Strategic management underscores the process of formulating and implementing key strategic initiatives by the top management. In addition, strategic management involves formulating a plan, which defines the direction that a firm is taking in order to achieve a competitive advantage in the industry of operation. On the other side, strategic financial management refers to the management of a firm’s financial resources in a bid to realize its goals and make the best out of the limited resources. Additionally, strategic financial management entails a clear series of processes that cover all the firm’s resources (Wheelen and Hunger 64).
In strategic financial management, short-term goals may be sacrificed at times in order to achieve long-term objectives. On the other hand, a strategy refers to the determination of a long-term goal and the mobilization of resources thereof in order to achieve the set objectives (Freeman 237). With the rising competition in industries in the contemporary world, strategic management has become a topic of research since it determines a firm’s competitive advantage over its competitors. Globalization has opened up markets across the world and companies from different places can venture into markets anywhere, and this aspect heightens competition, hence the need for strategic management in firms. The management team has to consider certain factors when making decisions on the strategies to implement.
Strategic management in a firm develops through four chronological stages, as explained by Gimbert (34). It begins with “fiscal planning before extending into estimate-based forecasting and externally based planning, and lastly into a full-blown strategic management system” (Hitt, Ireland, and Hoskisson 77). This evolution is founded on the escalating change and convolution in the firm’s exterior environment. Therefore, the phases are “characterized by a change in focus from the initial inward-looking course in the first phase to an outward-looking orientation in the final phases” (Gimbert 34). Contrary to the first and second phases, the third and the final phases have an equal focus on both the internal and external environments (Freeman 136). All the four phases are interrelated, and each phase provides input for the other. This essay will look into the typical evolution of strategic management in an organization and analyze the four stages of its development. It will deeply analyse the four phases of strategic management and come up with a concrete conclusion on what exactly strategic management is and how it develops in a firm.
Basic financial planning
In this phase, managers initiate serious planning in an attempt to come up with a well-thought budget for the following financial year (Gimbert 102). This phase involves creating a financial budget for the following financial year, defining the firm’s objectives, and mobilizing resources in order to achieve the set targets for that financial year. Reconciliation of differences between the budgeted information and the actual figures is done at the close of the year, and the differences are explained (Wheelen and Hunger 127).
The strategies adopted in this phase remain in force for only one year, which is the financial year in question after which they become obsolete, as they cannot be applicable in any other financial year (Thompson 152). In this stage, the focus is on the internal environment of the firm and projects are proposed based on the analysis of the internal environment without considering the external factors that may affect the success of such projects. The salespeople are the only source of information regarding the external environment of the business in this phase, which is a clear indication that limited consideration is made on the external environment (Freeman 176). This stage of strategic management is only concerned with short-term goals, and few or no efforts are made to establish long-term objectives (Hitt, Ireland, and Hoskisson 345).
Forecast based planning
Annual budgets are only important in short term planning. In other words, they are only applicable in formulating strategies for the financial year in question, and they cannot be relied on when formulating strategies for long-term objectives (Thompson 166). Therefore, such budgets are less important in stimulating long-term goals. In most cases, managers propose projects based on the internal environment without considering the external factors that may affect the success of the proposed projects. However, in this second phase, managers consider both internal and external environments of the firm before investing in projects that extend beyond the 1-year bracket covered in the first phase (Freeman 223). Information regarding the externalities is gathered and invoked in the process of making key strategic decisions. In this stage, both short-term and long term goals are considered, thus a lot of information regarding the business environment is vital at this phase (Gimbert 32).
In this phase, the focus shifts from one-year project planning, as evident in the first phase, to projects with a useful life of more than one year. The idea behind setting goals is to clear the business’ vision. Goal setting is done in this phase, and it involves a series of processes (Thompson 132). First, short-term and long-term goals are well defined and documented. Second, strategies are formulated to guide the firm through the process of accomplishing the set goals. After the aforementioned two steps, the manager allows each employee to learn about the set targets before assigning roles according to the strengths and weaknesses of individual employees (Wheelen and Hunger 68). A detailed plan on the vision and mission of the company is then written and circulated to all the shareholders and the staff members.
