Strategic Supply Chain Management & Logistics - Notes

Strategic Supply Chain Management & Logistics

Theme 2: Strategic Management - Objectives

• LO4: Formulate the definition of strategic management.

• LO5: Explain the utility and characteristics of strategic management.

• LO6: Discuss the concepts related to strategic management.

• LO7: Explain the strategic management process.

• LO8: Analyze Mintzberg’s design versus emergence argument.

• LO9: Contrast between Porter’s generic competitive strategies.

• LO10: Describe “shared value” and value chain within strategic management.

• LO11: Examine how Rumelt’s approach is aligned to supply chain management.

• LO12: Analyze organizational culture.

• LO13: Evaluate the link between the supply chain and strategy.

Strategic Management Defined

• In Supply Chain Management (SCM), strategic management acts as a vehicle to understand the context, capabilities, and limitations of strategy.

• Strategic management is the management of an organization’s resources to achieve its goals and objectives.

• It involves setting objectives, analyzing the competitive environment and the internal organization, evaluating strategies, and ensuring management rolls out the strategies across the organization.

• Strategic planning involves identifying business challenges, choosing the best strategy, monitoring progress, and making adjustments to improve performance.

• Tools like SWOT (strengths, weaknesses, opportunities, and threats) analysis are used to assess opportunities and threats between the organization, its competition, and the market.

Strategy Defined

• Strategy refers to the means firms use to compete for business in the marketplace and gain competitive advantage (Porter, 1985), e.g., cost leadership and product differentiation.

• Strategy is the determination of the basic long-term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out those goals.

• American business historian Chandler (1962) views strategy as defining goals and objectives and providing the means for achieving them.

• Strategy refers to the long-term goal or roadmap for an organization and how it plans to reach them.

• Tactics refer to the specific set of actions taken to reach the organizational goals or strategy.

Commonalities Between Military Strategy and Business Strategy

• Strategic decisions are always important.

• Strategy requires a significant amount of resources.

• Once initiated, a strategy is quite difficult to reverse, undo, or redo.

• Strategic management has established itself as a formal academic discipline like marketing, supply chain management, and finance.

Utility and Characteristics of Strategic Management

• Strategic management is studied because of its utility in resolving strategic problems that arise as organizations struggle to survive in a fast-changing world.

• Understanding the utility means understanding the demand for strategic management.

• Benefits include improved decision-making, increased efficiency, better coordination, and improved alignment with organizational goals. It helps organizations anticipate market trends and respond quickly to changing conditions.

Four Generic Factors for Successfully Navigating the Competitive Environment

• Organizations whose aims were both long term and stable.

• Organizations that displayed a deep appreciation of the environment in which they compete.

• Organizations that displayed an accurate understanding of their resources, appreciating the capabilities and limitations of the resources at their disposal.

• Organizations that found effective ways to implement their strategies.

Characteristics of Strategy vs. Operational Effectiveness

Concepts Related to Strategic Management

• Corporate strategy vs. business strategy.

• Sustainability.

• Market-based view vs. resource-based view.

• The strategic management process.

Corporate and Business Strategy

• Business strategy (or competitive strategy) relates to how an organization aligns its products and services to attain and maintain a competitive advantage in a specific market. Examples include removing certain production lines, using new materials, cost reduction, product differentiation, and focus differentiation.

• Business strategy is a clear set of plans, actions, and goals outlining how a business will compete in a particular market or markets with a product or number of products or services. It involves strategic initiatives to create value for the organization and its stakeholders and gain a competitive advantage (Harvard Business School).

• A business strategy is an outline of the actions and decisions a company plans to take to reach its goals and objectives, guiding the decision-making process for hiring and resource allocation.

• Corporate strategy refers to the overall purpose of the organization, with special emphasis on the management of diverse business units, known as corporate parenting. Examples include PRASA and Transnet.

• A corporate strategy guides the overall direction, vision, and goals of a company, defining how the company creates value and differentiates itself from competitors.

• Corporate strategy encompasses a firm’s corporate actions with the aim to achieve company objectives while achieving a competitive advantage. Examples include growth strategies like market penetration, product development, market development, and diversification.

• For a single-business organization, corporate strategy relates exclusively to the overall purpose of the organization.

