Sydorchuk N. O., Rieznik M. A.
Strategic management process and its importance
Today one of the main objectives for companies is to maintain a sustainable market position and provide further development in conditions of unstable economy. The solution to this problem is creation and implementation of competitive advantages that can be achieved through a precise and effective development strategy. One of the ways to achieve this is the implementation of strategic management. Strategic management is a long-term and irreversible process that plays a pivotal role in the company’s development.
Strategic management involves formulation and implementation of the major goals and initiatives set and taken by the company's top management on behalf of its owners, based on consideration of resources and assessment of the internal and external environments in which the organization competes. Strategic management is not about predicting the future, it’s about preparing for it and knowing what steps the company will have to take to implement its strategic plan.
Strategic management process includes 6 stages:
- identifying the organization’s current mission (the main purpose of the organization) and goals (measurable performance targets);
- conducting an external analysis (the environmental scanning of specific and general environments, focusing on identifying opportunities and threats);
- conducting an internal analysis (assessing organizational resources, capabilities and intangible assets, such as employee skills, culture, corporate reputation, etc.);
Steps 2 and 3 combined are called a SWOT analysis.
- formulating strategies (at this stage it is necessary to develop and evaluate strategic alternatives and select appropriate strategies for all levels in the organization that provide relative advantage over competitors);
- implementing strategies, that means putting the strategies into actions and results;
- evaluating results (it includes measuring the performance, a consistent review of internal and external issues and taking corrective actions when necessary. If objectives are not met, managers should introduce new or revise existing policies).
Fig. 1. Structure of SWOT-analysis
A well – formulated strategy can bring various benefits to the organization at present as well as in future. On average, companies that use strategic management are more successful than the companies that don’t. Strategic management is important for organizations for the following reasons:
- strategic management takes into account the future and anticipates it;
- a strategy is worked out on a rational and logical basis, thus, its efficiency and its success are ensured;
- strategic management reduces frustration, because it has been planned in such a way that it follows a procedure;
- companies frequently cease to exist because of a lack of a proper strategy to run it. With strategic management companies can foresee the events in future, that’s why they can remain stable in the market;
- strategic management looks at the threats in the external environment and, thus, companies can either work to get rid of them or neutralize the threats in such a way that they become an opportunity for their success;
- strategic management strengthens the company’s performance.
Business environments are highly uncertain and executives need to be innovative and flexible to survive. They achieve this through strategic alternatives that enable their companies to maintain a competitive edge over rivals. In practice, there are many strategic alternatives for the development and growth of companies, some of them include price focus, differentiation, diversification and adjacent businesses.
Price focus is a market niche strategy where a company competes on cost. This strategy targets a small buyer segment and the company needs to have a low-cost structure compared to rivals. This strategy is effective when a business is new, it cannot pursue a bigger market, customer segments are different, or when no other competitor is focusing on the targeted segment.
In cases where competition is stiff because of the proliferation of similar products, a company can come up with features that differentiate their products or services from those of rivals.
Diversification strategies are used to expand firms' operations by adding markets, products, services, or stages of production to the existing business. The purpose of diversification is to allow the company to enter areas of business activities that are different from their current operations. Also diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others.
Thus, strategic management is a ongoing process of a strategic analysis, strategy creation, implementation and monitoring, used by organizations with the purpose to achieve and maintain a competitive advantage. One of the most important steps of the process of strategic management is the choice of an alternative strategy.