Strategic Management - Explained
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What is Management Strategy?
Strategy is the process by which one achieves her objectives. Strategic management is the process employed by a company (through its managers) to achieve its identified goals and objectives. More specifically, strategic management simply refers to the regulation, planning, monitoring and controlling of an organizations resources to achieve its goals.
A company's managers are charged with both developing and implementing a company's strategy.
Strategic management has both prescriptive and descriptive approaches. While the prescriptive approach shows how the strategies should be developed, a descriptive approach concerns the practice of these strategies.
Back To: BUSINESS STRATEGY
What is Strategy?
Strategy is made up of the following:
- A general orientation regarding how you want your company and its activities to perceived by third parties.
- Objectives that will lead you to your goals.
- Tactics used to achieve individual objectives.
All of these must be organized in what we call a Strategic Plan. The tactics will be carried out in a way that is consistent with the companys strategic orientation. These tacts will carry out the companys objectives. Accomplishing the objectives will lead to achieving the companys goals. When developing, implementing, and evaluating a strategy, managers must generally understand various aspects of the firm, the market, competitors, and the customer. Some commonly employed frameworks are the SWOT Analysis, PESTEL factors, and BCG Matrix.
Concepts Central to Understanding Strategy
There are numerous concepts relevant to a companys strategy:
- Market - The market for a good or service is made up of two groups. The first group is made up of all of the potential users or purchasers of a good or service. The second group is made up of suppliers of the good or service.
- Competition - The market is full of companies seeking to supply the goods or services that customers will use or buy. These companies compete with other suppliers so that customers will use or purchase their goods or services rather than the goods or services of another company. This is known as market competition.
- Supply and Demand - Supply and demand is a concept in economics. It says that customers will purchase a certain number or amount of products or services at a given price. If the price is lower customers will purchase more of the goods/services. As the price rises, customers will purchase less of the goods/service. As customer demand for a product/service increase, more companies will enter the market and compete to provide those goods/services to customers. The increased number of competitors offering the goods/services means that companies will compete by lowering their prices compared to other competitors. This will attract more customers to that company. In turn, other companies will lower their prices to sell their products. The effect is to push down prices - which will increase demand for the product. Supply and demand will float back and forth and gravitate around a market equilibrium.
- Core Competency - A core competency is what an organization does best. It concerns its abilities based upon acquired knowledge, skill, resources, and relationships.
- Competitive Advantage - Companies that are competing with other suppliers in the market are always looking for a manner of attracting customers to purchase their products/services instead of the product/services of other companies. If a company figures out a way to compete better than other companies, this is known as a competitive advantage. There are many types of competitive advantage. Some examples might include: greater efficiency in production, lower-cost materials, higher-quality product/service, increased company recognition by potential customers, a better reputation with potential customers, legal rights that prevent others from competing (such as patent rights), etc. All of these provide a competitor with an advantage over other suppliers of the good/service.
- Stakeholders - A stakeholder is only with an interest in the organizations success. The mission and vision generally take into account the needs, preferences, and exceptions of those interested persons. When developing a strategy, managers will determine who are the stakeholders, how the strategy affects them, how will stakeholders react, and what will be the effect on the firm.
- Business Model - A business model is a method that a company uses to provide its value proposition to a customer and receives value in return. A simple business model is to buy a low-cost good and sell it to a customer at a higher price. A more complicated model might be to attract visitors to a free website, record the users demographic and preference information, and sell access to marketers seeking to advertise to this specific demographic of customers.
- Comparative Advantage - Comparative advantage is when individuals focus on their specific functions and become highly specialized. In turn, these individuals are less proficient in a wider variety of functions. They combine their efforts with those who specialize in other areas. The result is greater productivity by working together.
- Synergy - Synergy is when two or more elements of a companys operations (or two completely different companies) come together to produce more than could otherwise be accomplished individually. This is generally as a result of increased efficiency or lower costs of production. Synergies between individuals generally occur when individuals specialize in particular functions rather than be generalists. For example, a computer programmer and engineer may be able to produce greater value by working together than individually. The same applies to collaborations between companies. For example, a plastic production company and a steel company may be able to supply raw materials more effectively by combining their resources.
Each of these concepts is discussed in greater detail throughout the strategy material.
Academic Research on Strategic management
- Dynamic capabilities and strategic management, Teece, D. J., Pisano, G., & Shuen, A. (1997). Strategic management journal, 18(7), 509-533. This journal examines the methods of wealth creation, strategic management and dynamic capabilities employed by organizations that operate in technologically advancing environments. This paper discovers that the coordinating and dynamic abilities of the management of firms reflect in their unique processes and positions. This paper suggests dynamic capabilities as a framework that analyses the sources and method of wealth creation that firms use. This framework suggests that private wealth creation in regions where rapid technological change are rampant depends on the harmonization of managerial, organizational and technological processes that the firms adopt.
- Using the balanced scorecard as a strategic management system, Kaplan, R. S., & Norton, D. P. (1996). A balanced scorecard expand traditional financial measures with benchmarks for performance in three key areas. These areas include how a company relates with its customers, the key internal processes of a company and the learning and growth of a company. This paper examines using the balanced scorecard as a strategic management system. It also studied the basic processes that the balanced scorecard relies on through which it augments short-term activities and long-term objectives. If further highlights how building a scorecard can help firm managers link their immediate actions with their future goals.
