Strategic management involves long-term plans and objectives that allow a company to leverage capabilities, increase opportunities, and achieve competitive advantage. Although there are many advantages to strategic management, such as reducing the resistance to change and promoting collaboration, there are also disadvantages. The strategic management process is complex, time-consuming, and difficult to implement; it requires skillful planning in order to avoid pitfalls.
Strategic management involves continuous assessments of critical components, such as external and internal environments, short-term and long-term objectives, organizational structure, and strategic control. These components are interrelated, so a change in one component may affect other areas.
For example, in an economic downturn, a company may need to reduce its workforce. The external factor, which is the poor economy, changes the internal environment, which is the number of people employed. Then, a company may need to review objectives and make necessary adjustments. All of these factors ultimately influence a company’s management, leadership, and structural systems, which have a bearing on decision-making.
- What Is Strategic Management?
- Limitations of Strategic Management
- What are the Advantages and Disadvantages of Strategic Management?
- What are the Benefits and Limitations of Strategic Management?
- 5 Steps to Effective Strategic Risk Management
- What are Some Limitations and Problems With Highly Formalized Strategic Planning?
- What are the Sources of Strategic Risk?
- What are the 4 Reasons for the Lack of Strategic Planning?
What Is Strategic Management?
Having a strategy, or a strategic plan, is simply having a plan for achieving a specific outcome, and in business, having a strategy is do-or-die. No one succeeds in business without having a plan to get them through the week, the month, the year — whether it is just keeping the lights on or it is about going head to head with the best competitor in the biz. Strategies keep the doors open.
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Businesses often turn to the SWOT analysis method (Strengths, Weaknesses, Opportunities, Threats) to get a sense of where they stand and where they want to go. A SWOT can be a basic document created with generalized info, or it can be incredibly complex with extensive supporting data.
But there are many other methods of analyzing where a company stands versus where it wants to be, and they all come down to data and instinct. But it is important to keep in mind that both data and instinct can be flawed, obsolete or just plain wrong.
Strategic management is when the company’s management defines goals and initiatives that consider available resources as well as existing and impending environmental factors, both internal and external, that can impact or influence success in achieving those goals and initiatives. As you can imagine, the advantage of strategic management is it creates a clear path ahead and gives the entire team a goal to work toward.
Limitations of Strategic Management
In the hands of a company that does not have good employees or forward-thinking, innovative management, the strategies may be tired, ineffective, hard to achieve, off-point and could ultimately do more harm than good.
The potential trouble with such a strategic management plan is that it can hamstring innovation and slow down response to a fast-changing market or shifting ground. Strategic management can sometimes be akin to taking a road trip with a 10-year-old roadmap — good luck getting where you want to go.
The following sections will detail how strategic management can be limiting or ineffectual.
Foresight and the Future
Data makes no promises. Numbers, market forecasts, expectations — these are all best-guess scenarios and they all rely on having favorable winds blowing in one’s direction. The trouble with data and research, too, is that it can often be flawed or limited in all kinds of ways, especially when it reflects the market and a company’s competition.
Having great data and spot-on research can often be a costly endeavor and maintaining such data to ensure it stays accurate can mean allocating valuable human resources to stay on top of said data. But the costs are high enough to be prohibitive to keep them current, which can often mean that companies can make future decisions based on obsolete data, and that is a problem.
The idea of being data-savvy and knowing the numbers around not only your operations but the external market and your competitors is not a bad thing — it is a great initiative. It is just that the realities do not always mesh with ideals, and when that is the case, you need smart a management team who knows how to duck and jump when the day-to-day is not matching with what data has foretold.
Hamstrings Improvisation and Innovation
When some people cook, they read a recipe and follow it step by step, then wonder why it did not wow them. And the reason is that recipes are made for the general public and need to be middling, so they do not offend taste buds. Confident cooks, however, know what they like and can read a recipe and know where to improvize so it meets their standards of what “success” means in a meal.
That is what needs to happen with strategic management. Yet it runs into sort of the same problems in that not every management team has the confidence or foresight to know how to adapt a plan on paper to the shifting realities of an ever-changing competitive market.
