What Is Strategic Management? Characteristics, Risk, Nature (2024)

What is Strategic Management?

Strategic management is the set of decisions and actions resulting in the formulation and implementation of plans designed to achieve a company’s objectives.

It involves formulating and implementing strategiesthat will help in aligning the organisation and its environment to achieveorganisational goals.

What Is Strategic Management? Characteristics, Risk, Nature (1)

Table of Content

  • 1 What is Strategic Management?
  • 2 Introduction to Strategic Management
  • 3 Strategic Management Definition
  • 4 Nature of Strategic Management
  • 5 Components of Strategic Management
    • 5.1 Strategic Analysis
    • 5.2 Strategic Choice
    • 5.3 Strategy Implementation
  • 6 Characteristics of Strategic Management
    • 6.1 Top management involvement
    • 6.2 Requirement of large amounts of resources
    • 6.3 Affect the firms long-term prosperity
    • 6.4 Future-oriented
    • 6.5 Multi-functional or multi-business consequences
    • 6.6 Non-self-generative decisionsti-business consequences
  • 7 Need for Strategic Management
  • 8 Benefits of Strategic Management
  • 9 Risks of Strategic Management
    • 9.1 Limitation of Assumption
    • 9.2 Problem in Analyzing Environment
    • 9.3 Unrealistic Mission and Objectives
    • 9.4 Problem of Setting Target
    • 9.5 Lack of Commitment of Lower Level
    • 9.6 Problem of Resistance
    • 9.7 More theoretical in Nature
    • 9.8 Problem of Internal Politics
    • 9.9 Problem of Traditional Management
  • 10 FAQ
    • 10.1 What is Strategic Management?
    • 10.2 Strategic Management Definition
    • 10.3 Introduction to Strategic Management
    • 10.4 Strategic Management Process
    • 10.5 Strategic Brand Management Process

Introduction to Strategic Management

What is Strategic Management is exciting and challenging. It makes fundamental decisions about the future direction of a firm – its purpose, its resources and how it interacts with the environment in which it operates.

Every aspect of the organisation plays a role in strategy – its people, its finances, its production methods, its customers and so on.

  • Strategic Management can be described as the identification of the purpose of the organisation and the plans and actions to achieve that purpose.
  • It is that set of managerial decisions and actions that determine the long-term performance of a business enterprise.
  • It involves formulating and implementing strategies that will help in aligning the organisation and its environment to achieve organisational goals.
  • Strategic management does not replace the traditional management

Strategic Management Definition

Different authors have given different definition but the essence is the same. Below are the strategic management definition by authors.

Strategic management is concerned with the determination of the basic long-term goals and the objectives of an enterprise, and the adoption of courses of action and allocation of resources necessary for carrying out these goals.Alfred Chandler, 1962

Strategic management is the set of decisions and actions resulting in the formulation and implementation of plans designed to achieve a company’s objectives.Pearce and Robinson, 1988

Strategic management is a process of formulating, implementing and evaluating cross-functional decisions that enable an organisation to achieve its objectiveFed R David, 1997

Taken together, these definitions capture three main elements that go to the heart of strategic management.

The three on-going processes are strategic analysis, strategic formulation and strategic implementation. These three components parallel the processes of analysis, decisions and actions.

That is, strategic management is basically concerned with:

1. Analysis of strategic goals (vision, mission and objectives) along with the analysis of the external and internal environment of the organisation.

2. Decisions about two basic questions:

(a) What businesses should we compete in?
(b) How should we compete in those businesses to implement strategies?

3. Actions to implement strategies: This requires leaders to allocate the necessary resources and to design the organisation to bring the intended strategies to reality. This also involves evaluation and control to ensure that the strategies are effectively implemented.

Nature of Strategic Management

Strategic Management can be defined as the art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organisation to achieve its objectives.

Strategic management nature is different from other aspects of management. An individual manager is most often required to deal with problems of operational nature. He generally focuses on day-to-day problems such as the efficient production of goods, the management of a sales force, the monitoring of financial performance or the design of some new system that will improve the level of customer service.

