Anyone who wants to steer an organization safely and successfully into the future needs a "north star" or a strategy. Regardless of the type of organization or the state of the wider economy, a clear strategy increases the likelihood of achieving success, however that term is defined.
TL;DR (Too Long; Didn't Read)
Management strategies are a collection of processes that businesses use to ensure their activities remain aligned to the company's mission, objectives and strategic plan.
What are Management Strategies?
Management strategies, at their most boiled down, are a series of techniques for controlling and directing a business to achieve a set of predetermined goals. They include strategies for goal-setting, leadership, business administration and operational activities.
Management strategies exist because, in the long-run, organizations can only achieve top performance if they have a clear strategy in place and the strategy is anchored throughout the company. Otherwise, the ship would be driving forward with no clear direction, potentially toward the iceberg. A strategy lays the foundation for success by:
- Determining the goals and objectives of the organization.
- Establishing the timeline for achieving those goals; short, medium or long-term.
- Establishing the resources necessary for carrying out those goals.
Providing a clear sense of direction for the company and its employees
employees can better see how their daily activities fit into the organizational plan. Providing consistency and discipline in the way that managers manage, so decisions are not made in a vacuum. Allowing managers to orient themselves in uncertain conditions, such as increasing digitization or regulatory change.
What is a Strategy, Anyway?
Anything that a manager does, or consciously chooses not to do, to achieve the organization's goals is a strategy. It provides the blueprint for what the organization will do, what type of business it wants to be, how it will make decisions, how it will optimize its strengths and reduce the impact of its weaknesses and how it will behave toward its customers, employees and stakeholders, among other things.
Within this broad definition, there are three features that all management strategies have in common. First, a strategy will deal with long-term objectives rather than one-time or routine incidents. For example, problem-management strategies will devise ways to investigate and fix the root cause of problems so the business can improve its performance over time, rather than just troubleshooting individual problems as they arise. Second, a strategy will provide a clear road map for getting the company from where it is now to where it wants to the future – there must be a clear connection between the strategy and its intended objective.
Third, a strategy will take into account the likely behavior of competitors, customers and employees. Organizations cannot predict the future, but by anticipating what customers and competitors will do next, the business can attempt to put itself in front of its rivals.
The Five Stages of Strategic Planning
There is no universal model for developing management strategies. The one that is perhaps the most well known proposes a five-stage process, namely:
- Situational analysis.
- Strategy formulation.
- Strategy implementation.
- Evaluation and control.
The benefit of the five-stage model lies in its thoroughness. By focusing on goal-setting and analysis to understand the needs of the business, the model ensures that the resulting strategies are both realistic and are firmly tied to the organization's strengths, weaknesses and operating environment. The model is envisaged as a continuous activity, with lessons learned from the evaluation stage feeding back into future goal-setting.
Goal-Setting: Clarifying the Vision
Where is the business now, and where does it want to be? This is the starting point of goal-setting. The idea is to define:
- Core objectives or what the company stands for (mission, vision, core values, strategic focus areas).
- The process of how to accomplish each objective (improving service delivery standards, breaking new markets, cutting costs, improving results, reducing risk, improving team relationships and so on).
The balanced scorecard is a useful tool for goal-setting. This is a visual depiction – a literal scorecard – of around 10- 20 items or goals that the business wants to achieve. The goals fall into four categories: customer (improve loyalty, satisfaction or repeat business), financial (revenue targets, return on investment), internal (efficiency, risk management, quality, innovation and other business capabilities) and growth/learning (corporate culture, staff engagement and development).
The idea is to connect the dots between the big-picture objectives and the operational elements, so you can develop specific action plans for your departments, work functions and teams.
Situation Analysis: Where Do You Stand in the Market?
A situation analysis evaluates the company's internal environment (resources, strengths and weaknesses), external environment (state of the industry, regulation, economic conditions, labor market and so on) and competition, to give a clear picture of the organization's situation in the market.
A good place to start is by doing a SWOT analysis, looking at the company's Strengths (e.g. assets, resources, knowledge, good reputation), Weaknesses (e.g. high production costs, limited service line, limited marketing budget), Opportunities (e.g. government incentives, local business partnerships, strong market growth) and Threats (e.g. discounting by competitors, increasing supplier costs, technology and systems becoming obsolete). When doing a SWOT analysis, you look at both internal and external factors to figure out the company's critical success factors and potential profitability.