- Strategic management of small firms in hostile and benign environments, Covin, J. G., & Slevin, D. P. (1989). Strategic management journal, 10(1), 75-87. This paper investigates the strategic management of small firms that operate in hostile environment and those operating in accommodating and considerate environment. This paper examines the imperative responses of these firms to both environmental hostility and benignment. With the data collected from 161 small manufacturers, this paper studies the organization structure, their competitive tactics, how environmental hostility and benignment affect them as well as their financial performance. This paper finds out that the performance of small firms in hostile environments was positively associated with a competitive profile, entrepreneurial strategic posture and other vital factors. Small firms in benign environment on the other hand, have their performance positively related to conservative strategic posture, mechanic structure among others.
- The resourcebased view within the conversation of strategic management, Mahoney, J. T., & Pandian, J. R. (1992). Strategic management journal, 13(5), 363-380. This paper examines the resource-based view within conversation of strategic management. Scholars discuss the resource-based within conversation of strategic management approach in three perspectives. The first perspective maintains that insights from a companys distinctive competencies and capabilities should be incorporated in the conversation of strategic management. The second perspective holds that the resource-based view fits comfortably within the organizational economics paradigm. The third perspective however regard resource-based view as a complement to organizational research. This paper also treats vital areas relating to conversation of strategic management.
- Use of partial least squares (PLS) in strategic management research: A review of four recent studies, Hulland, J. (1999). Strategic management journal, 20(2), 195-204. This is a research in strategic management that discusses the use of partial least squares (PLS) in strategic management. Four recent studies have however been done studying this same concept, this paper harmonizes these studies and gives a review. Developments in causal modeling techniques have made is possible for researchers to examine both theory and measures, however, researchers who use causal modeling approaches need to understand the limitations of these approaches. This paper however finds out that the familiarity of researcher with partial least squares (PLS) in strategic management is low. It suggests basic standards for evaluating PLS application in the nearest future.
- Is the resource-based view a useful perspective for strategic management research?, Priem, R. L., & Butler, J. E. (2001). Academy of management review, 26(1), 22-40. The resource-based view (RBV) is an emerging framework in strategic management research. This paper examines whether this framework is a useful perspective for strategic management research or not. Although, RBV is not a theoretical structure, it is perceived to have the potential to assume stability in product markets and determining resource values. This however examines the resource-based view structure as a perspective for strategic management. It also highlights possible problems associated with RBV and gives answers to how questions of RBV.
- The Contributions of Industrial Organization To Strategic Management,, Porter, M. E. (1981). Academy of management review, 6(4), 609-620. Industrial organization often need strategic management as a means of stimulating their companies so that they can achieve set goals and objectives. There are also some notable contributions of industrial organization to strategic management. This paper studies the development of industrial organization theory in the 1970s. Mason paradigm of industrial organization (IO) offered strategic management as a systematic model to assess competition within an industry. This model however seldomly used in the business policy field. This paper also examines how the development of industrial organization bridged the had between both IO and BP (Business Policy) field.
- Strategic management and economics, Rumelt, R. P., Schendel, D., & Teece, D. J. (1991). Strategic management journal, 12(S2), 5-29. Economics and strategic management are different disciplines but both similar in specific areas. This paper investigates the relationship between strategic management and economics. It expresses diverse viewpoints enacting the relationship that exist between these two concepts and also how much they have been able to contribute to each other. This paper identifies how these concepts have benefited each other and how to further enhance the relationship between economics and strategic management.
- Strategic management in an enacted world, Smircich, L., & Stubbart, C. (1985). Academy of management Review, 10(4), 724-736. The performance of strategic management in the enacted world has often been a topic for debate. This is because researchers are keen on knowing the status of strategic management of organizational environments due to different perceived views and nature of the environment.For instance, the interpretative worldview of environments posit that they are enacted. Also, organizational environments can either be objective or perceive, but in some cases, they can be both. This paper examines the implications of enacted environment of the strategic management practice and theory. The opportunities, constraints and threats on enacted environments are explored. this paper further examines the roles of strategic managers.
- Strategic management, Best, R., de Valence, G., & Langston, C. (2007). In Workplace Strategies and Facilities Management (pp. 91-102). Routledge. This paper the impacts of strategic management in workplace strategies and facilities management. This paper outlines the vitality of strategic management for facility managers. Managers need to acquire knowledge on the theory and practise of strategic management for them to manage effectively. It studies how the knowledge of strategic management would help managers deliver significant values to their companies.
- A stakeholder approach to strategic management, Freeman, R. E., & McVea, J. (2001). Another idea that is adopted and applied in strategic management is stakeholder management. This paper investigates factors that led to the emergence of this idea and how it has been adopted in the practise of strategic management. It further examines the distinguishing factors of the stakeholder management approach and its characteristics. Furthermore, the impacts of the stakeholder management approach in strategic management cannot be sidelined. This paper review a recent study on the stakeholder approach and its impacts on strategic management.
- Corporate entrepreneurship and strategic management: Insights from a process study, Burgelman, R. A. (1983). Management science, 29(12), 1349-1364. Using insights from a process study, this paper discusses corporate entrepreneurship and how strategic management has influenced it. This paper presents a framework of strategic process that is embellished with theoretical and empirical findings. This paper reveals that firms need both diversity and order in their strategic activities to maintain their viability. The roles of middle Level managers in the creation of strategic initiatives is also identified, middle managers can redefine the strategic management context of a firm. It further highlights what strategic managers at the top need to focus on and top management's critical contribution in strategic management.