Strategic management involves elements geared toward a firm’s long term survival and achievement of management goals.

Components of Strategic Management

In its broadest sense, strategic management is about taking “strategic decisions.” A number of definitions given by various eminent authors are already being given at the beginning of the chapter. In practice, a thorough strategic management process has three main components.

Strategic Analysis

This is all about the analysing the strength of businesses’ position and understanding the important external factors that may influence that position. The process of strategic analysis can be assisted by a number of tools, including:

  • PEST Analysis: A technique for understanding the “environment” in which a business operates.
  • Scenario Planning: A technique that builds various plausible views of possible futures for a business.
  • Five Forces Analysis: A technique for identifying the forces which affect the level of competition in an industry.
  • Market Segmentation: A technique which seeks to identify similarities and differences between groups of customers or users.
  • Directional Policy Matrix: A technique which summarises the competitive strength of businesses operations in specific markets.
  • Competitor Analysis: A wide range of techniques and analysis that seeks to summarise a businesses’ overall competitive position.
  • Critical Success Factor Analysis: A technique to identify those areas in which a business must outperform the competition in order to succeed.
  • SWOT Analysis: A useful summary technique for summarising the key issues arising from an assessment of a businesses “internal” position and “external” environmental influences.

Strategic Choice

This process involves understanding the nature of stakeholder expectations (the “ground rules”), identifying strategic options, and then evaluating and selecting strategic options.

Strategy Implementation

Often the hardest part, when a strategy has been analysed and selected, the task is then to translate it into organisational action.

Go To Section: What is Strategic Management? | Introduction to Strategic Management | Risks of Strategic Management |

Characteristics of Strategic Management

The Characteristics of Strategic Management are as follows:

  1. Top management involvement
  2. Requirement of large amounts of resources
  3. Affect the firms long-term prosperity
  4. Future-oriented
  5. Multi-functional or multi-business consequences
  6. Non-self-generative decisions
What Is Strategic Management? Characteristics, Risk, Nature (2)

Top management involvement

Strategic management relates to several areas of a firm’s operations. So, it requires top management’s involvement.

Generally, only the top management has the perspective needed to understand the broad implications of its decisions and the power to authorise the necessary resource allocations.

Requirement of large amounts of resources

Strategic management requires the commitment of the firm to actions over an extended period of time. So, they require substantial resources, such as physical assets, 20 manpower etc.

Example: Decisions to expand geographically would have significant financial implications in terms of the need to build and support a new customer base.

Affect the firms long-term prosperity

Once a firm has committed itself to a particular strategy, its image and competitive advantage are tied to that strategy; its prosperity is dependent upon such a strategy for a long time.

Future-oriented

Strategic management encompasses forecasts, what is anticipated by the managers. In such decisions, the emphasis is on the development of projections that will enable the firm to select the most promising strategic options.

In the turbulent environment, a firm will succeed only if it takes a proactive stance towards change.

Multi-functional or multi-business consequences

Strategic management has complex implications for most areas of the firm. They impact various strategic business units especially in areas relating to customer-mix, competitive focus, organisational structure etc.

All these areas will be affected by allocations or reallocations of responsibilities and resources that result from these decisions.

Non-self-generative decisionsti-business consequences

While strategic management may involve making decisions relatively infrequently, the organisation must have the preparedness to make strategic decisions at any point of time. That is why Ansoff calls them “non-self-generative decisions.

Read: What is Strategic Management Process?

Need for Strategic Management

Strategic management provides the route map for the firm. It makes it possible for the firm to take decisions concerning the future with a greater awareness of their implications. It provides direction to the company; it indicates how growth could be achieved.

Firms are using strategic management for the following needs:

  1. It helps the firm to be more proactive than reactive.
  2. It provides the roadmap for the firm.
  3. It allows the firm to anticipate change and be prepared to manage it.
  4. It helps the firm to respond to environmental changes in a better way.
  5. It minimizes the chances of mistakes and unpleasant surprises.
  6. It provides clear objectives and direction for employees.