Many other tools are useful in this context, including the PEST or PESTLE frameworks, Core Competencies, Porter's 5 Forces, Market Segmentation and Scenarios Forecasting. Articles on how to run these analyses are readily available online.
Strategy Formulation: Choosing the Best Strategy
Strategy formulation is the process of choosing the best and most appropriate course of action to achieve an objective. Most businesses can think of multiple ways of getting from point A (where they are now) to point B (where they want to be) but some alternatives invariably will be better than others in terms of cost, acceptance and performance.
Think about setting hard endpoints when selecting a strategy. It's a good idea to fix some numbers or other targets to the objective so you can evaluate performance as you weigh one alternative against another. Benchmarking is a useful tool. This allows you to agree on some quantitative and qualitative criteria for assessing performance.
For example, you might measure things like units sold, revenue, net profit, return on investment, earning per share and cost of production (quantitative criteria) as well as flexibility, response to change, skill acquisition, employee motivation and other intangibles (qualitative criteria).
Strategy Implementation: Time for Action
Strategies are just ideas until you put them into action. During the implementation phase, you'll take the management strategies you've developed and operationalize them. This involves setting specific operational activities, establishing a realistic time frame for task performance and allocating a budget to the task.
Managers who have devoted a lot of time and effort to selecting the right strategy may feel they have every reason to be confident about the strategy's success but, in reality, implementation is a complex and demanding process. There may be weak senior-level commitment, budgetary pressure or ambiguity in job functions. There may be a lack of accountability or resistance to the change. Whatever the challenge, you're going to need to align people of all levels to the strategy. Some tips include:
- Communicate widely and openly.
- Ensure clearly defined tasks and responsibilities so everyone knows what is expected of them and what needs to be done.
- Put the focus on the consistent implementation of activities.
- Promote the team spirit ("We're all in this together").
- Closely control the process, so that deviations from targets are detected early and countermeasures are quickly put in place.
Strategy Evaluation: Has it Worked?
The final stage of the strategic management process sheds light on how effective your strategies have been in achieving the desired results. If the strategy is working as expected you should be hitting all or most of your benchmarks. If results are below par then either something has gone wrong in the implementation phase or the strategy itself is poor. In the worst case, you have to go back to the goal-setting stage and re-frame your plans in the light of your results.
Prioritization is key. Most businesses generate more management strategies than they can implement at any one time due to demands on their time and resources. Prioritization is a basic technique that allows you to rank your strategies in terms of their value to the organization and decide what gets done first. Have you overreached by attempting to implement too many strategies at once? Did you fail because of poor prioritization, such that precious resources were spread too thin?
Common Sources of Error in Strategies
A burning desire to achieve a goal does not make a good strategy – it makes for wishful thinking. There must be a clear and logical connection between the intended objective and the strategy you're formulating to achieve it. If you run a situational analysis and there are still gaps and weaknesses in the strategy, it's not yet ready for implementation.
Another source of error is inside-out thinking. This happens when companies look primarily at the technical side of their product and fail to pay sufficient attention to the market and customers. This is how "golden faucets" are made – products that are innovative but just too expensive for consumers. Although innovation is an important source of competitive advantage, a strategy like this would be out of alignment with the customer's priorities.
Beware, too, the bottom-up method of strategy development. Certainly, a good strategy must be broken down for individual departments and functions so that each functional area understands what's expected of it. But if you start at the departmental level and try to put the puzzle pieces together, there's a fair chance that the pieces won't fit. The result is not a coherent strategy, but a patchwork of policies that are cut and sewn together without any sense of cohesion across the entire organization.
The Benefits of Strategic Management
Strategic management concepts provide the road map for an organization to orient itself to its market and consumers, and ensure that it is following the right strategy for business success. This should result in financial and non-financial benefits to the business.
Generally, companies that engage in strategic management should expect to be more profitable than those that forge ahead without a strategic plan. It's much easier to make decisions when you know what the big-picture objective is, and you've already done the hard work of considering both the short- and long-term consequences of your actions. Companies that don't have any meaningful management strategies, by contrast, are often bogged down in small details that don't matter in the great scheme of things.
From a non-financial perspective, organizations that engage in strategic planning are more aware of their competitors and external threats that are facing the business. They know where their internal strengths lie and they understand the link between the actions of managers and the productivity of staff. Strategic management brings order to the organization's activities, so it can systematically drive toward success.