• For a multi-business unit organization, corporate strategy involves the overall purpose of the organization with special attention to resource allocation, alignment, and market designation of business units.

How Corporate and Business Strategies Differ

• In business strategy, the business unit executive will compete in the designated marketplace.

• In corporate strategy, the business unit executive implements corporate parenting, where skills from one business unit are transferred to another in a different market.

Sustainability in Strategic Management

• Sustainable development is a societal concept grounded in the three principles of environmental integrity, economic prosperity, and social equity, known as the three pillars of sustainability.

• Sustainability refers to the quality of being able to continue over a period of time, such as new product development.

• It also refers to the quality of causing little or no damage to the environment and therefore able to continue for a long time.

• Sustainable strategic management (SSM) involves analyzing, formulating, and implementing business strategies that are economically competitive, socially responsible, and in balance with the cycles of nature.

• A sustainable business strategy is a set of actionable steps a company takes to improve their impact on the community and the environment.

• Sustainable companies are those where social, environmental, and financial performances are reinforcing each other.

• For luxury companies, a well-designed and executed sustainability strategy can reinforce their brand value and enhance their competitiveness.

• Sustainability can refer to the use of recycled materials or the organization's ability to continue manufacturing and selling products without making a loss or being imitated by competitors.

• In Porter’s competitive advantage, sustainability was used to mean above-average performance in the long run, i.e., sustainable competitive advantage.

Market-Based View vs. Resource-Based View

• The market-based view (MBV) and the resource-based view (RBV) are referred to as the outside-in and inside-out views, depicting the manner in which a market is approached.

• The market-based view argues that the success of an organization is determined by the environment it operates in, not by its internal characteristics.

• With a market-based perspective, one sees an opportunity in the marketplace and aims to exploit it as there is no competition.

• One works backward to construct a value chain that first determines the price and then manages the product/service.

• The market-based view concentrates on the opportunities and threats of the external environment.

• The market-based view (MBV) emphasizes the role of market conditions in developing strategy for the firm (outside-in approach).

• This contrasts with the resource-based view (RBV), which focuses on the firm's resources and capabilities (inside-in approach).

• The resource-based view concentrates on the strengths and weaknesses of the internal resource and capability endowment.

• The Resource Based View (RBV) explicitly looks for the internal sources to achieve a sustained competitive advantage in the internal environment of an organization.

• The RBV originates from Porter’s value chain logic, which was further developed by Barney (1991).

• Value chain analysis is a process whereby organizations can isolate and determine resources and capabilities that differentiate them from their competitors.

• Lessons can be learned that two parties/companies can approach the same problem differently but result in good strategies.

• Understanding the two perspectives as the two end points of a continuum will lead to managers having more options for creating a competitive advantage.

Strategic Management Process

• The strategic management process involves analysis, formulation, implementation, and control.

• Phase 1: Analysis: Understanding the problem or challenge and the current strategy.

• Phase 2: Strategic Formulation: Setting up guiding policies and scheduling the roll-out of the strategy. Allocate resources

• Phase 3: Strategy Implementation: Execution of the strategy.

• Phase 4: Strategic Control: Measuring the implementation and end-result of the strategy. Feedback into the analysis phase.

Implications of Viewing Strategy as a Process

• The organization with one well-considered strategy that can evolve or be adapted as needed will achieve and maintain a competitive advantage.

• Categorizing the overall strategy into phases allows for aligning expectations and allocating resources.

• Strategic management is a helical process; after reaching the strategic control phase, it feeds back into the analysis phase and undergoes forward movement or evolution.

Significant Authors of Strategy Literature

• Notable authors include Henry Mintzberg, Michael Porter, and Richard Rumelt.

• Criteria for selection:

  • Their work has a large impact on how we view strategy.

  • Their arguments, models, and views have simplified the complexity embedded in strategy.

  • Their work has not been disapproved or really been improved upon.

Mintzberg’s Design vs. Emergence Argument

• Mintzberg’s argument helps to understand and align expectations of how a strategy works.

• 1: Intended Strategy: When one plans a strategy, considering as many factors as one can, one intends to implement this strategy and achieve results (e.g., to introduce one new product every year, greening, etc.).

