Strategic Management Process

What is Strategy?

• Generic Definition of Strategy: A course of action (or plan) for achieving a goal.
  • For businesses, the central goal is profit maximization, meaning earning substantial profits.
  • Alternatively, the goal can be to create value for shareholders and stakeholders.
  • All organizations (profit/non-profit/public) aim to deliver customer benefits at costs lower than those benefits.

Competitive Advantage

• Definition: A firm’s theory about how to gain competitive advantage.
  • Sustainable Competitive Advantage: The 'holy grail' for businesses that are difficult for competitors to duplicate.
  • Theory: A good strategy hinges on a firm's competitive advantage theory.
• Good Strategy: Generates a competitive advantage that can be sustained over time.

The Strategic Management Process

• Definition: A sequential set of analyses and choices that, ideally, increases the likelihood of selecting a good strategy.
  • Components:
  • Defining Mission: The long-term purpose of the organization.
  • Concrete Goals/Objectives: Specific measurable targets to guide progress toward realization of the mission.
  • External Analysis: Identification of environmental threats and opportunities (O & T in SWOT).
  • Internal Analysis: Identification of organizational strengths and weaknesses (S & W in SWOT).
  • Strategic Choice: Actions chosen to achieve competitive advantage based on the analyses.
  • Strategy Implementation: Actioning the choice made, ideally consistent with the organization's strategy.
• Result: Good strategic management hopes to achieve competitive advantage and maximize customer value.

Objectives

• High-Quality Objectives: Measurable, linked to mission, easy to track over time.
• Low-Quality Objectives: Not measurable, not linked to mission, hard to track over time.

External and Internal Analysis

• External Analysis: Identifying critical opportunities and threats in the environment. Focus on future threats and opportunities.
• Internal Analysis: Identifying strengths and weaknesses to determine areas needing improvement.
• Both analyses lead to Strategic Choice, which consists of two choices:
  • Business-Level Strategy: How to compete in a specific industry/market (e.g., cost leadership vs. differentiation).
  • Corporate-Level Strategy: How to compete across multiple markets/industries.

Competitive Advantage

• Definition: Ability to create more economic value than rivals.
  • Economic Value: Difference between perceived benefits and actual costs of delivering a product/service.
• Sources of Competitive Advantage:
  • Superior perceived benefits allowing premium pricing.
  • Lower economic costs compared to competitors.
• Temporary vs. Sustained Advantage: Temporary advantages are short-lived; sustained advantages last longer and are harder to replicate.

Measuring Competitive Advantage

• Accounting Performance: Based on published financial statements.
• Economic Performance: Takes into account the cost of capital based on returns versus costs.

Emergent vs. Intended Strategies

• Intended Strategy: Executives' planned strategy.
• Emergent Strategy: Develops over time, influenced by market conditions and trends.
• Realized Strategy: The actual strategy a firm implements, shaped by both intended and emergent strategies.

External Environment Analysis

• General Environment Elements:
  • Technological change, Demographic trends, Cultural trends, Economic conditions, Legal/political conditions, International events.
• Industry Analysis: Focuses on competitive environment and utilization of Five Forces Model to assess industry threats and profitability.

Five Forces Model

• Threats to Above Normal Returns:
  1. Threat of Rivalry: Intensity of competition impacting prices/profits.
  2. Threat of New Entry: New entrants increasing market competition.
  3. Threat of Substitutes: Alternative products serving the same customer need.
  4. Threat of Powerful Buyers: Power imbalance affecting pricing.
  5. Threat of Powerful Suppliers: Suppliers impacting costs and profits.

Complementors - A Sixth Force

• Products that complement a firm’s offerings, enhancing value and enabling higher pricing.

Internal Resources and Capabilities

• Types of Resources: Financial, Physical, Human, Organizational.
• VRIO Framework: Evaluates resources based on:
  • Value: Do they exploit opportunities?
  • Rarity: Are they unique?
  • Imitability: Are they difficult to replicate?
  • Organization: Is the firm structured to capitalize on them?

Value Chain Analysis

• Value Chain Definition: Sequence of business activities generating product/service value.
• Primary Activities: Include logistics, operations, marketing, and customer service.
• Support Activities: Infrastructure, HR management, technology, and procurement.

Corporate Diversification Strategies

• Types: Limited, Related, and Unrelated Diversification.
  • Operational Economies of Scope: Value derived from sharing operational resources across businesses.
• Value of Corporate Diversification: Primarily through achieving economies of scope, increasing efficiency and revenue.