4 Strategic Management Concepts You're Not Using Enough

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Thursday, September 17, 2020

Strategic management is an incredibly effective way to run an organization, but even those acquainted with it can miss out on using these key concepts.

Article 4 Minutes
4 Strategic Management Concepts You're Not Using Enough

Strategic management is still a vastly underutilized concept in modern business. Originating in the 1950s and '60s with theoretical works by authors such as Alfred Chandler, Philip Selznick and Igor Ansoff, it has since become a practical method of running a company that allows it to evolve with the overall market and maximize its strengths.

There are many definitions of strategic management, but ultimately they all mean the same thing: utilizing an organization’s resources in a strategic manner in order to achieve specific goals. It can also be thought of as the combination of strategic planning - the practice of identifying appropriate goals - and strategic thinking, which is the practice of identifying what an organization needs to achieve said goals.

While many organizations have utilized strategic management, it’s still rare to see it being used to its maximum potential. Part of that is due to the neglect of certain concepts that can greatly aid managers in making the best strategic decisions. Here are four that aren’t used enough:

1. PESTEL

There are many different places strategic management can start, but many organizations believe an analysis of a business’ overall situation is a crucial first step. This is where PESTEL comes in. The acronym stands for Political, Economic, Socio-cultural, Technological, Environmental and Legal, and refers to the external factors that impact an organization.

 

The idea is to fill out each step in the acronym with factors in that arena that affect a given business. For example, a dairy farm might put the recent popularity of veganism down as a socio-cultural factor. Changes in regulations concerning keeping livestock or transporting food might count as legal factors, while climate change making land unsuitable for cattle grazing would be an environmental issue.

Researching each PESTEL factor in detail will provide managers with a strong starting idea of the external issues that affect the business, and how they’ll make operations easier or more difficult over time.

2. SWOT

The information gained through the PESTEL framework can then be used in a SWOT analysis. This acronym stands for Strengths, Weaknesses, Opportunities and Threats, and it’s used to assess both the external and internal factors that affect how an organization performs, as well as determining its potential and the risks it faces.

 

The analysis involves determining the strengths and weaknesses of an organization, then its opportunities to create positive results and its external threats. The key to utilizing it well is to always think about your competitors. Strengths, in this context, are the things the company does well in comparison to its competition.

Once the different factors have been identified - using data wherever possible - managers should look for potential connections between the sections. For example, strengths might negate threats or open up opportunities, while weaknesses might make it harder for the business to achieve a certain opportunity.

3. The five Ps

Originally published in 1987 by Henry Mintzberg, the five Ps for strategy is a framework for understanding strategic management.

“Strategy requires multiple definitions to fully appreciate its implications” - Henry Mintzberg, The Strategy Concept I: Five Ps for Strategy

 

Rather than seeing it as one thing, Mintzberg split it into five aspects:

  1. Plan
  2. Ploy
  3. Pattern
  4. Position
  5. Perspective

Strategic management framework - Henry Mintzberg - 5 p's of strategySource

The idea is that a strategy can take any one of these forms, or be composed of several of them. Put simply, a plan is the most basic strategy. It’s a course of action designed to achieve a specific outcome, such as lowering the price of a product to increase sales volume. A ploy instead focuses on other companies within the same industry and how best to compete with them.

A pattern is a strategy focused on aligning an organization’s processes in order to achieve greater efficiency and success, and a position deals with a business’ relationship to the world and external factors. Finally, perspective deals with how the company fits into the wider world. This concept is not without its detractors, but it’s a useful tool to give a strategy direction and focus.

4. The balanced scorecard

Perhaps the most important part of strategic management is the actual implementation of the strategy. For this, the balanced scorecard was created. This concept requires a business to come up with KPIs in four different areas - financial, customer, internal business processes, and learning and growth - in order to measure the success of a strategy.

This is crucial for strategic management because it requires businesses to think in terms other than the purely financial. This prevents them from focusing too much on one specific area to the neglect of others. However, it’s important to remember that the four areas aren’t supposed to be given equal importance.

Instead, a business should work its way up through them, the idea being that each one helps improve the next. So improved learning and growth leads to better internal processes, which improves customer experience and ultimately leads to better financial performance. Without starting from the bottom, a company can get too focused on increasing profits without looking at how to actually achieve that.

Strategic planning models - balanced scorecardSource

 

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