What Is Strategic Management?
Strategic management is the continuing process of analyzing an organization and its environment, selecting a direction, putting the chosen strategy into action, and evaluating the results. It helps managers move from a broad goal to a reasoned plan based on evidence.
Strategy is concerned with the long-term direction of the organization. Operational decisions keep the organization functioning today; strategic decisions help determine what the organization should become and how it will compete or fulfill its mission in the future.
The Strategic-Management Process
Although organizations use different terminology, the process normally includes five connected activities:
- Establish direction. Clarify the mission, vision, values, and major goals.
- Analyze the situation. Study the organization internally and examine its external environment.
- Formulate strategy. Develop alternatives and select the approach most likely to accomplish the goals.
- Implement strategy. Assign responsibilities and provide the people, money, systems, policies, and other resources needed.
- Evaluate and control. Compare results with objectives, learn from the evidence, and make corrections.
The process is not a one-time exercise. New information, new competitors, economic changes, technology, or disappointing results may require managers to revisit earlier decisions.
Begin with a Company Analysis
Good strategy begins with good information. Before completing a SWOT or IFAS/EFAS analysis, collect evidence about the organization rather than relying on assumptions. The Company Analysis Worksheet organizes research into six practical areas:
- Financial condition: profitability, cash flow, debt, trends, and the resources available to support a strategy.
- Human and social capital: employee knowledge, experience, relationships, reputation, and organizational know-how.
- Leadership, management style, and culture: how decisions are made, what behavior is rewarded, and whether the culture supports change.
- Competitors: the organizations competing for the same customers, resources, or opportunities.
- Economic environment: factors such as growth, inflation, interest rates, employment, and consumer spending.
- Industry conditions: market growth, rivalry, new entrants, substitute products, regulation, suppliers, customers, and technology.
Document the source of important claims. A factor should be specific enough that another person can understand the evidence behind it and judge whether it really matters.
SWOT Analysis
SWOT stands for strengths, weaknesses, opportunities, and threats. The tool separates internal conditions from external conditions and positive conditions from negative ones.
| Factor | Source | Strategic meaning |
|---|---|---|
| Strengths | Internal | Capabilities or resources that help the organization perform or compete. |
| Weaknesses | Internal | Limitations or deficiencies that reduce performance or restrict choices. |
| Opportunities | External | Conditions the organization may exploit to improve results or advance its mission. |
| Threats | External | Conditions that may damage performance, increase risk, or weaken the organization. |
The internal-external distinction is essential. A well-known brand may be a strength because the organization controls and owns that resource. Growth in a new customer segment is an opportunity because it exists in the environment. Poor marketing skills are a weakness; a new competitor is a threat.
Questions That Help Identify Internal Factors
The SWOT Checklist suggests examining product range, market coverage, manufacturing competence, marketing and materials-management systems, research and development, information systems, human resources, brand reputation, portfolio management, organizational structure, management style, financial management, control systems, and the ability to manage change.
For every proposed strength or weakness, ask: Compared with whom? What evidence supports the conclusion? Does this factor materially affect the organization\'s ability to accomplish its goals?
Questions That Help Identify External Factors
External opportunities may include market growth, expansion into related businesses or foreign markets, useful new technology, profitable acquisitions, lower barriers to entry, or ways to extend a cost or differentiation advantage. Threats may include stronger domestic or international competition, substitute products, changing customer preferences, rising costs, slower growth, economic decline, demographic change, or a threat to the company\'s core business.
A long list is not necessarily a useful analysis. Select the factors that are most important, supported by evidence, and likely to influence decisions.
Triggering Events and Strategic Change
A triggering event is an event that stimulates a change in strategy. It can expose a problem, create urgency, or make a new direction possible. Common triggers include:
- A new chief executive officer
- External intervention by an owner, lender, regulator, or other stakeholder
- A threat of an ownership change
- A performance gap between expected and actual results
- A strategic inflection point, where an important change alters the assumptions behind the current strategy
Managers should not wait for a crisis before reviewing strategy. Monitoring performance and the environment can reveal an emerging trigger early enough to preserve more options.