Benefits of Strategic Management

Today’s enterprises need strategic management to reap the benefits of business opportunities, overcome the threats and stay ahead in the race.

The benefits of strategic management is to exploit and create new and different opportunities for tomorrow; while long-term planning, in contrast, tries to optimize for tomorrow the trends of today.

Strategic management has thus both financial andnon-financial benefits:

1. Financial Benefits: Research indicates that organisations that engage in strategic management are more profitable and successful than those that do not.

What Is Strategic Management? Characteristics, Risk, Nature (3)

Businesses that followed strategic management concepts have shown significant improvements in sales, profitability and productivity compared to firms without systematic planning activities.

  • Improvement in sales
  • Improvement in profitability
  • Improvement in productivity

2. Non-financial benefits: Besides financial benefits, strategic management offers other intangible benefits to a firm.

What Is Strategic Management? Characteristics, Risk, Nature (4)

They are;

  • Enhanced awareness of external threats
  • Improved understanding of competitors’ strategies
  • Reduced resistance to change
  • A clearer understanding of the performance-reward relationship
  • Enhanced problem-prevention capabilities of an organisation
  • Increased interaction among managers at all divisional and functional levels
  • Increased order and discipline

Read: What is Value Chain Analysis?

Risks of Strategic Management

Strategic management is an intricate and complex process that takes an organisation into unchartered territory. It does not provide a ready-to-use prescription for success. Instead, it takes the organisation through a journey and offers a framework for addressing questions and solving problems.

Strategic management is not, therefore, a guarantee for success; it can be dysfunctional if conducted haphazardly.

The following are the risk of strategic management:

  1. Limitation of Assumption
  2. Problem in Analyzing Environment
  3. Unrealistic Mission and Objectives
  4. Problem of Setting Target
  5. Lack of Commitment of Lower Level
  6. Problem of Resistance
  7. More theoretical in Nature
  8. Problem of Internal Politics
  9. Problem of Traditional Management
What Is Strategic Management? Characteristics, Risk, Nature (5)

Limitation of Assumption

Strategic management is based on certain assumptions, if that assumption remains good then the plans will be implemented otherwise there be no use of strategic management.

Problem in Analyzing Environment

The success of strategic management depends on the correct analysis of internal as well as external environment. Here especially the external environment scanning is important to grab opportunities which many times does not proved.

Unrealistic Mission and Objectives

If the mission and objectives are not realistic then the strategic management can’t be successful.

Problem of Setting Target

Implementation of a strategy is important if it is not implemented well then there may be the problem, the strategy may not give the desired result.

Lack of Commitment of Lower Level

Generally the strategies are framed by top-level management and at the time of framing if top-level management has not consulted with lower then lower-level management may not be that much committed.

Problem of Resistance

There may be resistance on the part of employees to accept the set target of the top management.

More theoretical in Nature

As per experts opinion strategic management is more theoretical. In practice there are different so it remains unsuccessful.

Problem of Internal Politics

In organizations, there are differences among or between departments. So as there is no good relation, proper coordination, strategies became unsuccessful.

Problem of Traditional Management

Traditional management has a narrow approach towards development. Its philosophy is not progressive; they want to run their business with the same fashion. So the strategies are not fruitful in this case.

FAQ

What is Strategic Management?

Strategic management can be described as the identification of the purpose of the organisation and the plans and actions to achieve that purpose. It is that set of managerial decisions and actions that determine the long-term performance of a business enterprise.
(Read Complete Article)

Strategic Management Definition

Strategic management is concerned with the determination of the basic long-term goals and the objectives of an enterprise, and the adoption of courses of action and allocation of resources necessary for carrying out these goals. – – Alfred Chandler, 1962

(Read Complete Definition)

Introduction to Strategic Management

Strategic Managementis exciting and challenging. It makes fundamental decisions about the future direction of a firm – its purpose, its resources and how it interacts with the environment in which it operates.

