Strategic management is the ongoing planning, monitoring, analysis and assessment of all necessities an organization needs to meet its goals and objectives. Changes in business environments will require organizations to constantly assess their strategies for success. The strategic management process helps organizations take stock of their present situation, chalk out strategies, deploy them and analyze the effectiveness of the implemented management strategies. Strategic management strategies consist of five basic strategies and can differ in implementation depending on the surrounding environment. Strategic management applies both to on-premise and mobile platforms.
What are the benefits of strategic management?
Strategic management is generally thought to have financial and nonfinancial benefits. A strategic management process helps an organization and its leadership to think about and plan for its future existence, fulfilling a chief responsibility of a board of directors. Strategic management sets a direction for the organization and its employees. Unlike once-and-done strategic plans, effective strategic management continuously plans, monitors and tests an organization's activities, resulting in greater operational efficiency, market share and profitability.
Strategic management concepts
Strategic management is based around an organization's clear understanding of its mission; its vision for where it wants to be in the future; and the values that will guide its actions. The process requires a commitment to strategic planning, a subset of business management that involves an organization's ability to set both short- and long-term goals. Strategic planning also includes the planning of strategic decisions, activities and resource allocation needed to achieve those goals.
Having a defined process for managing an institution's strategies will help organizations make logical decisions and develop new goals quickly in order to keep pace with evolving technology, market and business conditions. Strategic management can, thus, help an organization gain competitive advantage, improve market share and plan for its future.
Five stages of strategic management process
There are many schools of thought on how to do strategic management, and academics and managers have developed numerous frameworks to guide the strategic management process. In general, the process typically includes five phases:
- assessing the organization's current strategic direction;
- identifying and analyzing internal and external strengths and weaknesses;
- formulating action plans;
- executing action plans; and
- evaluating to what degree action plans have been successful and making changes when desired results are not being produced.
Effective communication, data collection and organizational culture also play an important part in the strategic management process -- especially at large, complex companies. Lack of communication and a negative corporate culture can result in a misalignment of the organization's strategic management plan and the activities undertaken by its various business units and departments. [See Value of organizational culture.] Thus, strategy management includes analyzing cross-functional business decisions prior to implementing them to ensure they are aligned with strategic plans.
Types of strategic management strategies
The types of strategic management strategies have changed over time. The modern discipline of strategic management traces its roots to the 1950s and 1960s. Prominent thinkers in the field include Peter Drucker, sometimes referred to as the founding father of management studies. Among his contributions was the seminal idea that the purpose of a business is to create a customer, and what the customer wants determines what a business is. Management's main job is marshalling the resources and enabling employees to efficiently address customers' evolving needs and preferences.
IT leadership and management
In the 1980s, a Harvard Business School professor called Theodore Levitt, developed a different strategy with a focus on the customer. This strategy was different from the previous emphasis on production -- i.e., creating a product of high quality ensured success.
Distinctive competence, a term introduced in 1957 by sociology and law scholar Philip Selznick, focused on the idea of core competencies and competitive advantage in strategic management theory. This enabled the creation of frameworks for assessing the strengths and weaknesses of an organization in relation to the threats and opportunities in its external environment. [See SWOT analysis].
Canadian management scientist Henry Mintzberg concluded that the strategic management process could be more dynamic and less predictable than management theorists had thought. In his 1987 paper, "The Strategy Concept I: Five Ps for Strategy," he argued "the field of strategic management cannot afford to rely on a single definition of strategy." Instead, he outlined five definitions of strategy and their interrelationships:
- Plan: Strategy as a consciously intended course of action to deal with a situation.
- Ploy: Strategy as a maneuver to outwit a competitor, which can also be part of a plan.
- Pattern: Strategy stemming from consistency in behavior, whether or not intended and which can be independent of a plan.
- Position: Strategy as a mediating force or match between the organization and environment, which can be compatible with any or all of the Ps.
- Perspective: Strategy as a concept or ingrained way of perceiving the world -- e.g., aggressive pacesetter vs. late mover -- which can be compatible with any or all of the Ps.
