Strategic management is important to organizations for several reasons. For one thing, the process helps organizations identify and develop a competitive advantage, which is a significant edge over the competition in dealing with competitive forces. For example, Disney has been able to gain a competitive advantage in the family entertainment industry by creating amusement parks, movies, and products based on the renowned Disney characters.
Another reason for the importance of strategic management is that it provides a sense of direction so that organization members know where to expend their efforts. Without a strategic plan, managers throughout the organization may concentrate on day-to-day activities only to find that a competitor has maneuvered itself into a favorable competitive position by taking a more comprehensive, long-term view of strategic directions.
Yet another reason for the importance of strategic management is that it can help highlight the need for innovation and provide an organized approach for encouraging new ideas related to strategies. In addition, the process can be used to involve managers at various levels in planning, thus making it more likely that the managers will understand the resulting plans and be committed to their implementation.
Finally, studies support the existence of a link between strategic management and organizational financial performance, although results have not always been consistent. According to Fred R. David, research studies indicate that organizations using strategic management concepts are more profitable and successful than those that do not. For example, a longitudinal study of 101 retail, service, and manufacturing firms over a 3-year period concluded that businesses using strategic management concepts showed significant improvement in sales, profitability, and productivity compared to firms without systematic planning activities; another study reported that up to 80 percent of the improvement possible in a firm’s profitability is achieved through changes in a company’s strategic direction; Cook and Ferris reported that the practices of high performing firms reflect a more strategic orientation and longer term-focus. High-performing firms tend to do systematic planning to prepare for future fluctuations in their external and internal environments. Firms with planning systems more closely resembling strategic management theory generally exhibit superior long-term financial performance relative to their industry.
Of course, assessments of strategic management should also consider other important outcomes, such as the satisfaction of various organizational stakeholders and the extent to which the organization adequately deals with relevant factors in the environment.
Credit: Advanced Strategic Management-MGU