Sydorchuk N. O., Rieznik M. A.
Strategic management process
and its importance
Today one of the main objectives for companies is to
maintain a sustainable market position and provide further development in
conditions of unstable economy. The solution to this problem is creation and
implementation of competitive advantages that can be achieved through a precise
and effective development strategy. One of the ways to achieve this is the
implementation of strategic management. Strategic management is a long-term and
irreversible process that plays a pivotal role in the company’s development.
Strategic management involves formulation and
implementation of the major goals and initiatives set and taken by the
company's top management on behalf of its owners, based on consideration of
resources and assessment of the internal and external environments in which the
organization competes. Strategic management is not about predicting the future,
it’s about preparing for it and knowing what steps the
company will have to take to implement its strategic plan.
Strategic management process includes 6 stages:
-
identifying
the organization’s current mission (the main purpose of the organization) and
goals (measurable performance targets);
-
conducting
an external analysis (the environmental scanning of specific and general
environments, focusing on identifying opportunities and threats);
-
conducting
an internal analysis (assessing organizational resources, capabilities and
intangible assets, such as employee skills, culture, corporate reputation,
etc.);
Steps 2 and 3 combined are called a SWOT analysis.
-
formulating
strategies (at this stage it is necessary to develop and evaluate strategic
alternatives and select appropriate strategies for all levels in the
organization that provide relative advantage over competitors);
-
implementing strategies,
that means putting the strategies into actions and results;
-
evaluating results (it includes
measuring the performance, a consistent review of internal and external issues
and taking corrective actions when necessary. If objectives are not
met, managers should introduce new or revise existing policies).
Fig. 1. Structure of SWOT-analysis
A
well – formulated strategy can bring various benefits to the organization at
present as well as in future. On average, companies that use strategic
management are more successful than the companies that don’t. Strategic
management is important for organizations for the following reasons:
-
strategic management
takes into account the future and anticipates it;
-
a strategy is worked
out on a rational and logical basis, thus, its efficiency and its success are
ensured;
-
strategic management reduces
frustration, because it has been planned in such a way that it follows a
procedure;
-
companies frequently
cease to exist because of a lack of a proper strategy to run it. With strategic
management companies can foresee the events in future, that’s why they can
remain stable in the market;
-
strategic management
looks at the threats in the external environment and, thus, companies can
either work to get rid of them or neutralize the threats in such a way that
they become an opportunity for their success;
-
strategic management
strengthens the company’s performance.
Business environments are highly uncertain and
executives need to be innovative and flexible to survive. They achieve this
through strategic alternatives that enable their companies to maintain a
competitive edge over rivals. In
practice, there are many strategic alternatives for the development and growth
of companies, some
of them include price focus, differentiation, diversification and adjacent
businesses.
Price focus is a market niche strategy where a
company competes on cost. This strategy targets a small buyer segment and the
company needs to have a low-cost structure compared to rivals. This strategy is
effective when a business is new, it cannot pursue a bigger market, customer
segments are different, or when no other competitor is focusing on the targeted
segment.
In cases where competition is stiff because of
the proliferation of similar products, a company can come up with features that
differentiate their products or services from those of rivals.
Diversification strategies are used to expand
firms' operations by adding markets, products, services, or stages of
production to the existing business. The purpose of diversification is to allow
the company to enter areas of business activities that are different from their
current operations. Also diversification strives to smooth out unsystematic
risk events in a portfolio so that the positive performance of some investments
will neutralize the negative performance of others.
Thus,
strategic management is a ongoing process of a strategic
analysis, strategy creation, implementation and monitoring, used by
organizations with the purpose to achieve and maintain a competitive advantage.
One of the most important steps of the process of strategic management is the choice of an alternative strategy.