(Read Complete Article)

Strategic Management Process

Strategic management processis a method by which managers conceive of and implement a strategy that can lead to sustainable competitive advantage. It is the process of managing, planning, and analyzing in order to reach all organizational goals.

Strategic Management ProcessModel
Steps:
1. Strategic Analysis
2. Environmental analysis
3. Strategic Choice
4. Strategy Implementation
5. Strategy Evaluation and Control

(Read Complete Article)

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What Is Strategic Management? Characteristics, Risk, Nature (2024)

FAQs

What is strategic management and its characteristics? ›

Strategic management is a continual process that evaluates the business of the organisation, analyses its competitors, sets goals to outperform competitors, and then reassesses each plan. Typically, a strategic management process includes the following four steps: Environmental scanning. Strategy formulation.

What is the nature and characteristics of strategy? ›

Strategy is characterized by being long range and action oriented to achieve organizational goals through strategic decisions that fulfill stakeholder expectations. It provides direction while remaining flexible to changes, aims to add value, and prepares organizations to operate successfully in complex environments.

What is the nature of strategic risk? ›

Strategic risk refers to the internal and external events that may make it difficult, or even impossible, for an organization to achieve their objectives and strategic goals. These risks can have severe consequences that impact organizations in the long term.

What is the best definition of strategic management? ›

Strategic management involves developing and implementing plans to help an organization achieve its goals and objectives. This process can include formulating strategy, planning organizational structure and resource allocation, leading change initiatives, and controlling processes and resources.

What is the nature and importance of strategic management? ›

The nature and scope of strategic management can be summarised as follows: It is concerned with defining the organisation's objectives, developing policies, and laying down strategies to achieve them. It focuses on the organisation's overall direction and mobilising resources to accomplish desired goals.

What is the nature of management strategic? ›

Strategic management is a set of managerial decisions and actions that determines the long run performance of a corporation. It includes environmental scanning (both external and internal), strategy formulation (strategic or long-range planning), strategy implementation, and evaluation and control.

What are the nature and characteristics of strategic decisions? ›

Strategic decision making (SDM) is of great and growing importance because of five characteristics of strategic decisions (SDs): (a) they are usually big, risky, and hard-to-reverse, with significant long-term effects, (b) they are the bridge between deliberate and emergent strategy, (c) they can be a major source of ...

What is the nature and characteristics of risk? ›

The four key characteristics of risk include probability, impact, source, and backfire date. Project risks are the result of several factors. They can be situational, time-based, interdependent, magnitude-dependent, or value-based.

What is a nature risk? ›

Nature-related physical risks are a direct result of a dependency on nature. A decline in natural assets - such as air, water, land, minerals and species - impacts financial institutions through indirect transmission channels.

What is strategic management risk? ›

Strategic risk management is the process of recognizing risks, identifying their causes and effects, and taking the relevant actions to mitigate them. Risks arise from inside and outside factors such as manufacturing failures, economic changes, shifts in consumer tastes, etc.

What best describes strategic management? ›

Strategic management is the process of setting goals, procedures, and objectives in order to make a company or organization more competitive. Typically, strategic management looks at effectively deploying staff and resources to achieve these goals.

What is the main purpose of strategic management? ›

What is the Purpose of Strategic Management? Strategic management gives a competitive edge to the organizations and aids in achieving the goals. This gives a futuristic look towards the performance, and the growth becomes sustainable.

What is strategic management best described as? ›

In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment of the internal and external environments in which the organization ...

What is strategic planning and its characteristics? ›

Strategic planning is a process in which an organization's leaders define their vision for the future and identify their organization's goals and objectives. The process includes establishing the sequence in which those goals should be realized so the organization can reach its stated vision.

What are the 5 types of strategic management? ›

The five types of strategic management enumerated from most simplistic to most complex are linear, adaptive, interpretive, expressive, and transcendent.

What are the four key attributes of strategic management? ›

1) It is directed toward overall organizational goals and objectives; 2) It includes multiple stakeholders in decision making; 3) It requires incorporating both short-term and long-term perspectives; 4) It involves the recognition of trade-offs between effectiveness and efficiency.

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