Turn SWOT Findings into a TOWS Matrix
A SWOT list describes the situation. A TOWS matrix goes further by combining internal and external factors to generate strategic alternatives.
| Combination | Purpose | Guiding question |
|---|---|---|
| SO strategies | Use strengths to pursue opportunities. | How can a capability help the organization capture an attractive opportunity? |
| WO strategies | Use opportunities to overcome weaknesses. | Can an external opportunity help the organization improve a limitation? |
| ST strategies | Use strengths to reduce or avoid threats. | Which capability can protect the organization from an external danger? |
| WT strategies | Reduce weaknesses and avoid threats. | How can the organization limit its exposure when both conditions are unfavorable? |
For example, a company with a respected brand (strength) may use that reputation to enter a growing market (opportunity), producing an SO strategy. A company with an outdated information system (weakness) facing a fast new competitor (threat) may need a WT strategy that modernizes essential systems while narrowing its focus.
Quantify Factors with IFAS and EFAS
IFAS is an Internal Factors Analysis Summary. It summarizes the organization\'s most important strengths and weaknesses. EFAS is an External Factors Analysis Summary. It summarizes the most important opportunities and threats.
The provided Excel template helps make priorities visible. Complete IFAS and EFAS separately using the following process:
- Select the factors. Use a manageable group of the most important, evidence-supported factors rather than every item you discovered.
- Assign a weight. Give each factor a value from 0.00 to 1.00 based on its importance. The weights in each table must total 1.00.
- Assign a rating. Use the scale specified in the template or course instructions to judge how well the organization responds to that factor. Apply the scale consistently.
- Calculate the weighted score. Multiply the factor\'s weight by its rating.
- Add the weighted scores. The total provides a compact summary that can be compared with the rating scale and used to support discussion.
Weight and rating answer different questions. Weight asks how important the factor is. Rating asks how well the organization is positioned or responding. A serious threat can therefore receive a high weight even when the company\'s response earns a low rating.
A number does not replace judgment. The value of IFAS and EFAS comes from making priorities and assumptions explicit. Explain why each factor, weight, and rating is reasonable.
Evaluate the Strategy
A strategy should be tied to results that managers can observe. Possible outcomes include:
- Profitability and efficiency
- Growth in sales, assets, customers, or impact
- Shareholder wealth or another appropriate owner measure
- Effective use of resources and return on investment
- Reputation and market leadership
- Technological leadership and innovation
- Contributions to employees and society
- Organizational survival and resilience
Choose measures that fit the strategy. A cost-reduction strategy needs efficiency measures; a growth strategy needs evidence of sustainable growth; an innovation strategy needs more than a short-term profit number.
Strategic Shortcuts to Avoid
The Strategy Triggers resource identifies several tempting approaches that can produce weak decisions:
- Follow the leader: copying a competitor without confirming that its strategy fits your organization.
- Hit another home run: assuming a previous success can be repeated under different conditions.
- Arms race: responding to competitors with escalating commitments that may not create customer value.
- Do everything: pursuing too many priorities and spreading resources too thin.
- Losing hand: continuing to invest in a failing direction because the organization has already committed time or money.
A disciplined strategic process does not guarantee success, but it helps managers explain their assumptions, compare alternatives, concentrate resources, and learn from results.
Complete the Strategic Analysis
- Choose a company and complete the Company Analysis Worksheet using reliable sources.
- Use the SWOT Checklist to brainstorm possible factors.
- Select the most important factors and place them in the TOWS Matrix.
- Develop at least one SO, WO, ST, and WT alternative.
- Watch the IFAS and EFAS video and complete the Excel template.
- Recommend a strategy and support it with the evidence, TOWS alternatives, and weighted analysis.
- Identify the outcomes you would measure and explain when the strategy should be reviewed.