The Importance And Value Of Strategic Management

A number of reasons are given by authors to as why organizations should engage in strategic management. Many research studies show both financial and nonfinancial benefits which can be derived from a strategic-management approach to decision making.

Financial Benefits

The question "Why should an organization engage in strategic management?" must be answered by looking at the relationship between strategic management and performance.

Research performed by Eastlack and McDonald (1970), Thune and House (1970), Ansoff et. al. (1971), Karger and Malik (1975), and Hofer and Schendel (1978) indicate that formalized strategic management (strategic planning) does result in superior performance by organizations. Each of these studies was able to provide conceiving evidence of the profitability of strategy formulation and implementation. The formalized strategic management process does make a difference in the recorded measurements of profits, sales, and return on assets. Organizations that adopt a strategic management approach can expect that the news system will lead to improved financial performance.

Nonfinancial Benefits

Regardless of the profitability of strategic management, several behavioral effects can be expected to improve the welfare of the firm. Yoo and Digman emphasize that strategic management is needed to cope with and manage uncertainty in decision making. They present several benefits of strategic management:

  1. It provides a way to anticipate future problems and opportunities.
  2. It provides employees with clear objectives and directions for the future of the organization.
  3. It results in more effective and better performance compared to non-strategic management organizations.
  4. It increases employee satisfaction and motivation.
  5. It results in faster and better decision making and
  6. It results on cost savings.
Moreover, Greenley stresses that strategic management offers the following process and personal benefits:
  1. It allows for identification, prioritization, and exploitation of opportunities.
  2. It provides an objective view of management problems.
  3. It represents a framework for improved coordination and control of activities.
  4. It minimizes the effects of adverse conditions and changes.
  5. It allows major decisions to better support established objectives.
  6. It allows more effective allocation of time and resources to identified opportunities.
  7. It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions.
  8. It creates a framework for internal communication among personnel.
  9. It helps to integrate the behavior of individuals into a total effort.
  10. It provides a basic for the clarification of individual responsibilities.
  11. It gives encouragement to forward thinking.
  12. It provides a cooperative, integrated, and enthusiastic approach to tackling problems and opportunities.
  13. It encourages a favorable attitude towards change.
  14. It gives a degree of discipline and formality to the management of a business.

These and other research studies have concluded that strategic management is an integral and important function of organization life. However, successful organizations are successful for many reasons: adequate resources, good products and services, and so on. While not a panaceas, the strategic management process is only a powerful tool. It value lies with executive and the ability to use this strategic management tool in effectively managing the enterprise.


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The Nature And Value Of Strategic Management
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