achievable, realistic and time-sensitive.

Action Plans to Drive a Strategic Plan

A strategic plan with a wonderful vision and mission is useless without a plan of action. Action plans are the engines that drive a successful strategic plan. They explain how an objective will be reached.

Action plans contain the details of what must be done, who'll be held accountable and dates for when the work must be completed. Key performance indicators are the metrics that gauge how well the action plans are achieving their objectives.

Strategy formulation refers to the creation of a strategic plan, but it's not a static document. It should be revisited frequently and adapted to changes in the marketplace, consumer preferences and economic conditions. A successful company will use its strategic plan as a guideline for its actions and the participation of employees.