In the modern era, corporate managers often face a tricky question: How should they run their businesses, thrive and gain market share, all this without breaking the law? To ensure long-term profitability, company principals draw up sound strategies. Strategic management helps companies reap various financial benefits, including a better understanding of solvency and improved liquidity procedures.
In the global marketplace, increased risk appetite generally reflects improvements in the economy. It is also a vigil for corporate management’s heightened optimism about the future. Strategic management enables a firm to come up with the best strategy and tactics to trump the competition and remain solvent. It involves various work streams, including marketing, research and development, human resources management, sales and financial management. The goal here is to ensure that all these activities are in sync at the corporate level to improve productivity and revenues.
Corporate management does not want to spend time appeasing investor anger after publishing financial reports, let alone explain why rivals are outperforming the firm. To avoid the stigma often associated with a company that consistently posts negative numbers, top leadership seeks revenue-generating ideas that stick. Strategic management helps create an occupational environment in which department heads can take a fresh look at operating processes and not be afraid to make the necessary changes.
Profitability is a major benefit of strategic management. By getting honest, different perspectives from business-unit chiefs, senior executives can adapt their strategic vision based on conditions on the ground. This collaborative, back-and-forth approach helps a company learn more about its clientele and spur sales later on down the road. To gauge profitability, strategy managers use on the corporate income statement, also called a statement of profit and loss.
Corporate management takes a liquidity shortfall as a serious red flag that there really could be trouble coming in the short term. A company that cannot pay its vendors on time runs the risk of losing its preferential status from suppliers. Strategic management helps organizations monitor cash balances and ensure that available cash is in line with long-term goals. It also allows company executives to raise cash if operating activities call for it. To track how much cash a firm has its vaults, management pays attention to the statement of cash flows, also known as a liquidity report.
Strategic management helps organizations put into place the best asset-debt mix to maintain solvency. In essence, department heads and segment leaders review top leadership’s strategic vision to make sure the firm can implement it. They do so by reviewing the company’s assets, liabilities and net worth, all of which are balance sheet components. A balance sheet is also called a statement of financial position.
Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.