BOH4M – Grade 12 Business Leadership – Strategic Management

Chapter 9: Strategic Management

 

Strategic Competitiveness

 

Basic concepts of strategy

  • Competitive advantage: Operating in a successful way that is difficult for competitors to imitate
  • Sustainable competitive advantage: Consistently dealing with market and environmental forces better than competitors
  • Strategy: A comprehensive action plan providing long-term direction and guiding resource utilization to accomplish organizational goals with sustainable competitive advantage
  • Strategic intent: Focusing all organizational energies on a unifying and compelling goal
  • Strategic management: The process of formulating and implementing strategies to accomplish long-term goals and sustain competitive advantage

 

  • Strategic management goals:
  • Ultimate goal for any business should be superior profitability
  • Creates for investors above-average returns: Returns that exceed what could be earned from alternative investments of equivalent risks
  • Dependant in part on the competitive nature of organizational environments:
  • Monopoly: Only one player and no competition. Creates absolute competitive advantage (Microsoft)
  • Oligopoly: Few players competing against each other. Firms sustain long-term competitive advantages within defined market segments (cereal market)
  • Hypercompetition: Several players directly competing against each other. Any competitive advantage is only temporary (fast food industry)

 

 

 

 

 

 

 

 

 

The Strategic Management Process

 

  • The first strategic management responsibility is strategy formulation, the process of creating strategies 
    • Identify current organizational mission, objectives and strategies
    • Analyze external and internal environments
    • Revise mission, objectives and strategies
  • The second strategic management responsibility is strategy implementation, the process of putting strategies into action
  • Implement the strategic plans
  • Evaluate results

 

Analysis of organizational mission, values and objectives

  • The best organizations have a clear sense of mission: identifies the purpose of the organization or the reason for their existence
  • Good mission statements identify:
    • The customers organization intends to serve
    • Products and/or services it intends to provide
    • Location in which it intends to operate
    • Underlying philosophy
  • An important test of the mission is how well it serves the organization’s stakeholders: Individuals and groups directly affected by an organization and its accomplishments

 

  • Values of an organization: Broad beliefs about what is or is not appropriate
  • Organizational culture reflects the predominant value system of the organization as a whole

 

  • Operating Objectives: Specific results that the organizations try to accomplish
    • Might include: profitability, market share, human talent, financial health, cost efficiency, product quality, innovation, and social responsibility

 

 

 

 

 

Analysis of organizational resources and capabilities 

  • May be approached by a technique known as SWOT analysis: The internal analysis of organizational Strength and Weaknesses as well as external analysis of environmental Opportunities and Threats
  • Internal Assessment of organizational Strengths and Weaknesses

Major goal is to identify:

  • Core competencies or special strengths that give an organization competitive advantage such as special knowledge or expertise, manufacturing efficiency, and superior reputation
  • Organizational weaknesses such as outdated facilities, weak management, and obsolete technologies

 

Analysis of industry and environment

  • External Assessment of organizational Opportunities and Threats

Assessment of actual and future environmental conditions including:

  • Macro environment – Technology, government, social structures, population demographics, the global economy and natural environment
  • Industry environment – Resource suppliers, competitors and customers
  • Opportunities may exist such as possible new markets, a strong economy, weakness in competitors and emerging technologies
  • Threats may be identified in such things as the emergence of new competitors, resource scarcities and changing customer tastes

 

  • Porter believes that the foundations for any successful strategy rest with a clear understanding of five competitive environmental forces:
  1. Industry competitors – Intensity of rivalry among firms in the industry
  2. New entrants – Threats of new competitors
  3. Suppliers – Bargaining power of suppliers
  4. Customers – Bargaining power of buyers
  5. Substitutes – Threats of substitute products/services

 

 

 

 

 

 

 

Strategies Used By Organizations

 

Three levels of strategy

  1. Corporate strategy: Sets long-term direction for total enterprise. In what industries and markets should we compete?
  2. Business strategy: Sets strategic direction for a single business unit or product line. How are we going to compete for customers in this industry and market?
  3. Functional strategy: Guides the use of resources to implement business strategy, focusing on activities within a specific area of operations. How can we best utilize resources to implement our business strategy?