Internally and externally, all sorts of things can send shocks to a company’s well-thought-out plan. From key employees suddenly getting extremely sick, even dying, through to new government policies or even a scathing news story, there are all kinds of incidents that can impact companies. If management lacks good instincts or fails to have the confidence to improvise, these happenstances can be detrimental, even fatal, to the company over the long haul.
Just look at the advent of technology, like when cameras went from film to digital media. Fuji Film jumped at creating cameras, giving them a market share to this day. But look at Kodak, who once dominated photography worldwide and whose shares have plummeted over the years. Kodak had a plan — but it was the wrong plan and they chose not to improvise when the writing was on the wall.
Other Companies Strategize Too
Michael Porter, the guy who literally wrote the book on strategy and who created the framework that many companies still use today, strongly advocated that strategy does not equal operational effectiveness. His term “operational effectiveness” is defined as “performing similar activities better than rivals perform them.”
How the company performs comes down to several factors, like the technology and resources they have for completing their work, the humans who are tasked with getting it done and the leaders who have the responsibility to get everyone across the finish line.
The difference-maker is when companies can look at their competitors and find a way to make themselves stand out. Instead of simply offering similar products or services, companies need to offer something that others do not. They need to add better value, make their product unique, offer higher-quality service or do whatever else it takes to win. Unfortunately, too many companies are too focused on what they are doing to be paying attention to what the others are doing — or vice-versa, and that is a recipe for failure.
A perfect example of a company that offered the same service/product but came up with an industry-defining way of delivering it in a unique, inimitable way is when Apple launched the first-ever iPod. It was so outside the box that it was on a completely different shelf from the rest of their competition, and it set them up for 15 years of global market domination that, for a time, seemed like it would never end.
That came down to understanding the market, knowing others’ shortcomings, having a vision, knowing technology’s potential and finding a way to get their entire team focused on making the best music-playing device the world had ever seen. In short, it came down to having the best strategy and the best management.
What are the Advantages and Disadvantages of Strategic Management?
Advantages:
The process of strategic management is a comprehensive collection of different types of continuous activities and also the processes which are used in the organization. Strategic management is a way to transform the existing static plan in a proper systematic process.
Strategic management can have some immediate changes in the organization. The following mentioned are few pointers that help you identify the relevance of strategic management and its benefits
1. Creating a better future:
There is always a difference between reactive and proactive actions. When a company practices strategic management – the company will always be on the defensive side and not on the offensive end. You need to come out victorious in a competitive situation and not be a victim of the situation.
It is not possible to foresee each and every situation but if you know that there are chances of certain situations then it is always better to keep your weapons ready to fight the situation.
2. Identifying strategic directions:
Strategic management essentially and clearly defines the goals and mission of the company. The main purpose of this management is to define realistic objectives and goals – this has to be in line with the vision of the company.
Strategic management provides a base for the organization on the basis of which progress can be measured and on the basis of the same, the employees can be compensated.
3. Make Better business decisions:
It is important to understand the difference between a great idea and a good idea. If you do have a proper and clear vision of your company – then having a mission and methods to achieve the mission always seems to be a very good idea. You need to make better decisions and that too within less time.
Here come the benefits of a strategic approach. It turns into a great idea when you decide what is the type of project that you want to invest your money; how do you plan to invest your time and also utilize the time of your employees.
Once you are clear with your ideas about the project and the time each of your employees and yourself will have to allocate, you will need to focus your attention on the financial and human resources.
4. Business Longevity:
The times are changing fast and there are dynamic changes happening every day. Industries worldwide are changing at a fast pace and hence survival is difficult for those companies which do not have a strong and perfect base in the industry.
Strategic management ensures that the company has a thorough stand in the related industry and the experts also make sure that the company is not just surviving on luck and better chances or opportunity. When you look at various studies you would know that the industries which are not following strategic management will survive for not more than five years.
This suggests that companies should have a powerful focus on the longevity of the business. This suggests that without strategic management, it is not possible for a company to survive in the long run.
5. Increasing market share and profitability:
With the help of strategic management, it is possible to increase the market share and also the profitability of the company in the market. If you have a very focused plan and strategic thinking then it is possible for all industries to explore better customer segments, products and services and also to understand the market conditions of the industry in which you are operating in.
Strategic management skills will help you to approach the right target market. The experts will guide for better sales and marketing approaches. You can also have a better network of distribution and also help you to take business decisions which at the end of the day results in profit.
