What is strategic management?

Understanding strategic management is key to navigating the complexities of today's business world. This comprehensive guide examines the meaning and main purpose of strategic management, outlining its critical role in shaping a business’ future. We explore the five stages of strategic management—from identification to evaluation—and discuss the five fundamental principles that underpin effective strategy formulation and execution. Through real-world examples, this post offers insights into how strategic management can drive success and adaptability in various organizational contexts, providing a valuable resource for business leaders and professionals.

Every year businesses set sales goals, have plans for new product releases, branding ideas and more to roll out involving stakeholders and staff members across an organization from ideation to production to marketing. Strategic planning is a mechanic of strategic management, centered on analysis and goal setting. Strategic management is the approach taken to orchestrating the outcome from start to finish— bringing things all together.

Strategic management involves setting objectives, studying competitors in the market, analyzing the strengths and weaknesses of the organization internally, evaluating strategies for achieving the objectives and ensuring that management rolls out the strategies across the organization.¹ Seems pretty straightforward, right? But actually implementing successful strategic planning and management requires careful and thorough attention.

There are many different theories and subtheories of strategic management styles. For the most part these theories came out of different eras of business and in response to the major goals of business, societal values and beliefs of the time. In this blog we’ll focus on one of the first established theories of strategic management as well as the most recent.

Classical Management Theory is the oldest management theory, introduced during the Industrial Revolution. As such, the theory is concentrated on improving productivity and boosting profit and the proposed structure of an organization is largely based on industrial businesses like factories.² Classical Management Theory is assembled from three other business theories:³

• Scientific Management Theory: Developed by Frederick Taylor, this theory is focused on minimizing waste and reducing production times. Taylor’s theory emphasizes incentivizing employee performance and reducing “hit and trial” practices.
• Administrative Management Theory: This theory was established by Henri Fayol, who is considered to be a founder of management theory. It includes principles like equal division of work, establishing a chain of command, setting policies and disciplinary measures, maintaining a unified business vision, sacrificing personal needs for the common good, prioritizing fair and just treatment, maintaining long-term relationships between employee and employer, acting with a sense of urgency and taking initiative.⁴
• Bureaucracy Theory: This theory encourages using established rules and logic to guide management decisions, rather than charisma or nepotism. Developed by sociologist Max Weber, this theory discourages flexibility in favor of formal authority systems in hierarchie, professionalism over personal relationships and strict responsibilities determined by role.⁵

Modern management theory takes into account the contemporary complexities of business including the effects and potential of globalization and technology. It also takes a modernized approach to employee management and recognizes that employees are motivated by more than just money. Modern Management Theory was developed with the power of mathematical analysis and present-day access to data in mind.⁶ Like Classical Management Theory, this concept of strategic management is made up several other theories:

• Quantitative Theory: Developed for managerial efficiency and to support decision-making during World War II, this theory was created by experts from multiple scientific disciplines. It relies on calculating the risks, benefits, and drawbacks of any action by applying statistics, computer simulations, information models, and other quantitative techniques to the given situation.
• Systems Theory: This theory of modern management encourages collaboration and integrated work. It suggests that organizational health is supported by management that discourages silos and promotes inter-departmental processes so that the business runs efficiently as one entity.
• Contingency Theory: Developed by sociologist Joan Woodword, this theory posits that effective strategic planning is achieved when managers make the most out of technology available to them in a given situation. In other words, the effectiveness of a manager is contingent upon their ability to be adaptable in order to make the most of the information available to them in order to find solutions in various circumstances.

Theories of strategic management outline how leadership generally handles problems. The process of strategic management is often referred to as strategic planning. Strategic planning is typically an annual process and can be summarized in five steps.^7,8

1. Identification: Executive team evaluates the company’s current direction and clarifies company mission and vision. Reviews previous strategic plan (if one exists) and determines whether goals remain in place.
2. Analysis: Executive team analyzes details of previous strategic management plan to determine what is and isn’t working. Gathers input from other stakeholders and may conduct analysis of strengths, weaknesses, opportunities and threats (SWOT).
3. Formation: Executive team creates a plan with goals and clear steps to reach goals. Puts steps to a timeline where appropriate and prepares a clear summary of guidelines for the plan that can be communicated to other managers, teams and stakeholders.
4. Execution: Leadership across the company aligns their units with strategy and completes tasks necessary to keep up with the strategic plan. Expectations are continually communicated by all levels of leadership to employees.
5. Evaluation: Leadership evaluates performance in stages and at different levels of the organization. Have goals been achieved? Was the process followed throughout the company?

In a study conducted from 1988 and 1998, seven out of eight companies in a global sample of 1,854 large corporations failed to achieve profitable growth even though 90% of the companies in the study had developed detailed strategic plans with much higher targets. Further research conducted by the Harvard Business Review (HBR) found that, on average, 95% of a company’s employees are unaware of, or do not understand, its strategy. In other words, there was a huge disconnect between the higher-ups in a company and the vast amount of its employees. As the HBR posited, “If the employees who are closest to customers and who operate processes that create value are unaware of the strategy, they surely cannot help the organization implement it effectively.”

Communication and clarity are essential to ensuring a strategic plan is carried through successfully and that doesn’t just mean reiteration of a flowchart or list of goals to employees over and over. The HBR found that the vast majority of executive teams spend less than one hour per month discussing strategy. Even though they created it, it can be easy for leadership to experience mission or goal-creep where they start to reinterpret or mentally adjust goals based on outside factors. The HBR suggests that a way to avoid this is to include a scorecard system into the strategic planning process and to integrate human resources into efforts to maintain goals by coordinating personal and departmental goal-setting based on the organizational benchmarks and link incentives to success.⁹