by Venchito Tampon | Last Updated on October 31, 2024
In today’s VUCA and BANI (Brittle, Anxious, Non-Linear, and Incomprehensible) environments, strategic management has emerged as a critical skill and function for organizations striving for long-term success.
Founded on the five management functions (and the five Ms of management), strategic management hinges on a systematic approach to planning, decision-making, resource allocation, and the ability of every team and business to navigate challenges and capitalize on opportunities focused on their core vision.
All of these are critical to sustaining the growth of any organization.
In this guide, we will explore the key benefits of strategic management and my own takeaway as CEO of three companies: an SEO agency, a coffee shop franchising company, and a corporate training company.
The benefits of strategic management are broadly categorized into financial and non-financial, both of which are indispensable for sustaining a company’s success.
1. Financial Benefits of Strategic Management
A. Improved Profitability and Revenue Growth
One of the primary financial benefits of strategic management is its positive impact on profitability. Companies with well-defined strategic plans are better equipped to identify and capitalize on revenue-generating opportunities.
Directors and managers ensure that they pinpoint necessary opportunities (becoming purposeful and opportunistic) as part of their directing in management. This proactive approach to market trends and consumer demands leads to consistent revenue growth, mainly when proper execution occurs.
One study published in the Strategic Management Journal found that companies engaged in strategic planning experienced a 12% higher profitability than those that didn’t.
Strategic management helps businesses set financial goals, monitor performance, and execute against those goals while implementing corrective measures, if necessary, when deviations occur—all these ensure sustained profitability.
Apple Inc. has consistently used strategic management to innovate and enter new markets, now driving higher profitability year over year. They maintained high net income growth from $48 billion in 2018 to over $55 billion in 2020.
B. Efficient Resource Allocation
Strategic management allows organizations to optimize resources by identifying the most profitable ventures and prioritizing investments accordingly. In leadership training, we teach that we must utilize and maximize five resources daily. Failure to do so will result in disorder and inefficiency.
These five resources include:
- Treasure (Money)
- Attention
- Energy
- Time
- Talent
Efficient resource allocation helps minimize waste and ensures that capital, human talent, and all allocated resources toward initiatives can achieve the highest potential for returns.
According to a report by McKinsey & Company, firms that implemented strategic management practices achieved a 25% increase in resource productivity, leading to significant cost savings and improved financial performance.
It is through leaders starting to see things from a top-down perspective —we call this “big-picture thinking” or “strategic thinking”—that the team must focus on, whether it is a high-return project or daily task. Companies must avoid unnecessary expenditures to free up resources for other critical business areas.
Procter & Gamble (P&G) strategically focuses on high-growth categories like beauty and personal care, allowing it to allocate resources more effectively. It has focused on a market where it knows it can, which has resulted in improving its operating margins and steady financial growth, as reported in its annual financial statements.
C. Enhanced Risk Management
Strategic management involves identifying potential risks and developing plans to mitigate them. This proactive approach helps businesses avoid costly financial setbacks and ensures that they can withstand market fluctuations. According to a PwC survey, 73% of CEOs actively engaged in strategic risk management reported fewer financial losses than those who did not.
Risk management constitutes solid training for mid-line managers and directors. It is a critical skill in today’s rapidly changing market, as each organization and individual faces different types of risks in leading their teams.
For instance, we managed to take calculated risks when we opened our coffee shop in Bulacan and our franchise in Lower Bicutan. Given the product-market fit, we saw every pattern and readability in operations to ensure it would catch a good market share once we launched our products.
Another example is companies like Zoom, which, with strategic risk management plans in place, were able to quickly adapt to the surge in demand for virtual communication tools. As a result, Zoom’s revenue increased by over 300% in 2020, demonstrating how strategic planning can lead to significant financial gains even during uncertain times.
D. Improved Financial Planning and Budgeting
Strategic management enables businesses to create more accurate financial projections and budgets by aligning them with long-term goals. This alignment ensures that economic resources are allocated to support strategic objectives, leading to better financial outcomes.