6. Avoiding competitive convergence:
Most of companies have become so used to focusing on their competitors that they have started imitating their good practices. It has become so much of competition that is becoming difficult to part the companies or identify them differently.
With the help of strategic management this magic is possible – try and learn all the best practices of a company and become a unique identity that will keep you apart from your competitors.
7. Financial benefits:
The firms which follow the process of strategic management prove to have more profits over a period of time as compared to the companies that do not opt for strategic management decisions.
Those firms which are involved in using strategic management use the right method of planning – these companies have excellent control over their future. They have a proper budget for their future projects; hence these businesses continue for a long time in the industry.
8. Non-financial benefits:
Companies using strategic management also provide various financial and non-financial benefits of strategic management. The experts informed that the firms which practice strategic management are always ready to defeat external threats.
They have a better understanding of the strengths and weaknesses of the competitor and hence they are able to withstand the competition. This paves way for better performance and rewards for the company over a period of time.
The main feature of this management system is that it has the capacity of problem prevention and problem-solving skills. It also helps in bringing about discipline in the firm for all types of internal and external processes.
Disadvantages:
The process of strategic management includes a set of long-term goals and objectives of the company – using this method helps the company in facing the competition in a better manner and also increases its capabilities.
These are definitely some of the strategic management benefits but every coin has two sides – the same is the case with strategic management. Here are some of the limitations of strategic planning in management.
1. Complex process:
Strategic management includes various types of continuous process which checks all type of major critical components. This includes the internal and external environments, long-term and short-term goals, strategic control of the company’s resources and last but not least it also has to check the organizational structure. This is a lengthy process because a change in one component can affect all the factors.
Hence it is vital that one understands the issues with all the concerned factors. This generally takes time and at the end, the growth of the company is affected.
Being a complex process it calls for lots of patience and time from the management in order to implement strategic management.
In order to have proper strategic management, there should be strong leadership and properly structured resources.
2. Time-consuming process:
In order to implement strategic management, it is necessary that the top management spends proper quality time in order to get the process right. The managers have to spend a lot of time researching, preparing and informing the employees about this new management. This type of long-term and time-consuming training and orientation would hamper the regular activities of the company.
The day-to-day operations are negatively impacted and in the long term, it could affect the business adversely. For e.g. there are many issues that require daily attention but this is not taken care of because they are busy researching the details about strategic management.
In case, proper resolution of the problems are not done on time then there could be a great amount of attrition increase. Besides this, the performance of the employees will also go down because they are not getting the required resolution of their problems. This type of situation may lead the management to divert all their critical resources towards employee motivation and performance – while doing this your strategic management process will be sidelined.
3. Tough implementation:
When we speak the word strategic management then it seems to be a huge and large word. But it is also a fact that the implementation of this management system is difficult as compared to other management techniques. The implementation process calls for perfect communication between employees and employers.
Strategic management has to be implemented in such a way that the employees have to remain fully attentive; there should be active participation among the employees and besides this, the employees have to be accountable for their work. This accountability is meant not only for the top management but for all employees across the hierarchy. The experts mention that implementation is difficult because they have to continuously strive to make the employees aware about the process and benefits of this system.
For e.g. if a manager was involved in forming of the strategic process and he/she has not been involved in the implementation process then the manager will never be accountable for any processes in the company.
4. Proper planning:
When we say management systems then it calls for perfect planning. You just cannot write things on paper and leave them. This calls for proper practical planning. This is not possible by just one person but it is a team effort.
When these types of processes are to be implemented then you need to sideline various regular decision-making activities which would adversely affect the business in the long run.
What are the Benefits and Limitations of Strategic Management?
Discharges Board Responsibility
The first reason that most organizations state for having a strategic management process is that it discharges the responsibility of the Board of Directors.
Forces An Objective Assessment
Strategic management provides a discipline that enables the board and senior management to actually take a step back from the day-to-day business to think about the future of the organization. Without this discipline, the organization can become solely consumed with working through the next issue or problem without consideration of the larger picture.
