Strategic management consists of internal and external analysis, strategy formulation, implementation and evaluation. A strategic approach is important because firms must constantly adapt to emerging technologies, respond to competitive pressures and changing customer preferences and operate in an increasing global marketplace. Companies may incorporate strategic management differently. In a start-up, for example, it may involve only the founder; in a more established company, it may be a more structured process involving managers from all levels of the organization.
SWOT -- strength, weakness, opportunity and threat -- analysis is often used to assess a company's internal and external environment. Internal strengths and weaknesses may be in the areas of staffing, financial resources, organizational structure and product innovation. External threats and opportunities may include competitive pressures and regulatory changes. Flowing from this analysis is the strategic direction of the company, its mission, goals and objectives. Mission and vision statements define the company's values and goals for the internal stakeholders -- employees, management and owners -- and the external stakeholders -- investors, customers and suppliers.
Strategy formulation seeks to bridge the gap between what is internally available and what is needed to deal with external threats and opportunities. Depending on the size and complexity of the organization, strategy formulation is done at three levels: corporate, business unit and functional. Corporate-level strategy involves deciding the broad strategic direction of the company, including mergers and acquisitions. Business unit level strategy involves operational management, including project and product management, to meet customer requirements. Functional level strategy involves using marketing, finance and other resources to meet the company’s cost, profit and customer support objectives.
Implementation of strategies formulated at the functional, business and corporate levels involves managing stakeholder relationships and organizational resources to drive the company toward meeting its short-term and long-term goals. Organizational control systems, such as information technology based enterprise resource planning and financial reporting systems, help make strategy implementation effective.
Evaluating organizational performance against goals and expectations is an important part of strategic management. Internal and external environments are not static: companies evolve, new competitors come into the market and new regulations are introduced. Managers at all levels must have timely performance data available to evaluate the impact of their decisions and make the necessary adjustments. Developed by Harvard University professor Robert Kaplan and business consultant David Norton, the balanced scorecard model is a popular tool for performance evaluation. It helps companies achieve their strategic objectives in four ways. First, operational metrics are developed that translate general vision statements into specific and measurable goals; second, the strategy is communicated widely so that employees understand their individual roles in meeting the performance objectives; third, budgeting is linked to strategic planning so that the resources are there to support organizational priorities; and finally, continuous feedback helps managers assess the effectiveness of their strategies throughout the implementation process.