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.