Strategic management: agile solutions in a VUCA environment

21/07/2022 | Santander Universidades

Successfully completing a maze can be quite a challenge, but what if the maze also comes to life as you walk through it, doors opening where before there were none or corridors closing in your path? This image evokes the present-day importance of strategic management

Decades ago, companies would set up a linear, fixed process to achieve their objectives. However, in today's VUCA environment (standing for Volatility, Uncertainty, Complexity and Ambiguity), such methodology no longer has a place. Now, managers have to be agile and know how to adapt to the changing circumstances that constantly arise, whether it be a new competitor, an industry downturn, or a global pandemic. In fact, in the wake of the Covid-19 pandemic, around 60% of leaders say they spend more time deliberately weighing up strategic decisions, according to a recent Treasure Data report.  

In other words, they don't only plan their route when entering into the maze, they also know how to adjust the itinerary according to the obstacles or opportunities that arise. To do so, they harness strategic management, where all of the corporate machinery is put to the service of the goals that evolve along with the market.

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What is strategic management?

Strategic management consists of a management model that takes the environment and its constant changes as a starting point. So, as with any other type of business management, the objective of this methodology is to pick an organisation's objectives and the means or ways of achieving these, implementing the latter to achieve the former. However, with strategic management, this planning/execution/evaluation process is permanent and agile

According to Arthur A. Thompson and Alonzo J. Strickland in their book Strategic Management, strategic management“ is a process of continuous and systematic movement that offers better guidance to the entire organisation on the crucial point of what is to be achieved, making managers more aware of the winds of change, new opportunities and threatening developments". So, strategic management is characterised by adapting decisions to complex and changing environments, which makes it a dynamic mechanism, one that is constantly revised and realigned. Hence, the ability to diagnose is a must-have if you want to work in this field. 

Moreover, strategic management must be applied at all levels and consistently across the board. On the one hand, such long-term planning should encompass the entire company's global approach, i.e., the corporate strategy:  who the company is, what its aims are, what it offers society, etc. On the other hand, and based on these fundamentals, you should identify what your business strategy is going to be, i.e., how you will compete on the market: will you be identified by the quality of your products? A competitive price? Will innovation take priority? And so on. 

Lastly, in line with the business and competition strategy, you will have to organise the company internally in order to achieve its goals, setting an appropriate functional strategy that lets you use the available human and material resources in production, marketing, finance, technology or human resources to achieve the best results. 

What can strategic management be used for?

Thus, by incorporating a strategic approach to the entire organisation, you will achieve better results. But in what sense? 

  • You will understand the company's internal and external situation, which will help you to set realistic objectives for the company in the short, mid and long term.  

  • Likewise, you will be able to identify business opportunities before your direct competitors, thus giving the company an edge. 

  • You will be capable of identifying market changes and adapting to these, preventing the company from losing competitiveness or reducing its productivity. 

  • Solid knowledge of the company and its background will also help you to shape the environment to your advantage

 

  • By structuring the entire organisation around achieving the set goals, you will facilitate achievement of the expected results

  • In short, you will make the company more competitive, and in financial terms, more profitable.

 

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How to develop strategic management skills

Once you know what strategic management is and the advantages it offers in a volatile market like the present, what steps can you take to implement this plan within a company? Below, we explain the process to follow in order to apply this management mentality.

Strategic analysis

This point is directly connected to the corporate strategy. In other words, it's about evaluating the company as such, and the basis on which it conducts its operations.

Regarding the first point, it's crucial to determine what the vision, mission and values of the company are, as these will serve as the foundation for the rest of the strategic plan. For example, if Ikea's philosophy consists of improving day-to-day life for people by creating functional yet designer furniture for every budget, it wouldn't make sense for its competitive strategy to be based on exclusivity, with limited production and high prices. Likewise, if one of your values is innovation, it would be logical to have an R & D department.

Once you've settled on what the backbone of the company is, exploration should continue with a study of its strengths and weaknesses, so that more appropriate strategies can later be drawn up. In this case, it will be helpful to conduct a SWOT analysis to identify strong and weak points, as well as any opportunities and threats the company faces. Additionally, this can be complemented by an EFI matrix (Internal Factor Evaluation), which will help you to weigh up the importance of each of the parameters obtained in the SWOT analysis. 

As for the business environment, everything is interlinked. So, you can’t conduct an appropriate strategic analysis without also understanding the environment in which the company will be moving. As a result, strategic management requires an in-depth assessment of the external factors that might influence the proper running of the company. For this, you can use a PESTEL analysis, which identifies the political, economic, social, technological, environmental and legal factors related to your company. Similarly, you can pair this with an EFE analysis (External Factors Evaluation) to pinpoint the impact of these aspects —external to the business— on the company's progress.

Strategy design

So, you know where the starting point is. Now it's time to decide where to put the goal posts and how to target these. This requires you to set company objectives on the one hand, but remember that to achieve success, these objectives should be SMART, i.e. Specific, Measurable, Attainable, Relevant and Time-bound. 

Meanwhile, once you've set the goals, you should identify any competitive edge the organisation has, as this will contribute to achieving success. In this sense, Michael Porter's five forces model also helps to determine an organisation's competitive capacity —power of customers and suppliers, threats due to the emergence of new competitors, products or services that may be substitutes, and rivalry between competitors.

Next, decide which competitive strategies are most suitable for your company. Don't limit yourself when you start out —brainstorm ideas to develop the greatest number of probabilities. In general, you can use: 

  • Stability strategies. These are used when a company believes its performance to be sufficient —and thus wants to maintain it, or when a business feels it has few or no options to grow. They are characterised by a lack of significant change.   

  • Growth strategies. The aim is to increase sales, profits and the company's market share through diversification, going global, vertical integration, strategic partnerships, acquisitions, licensing and franchises, etc. 

  • Contraction strategies. In this case, the organisation wants to reduce the scale or diversity of operations after an audit and evaluation of the segments that are not profitable or necessary. 

Strategy roll-out

With all of the cards on the table, now it's time to pick which ones to put into practice, to better adapt to the aims and needs of the company, setting the order of implementation. In terms of tools to help you settle on the best strategies, look to management tools such as the Ansoff matrix, used to identify which strategic opportunities best fit with an organisation, or the Eisenhower matrix, a tool to set priorities, differentiating between urgent and important. Of course, you will have to evaluate for yourself the resources your company has at its disposal, and organise these in order to efficiently roll out the action plans. 

And don't forget that this stage of strategic management also involves setting an action plan to be developed via specific operational plans, as well as the cementing of control mechanisms and productivity indicators to monitor fulfilment of the chosen lines of action. In this case, you can use tools such as Gantt charts to capture the project's progress. Bear in mind that the strategic management model is known for its ability to constantly adapt, meaning that evaluation, monitoring and tracking the fulfilment of plans is key to identifying what works and what doesn't, as well as adopting any new measures. 

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