Characteristics of Strategic Management
As discussed above, strategic management is a set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns. It involves a number of actions and decisions taken by the top-level management. The following are some of the important characteristics of strategic management.
1. Directed toward overall goals:
Goals are set at both organizational and functional levels. The functional goals are set for each function of the firm. They include production goals, marketing goals, human resource goals, research and development goals, and financial goals. There should be a high degree of rationality between the functional and organizational goals.
In other words, there should not be a conflict between the functional and organizational goals. Similarly, the inter-functional goals should be rational to each other. For example, the long production schedule by the production department for reducing per unit cost may erode the capacity of the marketing department to address the market demand. All these may eventually affect the organizational goal. Hence, strategic management is always directed toward overall goals.
2. Includes multiple stakeholders in decision-making:
Stakeholders are the individuals or groups who can affect the firm’s operation and objective. The major stakeholders of a firm are shareholders, customer, employees, suppliers, labor unions, financial institutions, social institutions, and the government. They have different interests in the organization. They continue to support the organization until the performance meets or exceeds their expectations. Organizations that effectively manage stakeholder relationships perform well. Stakeholder support is crucial in strategic decision-making.
Decisions should not be made focusing on a single stakeholder. For example, if over emphasis is laid on profit generation for the shareholders, employees may be alienated and customer service may suffer. Hence, strategic management always addresses multiple shareholders.
3. Incorporation of both long-term and short-term objectives:
Objectives are the desired outcomes over a certain period of time. Strategic management considers both long-term and short-term objectives. Managers must maintain both a vision for the future of the organization and a focus on its present operating needs. Studies have shown that corporate leaders often take short-term approaches to the detriment of creating long-term shareholder value. Achievement of short-term objectives are must for meeting long-term objectives. However, they should not be over-emphasized at the expense of long-term objectives. Hence, strategic management incorporates both long-term and short-term objectives.
4. Tradeoff between effectiveness and efficiency:
Effectiveness is tailoring actions to the needs of an organization rather than wasting efforts whereas efficiency is performing actions at a low cost relative to a benchmark. In other words, effectiveness is doing the right things and efficiency is doing things right.
Strategic management is directed toward establishing a tradeoff between effectiveness and efficiency. It has a short-term focus on maintaining efficiency and a long-term focus on anticipating opportunities in the competitive environment for effectiveness.
5. Competitive advantage:
Competitive advantage is a firm’s resources and capabilities that enable it to overcome the competitive forces in its industry13. In other words, it is an advantage of a firm over its competitors. A firm can achieve a competitive advantage when it implements a strategy which the competitors are unable to imitate or find too costly to imitate. Firms must understand that no competitive advantage is permanent. How easily the competitors duplicate the firm’s value-creating strategy determines the sustainability of competitive advantage.
Competitive advantage can be achieved by increasing the value of the product which maximizes customer satisfaction. It is crucial for the success of an organization. Hence, strategic management is directed toward creating competitive advantages that are unique, valuable, and difficult for the competitors to copy or imitate.
6. Strategic fit:
Strategic fit may be defined as the proper match between the organizational capabilities with the opportunities in the environment. Strategic management can be seen as the search for strategic fit with the business environment. Strategic fit prepares an organization to face environmental uncertainties. Hence, strategic management always intends a strategic fit for superior performance.
7. A means only:
Strategic management is only a means to achieve organizational goals. In other words, it is not the end itself. It may not work in many instances especially when the assumptions on strategy formulation change during strategy implementation and poor control has been exercised. Hence, strategic management does not guarantee success.
Frequently Asked Questions
Characteristics of Strategic Management
1. Directed toward overall goals,
2. Includes multiple stakeholders in decision-making,
3. Incorporation of both Long-term and Short-term Objectives,
4. Tradeoff between Effectiveness and Efficiency,
5. Competitive Advantage,
6. Strategic Fit,
7. A Means Only
