Strategic management: Theory and practice

The dream of a concise and perfect management strategy has spawned countless frameworks over the years. While the old standards, like SWOT analysis, stand strong, new analysis methods are being introduced every year. With so many theories to wade through, it can be tough even for experienced professionals to know where to begin.

This comprehensive guide explores the prevailing frameworks of management strategy. By the end, you should have a solid understanding of the basics of the modern strategic management field.

Strategic management is about taking a cohesive approach to how an organization uses its resources to achieve its desired objectives. Since the 1960s countless theories, frameworks, and arguments have been developed. In the beginning, researchers were largely focused on defining best practices. Now, over the past two decades, the research has come together to form a distinct field of study.¹

Today, implementing strategic management is critical for organizations of any size. It supports long-term goal-setting and risk management by facilitating important data gathering, continuous monitoring, and adaptive response.

While there are endless theories to examine, this section will focus on the top three contemporary frameworks: SWOT analysis, Porter’s Five Forces, and PESTEL analysis.

SWOT stands for strengths, weaknesses, opportunities, and threats. A SWOT analysis emphasizes realistic strategy development through a balanced examination to complete both an external and internal analysis of circumstances. It's typically presented in a SWOT table format, where each category is given a quadrant.²

A SWOT analysis keeps things simple while being flexible enough to incorporate many different data points. However, every data point is given the same weight by this framework, despite the varying impact on the organization.

Porter’s Five Forces framework is designed to more fully accommodate the complexities of real-life industry. It posits that the most important factor in strategy creation is finding a competitive advantage. The five titular forces in this framework are:³

• Competitive rivals
• Potential for new entrants in an industry
• Supplier power
• Customer power
• Threat of substitutes

While Porter’s Five Forces framework does effectively incorporate more external influences than a SWOT analysis, it still falls short of painting the full picture. Moreover, its increased complexity leaves it difficult to adapt to rapidly changing industries.³

Also referred to as a PEST or PESTLE analysis, the name stands for:⁴

• Political
• Economic
• Social
• Technological
• Environmental
• Legal

Similar to the Five Forces framework, the PESTEL framework posits that effective strategy requires the assessment of all external influences on a given industry. However, it differentiates itself from the Five Forces by not having the same focus on competition as the prevailing lens. 

The main strength of the PESTEL framework is the robust industry analysis it generates. However, that analysis does have a noticeable gap in it: namely, internal influences. This blind spot means PESTEL is often combined with another analysis, like SWOT, to complete the picture.⁴

The three frameworks listed above are the heavy hitters in strategic management. However, there are also several frameworks that have been gaining popularity. These theories are tailored to suit specific organizational sizes and conditions, such as:

• Ansoff matrix: another quadrant-style analysis that's best for organizations focused on facilitating robust sales growth
• Blue Ocean Strategy: a framework focusing on business model innovation, through which an organization shifts into unexplored markets with less competition
• Resource-based view (RBV): a framework for building a sustainable competitive advantage by optimizing tangible or intangible resources

Once a strategic management framework has been applied, a strategic plan can be created. This plan starts with a mission and a set of achievable goals, chosen based on the assembled data. When goals are set, they should be accompanied by defined key performance indicators (KPIs) to help with progress monitoring. Finally, the plan should define how each department will be contributing to achieving each goal. That includes outlining what resources (money, personnel, equipment, and more) it needs for success and how those resources will be allocated.⁵

• Ensure all organizational goals are based on the results of strategic management research. If no one can pinpoint how the two relate to each other, then that goal is out of alignment with the cohesive strategy being built.
• Use the completed strategic management research to find ways to create a competitive advantage. You’ve put all that effort into understanding the market. Leverage whatever angle you can to differentiate your organization.
• Use up-to-date best practices to guide strategic implementation across all levels of the organization, such as "open" strategizing with an emphasis on greater transparency and inclusion,⁶ and make sure to conduct both an external and internal analysis.
• Don't forget that the strategy execution is just as important as strategy formulation

A management theory is only as strong as the leader guiding the strategy execution–and that's not always the person with strategic control. Leadership needs analytic skills to understand the strategy and be ready to advocate for it to the rest of the organization. Getting everyone on board may require change management best practices, especially when the strategy requires significant shifts in corporate governance or daily operations.⁷

Regardless of what strategic management framework is applied, the performance of the implemented strategy must be measurable. Otherwise, there is no definitive way to determine success or failure.

Some frameworks are built with performance measurement at their core, such as Balanced Scorecard.⁸ Others require the application of evaluation techniques, either quantitative or qualitative. These techniques allow for clear comparison before, during and after implementation, enabling data-driven adaptations and refinement over time. 

The application potential for strategic management is nearly limitless. Corporations, nonprofits, governments, cities, schools, and more have applied various frameworks to facilitate strategic planning. Below are just two current examples used.

One case study demonstrating a robust SWOT analysis in action was conducted on Home Depot. Convenience, experience, and corporate social responsibility were all found to be strengths. Meanwhile, competition from online retailers and housing market volatility posed serious threats. Based on these findings, Home Depot was given the strategic advice to focus on innovation and building its online presence, mitigating the threat from online retailers. It was also advised to lean into its strength of experience, amping up its specialized services.⁹

Another case study used a PESTEL analysis to assess the barriers to solar home system provision in Rwanda. The analysis identified a significant number of hurdles to successful implementation. However, the case analysis authors were able to examine all of the data the analysis had generated and ultimately crafted a strategic plan that circumvented the challenges.¹⁰

As robust as strategic management theory is now, it’s only getting better. As time passes, the frameworks favored today will continue to be tweaked and replaced by more sophisticated systems, ones that are better equipped to handle emerging challenges like globalization, digital transformation, and ecological changes.