A recent study by Deloitte revealed that organizations with strategic management frameworks experienced a 15% increase in financial planning accuracy, leading to more efficient budgeting and cost control.
Financial planning is directly related to strategic goals. Businesses can avoid overspending by focusing on critical projects that require significant available funds.
2. Non-Financial Benefits
Beyond monetary gains, strategic management offers a plethora of non-financial advantages that any leader can overlook without thinking. These benefits contribute to the organization’s overall success, sustainability, and competitiveness.
A. Clear Organizational Direction and Vision
Having a clear sense of direction and vision is part of the directing stage of the PLOC framework in management, which determines the destination of any organization. Strengthening strategic management initiatives ensures that all stakeholders understand the organization’s goals and the action steps needed to achieve them.
According to research conducted by Bain & Company, 90% of high-performing organizations attribute their success to having a clear strategic vision that guides their specific actions and decisions. This sense of purpose assists them in aligning efforts and ensures that every department and employee works toward the same goals.
For instance, Tesla, Inc. has a clear vision to “accelerate the world’s transition to sustainable energy.” This strategic focus enables them to develop more products and marketing strategies while inspiring employees and stakeholders to contribute to the same vision within the electric vehicle market.
We covered how to create vision statements in our Visioneering module in our team training and management training programs.
B. Improved Decision-Making
Strategic management provides a structured framework for decision-making by analyzing internal and external factors that impact the business. This systematic approach ensures that decisions are made based on data, market trends, organizational changes, and capabilities, reducing the risks of costly mistakes.
A study conducted by Harvard Business Review found that organizations with strategic management processes are 60% more likely to make decisions that lead to positive outcomes. Different strategic management initiatives, such as data analytics, scenario planning, and forecasting, can further result in informed and effective choices.
Johnson & Johnson, a global leader in healthcare, employs strategic management to make informed decisions regarding product development and market expansion. They use data-driven insights to launch new products that align with market demands.
C. Adaptability and Resilience
Without adaptability, you can’t contribute to your organization’s success. Strategic management equips organizations with the tools to anticipate changes and respond to any market disruption so they can adjust their strategies accordingly.
A report by the Boston Consulting Group found that organizations with robust strategic management practices are 50% more likely to adapt to market changes, ensuring long-term sustainability.
Netflix is a prime example of adaptability through strategic management. Initially a DVD rental service, Netflix anticipated the shift toward digital streaming and strategically pivoted its business model. This adaptability approach has positioned Netflix as a market leader in the streaming industry, with over 200 million subscribers worldwide.
D. Enhanced Employee Engagement and Motivation
Involving employees in the strategic planning process fosters a sense of ownership and commitment, leading to increased engagement and productivity. Employees who understand their role in achieving the organization’s goals are more likely to be motivated and perform at their best.
A Gallup study found that organizations with high employee engagement experience 21% higher productivity and 22% greater profitability than those with low engagement. Strategic management helps create a culture where employees feel valued and connected to the company’s mission, which in turn drives better performance.
Example: Google employs strategic management practices that encourage employee involvement in decision-making, leading to high levels of engagement and innovation. This approach has contributed to Google’s reputation as one of the best places to work while driving its success as a global tech giant.
E. Strengthened Organizational Culture and Values
Strategic management helps to establish a strong organizational culture by aligning the company’s values, beliefs, and behaviors with its strategic objectives. A strong culture fosters unity, collaboration, and a shared sense of purpose, vital for achieving long-term success.
Research from the Journal of Organizational Behavior indicates that companies with a well-defined culture aligned with their strategy outperform their competitors by up to 30%.
One of the best examples is Southwest Airlines’ strategic management approach, which emphasizes employee empowerment and customer service. This culture has led to high employee satisfaction, low turnover rates, and a loyal customer base, making it one of the most profitable airlines in the industry.
Incorporating strategic management is not just an option but necessary for organizations aiming to thrive in today’s dynamic and competitive business landscape.
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