All management intends to be strategic — that is, looking at the long-term goals and outcomes and working toward them using current resources. Thinking strategically, however, is a skill set that management needs to develop. It’s easy for new managers to get caught up in the daily issues of a company, which often leads to them neglecting the long-term direction.
The way to ensure that even daily issues are dealt with strategically is to understand the process behind strategic management, develop a company approach to it and make sure the concept plays into every business decision.
Traditional Approaches to Strategic Management
Strategic management provides an overall direction to a company and starts with the executive team defining a clear vision and path for the business. Once long-term goals and objectives have been set, management continues with an eye toward allocating existing resources to specific tasks that will help realize the overall vision.
Having this kind of long-term mission is what enables a company to make strategic moves with its resources rather than simply trying to make ends meet while staying at status quo. It’s an important part of a business’s survival plan, especially in today’s markets where conditions are wildly volatile.
Strategic Management Model
Strategic management needs to extend to all of the departments within a business as well in order to ensure that resources are being used wisely. Operations is one department that does need to divide its attention between daily issues and strategic focus, but even there managers should be aware of what they’ll need to expect in the future, and they also need to pay attention to issues on a broader scale to suggest improvements and changes that can help move toward the bigger picture.
Human resources should take the lead in strategic management, as it is responsible for recruitment, hiring and workforce development. Other department leaders should then follow. It’s best when the management team can work together to prioritize projects and issues and dedicate appropriate resources as needed.
The Strategic Management Process
Current theories list anywhere from five to seven steps that are key to developing the strategic management platform for a business. The process itself is straightforward but involves critical thinking and decision making at every step in order to be effective.
Define the Current State
The first step to developing a strategic platform is to understand where the company is currently. This should include an analysis of both internal (headcounts, operational status, funding and capital, financial statements, etc.) and external (market landscape, competitors, customer relationships, etc.) factors and should capture both environments to provide a good picture of what exists at the moment and what problems or challenges are facing the business at this point in time.
Create the Vision
This step creates what’s known as the vision for a company: an image or description of what the company at its best should be. The vision is an ideal state that defines what the business is working toward and thus the direction to be taken with future changes. It’s usually the business imagined three to five years in the future, in a positive light.
This can usually include a mission statement, which defines the company’s purpose and heart.
State Values and Principles
In this step, the vision is broken down and expanded to create a set of directions that explain how this ideal state can be achieved. Company values and principles are put in place to remind teammates of the core ethical principles on which the business operates. This will tie in with the company’s mission statement and gives a foundation upon which the company can build the path toward its vision.
Set the Objectives
Objectives are the first step in detailing exactly how the company intends to make the vision a reality. These are SMART goals (specific, measurable, achievable, relevant, time-based), spelling out the details and timelines that will need to be met in order to achieve the long-term vision. The objectives should include what will be measured, what constitutes success and an understanding of how each objective will help the company reach that long-term ideal state.
Identify the Challenges
By looking at the company's current state, ideal state, the gap between them and the objectives, the challenges the company may be facing can become clear. The challenges are the things standing in the way of the objectives. They’ll be both internal (limited workforce, inappropriate skill sets, lack of funding) and external (high competition, changing markets, etc.) and should be evaluated by probability and risk to be prioritized appropriately.
Create the Strategies
This critical step is when the company evaluates the objectives and the challenges and determines the most appropriate ways to move from point to point in the direction of the vision. This step digs down into the question of how the company will achieve its goals and consists of the toolbox of methods available to the company to work around the challenges toward fulfilling the objectives.
Implement and Monitor
No strategy will work without proper implementation. Communication is key because teammates at all levels need to understand the company’s vision and goals in order to support them. Management should all be on the same page with regard to the strategy and how it will be enacted.
Likewise, ongoing monitoring is also required: in the short term to correct the direction when things may lean off course, and in the long term since environments might fluctuate in a way that changes the long-term vision. The best strategies are those that evolve over time and year after year to ensure that at all times, the company is continuously improving itself toward a renewed ideal state.