SWOT analysis
A SWOT analysis is one of the types of strategic management frameworks used by organizations to build and test their business strategies. A SWOT analysis identifies and compares the strengths and weaknesses of an organization with the external opportunities and threats of its environment. The SWOT analysis clarifies the internal, external and other factors that can have an impact on an organization's goals and objectives.
The SWOT process helps leaders determine whether the organization's resources and abilities will be effective in the competitive environment within which it has to function and to refine the strategies required to remain successful in this environment.
Balanced scorecard in strategic management
The balanced scorecard is a management system that turns strategic goals into a set of performance objectives that are measured, monitored and changed, if necessary, to ensure the strategic goals are met.
The balanced scorecard takes a four-pronged approach to an organization's performance. It incorporates traditional financial analysis, including metrics such as operating income, sales growth and return on investment. It also entails a customer analysis, including customer satisfaction and retention; an internal analysis, including how business processes are linked to strategic goals; and a learning and growth analysis, including employee satisfaction and retention, as well as the performance of an organization's information services.
As explained by the Balanced Scorecard Institute:
"The system connects the dots between big picture strategy elements such as mission [our purpose], vision [what we aspire for], core values [what we believe in], strategic focus areas [themes, results and/or goals] and the more operational elements such as objectives [continuous improvement activities], measures [or key performance indicators, or KPIs, which track strategic performance], targets [our desired level of performance], and initiatives [projects that help you reach your targets]."
Value of organizational culture
Organizational culture can determine the success and failure of a business and is a key component that strategic leaders must consider in the strategic management process. Culture is a major factor in the way people in an organization outline objectives, execute tasks and organize resources. A strong organizational culture will make it easier for leaders and managers to motivate employees to execute their tasks in alignment with the outlined strategies. At organizations where lower-level managers and employees are expected to be involved in the decision-making and strategy, the strategic management process should enable them to do so.
It is important to create strategies that are suitable for the organization's culture. If a particular strategy does not match the organization's culture, it will hinder the ability to accomplish the strategy's intended outcomes.
This article is part of our “Business Planning Guide“—a curated list of our articles that will help you with the planning process!
Conducting a SWOT analysis of your business is a lot more fun than it sounds. It won’t take much time, and doing it forces you to think about your business in a whole new way.
The point of a SWOT analysis is to help you develop a strong business strategy by making sure you’ve considered all of your business’s strengths and weaknesses, as well as the opportunities and threats it faces in the marketplace.
What is a SWOT analysis?
S.W.O.T. is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis is an organized list of your business’s greatest strengths, weaknesses, opportunities, and threats.
Strengths and weaknesses are internal to the company [think: reputation, patents, location]. You can change them over time but not without some work. Opportunities and threats are external [think: suppliers, competitors, prices]—they are out there in the market, happening whether you like it or not. You can’t change them.
Existing businesses can use a SWOT analysis, at any time, to assess a changing environment and respond proactively. In fact, I recommend conducting a strategy review meeting at least once a year that begins with a SWOT analysis.
New businesses should use a SWOT analysis as a part of their planning process. There is no “one size fits all” plan for your business, and thinking about your new business in terms of its unique “SWOTs” will put you on the right track right away, and save you from a lot of headaches later on.
Looking to get started right away? Download our free SWOT Analysis template.
In this article, I will cover the following:
- How to conduct a SWOT analysis
- Questions to ask during a SWOT analysis
- Example of a SWOT analysis
- TOWS analysis: Developing strategies for your SWOT analysis
How to conduct a SWOT analysis
To get the most complete, objective results, a SWOT analysis is best conducted by a group of people with different perspectives and stakes in your company. Management, sales, customer service, and even customers can all contribute valid insight. Moreover, the SWOT analysis process is an opportunity to bring your team together and encourage their participation in and adherence to your company’s resulting strategy.
A SWOT analysis is typically conducted using a four-square SWOT analysis template, but you could also just make lists for each category. Use the method that makes it easiest for you to organize and understand the results.
