Strategy, a word of Greek origin meaning a military general's knowledge, has been used for centuries yet its sister term, strategic management, is a relatively new concept. Coined in the 1980's by Frederick W. Gluck and his McKinsey Consulting firm colleagues Stephen P. Kaufman and Steven Walleck, strategic management has four basic elements: finance-related planning, forecast-based planning and externally-focused planning. Strategic management is itself the fourth and culminating element.
Whether nonprofit or for-profit entities, organizations must have a financial plan, a budget or a clear understanding of the costs to operate. One of the principal elements of any business plan is the financial element, meaning how much it costs to start the business, the cost to sustain growth and expansion, equity, return on investment, profits, liabilities and cash flow. Likewise, finance is fundamental to strategic management because it underlies the organization's ability to sustain its operations.
Strategic management doesn't rely on organizations becoming stagnant, regardless of whether the intent is to maintain the original plan for product or service delivery. Market volatility, fluctuations in the customer base, technological advances and transition in the labor market are signals that change is inevitable. Consequently, factoring in projections, predictions or forecasts is paramount to the development of a strategic management plan. This element of strategic management can be more complex than the first, finance-related planning phase, simply because discrete skill sets are required to analyze factors that affect the organization's growth or expansion based on external factors, which brings us to the next phase, externally-focused planning.
SWOT analyses are familiar tools for developing a strategic management plan because they require an organization to consider the strengths, weaknesses, opportunities and threats, hence, the SWOT acronym that may separate the successful businesses from the unsuccessful ones. External factors are particularly important to consider when evaluating opportunities and threats. For example, an external opportunity could be labor market availability when developing the strategic management plan for an organization that needs qualified workers.
Similarly, an external threat to an organization may be a competitor that offers high wages and a generous benefits plan that affects your ability to attract the best-qualified candidates. Other external factors are environmentally related, such as demographics or access to the company, for example, a new highway that drives traffic to the business location or road construction that blocks entryways.
When combined, the three elements: finance-related, forecast-based and external-focused planning enable a strategic management plan that moves from the drawing board to implementation. But the work doesn't stop just because you have created a finely tuned strategic management plan. It's only just begun. The implementation of a strategic management plan requires strategic thinking, sound decision- making based on all four elements and top-down support from executive leadership who communicate their vision to staff who often are tasked with the operations that carry out the strategic management plan.