Analysis and Strategy Formulation
The term analysis refers to the process of gathering information about the environmental factors that may affect the attainment of the company’s vision. Both the internal and external environments are assessed, and the necessary information compiled (Thompson 136). The information garnered help in shaping the next stages of strategic management. The center of the study is on understanding the requirements of the firm as a going concern entity, its strategic course, and identifying initiatives that may aid the growth of the business. The formulation also takes place in this stage. The formulation is the process of “analyzing the business environment before making strategic decisions on how the company can compete in that environment” (Hitt, Ireland, and Hoskisson 348). In analyzing the environment, the decision-makers evaluate the political, economic, social, technological, and regulatory landscape (Gimbert 59).
The internal environment is also assessed to determine the strengths and weakness of the company’s resources, which may encompass human resources, technological factors, and financial resources (Wheelen and Hunger 89). The decision-makers have to determine certain information about their customers, such as the target customers, their tastes and preferences, and their geographical distribution. Once such information is obtained, the decision-makers proceed to formulate the strategies aimed at achieving the firm’s short-term and long-term goals (Freeman 232). Alternative courses of actions are deliberated at this stage to act as substitutes if the one in place shows signs of failure in the initial stages of their implementation.
Strategy Implementation, Evaluation, and Control
Successful policy implementation is important to the success of a company. Strategy implementation stage underscores the action stage of strategic management (Thompson 132). If the general strategy fails to work with the firm’s current structure, a new configuration should be introduced at the commencement of this phase to shield the firm from incurring losses (Thompson 132). Individuals in the firm are aware of their roles and duties, coupled with how their participation fits in with the organization’s goals. In addition, all the available resources for the business should be mobilized, coupled with securing the required additional capital (Wheelen and Hunger 78). Once the company gets all the necessary resources in terms of finance and workforce, the process of implementation commences. Strategy evaluation and control involves conducting performance measures, appraisals, and delivering regular feedback. In this stage, both the internal and external factors are assessed, and recommendations made on areas where change is inevitable (Hitt, Ireland, and Hoskisson 348).
Before any evaluation can be conducted, the parameters to be measured should be well-identified in advance (Gimbert 39). The parameters should be consistent with the goals set in the preceding stages. Performance measuring involves comparing the actual results with the planned results and trying to investigate the cause of any variance. Evaluating the internal and external factors helps managers to identify environmental changes that may have occurred in between the time of designing the budget and the time of evaluation (Thompson 54). Evaluation is important since it helps managers to manipulate or replace the strategies in place if it becomes evident that they are not driving the company in the right direction (Freeman 236).
Strategic management is the process of formulating and implementing major business strategies with the aim of achieving certain goals. Strategic management is aimed at ensuring that a firm remains competitive in a given industry. The contemporary business environment is changing drastically owing to the ever-escalating competition and revolution in Information Technology (IT). Therefore, companies have to come up with strategic management plans in a bid to remain competitive in such a dynamic market. Strategic management evolves through four stages, starting from the basic financial planning phase and ending with the implementation stage. Strategic management is becoming an important aspect of businesses in contemporary times due to the ever-rising competition experienced in the business world.
Businesses have to analyze both the internal and external environments of a business in order to make informed decisions on the way forward. Strategic management gives overall bearing to the business, and it involves identifying the firm’s goals, formulating policies, and plans intended to attain these goals before allocating funds to execute the plans. Business experts have developed certain models to guide managers through strategic management in today’s complex business environments and competitive dynamics. Contrary to operational management, which mainly focuses on increasing efficiency and cutting down operational costs, strategic management aims at boosting a company’s competitive advantage over other firms in the same industry. Strategic management thus involves setting targets and formulating certain strategies in order to achieve the set targets.
Freeman, Edward. Strategic management: A stakeholder approach, Cambridge: Cambridge University Press, 2010. Print.
Gimbert, Xavier. Think Strategically, Basingstoke: Palgrave Macmillan, 2011. Print.
Hitt, Michael, Duane Ireland, and Robert Hoskisson. Strategic management cases: competitiveness and globalization, Boston: Cengage Learning, 2012. Print.
Thompson, Arthur. Crafting and Executing Strategy: The Quest for Competitive Advantages, New York: McGraw Hill/Irwin, 2013. Print.
Wheelen, Thomas, and David Hunger. Concepts in strategic management and business policy, New Jersey: Pearson Education India, 2011. Print.