This document provides an introduction to strategic management. It discusses that strategy answers where and how an organization should compete over the long term. Strategic management consists of strategic analysis, strategy formulation, and strategy implementation and control. Strategic analysis involves assessing the organization's vision, mission, external opportunities/threats, and internal strengths/weaknesses. Strategy formulation determines business, corporate, and international strategies. Strategy implementation and control transforms intended strategies into realized strategies through governance, structure, controls, and leadership. Benefits of strategic management include improved financial and non-financial performance.
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MCOM Strategic Management - An Introduction
What is strategy?
Answers two fundamental questions:
Where should we compete?
How should we compete?
The direction and scope of an organisation over the
long-term, which achieves competitive advantage
through the organisation’s configuration of resources
within a changing environment and to fulfill stakeholder
expectations.
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MCOM Strategic Management - An Introduction
Strategy consists of choices.
Integrated set of choices that position the
business in its industry so as to generate
superior financial resources over the long
term.
It demonstrates consistency.
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MCOM Strategic Management - An Introduction
Response to industry structure
Where and how should a firm compete?
Move into a new market segment?
Innovate something that cannot be easily replicated?
Move to where customers are more fragmented (hence
lower bargaining power)
Create a market where none exists?
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The business model
What is the value proposition?
A promise of value to be delivered and a belief from
the customer that value will be delivered and
experienced.
What is the target market – broad based (mass
market) or narrow (niche).
These two aspects determine the customer’s
willingness to pay (WTP) and the supplier
opportunity cost (SOC).
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Willingness to Pay: The maximum amount that a
customer is willing to pay for a good or service.
Supplier Opportunity Cost: The smallest amount
that the supplier will accept for the services and
resources required to produce a good or service.
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An effective business model has ‘fit’ and ‘trade offs’.
Fit
Internal consistency (WTP versus SOC)
Mutually reinforcing – mix of activities support each
other (e.g., having a snack bar in a children’s park).
Optimising effort (getting more out of your time and
resources, hence cost efficiencies).
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Trade-offs – knowing what you are ‘not about’ – avoiding
what does not fit.
A firm that refuses to make trade-offs confuses and is
likely to lose customers.
Successful business model: Choices are
Consistent;
Mutually reinforcing;
Collectively optimal;
Trade-offs are accepted and respected
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Components of strategic management
Strategic analysis – the “assignment” required to develop
an appropriate strategy.
Strategy formulation – the process that transforms this
homework into a plan – the intended strategy.
Strategy implementation and control – the process of
putting the plan into action – seeing that as much as
possible of the intended strategy becomes the realized
strategy.
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1. Strategic Analysis
Strategic analysis consists of three parts.
• An organization’s vision, mission, strategic
objectives and core values.
• An exploration of the opportunities and threats
present in the external environment.
• A study of the organization’s internal strengths and
weaknesses.
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Vision, Mission, Objectives
A broad vision of what the organization aspires to
be (strategic intent)
Defined goal describing the organization’s mission
– (what is our business)
Specific detailed goals – the strategic objectives.
This hierarchy of goals is the foundation of the
strategic management process.
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TOWS Analysis
Successful strategic management depends on
matching internal strengths and weaknesses to
external threats and opportunities.
Together, these factors comprise the TOWS
analysis – threats and opportunities (external),
weaknesses and strengths (value chain).
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Key external environment concepts
Macro/general environment
Task/ industry environment
Strategic group – most direct competitors
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Key internal environment concepts
Capabilities – the firm’s capacity to deploy resources
that have been purposively integrated to achieve a
desired end state.
Critical success factors (CSF) – product/service
features that are highly valued by a group of clients, and
therefore where the organisation must excel in order to
be/remain competitive. E.g., reputation of product or
service, excellence in service delivery, performance of a
product, service/product range.
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Core competencies – activities of an organisation and
processes that link activities together both within and
beyond the organisation.
An organisation’s ability to meet CSFs better than
competitors, e.g., ability for teamwork, coordination of
complex relationships.
Not easily duplicated by others.
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Differentiating core competencies and
critical success factors
The critical success factors with the major
customers may be the reputation of brand,
excellence of service, delivery, product range and
innovation.
The reasons behind the success in the CSFs, (e.g.,
excellent service may be due to flexibility and rapid
response) are the core competencies that underpin
these items.
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2. Strategy Formulation
A sound strategic analysis provides the basis for
formulating strategy on each of three possible levels:
(a) Business
(b) Corporate
(c) International
(d) Firms may also venture into a cooperative strategy
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(a) Business level (strategic business unit)
These competitive advantages may take a variety of
forms, but most can be categorized as either:
High differentiation
Low cost
Quick response
Focus/Niche
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(b) Corporate Level
A corporation expands to include additional
businesses through diversification. Sound
diversification strategies are those in which the
corporation capitalizes upon its unique expertise
in critical functions – distinctive core
competencies.
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(c) International level
There are three strategies to managing a business
internationally:
Multi-domestic strategy – decentralised system
where each business unit is responsible for one local
market.
Global strategy – centralised system that treats the
world as one market.
Transnational strategy – combines the first two
strategies.
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(d)Cooperative strategy – firms work together to
achieve a shared objective.
Strategic alliances include:
Joint ventures – firms create a legally independent
company to share resources and capabilities.
Partnerships – each firms takes responsibility for
part of the value chain.
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3. Strategy Implementation and Control
The process of transforming intended strategies into
realized strategies – strategy implementation.
Control is about evaluating the effectiveness and
efficiency of the strategy
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There are four critical elements:
(a) Corporate governance
(b) Organization structure
(c) Controls
(d) Strategic leadership
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Benefits of strategic management
Financial Benefits
Businesses using strategic management concepts show
significant improvement in sales, profitability, and
productivity compared to firms without systematic
planning activities.
They also generally exhibit superior long-term financial
performance relative to their industry.
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Non-financial 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.