Provides a Framework For Decision-Making
Strategy provides a framework within which all staff can make day-to-day operational decisions and understand that those decisions are all moving the organization in a single direction. It is not possible (nor realistic or appropriate) for the board to know all the decisions the executive director will have to make, nor is it possible (nor realistic or practical) for the executive director to know all the decisions the staff will make.
The strategy provides a vision of the future, confirms the purpose and values of an organization, sets objectives, clarifies threats and opportunities, determines methods to leverage strengths, and mitigates weaknesses (at a minimum).
As such, it sets a framework and clear boundaries within which decisions can be made. The cumulative effect of these decisions (which can add up to thousands over the year) can have a significant impact on the success of the organization. Providing a framework within which the executive director and staff can make these decisions helps them better focus their efforts on those things that will best support the organization’s success.
Supports Understanding & Buy-In
Allowing the board and staff participation in the strategic discussion enables them to better understand the direction, why that direction was chosen, and the associated benefits. For some people simply knowing is enough; for many people, to gain their full support requires them to understand.
Enables Measurement of Progress
A strategic management process forces an organization to set objectives and measures of success. The setting of measures of success requires that the organization first determine what is critical to its ongoing success and then forces the establishment of objectives and keeps these critical measures in front of the board and senior management.
Provides an Organizational Perspective
Addressing operational issues rarely looks at the whole organization and the interrelatedness of its varying components. Strategic management takes an organizational perspective and looks at all the components and the interrelationship between those components in order to develop a strategy that is optimal for the whole organization and not a single component.
Some Limitations
The Future Doesn’t Unfold As Anticipated
One of the major criticisms of strategic management is that it requires the organization to anticipate the future environment in order to develop plans, and as we all know, predicting the future is not an easy undertaking. The belief being that if the future does not unfold as anticipated then it may invalidate the strategy taken.
Recent research conducted in the private sector has demonstrated that organizations that use planning processes achieve better performance than those organizations that don’t plan – regardless of whether they actually achieved their intended objective. In addition, there are a variety of approaches to strategic planning that are not as dependent upon the prediction of the future.
It Can Be Expensive
There is no doubt that in the not-for-profit sector there are many organizations that cannot afford to hire an external consultant to help them develop their strategy. Today there are many volunteers that can help smaller organizations and also funding agencies that will support the cost of hiring external consultants in developing a strategy.
Regardless, it is important to ensure that the implementation of a strategic management process is consistent with the needs of the organization, and that appropriate controls are implemented to allow the cost/benefit discussion to be undertaken, prior to the implementation of a strategic management process.
Long-Term Benefit vs. Immediate Results
Strategic management processes are designed to provide an organization with long-term benefits. If you are looking at the strategic management process to address an immediate crisis within your organization, it won’t. It always makes sense to address the immediate crises prior to allocating resources (time, money, people, opportunity, cost) to the strategic management process.
Impedes Flexibility
When you undertake a strategic management process, it will result in the organization saying “no” to some of the opportunities that may be available. This inability to choose all of the opportunities presented to an organization is sometimes frustrating.
In addition, some organizations develop a strategic management process that becomes excessively formal. Processes that become this “established” lack innovation and creativity and can stifle the ability of the organization to develop creative strategies. In this scenario, the strategic management process has become the very tool that now inhibits the organization’s ability to change and adapt.
A third way that flexibility can be impeded is through a well-executed alignment and integration of the strategy within the organization. An organization that is well aligned with its strategy has addressed its structure, board, staffing, and performance and reward systems. This alignment ensures that the whole organization is pulling in the right direction, but can inhibit the organization’s adaptability.
Again, there are a variety of newer approaches to strategy development used in the private sector (they haven’t been widely accepted in the not-for-profit sector yet) that build strategy and address the issues of organizational adaptability.
5 Steps to Effective Strategic Risk Management
Simply put, strategic risks are risks that a company takes that could potentially result in a major loss.
A company that has superior and unmatched manufacturing processes will still fail if its consumers no longer want their products. This was the lesson that was learned by even the most efficient buggy whip makers once Henry Ford introduced his Model T in 1908. Cellphone handset manufacturers faced a similar crisis when the Apple® iPhone® arrived on the scene.