• An intended strategy is the strategy that an organization hopes to execute, usually described in detail within an organization’s strategic plan.

• 2: Unrealized Strategy: Once implemented, part of the strategy will become redundant or not manifest in reality.

• A non-realized strategy refers to the abandoned parts of the intended strategy, resulting from inadequate planning processes, implementation failure, or a change in the environment.

• 3: Deliberate Strategy: The part that is left over is called deliberate strategy, thus the part of intended strategy that did manifest in reality.

• The firm’s deliberate strategy is the parts of the intended strategy that the firm continues to pursue over time.

• 4: Emergent Strategy: A large part of the strategy will reveal itself or emerge only once the strategy is being implemented or has already been implemented.

• An emergent strategy is an unplanned strategy that arises in response to unexpected opportunities and challenges.

• 5: Realized Strategy: The realised strategy is thus the sum of the emergent strategy and the deliberate strategy.

• A realized strategy is the strategy that an organization actually follows.

• Intended \space strategy - Unrealised \space strategy = Deliberate \space strategy

• Deliberate \space strategy + Emergent \space strategy = Realised \space strategy

Mintzberg’s View on Design vs. Emergence

• Mintzberg’s view helps confront two paradoxes related to strategy:

  • To what degree should our strategy be planned versus to what degree should we adapt to changes in the environment?

  • To what degree should we be proactive versus reactive?

• Lessons:

  • Mintzberg’s view warns against the two paradoxes.

  • It allows for aligning expectations and having resources in reserve to address how the strategy will merge.

  • The organization that can understand how and when its strategy is molded by circumstances without running out of resources will exhibit above-average performance.

Porter’s Generic Competitive Strategies

• The generic model looks at the business level strategy and emerged in the 1980s.

• Positioning determines how and where an organization can compete.

• The four generic competitive strategies include:

  • Cost leadership

  • Cost focus

  • Differentiation

  • Differentiation focus

• To compete in a maintainable manner and earn above returns, an organization should aim for a position in its industry.

• The greater the alignment between this position and the actual product/service, the greater the probability of attaining a competitive advantage.

Porter’s Four Generic Competitive Strategies (Porter, 1985)

• Cost Leadership: Low-cost, low-priced standardized products or services achieved through economies of scale and cost-cutting. Only works when the organization is the cost leader (e.g., cement companies).

• Differentiation: Products/services have uniqueness valued by customers, allowing for a higher asking price and above-average returns (e.g., cars, smartphones).

• Cost Focus: Targeting a narrow group of customers with a cost advantage by offering the lowest price on the market.

• Differentiation Focus: Targeting a narrow group of customers and excluding other segments, exploiting customer-valued needs neglected by competitors by offering unique features.

• Focused differentiation strategy is an approach that requires targeting a small group of consumers with unique offers. The strategy is also called niche marketing, niche differentiation, or product specialization.

• Stuck in the Middle: Competing in two or more quadrants puts an organization at a disadvantage because rivals will be better situated to garner above-average returns.

• A firm is stuck in the middle if it does not offer features unique enough to convince customers to buy its offerings, and its prices are too high to effectively compete based on price.

• Firms that are stuck in the middle generally perform poorly because they lack a clear market or competitive pricing.

Porter's Value Chain

• Value chain consists of primary activities and support activities.

• Competitive advantage stems from the many discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product.

• Each of these activities can contribute to a firm’s relative cost position and create a basis for differentiation.

• Value chain analysis is a process by which organizations can isolate and determine resources and capabilities that differentiate them from their competitors.

• Value chain contributes to a competitive advantage when the cost of each activity that adds value to the final product/service is enhanced by the value realized when the customers pays for the product/service.

Porter’s Shared Value

• Shared value refers to a necessary but also profitable widening of an organization’s commitment.

• Shared value encompasses policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.

• The concept rests on the premise that both economic and social progress must be addressed using value principles.

• Organizations narrowed their focus to exclude the natural environment and communities, contributing to social ills instead of alleviating them, resulting in reduced growth and little to no returns.

• Organizations stand to gain in profit when their performance depends on societal wellbeing.

• Considering the value chain, organizations have the resources, expertise, and infrastructure to conduct social enhancing activities.

