Strategic Management Demystified – A better approach to strategic management and how you already know how to use it
Strategic management is a topic that sounds very impressive. It conjures images of cross-functional teams dressed in business attire gathered around a table – or maybe facing a whiteboard – analyzing data and applying models in order to make decisions for the company with millions of dollars riding on the outcome. Many of us who practice strategic management as a profession don’t mind perpetuating this image.
Sometimes this is exactly how things play out. But other times, actually most often, the application of strategic management is much more basic. In fact, strategic management, at its core, is so simple that most of us apply it on a daily basis without even knowing it. Understanding how this works is the first step in really understanding strategic management. By doing so, we can build on that understanding and create a better position to apply it in more complex settings.
What is Strategic Management?
Strategic management is the systematic analysis of the factors associated with the external and internal environments of a business to provide the basis for maintaining optimum management practices (Thompson et al, 2010). This is a pretty well-accepted definition and explanation of the topic. Most other definitions will follow along the same lines.
While that definition is very accurate, it is also a little complicated. An easier way to understand strategic management is to simplify the definition: Strategic management means deciding what to do in order to get what you want given what’s going on around you.
How does Strategic Management Work?
As with most concepts, an example can show us what this is all about much better than a definition. Let’s assume that you have a long day ahead of you. You plan to wake up in one city, travel to another, work there attending meetings, and then end the day in your hotel room. During the day, you want to stay connected on your mobile phone, which you know you will be using extensively (calls, emails, Über, etc..). The problem is, between home and your hotel, you will be using that phone more than your battery will last. What are you going to do about it? You have a number of options available to you. You can reduce or limit your use of the phone to only the essentials. You can bring a charging cable with you to plug in where necessary. You can also bring a power bank along in your travel bag to power up on the go when you need to. Simply put, how you answer this question IS your strategy. And, how you make that decision IS strategic management.
In making the decision, you have applied strategic management. You have considered your external environment – where you are and how long you are away from your normal charging opportunities. You have considered the goals that you want to achieve in your optimum management practices – staying charged up and therefore connected throughout the day. Finally, you have considered how you can adjust your internal environment in pursuit of your goals – you decide to bring a charging cable and a power bank along for the trip.
Similar decisions are made by all of us throughout our day. This can mean deciding to bring a snack with you when you know you won’t have time for a proper meal. It can be deciding what to wear for a particular occasion. Strategy can also be seen when you select a golf club for making a particular shot. We use it all the time.
In a classical context, strategic management means applying this exact same logic to a business environment. It can come in the form of deciding on a strategic approach to marketing, to distribution, to recruiting, a competitive strategy, or to any one of a countless number of areas in business analysis and management.
Elements of Strategic Management
The working definition for strategic management is, once again, “deciding what to do in order to get what you want given what’s going on around you.” This definition identifies four elements of strategic management to consider:
- External Environment
- Internal Environment
Goals are what you are trying to accomplish in a given situation. In the definition identified, this is the, “get what you want,” part. The questions to ask and answer for this element include, “What are my objectives?” or, “What am I trying to achieve?”. Some standard business goals include profit, increased market share, new market penetration, bringing a product to market, and growth. Other, more altruistic goals might be raising awareness of social issues or community enhancement. No matter what the goals are, there should be a clear end-state that you want to achieve.
Those goals should be clearly understood and stated while developing a strategy. After all, it is a lot easier to get what you want when you know what it is that you want to get. There are times when we already know what our goals are. There are also circumstances where an important first step in applying strategic management is setting those goals, to begin with.
The external environment is the environment you are operating in that is outside of your organization, and in most cases outside of your immediate control. Customers, competitors, tastes, trends, economic patterns, legal requirements and regulations are all elements of the external environment. In our definition of strategic management, this is the, “what’s going on around you,” part.
Typically speaking, most elements of the external environment are beyond our influence or control. In some cases, they can be influenced; laws and regulations can be influenced through lobbying and political action, markets can be chosen to take advantage of a lack of strong competition or because of existing demand. Usually, however, it us up to us to decide what to do to adapt to the environment we are operating in.
An essential part of strategic management is knowing that environment and understanding how elements of the environment that will have an effect on your chosen strategy. The formal definition of strategic management refers to, “systematic analysis.” That systematic analysis often comes in the form of various frameworks for analyzing and understanding the environment. It can be a simple framework such as SWOT Analysis, or something more complex and detailed to get a comprehensive picture of the operating environment, such as a Five Forces Analysis.
The internal environment is the environment you are operating in that is within your organization and/or within your control. Aspects of the internal environment include employees, resources, processes, procedures, and other things that you are able to decide on.
The internal environment is, in a simplified explanation, what you have available to work with and what you can decide to do. It can be ready on hand or able to be acquired, but it includes all of the elements over which you have influence and control.
Strategy is the final element. In our definition of strategic management, the strategy element is, “deciding what you are going to do.” In consideration of what you want to accomplish (goals), and what’s going on around you (external environment), strategy means deciding what to do and how to do it in the areas you can influence and control (internal environment).
Altogether, these four elements combine to create and affect strategic management.
How Strategic Management is Applied
With a firm understanding of what strategic management is and the elements involved in practicing it, strategic management can be applied in various settings. The depth to which an individual or organization applies structured, organized strategic management is at the discretion of the company. It can be done superficially, or with rigorous data-driven analysis. The depth depends on the needs of the organization and the complexity of the individual situation.
However strategic management is applied, it should be applied repeatedly. The one constant in business is change, and this applies to both external and internal operating environments. As those environments change, so does the big picture. Over time, goals shift as well. A good strategy is updated regularly to ensure a good fit among the various elements.
There are a lot of tools, techniques, frameworks, and processes that can be examined and applied in strategic management. A good business analyst will be familiar with several and be able to select the best one, or combination, to use in a given situation. But no tool or process can be used to maximum effectiveness if the basics of strategy, and the heart of strategic management, aren’t first understood.