Strategic risk management is the process of identifying, quantifying, and mitigating any risk that affects or is inherent in a company’s business strategy, strategic objectives, and strategy execution. These risks may include:
- Shifts in consumer demand and preferences
- Legal and regulatory change
- Competitive pressure
- Merger integration
- Technological changes
- Senior management turnover
- Stakeholder pressure
Managing strategic risk involves five steps that must be integrated within the strategic planning and execution process in order to be effective:
- Define business strategy and objectives. There are several frameworks that companies commonly use to plan out a strategy, from simple SWOT analysis to the more nuanced and holistic balanced scorecard. The one thing that these frameworks have in common, however, is their failure to address risk. It is crucial, then, that companies take additional steps to integrate risk at the planning stage.
- Establish key performance indicators (KPIs) to measure results. The best KPIs offer hints as to the levers the company can pull to improve them. Thus, overall sales make a poor KPI, while sales per customer let the company drill down for answers.
- Identify risks that can drive variability in performance. These are the unknowns, such as future customer demand, that will determine results.
- Establish key risk indicators (KRIs) and tolerance levels for critical risks. Whereas KPIs measure historical performance, KRIs are forward-looking leading indicators intended to anticipate potential roadblocks. Tolerance levels serve as triggers for action.
- Provide integrated reporting and monitoring. Finally, companies must monitor results and KRIs on a continuous basis in order to mitigate risks or grasp unexpected opportunities as they arise.
Strategic risk represents the greatest dangers—and opportunities—your company faces. By taking steps to manage it at the enterprise level, companies can shape their future success while minimizing downside exposure.
What are Some Limitations and Problems With Highly Formalized Strategic Planning?
Here are four fatal flaws that consistently creep into strategic planning processes that, if avoided, can significantly improve both the process and the results.
Skipping Rigorous Analysis
Many managers believe their business experience and knowledge base alone equip them with all the information they need to conduct effective strategic planning. This belief is almost always untrue and serves only to undermine the kind of critical thinking from which truly creative strategies are born.
A good strategic planning process takes full advantage of the numerous tools of strategic analysis — such as the five forces model, strategic group maps, or the value chain — to gain key insights regarding how the industry is evolving, how competitors are changing positions, and where an individual firm’s sources of competitive advantage lie.
Eric Okerstrom, vice president of strategy management for Hagerty, a national specialty insurance agency that insures collectible automobiles and wooden boats, learned this lesson during his most recent strategic planning efforts. The company conducted extensive customer analysis and market segmentation work and, in so doing, realized that their brand wasn’t as well known as they first thought.
“Our entire leadership team believed that most participants in the collector market knew who we were and wanted to do business with us. What we found out during our analysis was that while our brand was strong amongst our core client base, there was room for improvement.” It wasn’t that Hagerty didn’t have a known brand or delighted customers — they did.
It was just that marketing perception and share data revealed that their name wasn’t as widely recognized as they previously thought. “We reoriented a significant portion of our strategy and reexamined who our true competitors were because of the data we encountered during the analysis,” says Okerstrom.
They found that while the traditional end-user insurance purchaser was still important, it was equally important to focus more intensively on the general insurance agency channel that was recommending their product. Now they have adopted an innovative sales approach with a key distributor segment that will help them reach a major portion of the market they had not focused on previously.
Believing Strategy Can Be Built in a Day
In Hagerty’s case, changing the minds of key managers took longer than one day. Yet many executive teams earnestly believe that effective strategies can be identified, explored, and agreed upon during abbreviated offsite meetings where the main driver of the agenda is the timing of snack breaks.
While offsite meetings are useful forums in which to share information and address key issues, meetings should be adequately timed — over days or weeks if necessary — so that sufficient preparation and review and discussion can occur before and during the event.
MDI Group, one of Atlanta’s largest IT and financial staffing organizations, has engaged in annual strategic planning each year for the past decade. In preparation for their yearly offsite, the leadership team, after examining a comprehensive package of performance information, completes a series of templates including a SWOT analysis and a key capabilities review.
“We would discuss our SWOT analysis in the morning of the first meeting day, summarizing critical issues as we went. Then we would brainstorm how to address those issues immediately following lunch, with a hard stop no later than 3:00pm,” recalls Mike Cleland, president of the IT division. “It always felt rushed, and it seemed like we never really got our arms around the underlying forces driving the key issues.”
