Strategic Management Process

What is Strategy and the Strategic Management Process?

Definition of Strategy

  • Generic Definition: A strategy is a course of action or plan aimed at achieving a goal.
  • Business Goals:
    • Profit maximization: Focused on earning substantial profits.
    • Value Creation: Aims to create value for shareholders and stakeholders.
    • Overall Goal: Delivering benefits to customers while keeping costs less than the benefits delivered.

Strategic Advantage

  • Strategic Definition: A firm’s theory about how to achieve competitive advantage.
  • Competitiveness Concepts:
    • Competitive Advantage: The edge a firm has over its competitors.
    • Sustainable Competitive Advantage: An enduring lead—which is deemed vital for long-term success.
    • Theory: Refers to the underlying belief system that guides a firm’s strategy.

Characteristics of a Good Strategy

  • A strong strategy generates a competitive advantage for the firm.
  • Should be informed by the firm’s theory regarding competitive factors that contribute to superior performance.

The Strategic Management Process

  • Definition: A structured set of analyses and decisions designed to position a firm advantageously in its industry.
    • Aims to maximize value created for customers.

Key Elements of the Strategic Management Process

  1. Defining Mission: Defines the organization's long-term purpose.
    • Mission Statement: Describes what an organization aims to achieve and what it seeks to avoid.
  2. Setting Goals/Objectives: Specific measurable targets to evaluate the realization of the mission.
    • Example: 3M's target for sales from products under four years old (target 30%).
  3. External Analysis: Identifying environmental threats and opportunities, a focus for an upcoming chapter.
  4. Internal Analysis: Evaluating the organization’s strengths and weaknesses, also a focus for an upcoming chapter.
  5. Strategic Choice: The actions the organization takes to gain competitive advantage, derived from analyses.
  6. Strategy Implementation: Execution of the strategic choices through policies, practices, and organizational structures.

Competitive Advantage

  • Definition: The ability to create more economic value than competitors.
  • Economic Value: Difference between perceived benefits and costs of a product or service.
    • Example: Consumer value assessment of products like iPhones.
  • Sources of Economic Value:
    • Perceived benefits greater than competitors' products.
    • Lower economic costs than competitors’ offerings.
  • Temporary vs. Sustained Advantage:
    • Temporary: Short-lived competitive edge.
    • Sustained: Long-lasting advantage, harder to maintain.

Measuring Competitive Advantage and Economic Value

  • Challenges: Difficulties in accurately gauging perceptions of benefits and production costs.
  • Approaches:
    • Accounting Performance: Based on financial statements, useful for comparisons.
    • Economic Performance: Takes into account the cost of capital, representing the firm's profitability above normal return expectations.

Emergent vs. Intended Strategies

  • Intended Strategy: The plan developed by top management reflecting the desired strategic direction.
  • Emergent Strategy: Adaptations made in response to unforeseen circumstances or industry shifts.
  • Realized Strategy: The actual strategy being pursued, which often differs from the original intended strategy.
  • Notable Example: Intel's adaptations due to market changes.

Conclusion

  • Understanding strategic management involves recognizing the complexity of defining objectives, analyzing environments, and implementing strategies effectively.
  • The ultimate goal of strategic management process is to create a competitive advantage that translates to sustained economic value for a firm.