How is Economics important to the four phases of strategic management?

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Michael Ugulini eNotes educator| Certified Educator

In essence, Economics is important to the four phases of strategic management because what is happening in the overall global economy affects programs and initiatives a corporation is willing to undertake. The world economy in general, and national and regional economies in particular influences what a company can and cannot do.

Considering "Defining" a goal or goals, a business entity must consider how economic downturns or upswings will affect them. A company may want to expand to a new international region; however, a region's economy, such as the turmoil in Greece and their their burdensome debt, may prevent a company from expanding in that region. They may refrain from expansion in a region because the growth they expect in sales and profits won't manifest itself in a depressed region.

Pertaining to Formulation, a business cannot formulate their strategy until they know the resources they have, financial and otherwise. A healthy economy can provide the company with increased cash flow via sales. A healthy economy could mean people are employed and a company may have trouble recruiting people to their organization because of a tight, fully-employed labor market.

The Implementation of strategies depends on the economy as well. A healthy economy may mean no government incentives to help a company put in place their initiatives. A depressed economy may spur a government to offer incentives to a company to advance their programs so as to get the economy moving and create employment.

The analysis, evaluation, and modification of strategies must take into account the economy as well. Analysis must consider how the economy affected company performance. Evaluation must consider how the economy will affect future sales projections, budgets, and personnel needs. Modification must address the fact that a weak economy may mean reducing program expenditures, while a strong economy may have the opposite effect.