People Innovation Excellence

Benefits of Strategic Management

Strategic management emphasizes long-term performance. Many companies can manage short-term bursts of high performance, but only a few can sustain it over a longer period of time. Since the release of the original Fortune 500 companies listing in 1955, more than 1,800 companies have made the list. In 2015, 18 new companies joined the list for the first time meaning that 18 others fell from the list. To be successful in the long-run, companies must not only be able to execute current activities to satisfy an existing market, but they must also adapt those activities to satisfy new and changing markets.

Research reveals that organizations that engage in strategic management generally outperform those that do not. The attainment of an appropriate match, or “fit,” between an organization’s environment and its strategy, structure, and processes has positive effects on the organization’s performance. Strategic planning becomes increasingly important as the environment becomes more unstable. For example, studies of the impact of deregulation on the U.S. railroad and trucking industries found that companies that changed their strategies and structures as their environment changed outperformed companies that did not change.

A survey of nearly 50 corporations in a variety of countries and industries found
the three most highly rated benefits of strategic management to be:
■ A clearer sense of strategic vision for the firm.
■ A sharper focus on what is strategically important.
■ An improved understanding of a rapidly changing environment

A survey by McKinsey & Company of 800 executives found that formal strategic planning processes improved overall satisfaction with strategy development. To be effective, however, strategic management need not always be a formal process. It can begin with a few simple questions:
■ Where is the organization now? (Not where do we hope it is!)
■ If no significant changes are made, where will the organization be in one year? Two years? Five years? Ten years? Are the answers acceptable?
■ If the answers are not acceptable, what specific actions should management undertake? What are the risks and payoffs involved?

The Bain & Company’s 2015 Management Tools and Trends survey of 1,067 global executives revealed that strategic planning was the number two tool used by decision makers just behind customer relationship management. Other highly ranked strategic management tools were mission and vision statements, change management programs, and balanced scorecards. A study by Joyce, Nohria, and Roberson of 200 firms in 50 subindustries found that devising and maintaining an engaged, focused strategy was the first of four essential management practices that best differentiated between successful and unsuccessful companies. Based on these and other studies, it can be concluded that strategic management is crucial for long-term organizational success.

Research into the planning practices of companies in the oil industry concludes that the real value of modern strategic planning is more in the strategic thinking and organizational learning that is part of a future-oriented planning process than in any resulting written strategic plan. Small companies, in particular, may plan informally and irregularly. Nevertheless, studies of small- and medium-sized businesses reveal that the greater the level of planning intensity, as measured by the presence of a formal strategic plan, the greater the level of financial performance, especially when measured in terms of sales increases.

Planning the strategy of large, multidivisional corporations can be complex and time consuming. It often takes slightly more than a year for a large company to move from situation assessment to a final decision agreement. For example, strategic plans in the global oil industry tend to cover four to five years. The planning horizon for oil exploration is even longer—up to 15 years.15 Because of the relatively large number of people affected by a strategic decision in a large firm, a formalized, more sophisticated system is needed to ensure that strategic planning leads to successful performance. Otherwise, top management becomes isolated from developments in the business units, and lowerlevel managers lose sight of the corporate mission and objectives.

Source:

Strategic Management and Business Policy: Globalization, Innovation, and Sustainability, 15th Edition, ISBN 978-0-13-452205-0 by Thomas L. Wheelen, J. David Hunger, Alan N. Hoffman, and Charles E. Bamford, published by Pearson Education © 2018.

 


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