In reality, they didn’t. MDI leaders became frustrated as they kept encountering the same key issues year after year despite putting significant time and energy into the planning process.
So MDI modified its approach. For their most recent strategic planning efforts, the leadership team conducted the same up-front activities, but this time they identified four key issues a month before — not the day of — their meeting. Each key issue was assigned to an “issue team” comprised of senior managers for detailed analysis prior to the meeting. For three weeks each team applied a structured problem-solving approach to their issue, isolating root causes and identifying plausible courses of action.
Teams then briefed their findings the day before the offsite to ensure all participants had a consistent understanding of the issue, the causes, the options, and — most important — the team’s recommended plan going forward. The result was a streamlined process and better decisions. “It really accelerated the meeting,” said MDI CEO Ella Koscik. “Also, we have a much higher level of confidence in our actions coming out of this meeting than we’ve ever had in the past.”
Failing to Link Strategic Planning with Strategic Execution
According to a recent survey by the Conference Board, execution overall and strategy execution, in particular, hold the first and second positions when it comes to “top issues” in executives’ minds. It’s no wonder — executing strategy requires the work of the entire organization, whereas strategic planning only requires the top team. But part of a top team’s challenge in execution often stems from the failure to link their work with ongoing strategy execution.
In his article, “Obstacles to Effective Strategy Implementation” (Organizational Dynamics, Vol. 35, No. 1, 2006), Lawrence Hrebiniak of the Wharton School notes that “Strategic success demands a ‘simultaneous’ view of planning and doing. Managers must be thinking about executing even as they are formulating plan.”
Prescolite and Progress Lighting — both brands of Hubbell (headquartered in Orange, Conn.) — show how to accomplish this in practice. Both businesses use what they dub the Long Range Strategic Planning (LRSP) process. This integrated strategic planning and execution system incorporates both strategy formulation activities, such as ongoing analysis of changes in market conditions, with execution activities like management of integrated strategic programs.
At the start of the planning year, they perform a “deep dive” on critical competitive issues facing the businesses; the remainder of the year they focus on measuring and monitoring the progress they are making relative to the strategy. As they encounter unforeseen issues — which they usually do — they then analyze them within the confines of the LRSP process.
They also maintain a running list of “must-do” integrated programs that they readjust as business conditions change. “We’ve refined the LRSP process over the past several years to not only make it more flexible and responsive to changes in market conditions but to also make it more integrated,” says Charlie Harris, vice president and general manager of the Indoor Lighting division.
“The process today is at the center of what we do and largely responsible for driving successful execution of our brands’ strategies.” These businesses have made their strategy process a continuous and dynamic one — a more realistic approach than the once-a-year planning meeting that still dominates many corporate strategic planning efforts.
Dodging Strategy Review Meetings
Strategic plans quickly become obsolete when there is no activity in place to keep them alive. Worse, managers sometimes feel freed from execution accountability when reviews are continually rescheduled or dropped from the calendar altogether.
The most direct way to maintain a consistent focus on strategy is to schedule and hold regular strategy review meetings. At the end of the strategic plan formulation, managers should establish a strategic governance process where strategy review meetings — whether they are monthly or quarterly — are scheduled a year in advance. This way, managers can be sure the time for the sessions remains sacrosanct.
A typical strategy review lasts anywhere between a half and a full day — so leaders must plan accordingly. To make the meetings productive, the leadership team should develop a standing agenda they can follow consistently each time they meet. The strategy that was created at the beginning of the execution cycle should be the topic of conversation at every meeting — no discussion of operational issues should be allowed.
Consistent with avoiding fatal flaw number one, the necessary analysis should be prepared and the findings circulated before the meeting so that the session can be dedicated to guiding decision-making as opposed to conducting unbounded, unstructured discussions.
The Federal Bureau of Investigation (FBI) began holding regular strategy review meetings at the end of 2007, when they started developing a new strategy execution system. While the FBI maintains a vigilant 24-hour-a-day, 365-day-per-year focus on their top tactical priorities, they had never formally held strategy review meetings. “It was really interesting watching [Director Robert S. Mueller III] ask his staff how they were progressing on their parts of the strategy,” noted Executive Assistant Director Tom Harrington of the FBI’s Criminal, Cyber, Response, and Services branch. “People were watching to see if Mueller was serious about the strategy.