I recommend holding a brainstorming session to identify the factors in each of the four categories. Alternatively, you could ask team members to individually complete our free SWOT analysis template, and then meet to discuss and compile the results. As you work through each category, don’t be too concerned about elaborating at first; bullet points may be the best way to begin. Just capture the factors you believe are relevant in each of the four areas.
Once you are finished brainstorming, create a final, prioritized version of your SWOT analysis, listing the factors in each category in order of highest priority at the top to lowest priority at the bottom.
Questions to ask during a SWOT analysis
I’ve compiled some questions below to help you develop each section of your SWOT analysis. There are certainly other questions you could ask; these are just meant to get you started.
Strengths [internal, positive factors]
Strengths describe the positive attributes, tangible and intangible, internal to your organization. They are within your control.
- What do you do well?
- What internal resources do you have? Think about the following:
- Positive attributes of people, such as knowledge, background, education, credentials, network, reputation, or skills.
- Tangible assets of the company, such as capital, credit, existing customers or distribution channels, patents, or technology.
- What advantages do you have over your competition?
- Do you have strong research and development capabilities? Manufacturing facilities?
- What other positive aspects, internal to your business, add value or offer you a competitive advantage?
Weaknesses [internal, negative factors]
Weaknesses are aspects of your business that detract from the value you offer or place you at a competitive disadvantage. You need to enhance these areas in order to compete with your best competitor.
- What factors that are within your control detract from your ability to obtain or maintain a competitive edge?
- What areas need improvement to accomplish your objectives or compete with your strongest competitor?
- What does your business lack [for example, expertise or access to skills or technology]?
- Does your business have limited resources?
- Is your business in a poor location?
Opportunities [external, positive factors]
Opportunities are external attractive factors that represent reasons your business is likely to prosper.
- What opportunities exist in your market or the environment that you can benefit from?
- Is the perception of your business positive?
- Has there been recent market growth or have there been other changes in the market the create an opportunity?
- Is the opportunity ongoing, or is there just a window for it? In other words, how critical is your timing?
Threats [external, negative factors]
Threats include external factors beyond your control that could place your strategy, or the business itself, at risk. You have no control over these, but you may benefit by having contingency plans to address them if they should occur.
- Who are your existing or potential competitors?
- What factors beyond your control could place your business at risk?
- Are there challenges created by an unfavorable trend or development that may lead to deteriorating revenues or profits?
- What situations might threaten your marketing efforts?
- Has there been a significant change in supplier prices or the availability of raw materials?
- What about shifts in consumer behavior, the economy, or government regulations that could reduce your sales?
- Has a new product or technology been introduced that makes your products, equipment, or services obsolete?
Examples of a SWOT analysis
For illustration, here’s a brief SWOT example from a hypothetical, medium-sized computer store in the United States:
See our SWOT analysis examples article for in-depth examples of SWOT analyses for several different industries and business types or download our free SWOT analysis template.
TOWS analysis: Developing strategies from your SWOT analysis
Once you have identified and prioritized your SWOT results, you can use them to develop short-term and long-term strategies for your business. After all, the true value of this exercise is in using the results to maximize the positive influences on your business and minimize the negative ones.
But how do you turn your SWOT results into strategies? One way to do this is to consider how your company’s strengths, weaknesses, opportunities, and threats overlap with each other. This is sometimes called a TOWS analysis.
For example, look at the strengths you identified, and then come up with ways to use those strengths to maximize the opportunities [these are strength-opportunity strategies]. Then, look at how those same strengths can be used to minimize the threats you identified [these are strength-threats strategies].
Continuing this process, use the opportunities you identified to develop strategies that will minimize the weaknesses [weakness-opportunity strategies] or avoid the threats [weakness-threats strategies].
The following table might help you organize the strategies in each area:
Once you’ve developed strategies and included them in your strategic plan, be sure to schedule regular review meetings. Use these meetings to talk about why the results of your strategies are different from what you’d planned [because they always will be] and decide what your team will do going forward.
Looking for more?
See our SWOT analysis examples article for in-depth examples of SWOT analyses for several different industries, or download our free SWOT analysis template.