 

Growth and diversification strategies

  • Growth strategies: Seek an increase in size and the expansion of current operations. One approach to growth is through concentration where expansion is within the same business area
  • Diversification strategies: Growth occurs through acquisition of or investment in new and/or different business areas. Growth through vertical integration is by acquiring suppliers or distributors

 

Restructuring and divestiture strategies

  • Restructuring: changes in the scale and/or mix of operations to gain efficiency and improve performance, accomplished by:
  • Downsizing: Decreasing size of operations to become more streamlined 
  • Divestiture: Selling off organization parts to refocus on core competencies 
  • Liquidation: Most extreme retrenchment strategy when operations cease due to sale of assets or bankruptcy

 

Global strategies

  • Few business today operate without some involvement in international operations
  • A globalization strategy adopts standardized products and advertising for use worldwide (ethnocentric view)
  • Firms using a multidomestic strategy try to customize products and their advertising as much as possible to fit the local needs of different countries or regions (polycentric view)
  • A transnational strategy seeks balances among efficiencies of global operations with attention to local markets (geocentric view)

Cooperative strategies

  • Strategic alliances: Two or more organizations partner to pursue an area of mutual interest. Types of strategic alliances:
  • Outsourcing alliances – Contracting to purchase services from organizations specializing in certain areas such as IT
  • Supplier alliances – Creating preferred supplier relationships
  • Distribution alliances – Firms join together to accomplish product or service sales and distribution

 

E-business strategies

  • Strategic use of the Internet and IT to gain competitive advantage
  • Popular e-business strategies:
  • Business-to-business (B2B) – Links organizations with members of their supply chain
  • Business-to-customer (B2C) – Links organizations with their customers

 

Strategy Formulation

 

  • Major opportunities for sustaining competitive advantage are found in cost and quality, knowledge and speed, barriers to entry, and financial resources

 

Porter’s generic strategies 

  • According to Porter, business-level strategic decisions are driven by:
  • Market scope“How broad or narrow is your target market?” 
  • Source of competitive advantage“How will you compete for competitive advantage, by lower price or product uniqueness?”

 

  • Market scope and source of competitive advantage combine to generate four generic strategies that organizations can pursue:
  1. Differentiation strategy – Distinguish your products from those of your competitors
  2. Cost leadership strategy – Minimize costs to operate more efficiently than competitors
  3. Focused differentiation strategy – Concentrate on one special market segment and offer these customers a unique product
  4. Focused cost leadership strategy – Concentrate on one special market segment and be the provider with the lowest cost of operations

 

Portfolio planning 

  • Designed to help managers decide on investing scarce resources among competing business opportunities
  • Useful for multi-business or multi-product situations

 

  • The BCG matrix approach to business portfolio planning analyzes business opportunities according to market growth rate and market share
  • Four possible business conditions and related strategies:
  1. Stars: High share/high growth businesses. Preferred strategy – growth
  2. Question marks: Low share/high growth businesses. Preferred strategy – growth for promising question marks and restructuring or divestiture for others
  3. Cash cows: High share/low growth businesses. Preferred strategy – stability or modest growth
  4. Dogs: Low share/low growth businesses. Preferred strategy – divestiture

 

Adaptive strategies

  • The Miles and Snow model of strategy formulation suggests that organizations pursue strategies that are compatible with their external environments
  • Types of adaptive strategies:
  • Prospector strategy: Pursue innovation and new opportunities. Use existing technologies to new advantage and create new products. Appropriate in dynamic, high-potential environments
  • Defender strategy: Avoid change. Emphasize existing products and current market share without seeking growth. Appropriate in stable or declining environments
  • Analyzer strategy: Maintain stability of core business while exploring selective opportunities. Follow leading competitors when things look good in high-potential environments 
  • Reactor strategy: Follow competitors as a last resort regardless of environment

 

 

 

 

 

Incrementalism and Emergent strategies

  • Not all strategies are created in a systematic and deliberate fashion and then implemented step by step, Strategies sometimes take shape, change and develop over time as amendments to past patterns:
  • Incrementalism (Quinn): Modest and incremental changes in strategy occur as managers learn from experience and make adjustments
  • Emergent strategies (Mintzberg): Strategies that develop progressively over time as “streams” of decisions that managers make as they learn from and respond to work situations

 

Strategy Implementation

 

  • No strategy, no matter how well formulated, can achieve long-term success if it is not properly implemented. Common strategic planning pitfalls include:
    • Failures of substance: Inadequate attention to major strategic planning elements such as analysis of mission and purpose, core values, corporate culture, organizational strengths/weaknesses, environmental opportunities and threats
    • Failures of process:Poor handling of strategy implementation
      • Lack of participation error – Failure to include key persons
      • Goal displacement error – Too bogged down in the details

 

  • Increasing emphasis on corporate governance in contemporary businesses: System of control and performance monitoring of top management done by boards of directors and other major stakeholder representatives

 

  • In an often dynamic and uncertain environment, a premium is placed on strategic leadership
  • As the chief strategist, the CEO of a business must have the capability to enthuse people to successfully engage in continuous change, performance enhancement and implementation of organizational strategies
  • Their key focus as strategic leader is to make sure that organizational resources are allocated properly, create a sense of urgency, make sure that everyone understands the strategy, and be a great teacher and communicator