By the end of the meeting, after some pretty intense questioning, it was clear he was.” The FBI has gone on to hold strategy review meetings quarterly at the mandate of Director Mueller. Further, both their reporting process and meeting approach has gotten more refined. “The meetings get better every time. They’re more focused now; we’ve come a long way from where we started,” says Ryan Kennedy, the strategy management analyst responsible for facilitating the process. Running effective strategy review meetings is a learned skill but one that starts with scheduling and sticking to the strategy in the first place.
What are the Sources of Strategic Risk?
As your business attempts to achieve your strategic objectives, internal and external events can deter or prevent you from accomplishing them. This is known as a strategic risk. You can define strategic risks as:
- the potential impact of strategic decisions, or of a defective or inappropriate strategy
- lack of responsiveness to industry changes
- risks related to future plans, eg entering new markets, expanding existing services, etc
Managing strategic risks shouldn’t just focus on challenges that might cause a particular strategy to fail, but on any major risks that could affect a company’s long-term positioning and performance.
Identifying strategic risks
Sources of strategic risk can be any of the following:
- mergers, acquisitions and other competition
- market or industry changes
- changes among customers or in demand
- change management
- human resource issues, such as staffing
- financial issues with cashflow, capital or cost pressures
- IT disasters and equipment failure
- relationship issues, eg with suppliers
- reputational damage
For example, the possibility of a US company buying one of your UK competitors would constitute a strategic risk. Such an acquisition would give the US company a distribution arm in the UK, making them a direct competitor. In this situation, you might want to consider:
- any US companies which have the cash/share price to do this
- any UK competitors that are likely takeover targets – eg due to financial problems
- the prospect of the US company cutting prices or launching new products to compete against you
Where there’s a strong possibility of this happening, you should prepare some sort of response.
What are the 4 Reasons for the Lack of Strategic Planning?
There are six reasons why most strategic plans fail.
1. Lack of focus. Often, people get lost in the semantics of defining their vision, mission and values. They spend so much time and effort trying to understand what those terms mean and how they fit together that by the time they have it all figured out, they’re mentally fatigued. As a consequence, once they get to the actual plan creation and implementation, they’re just trying to get it done and over with. Their energy is drained and now they’re in survival mode, which is never a good mind-set for strategic planning.
2. Lack of energy/resources. Some people run out of energy or resources before they can get to a practical plan. For example, one company got halfway through their plan and then abandoned it. When asked why, they said that they spent their entire budget and ran out of money. So, sometimes strategic planning doesn’t work because the company hasn’t done the right kind of allocation and alignment of resources for a comprehensive process.
3. Lack of understanding. Other people confuse strategic planning with operational planning. That is, they focus on financial numbers, looking at what the numbers were for the past three years and then extrapolating from that. As a result, the planning becomes just a matter of establishing financial targets and budgets into the future rather than having a dynamic debate about the larger strategic issues that could be impacting the organization in the future.
Read Also: Organizational Crisis Management
These people neglect what has changed since the last time they met, what’s changing now, and what might change in the future. They’re stuck in the accountant’s mind-set. And while numbers are important, when they dominate the planning process, they’re not being strategic.
4. Lack of accountability. Sometimes the strategic planning process becomes too political. There’s too much turf protecting. It becomes a time when people have to give reasons why their plan didn’t work in the past. That’s when the blame game starts and people become defensive.
As a result, the group cannot deal with the real issues at hand. So no matter what plan they come up with, they’re not going to have the muscle to execute on that plan because the bigger issues are still pending. When the process becomes too political and too driven by special interests, it breaks down.
5. Lack of follow up. Many times, strategic planning fails because even though the actual plan is complete, there’s little or no follow up to ensure that the plan is executed. They get the plan created and in a notebook, but they put it on the shelf and never look at it again. The plan never gets integrated throughout the organization.
6. Lack of flexibility. Finally, strategic plans don’t work because the circumstances change and the plan becomes obsolete. It may have been a great plan at the time it was created, but things change in the environment. The fact is that the strategy can be right today but wrong tomorrow because of external factors. So for a strategic plan to work, you have to somehow build into that process a mechanism for reviewing and adapting the plan as circumstances change.