Strategic Management: realized Grand Designs and Effective Strategy

Overview of Strategic Management

Strategic management is defined as the process by which exceptional managers realize a grand design. Based on the textbook "Management: A Practical Introduction, $10e$" by Angelo Kinicki and Denise Breaux Soignet, this chapter explores how organizations determine their long-term direction and achieve sustainable competitive advantage.

Effective Strategy and Strategic Positioning

• Definition of Strategic Positioning: Developed by the famous strategist Michael Porter, strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company.

• The Porter Principle: Porter defines strategic positioning as "performing different activities from rivals, or performing similar activities in different ways."

Three Levels of Strategy

Organizations operate across three distinct levels of strategy, ranging from the entire corporation to specific departments.

• Corporate-Level Strategy:

  • Focuses on the organization as a whole.

  • The executives responsible for this level are generally referred to as the "C-Suite."

• Business-Level Strategy:

  • Focuses on individual business units or specific product and service lines.

  • Managers at this level concentrate on issues aimed at implementing decisions under consideration from the Corporate-Level.

• Functional-Level Strategy:

  • Applies to the key functional departments or units within the business units.

  • Functional managers focus primarily on tactical issues.

The Strategic-Management Process

The strategic-management process is a five-step cyclical model designed to guide organizations toward their goals.

1. Establish the mission, vision, and values statements.

2. Assess the current reality: Evaluate what is working and what is not to increase efficiency and effectiveness.

3. Formulate corporate, business, and functional strategies: Choose and alter strategies to best fit the organization's needs.

4. Execute the strategies: Put strategic plans into effect.

5. Maintain strategic control: Monitor execution and take corrective action via the feedback loop.

• Feedback Loop: This mechanism allows managers to revise actions, if necessary, based on feedback from the environment or internal performance.

Step 1: Establishing Foundation Statements

The Mission Statement

A mission statement should answer the following $9$ questions to ensure it is comprehensive:

1. Who are our customers?

2. What are our major products or services?

3. In what geographical areas do we compete?

4. What is our basic technology?

5. What is our commitment to economic objectives?

6. What are our basic beliefs, values, aspirations, and philosophical priorities?

7. What are our major strengths and competitive advantages?

8. What are our public responsibilities, and what image do we wish to project?

9. What is our attitude toward our employees?

The Vision Statement

A vision statement is evaluated based on its ability to inspire and direct. It should answer these questions:

1. Is it appropriate for the organization and for the times?

2. Does it set standards of excellence and reflect high ideals?

3. Does it clarify purpose and direction?

4. Does it inspire enthusiasm and encourage commitment?

5. Is it well-articulated and easily understood?

6. Does it reflect the uniqueness of the organization, its distinctive competence, and what it stands for?

7. Is it ambitious?

The Values Statement

A values statement guides organizational behavior and should answer:

1. Does it express the company’s distinctiveness and its view of the world?

2. Is it intended to guide all organization actions, including treatment of employees and customers?

3. Is it tough enough to serve as a foundation for difficult decisions?

4. Will it be unchanging, remaining valid even $100$ years from now?

5. Does it reflect the beliefs of those who truly care (founders, CEO, top executives) rather than just being a consensus of all employees?

6. Are the values limited in number (approximately $5$) and easy to remember?

7. Would the organization continue to hold these values even if they became a competitive disadvantage in certain situations?

Step 2: Assessing the Current Reality

Managers must look at where the organization stands internally and externally. Tools for this assessment include competitive intelligence, SWOT analysis, VRIO, forecasting, and benchmarking.

SWOT Analysis

SWOT analysis is a process for environmental scanning (monitoring internal and external environments to detect signs of opportunities and threats).

• Internal Matters (Inside):

  • Strengths (S): Positive internal factors such as efficient work processes, strong organizational culture, high staff quality, product quality, production capacity, brand image, financial resources, and high service levels.

  • Weaknesses (W): Negative internal factors within the same categories as strengths (e.g., poor work processes, weak culture, or lack of financial resources).

• External Matters (Outside):

  • Opportunities (O): External factors the firm can exploit, including market segment growth, industry/competition shifts, technological impacts, or favorable governmental impacts.

  • Threats (T): External factors that may jeopardize the firm, analyzed through market segments, competitors, or changing regulations.

