Strategic management tools
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Strategic Management Tools are analytical methods used by managers to aid in the decision-making process. These tools provide a structured approach to the analysis of a company's internal and external environment, enabling managers to identify strengths, weaknesses, opportunities and threats, and to plan strategically. They seek to identify and evaluate the strategies used by organizations for their business operations, and provide a framework for understanding the strategic implications of various decisions. The tools can range from simple models such as SWOT (Strengths, Weaknesses, Opportunities and Threats) to more complex methods such as Porter’s Five Forces. In general, these tools provide a comprehensive view of an organization and help in making informed decisions.
Example of strategic management tools
- SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats) - SWOT is a tool used to identify an organization's internal strengths and weaknesses as well as external opportunities and threats. It is used to gain a better understanding of the environment in which an organization operates, and to identify areas of focus for strategic planning. Real life example - A major apparel retailer used a SWOT analysis to identify their strengths (high quality products, strong online presence, loyal customer base) and weaknesses (limited product range, high cost structure, lack of innovative marketing). From the analysis, they identified opportunities (expansion into new markets, use of social media) and threats (competition from other retailers, difficulty in maintaining customer loyalty).
- Porter's Five Forces Analysis - This tool is used to analyze the competitive environment of an organization. It helps to identify the five forces that shape competition within an industry, such as the threat of substitute products, the bargaining power of suppliers and customers, and the intensity of rivalry among competitors. Real life example - A media company used Porter's Five Forces Analysis to understand the competitive dynamics of their industry. They identified that the threat of new entrants was low due to high barriers to entry, the bargaining power of suppliers was high due to limited suppliers, the bargaining power of buyers was high due to the large number of buyers, the threat of substitute products was low due to the uniqueness of their product, and the intensity of rivalry among competitors was high due to the number of competing firms.
- Value Chain Analysis - This tool is used to analyze the activities and processes of a company in order to identify ways to create value for customers. It helps to identify the activities that add value to the product and build competitive advantage. Real life example - A food manufacturing company used value chain analysis to identify areas for improvement. Through the analysis, they identified that their supply chain was inefficient and that their production processes were not as efficient as they could be. As a result, they were able to streamline their supply chain and implement more efficient production processes, leading to increased customer satisfaction and cost savings.
- Gap Analysis – This tool helps organizations identify gaps between their current and desired performance, and determine what needs to be done to close those gaps.
- Scenario Planning – This tool helps organizations evaluate and plan for different potential outcomes by examining how changes in the environment might impact their operations and strategies.
When to use strategic management tools
Strategic management tools can be used in a variety of situations, from strategic planning to operational improvement and more. Some of the most common applications of these tools include:
- Strategic planning: Strategic management tools can be used to plan organizational strategy and goals, and to identify potential opportunities and risks.
- Business intelligence: Strategic management tools can help organizations to understand the competitive landscape and to identify areas of strength and weakness.
- Decision-making: Strategic management tools can be used to evaluate potential courses of action and to make informed decisions.
- Resource allocation: Strategic management tools can be used to allocate resources to areas of highest potential return.
- Budgeting: Strategic management tools can help organizations to allocate resources for marketing, research and development, and other important activities.
- Performance measurement: Strategic management tools can be used to measure the performance of specific processes and activities in order to track progress.
- Risk management: Strategic management tools can be used to identify and manage risks associated with certain decisions or activities.
Steps of selecting strategic management tools
Strategic management tools provide a comprehensive view of an organization and help in making informed decisions. The steps of strategic management tools are as follows:
- Identifying the company’s objectives and goals. This includes understanding the current and future state of the organization, assessing the competitive landscape and setting targets.
- Analyzing the internal environment. This involves analyzing the company’s resources, capabilities, processes and culture.
- Analyzing the external environment. This involves assessing the industry, market and economic environment, as well as competitors.
- Developing a strategic plan. This involves creating a plan to achieve the objectives and goals established in the first step.
- Evaluating the progress of the plan. This involves tracking the progress of the plan and making adjustments as necessary.
- Adjusting the plan. This involves making changes to the plan based on the evaluation of progress.
- Implementing the plan. This involves taking the necessary steps to ensure the plan is properly executed.
- Monitoring and controlling the plan. This involves monitoring the progress of the plan and making adjustments as necessary.
Advantages of strategic management tools
The advantages of strategic management tools are numerous and can be beneficial to any organization. They are:
- Helps to identify and evaluate the strategies used by an organization. This allows managers to consider the broad range of factors that could affect the organization’s operations and make strategic decisions accordingly.
- Provides a structured approach to the analysis of a company’s internal and external environment, enabling managers to identify strengths, weaknesses, opportunities, and threats.
- Enables managers to plan strategically by providing a comprehensive view of an organization.
- Offers a framework for understanding the strategic implications of various decisions, allowing the organization to make informed decisions.
- Can be used to identify opportunities for innovation and growth.
- Supports the development of a clear and consistent strategy that can be communicated to all stakeholders.
Limitations of strategic management tools
The use of strategic management tools can be a valuable resource for managers, but there are some limitations to consider. These include:
- Lack of specificity – Strategic management tools can provide a useful overview of the company’s environment and internal operations, but they lack the specificity required to make detailed decisions.
- Subjectivity – The interpretation of the data generated by the tools can be subjective, resulting in different conclusions being drawn by different people.
- Risk of bias – The tools can be used to support a particular agenda or worldview, leading to decisions that are not necessarily in the best interests of the organization.
- Cost – Using tools such as Porter’s Five Forces to analyze the competitive environment can be time-consuming and costly.
- Limited scope – The tools may not capture all the relevant factors, leading to an incomplete picture of the company’s strategic position.
Suggested literature
- Berisha Qehaja, A., Kutllovci, E., & Shiroka Pula, J. (2017). Strategic management tools and techniques usage: a qualitative review. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 65(2).
- Berisha Qehaja, A., Kutllovci, E., & Shiroka Pula, J. (2017). Strategic management tools and techniques: A comparative analysis of empirical studies. Croatian Economic Survey, 19(1), 67-99.