• Shared value should not be confused with Corporate Social Responsibility (CSR).

• CSR stems from making a social contribution while making a profit either by form of aid to the natural environment or by community upliftment.

• Reporting to shareholders on CSR initiatives by listed companies is a standard way The problem with CSR is that it seeks to redress the societal ills of companies but in many cases has been touted or advertised as a waste of shareholder money as it result in little actual societal impact.

Rumelt’s Approach and Isolating Mechanisms

• A bad strategy exhibits at least one of the following four characteristics:

  • Fluff: Lack of clarity, ambiguity, and the use of abstract words to create the illusion of wisdom.

  • Failure to Face the Challenge: Without clearly articulating the problem, you cannot develop a strategy to address it.

  • Mistaking Goals for Strategy: A strategy that is merely a feel-good statement adds ambiguity and does not allow for resource allocation.

  • Bad Strategic Objectives: Objectives that are not pragmatic or do not address serious issues.

• Rumelt’s approach to maintaining competitive advantage is aggressive, pragmatic, and unique.

• Imitation is the most direct form of competition, and organizations need to be protected from it.

• Rumelt’s isolating mechanisms offer a perspective on defending competitive advantage or understanding the vulnerability associated with your competitive advantage.

Organizational Culture

• Culture determines the pool of possible strategies; strategy does not determine culture.

• Culture refers to the beliefs and behaviors that determine how a company's employees and management interact and handle outside business transactions.

• Organizational culture is defined as beliefs, assumptions, and values that members of a group share about rules of conduct, leadership styles, administrative procedures, ritual, and customs.

• The interplay of all the intentions of all the groups and individuals form the basis of a strategy.

• A strategic plan needs people to manage and execute it.

• Organizations rely on people to purchase products and services; hence, they need to understand their culture.

• Differences in ethnicity, religion, ideologies, sub-identities, ethical practices, and ever-changing technology lead to the intended strategies manifesting in the realized strategy.

• The culture of the organization will be part of the capabilities and limitations in deciding what strategy to create and implement.

• We cannot create a strategy ill-suited to the existing culture and then put into effect change management to change the culture so that a strategy can work.

The Lee, Bates, and Venter Model

• addresses the challenges posed by issues like HIV/AIDS to an organization’s strategy by aiming for strategic alignment between culture and strategy (e.g., global sourcing).

• The framework is useful for understanding how culture works inside an organization.

• Culture determines the pull of possible strategies.

Linking Strategy to the Supply Chain

• Strategy refers to the means that firms use to compete for business in the marketplace and to gain competitive advantage (Porter, 1985)

• SCM must be aligned with firm strategies to contribute to a sustainable competitive advantage

• A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from upstream (supplier) to downstream customer. The objective of SCM is creation of strategic differential advantage obtained by the total value delivered to end-customers”

• Supply chain managers should be exposed to strategic issues of a corporate-level nature, the greater the overall alignment relating to procurement, logistics, manufacturing, client relationship management.

Value Chain Activities

Primary Activities:

• Have an immediate effect (cost advantage) on the production, maintenance, sales, and support of the products or services to be supplied.

• Inbound Logistics: Processes involved in receiving, storing, and internally distributing raw materials (relationship with suppliers is essential).

• Production/Operation: Activities that convert inputs into semi-finished or finished products (operational systems are the guiding principle for value creation).

• Outbound Logistics: Activities related to delivering the products and services to the customer (storage, distribution, and transport).

• Marketing and Sales: Processes related to putting products and services in the markets, including managing customer relationships (differentiation and creating advantages for the customer).

• Service: Activities that maintain the value of the products or services to customers once a relationship has developed.

Support Activities:

• Assist the primary activities and form the basis of any organization.

• Firm Infrastructure: Activities that enable the organization to maintain its daily operations (administrative handling, warehouses, financial management).

• Human Resource Management: Development of the workforce within an organization (recruiting, training, coaching, compensating, and retaining staff).

• Technology Development: Activities related to the development of products and services (IT, technological innovations, new product development).

• Procurement: Activities related to procurement to service the customer from the organization (managing relationships with suppliers, negotiating prices, outsourcing agreements).