Strategic Management Process – Meaning, Steps and Components
The strategic management process means defining the organization’s strategy. It is also defined as the process by which managers make a choice of a set of strategies for the organization that will enable it to achieve better performance.
Strategic management is a continuous process that appraises the business and industries in which the organization is involved; appraises its competitors, and fixes goals to meet all the present and future competitors,s and then it enables the org. to reassess each strategy.
The strategic management process has the following four steps:
- Environmental Scanning– Environmental scanning refers to a process of collecting, scrutinizing, and providing information for strategic purposes. It helps in analyzing the internal and external factors influencing an organization. After executing the environmental analysis process, management should evaluate it on a continuous basis and strive to improve it.
- Strategy Formulation– Strategy formulation is the process of deciding the best course of action for accomplishing organizational objectives and hence achieving organizational purpose. After conducting environment scanning, managers formulate corporate, business, and functional strategies.
- Strategy Implementation– Strategy implementation implies making the strategy work as intended or putting the organization’s chosen strategy into action. Strategy implementation includes designing the organization’s structure, distributing resources, developing the decision-making processes, and managing human resources.
- Strategy Evaluation– Strategy evaluation is the final step of the strategy management process. The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance, and taking remedial/corrective actions. Evaluation makes sure that the organizational strategy, as well as its implementation, meets the organizational objectives.
These components are steps that are carried, in chronological order, when creating a new strategic management plan. Present businesses that have already created a strategic management plan will revert to these steps as per the situation’s requirement, so as to make essential changes.
Components of Strategic Management Process
Strategic management is an ongoing process. Therefore, it must be realized that each component interacts with the other components and that this interaction often happens in chorus.
Environmental Scanning – Internal & External Analysis of Environment
The organizational environment consists of both external and internal factors. The environment must be scanned so as to determine the development and forecasts of factors that will influence organizational success. Environmental scanning refers to the possession and utilization of information about occasions, patterns, trends, and relationships within an organization’s internal and external environment. It helps the managers to decide the future path of the organization. Scanning must identify the threats and opportunities existing in the environment. While strategy formulation, an organization must take advantage of the opportunities and minimize the threats. A threat for one organization may be an opportunity for another.
Internal analysis of the environment is the first step of environment scanning. Organizations should observe the internal organizational environment. This includes employee interaction with other employees, employee interaction with management, manager interaction with other managers, and management interaction with shareholders, access to natural resources, brand awareness, organizational structure, main staff, operational potential, etc. Also, discussions, interviews, and surveys can be used to assess the internal environment. Analysis of the internal environment helps in identifying the strengths and weaknesses of an organization.
As business becomes more competitive, and there are rapid changes in the external environment, information from the external environment adds crucial elements to the effectiveness of long-term plans. As the environment is dynamic, it becomes essential to identify competitors’ moves and actions. Organizations have also to update the core competencies and internal environment as per the external environment. Environmental factors are infinite, hence, organizations should be agile and vigil to accept and adjust to environmental changes. For instance – Monitoring might indicate that an original forecast of the prices of the raw materials that are involved in the product is no more credible, which could imply the requirement for more focused scanning, forecasting, and analysis to create a more trustworthy prediction about the input costs. In a similar manner, there can be changes in factors such as competitors’ activities, technology, market tastes, and preferences.
While in external analysis, three correlated environments should be studied and analyzed —
- immediate / industry environment
- national environment
- broader socio-economic environment / macro-environment
Examining the industry environment needs an appraisal of the competitive structure of the organization’s industry, including the competitive position of a particular organization and its main rivals. Also, an assessment of the nature, stage, dynamics, and history of the industry is essential. It also implies evaluating the effect of globalization on competition within the industry. Analyzing the national environment needs an appraisal of whether the national framework helps in achieving competitive advantage in the globalized environment. Analysis of macro-environment includes exploring macro-economic, social, government, legal, technological and international factors that may influence the environment. The analysis of an organization’s external environment reveals opportunities and threats for an organization.