Strategic Management and Data
While moving through these steps, it’s important that the executive management team has appropriate, factual data that will allow them to make informed decisions about the vision, the objectives and the strategic tools.
It will require an understanding of the company’s daily operations, needs and wants as well as a decent picture of the economic market landscape and the company's financial status. The vision should be challenging but also needs to be achievable in order for any strategic plan to work.
Implementation of Strategic Management
So, what happens after a strategic management platform is built and the strategy is put into place? Obviously, the real world is more complicated than any kind of plan, so strategic management also needs to deal with the factor of risk management strategies. Businesses need to be able to manage risks in order to increase their chance of success and decrease the potential of losses in the case of an unexpected condition, upset or surprise.
These strategies determine what happens when there is an upset and how the company will deal with said upset in order to keep business proceeding as normal and the company on its path toward success. These risk strategies can be broken down into two main approaches: proactive and reactive.
Proactive Risk Strategy
A proactive risk strategy works to prevent these upsets from occurring in the first place. It focuses on providing safeguards to protect the company’s value and resources, reducing the probability that certain situations will come about, and the strategy has tools in place to reduce the magnitude of an upset. It involves being able to predict or guess the biggest challenges and upsets the company might face and focuses on being prepared and ready.
The biggest advantage to proactive risk strategies is their effectiveness. Just as fire prevention methods are preferable to having to actually fight a roaring fire, proactive risk mitigation is preferable to a company operating in a constant state of upset. Proactive risk strategies are preferred among most companies.
The main disadvantages of this strategy are twofold: First, the upfront cost of proactive risk mitigation in both capital and resources must be justified. Second, the fact remains that prediction is never 100% perfect, so proactive risk strategies do not remove risk altogether. These two disadvantages combined can mean a company might spend money on proactively mitigating the risks of upsets that never happen. However, most businesses agree that proactive risk management is worth the underlying cost.
Reactive Risk Strategies
Reactive risk strategies are those that wait until upsets occur and then summon resources to mitigate and control the situation. The focus is on past incidents, and measures are installed to prevent similar things from happening in the future, but most of the action waits until there is an upset situation actually happening.
The biggest advantage to these risk strategies is that they take far less time, energy and resources than a proactive approach, and it can be argued that since prediction is never perfect, it’s best to save resources for the actual upsets. The biggest disadvantage to reactive risk strategies is that damage to a company can be done quickly and swiftly, and even with the fastest response time possible, real losses can occur.
Using Both Strategies Is Ideal
Strategically, it makes the most sense for a company to embody both strategies. Proactive risk strategies are the most effective and can prevent much of the damage that comes from an unexpected upset. They should be part of a company’s strategic management package. It’s well worth dedicating resources to this kind of preventative risk plan.
That being said, there should also be a plan for reactive risk management as well for those times when unpredictable events occur. This helps balance the approach to risk management. Being able to quickly swing resources into an unexpected issue also helps minimize the chance of damage being done in the case of an unpredicted company upset.
Importance of Risk Management
Risk management easily fits within a company’s overall strategic management plan. Part of the strategic management process is identifying the challenges facing a company that could prevent it from reaching the ideal state of the vision. These challenges include known as well as unknown obstacles.
Challenges that are identified, such as manpower, funding and market landscape, can be overcome with strategic steps that feed into the objectives set aside in the initial plan. Challenges that are unknown and unpredictable then become risks to be managed by the company’s risk mitigation strategies. Having these strategies helps keep the company moving in the right direction even when things may not play out as planned.
It can be incredibly easy for managers to become caught up in the day-to-day operations of a business and lose sight of the big picture. That’s why it’s important for top-level leaders to ensure there’s a strategic plan in place and to make sure that plan is communicated to and understood by the company’s employees. Strategic management ensures that all the resources a company has are dedicated to one of the objectives that will help the business meet its long-term vision, which benefits employees and managers alike.