The Importance of Strategic Management Vs. Strategic Planning

Strategic management and planning are key to a company's success, right? They must be, because according to the 2009 Harvard Business Review article “Four Fatal Flaws of Strategic Planning,” 88 percent of organizations participate in some form of strategic planning. The problem is that companies make mistakes when formulating and managing strategies that significantly diminish the effectiveness of these two processes. Because the failure of a strategy in part is due to planning and management processes, it's helpful to understand these processes and their importance to an organization's long-term success.

Companies complete strategic planning activities to create a mission statement, establish operational and financial objectives, allocate resources, align operations to accomplish the organization's mission and ensure that stakeholders – entities or people with an interest in the company -- are working toward common goals. The strategic planning process leads to decisions and actions that define what an organization does, the customers it serves, how the organization completes required activities and how the company will measure success. At particular intervals, leaders periodically assess the company's operating environment and repeat the planning process to ensure the strategic plan remains an effective operational guide.

Strategic planning is the first phase of the strategic management process. You can create a strategic plan in three fairly simple steps. First, create a mission statement that describes the central purpose of the organization and its goals and a vision statement that focuses on the future direction of the company. These two statements are the framework of the strategic plan. Next, define financial and strategic objectives. For example, financial objectives may include increasing the return on investments or the achievement of a positive cash flow. Strategic objectives may include achieving a certain market share or lowering costs by a particular percentage. After objectives are defined, perform an internal analysis of a firm's strengths and weaknesses and an external analysis of opportunities and threats. Also, complete an industry analysis to identify rival firms and customers. Use this information to plan the business strategies by matching your company's strengths to its opportunities and finding ways to counter company weaknesses and external threats.

When a company gains an advantage relative to its competitors, such as its product offering or cost structure, the business may be able to acquire and retain more customers, generate higher sales volumes or achieve greater profit margins. To gain an advantage, an organization relies on a goal-driven strategic-management process to analyze its current capabilities and its operating environment, identify long-term threats and opportunities, and marshal the company’s resources to address them. Strategic management maintains the alignment of a company’s activities and resources with its vision, mission and strategy to improve financial and operating performance. It provides a means to convert a strategic plan to a framework that provides feedback for decisions and actions and allows the strategic plan to evolve as a company’s operating environment, objectives and operating requirements change.

The first step of the strategic management process is strategic planning, which requires your company to develop a vision and mission, identify priorities and develop an action plan. The implementation stage comes next. At this point, you define short-term goals, functional strategies and success measures, and identify and implement an appropriate structure that will best support your strategies. After the strategies are implemented, the evaluation process begins. You use performance measures to monitor the company's success in accomplishing short-term goals and its progress toward long-range goals. Along the way, you take corrective actions and adjust the strategy, if necessary.