VRIO Framework

VRIO is used to assess the competitive potential of a specific resource or capability by answering:

1. Value: Is the resource/capability valuable?

2. Rarity: Is it controlled by only a few or no other firms?

3. Imitability: Is it costly for other firms to imitate?

4. Organization: Is the firm organized to exploit it?

Forecasting and Benchmarking

• Forecasting: A vision or projection of the future.

  • Trend Analysis: Hypothetical extension of a past series of events into the future.

  • Contingency Planning: The creation of alternative, hypothetical but equally likely future conditions (also known as scenario planning or scenario analysis).

• Benchmarking: A process where a company compares its performance against that of high-performing organizations.

Step 3: Formulating Strategies

Strategy formulation translates the mission and vision into a "Grand Strategy."

Three Types of Corporate Strategies

1. Growth Strategy: Involves expansion in sales revenue, market share, number of employees, or customer base.

2. Stability Strategy: Involves little or no significant change to current operations.

3. Defensive Strategy (Retrenchment): Involves reduction in the organization’s efforts or liquidation of assets.

Implementation of Grand Strategies

BCG Matrix

The Boston Consulting Group (BCG) Matrix is a means of evaluating strategic business units on the basis of (1) their business growth rates and (2) their share of the market.

Diversification and Integration

• Diversification: Operating several businesses to spread risk. Products may be related or unrelated.

• Vertical Integration: A firm expands into businesses that provide the supplies it needs (backward integration) or that distribute and sell its products (forward integration).

Porter’s Five Competitive Forces

1. Threat of new entrants.

2. Bargaining power of suppliers.

3. Bargaining power of buyers.

4. Threats of substitute products or services.

5. Rivalry among competitors.

Porter’s Four Competitive Strategies

1. Cost-Leadership Strategy: Keeping costs and prices below competitors while targeting a wide market.

2. Differentiation Strategy: Offering unique and superior value products while targeting a wide market.

3. Cost-Focus Strategy: Keeping costs below competitors while targeting a narrow market.

4. Focused-Differentiation Strategy: Offering unique and superior value products while targeting a narrow market.

Step 4: Strategy Execution

• Definition: Strategy implementation involves putting strategic plans into effect.

• The Execution Challenge: Execution is considered the greatest challenge for managers. It involves dealing with roadblocks in structure and culture and ensuring the right people and control systems are in place.

• Core of Execution: Consists of using questioning, analysis, and follow-through to mesh strategy with reality, align people with goals, and achieve promised results.

Step 5: Strategic Control and the Three Core Processes

• Strategic Control: Monitoring execution and taking corrective action. Effective control requires engaging people, keeping it simple, staying focused, and keeping moving.

• The Three Core Processes of Business:

  1. People: Considering who will benefit the firm in the future.

  2. Strategy: Considering how success will be accomplished.

  3. Operations: Considering what path will be followed.

Questions for a Strong Strategic Plan

A strategic plan must address the following to be effective:

1. What is the assessment of the external environment?

2. How well do you understand existing customers and markets?

3. What is the best way to grow profitably, and what are the obstacles?

4. Who is the competition?

5. Can the business execute the strategy?

6. Are short-term and long-term goals balanced?

7. What are the important milestones for execution?

8. What are the critical issues facing the business?

9. How will the business make money on a sustainable basis?

Questions & Discussion

Question 1: When analyzing the ‘W’ in SWOT analysis, Roberta, the manager might be assessing:

• A. possible challenges in the market.

• B. competitors' actions.

• C. high turnover of employees.

• D. good financial resources of the firm.

• Answer: C. high turnover of employees (Weaknesses are internal matters).

Question 2: The company's CEO puts pressure on the firm’s research and development managers to develop products that can be created cheaply. The firm would be following a ________ strategy.

• Options: A. cost-leadership; B. differentiation; C. cost-focus; D. retrenchment.

• Answer: A. cost-leadership (targeting low cost and implying a wide market).

Question 3: John owns a piano sales and tuning store. He wants to be the biggest retailer in the Midlands. Adding salespeople would be part of his strategic:

• Options: A. location; B. execution; C. efficacy; D. efficiency.

• Answer: B. execution (putting the plan into action).