Table of Contents
What are the benefits of Strategic Management?
Management of Profits
Senior executives are able to receive feedback from department heads because to strategic management. This input enables them to comprehend the bottlenecks at various organizational levels and to take the appropriate steps to increase revenues.
The top management can construct their strategic vision and enhance financial returns based on the current state of affairs. Consider the case of LG Electronics, based in South Korea. Almost two decades ago, the business struggled with fierce competition and limited profitability.
Its rural pricing model resulted in increased sales and money. It also sought to increase brand visibility, which helped LG become a household name in a number of nations.
Solvency Planning
Due to the fact that strategic management is concerned with long-term objectives, executives examine the balance sheet’s assets, liabilities, and net worth to determine whether the organization can meet its long-term obligations.
The company takes every essential step to optimize the asset-to-debt ratio and sustain solvency. To achieve objectives such as expansion and growth, financial planning is essential.
Surveillance of Liquidity
Strategic management enables organizations to guarantee that their cash flow is consistent with their long-term objectives. They do it by continuously monitoring cash flow statements and liquidity reports.
Due to late payments, the relationship between a corporation experiencing a liquidity issue and its vendors is frequently strained. Businesses can engage in operations that result in monetary rewards if they have timely knowledge about the circumstance.
Tesla teamed with Panasonic for lithium batteries, for instance. Additionally, the business constructed a plant to facilitate battery production.
Later, the company bought battery producer Maxwell Technologies. The objective was to reduce battery costs and lower the vehicle’s retail price. This aided in improving cash flow.
Increased Earnings
Strategic management helps senior management to implement necessary modifications to existing operating processes. By analyzing the strategies of its competitors, a business can generate superior concepts and modify its procedures in order to exceed them.
It aids in the search for creative ideas that can generate long-term economic benefits for the organization. Additionally, it helps attract new investors and preserve ties with existing ones.
Minimizing Legal Risks
As part of the strategic management process, businesses can include employee-related policies, conflict of interest policies for board members and other partner parties, and other internal controls. They can speak with their insurance provider, attorney, and other specialists who can assist them in maintaining legal compliance. Consultation reduces the possibility of incurring fines for failing to comply with legal requirements.
Reinvigorate Human Resources
Strategic management typically entails proactive staffing methods that aid in the recruitment of the most qualified candidates and increase competitiveness. Companies can reduce turnover and increase employee satisfaction by preparing thorough job descriptions, enhancing their recruiting methods, providing 360-degree feedback, and taking other initiatives. According to a published case study on Kesko Ltd., a company in the trading sector, the strategy creation began at a generic level and was later adapted for specific sectors at the field level. The company’s revenue, client base, and market share increased as a result of the members’ mutual trust and collaboration.
Identify Problems
Strategic management permits a thorough evaluation of an organization’s strengths, weaknesses, opportunities, and dangers. Based on the identified issues, the business can take appropriate measures, such as modifying the pricing strategy, hiring additional personnel, expanding distribution channels, etc. For instance, a local competitor building a new store could pose a danger to your firm. You can organize loyalty campaigns, discounts, special offers, and other initiatives in advance to deter customers.
Enhanced Decision Making
Strategic management enables quicker and better decision-making. For instance, if you have the chance to undertake a new project, you may make a more informed decision about whether to put resources in it or not. You can plan and allocate resources for a project if it aligns with your beliefs.
Enhanced Understanding of Rival Strategies
Strategic management enables businesses to discover all of their rivals’ methods. Then, they can implement their tactics without mimicking those of their competitors. This step can assist in bolstering your firm and achieving brand recognition objectives. For example, HP maintained its competitive advantage throughout the years by refining its marketing strategy and rebranding on occasion. This ensured that the company’s products fulfilled its consumers’ growing technological requirements.
Enhanced Stability
By expanding into new markets, acquiring new companies, and introducing new goods, you minimize your reliance on specific organizations. Your profits are not contingent on a single product or client’s success. If you have only a few clients, you may have to work only on their terms in order to keep your business from collapsing.
What are the risks of Strategic Management?
Uncertain Future
The foundation of strategic management is anticipating the future environment and creating plans accordingly. Only the available database may be used to study environmental factors by businesses.
However, unanticipated circumstances may render a plan incorrect. The most effective method for avoiding this circumstance is to choose a strategy that does not heavily rely on future projections.
Not a cost-efficient procedure
Before establishing a strategic management approach, businesses must determine the cost-to-benefit ratio. Several small businesses and non-governmental organizations struggle to afford the implementation expenses of strategic management. Frequently, employing outside experts incurs additional expenses. Such businesses require help from financing agencies and other voluntary organizations.
Implementation challenges
Strategic management is a team endeavor, and if any member does not completely get it, the business can suffer. There may be internal conflicts or a lack of proper support from management members. To achieve your objectives, it would be ideal if you had strong leadership and the appropriate distribution of resources.
Lacks versatility
Strategic management includes adhering to a set of norms over an extended period of time. New prospects are pursued only if they correspond with the organization’s current strategies. Occasionally, this constraint renders the process inflexible and aggravating.
