An introduction to strategic management
Strategic management may be defined as:
The process of identifying, choosing and implementing activities that will enhance
the long term performance of an organisation by setting direction, utilising
technology and innovation and by creating ongoing compatibility between the
internal skills, resources and capabilities of an organisation and the changing
external environment within which it operates. (Viljoen & Dann 2003: 5)
Strategy', 'strategic planning' and 'strategic management' are terms which will sometimes be used interchangeably. Strictly speaking, strategy generally refers to the concepts used. Strategic planning refers to the use of these concepts to develop a plan of action, usually of a long-term nature. Strategic management refers to the analysis and practice that leads to the formulation of a strategy, including the implementation of strategic plans.
Strategy is a creative and logical proposition that is reached at the end of an argument process; rather than a consequence of a number of standard analyses. Analyses of the internal and external conditions the organisation faces can provide useful information for creating strategies and planning how they are to be implemented. This is not sufficient, however, to produce a sustained competitive advantage. This is because the results of standard analyses are, by definition, predictable and, therefore, subject to imitation by competitors.
Henry Mintzberg (1987) defined strategy as being plans for future and patterns from the past and noted that it includes formal elements (such as long-term goals), as well as the establishment of patterns of decision making. By comparison, Ansoff suggested that strategy is simply the decision rules and guidelines which guide the process of development in an organisation. Finally, Chandler (1962) identified strategy as determining the goals and objectives of the organisation, the courses of action required to achieve those goals and the location of the necessary resources. Notice the common themes in these definitions.
These authors regard strategy as a planning process the aim of which is to identify:
- where the organisation has come from
- where it wishes to be
- what is required to get it there.
Irrespective of an organisation's size, research has determined that long-term survival of all types of organisations without strategic planning is unlikely. This includes government departments and NGOs (non-government organisations). The reason for this is that all organisations compete for two things:
- the attention and participation of customers/stakeholders/patients, etc.
- the resources they require to provide a service.
Survival requires a strategy with a number of characteristics. These characteristics include:
- a focus on competition for customers and resources
- effective and efficient operations that enable an organisation to build sufficient reserves for development and survival during difficult periods
- an ability to deal with change as a learning organisation, and improve and be more innovative in its responses to change
- a focus on retaining a competitive advantage
- sufficient time allowed for deciding on and implementing changes in order to gain a return from them.
Organisation is a term that will be used to represent any organisational unit in the public or private sector, whether it is profit making or a not-for-profit enterprise. One of the most important aspects of setting strategy is to develop a clear understanding of the organisational purpose. Understanding and defining the organisation's purpose is not as simple as it sounds, however, because the exact purpose of the organisation is a reflection of the needs/pressures of all of the organisation's stakeholders.
One of the primary objectives of most approaches to strategy is to create a degree of differentiation between the organisation and its competitors or the other entities operating in its space. Differentiation is the apparent difference between the services and product offerings of all types of organisations that leads to customers, patients, etc. preferring one organisation over another. Hamel (2006) suggests that modern factors reduce the level of differentiation between organisations that can be achieved through the provision of products and services, often by removing the personal service element. This only leaves the way in which the business operates to provide differentiation.
Not only does the organisation need to be correctly designed as part of strategic planning process, strategic management is an ongoing, never ending process which requires constant review and change, to reflect the changes in the capability of the organisation and the changes in its environment. Finnie (2001) points out that while most organisations tend to allow their strategies to develop incrementally, this approach may not be sufficient to enable them to remain competitive in most environments and to ensure their long-term survival.
If strategy involves competition, then the modes of competition are very important. The two most common modes of competition are offensive and defensive strategies. Offensive strategies are intended to enable the organisation to expand into new markets with different products and services, whilst defensive strategies are intended to protect existing markets and strengthen the position within those. While most strategies have merit and clearly direct resources, offensive strategies result in longer-term survival. Defensive strategies generally leave the organisation with nowhere to retreat and provide competitors with sufficient time to erode markets by developing superior competitive advantages, such as pricing, features or service.
One of the most widely adopted perspectives on strategy is the resource-based perspective (the allocation of resources for maximum effectiveness) and the role of the organisation as an organism in society (which supports the triple bottom line perspective—profit, sustainability and community contribution). The resource-based perspective leads us to discuss the core competencies of the organisation, which are the resources or strengths that create the organisation's competitive advantage.
Competitive advantage is derived from the organisation's products, services, behaviour, profile, etc. that enable it to win business from competitors. It is the basis upon which the organisation performs in its environment. It is particularly important to differentiate core competencies from strengths and activities. Core competencies are at the heart of the organisation. They warrant and should receive much of the strategic development focus of the organisation. Strengths and activities that are not core competencies do not lead to a competitive advantage and do not warrant this level of attention from the strategic perspective.
Another important concept to understand is the different levels of strategy which can apply in an organisation, particularly in a large and diversified business. Strategy can occur at the corporate, business and functional levels. In a well coordinated organisation, each level of strategy is derived from the level above, is focused on the particular issues pertaining to that section of the organisation and is more specific in detail than the one above it. In practice however, the issue of 'phase delay'—between the production of a corporate strategy and each of the subsequent levels of strategy production—commonly occurs. This results in a strategic decision making mismatch across the organisation.
The positive view of strategy is concerned with the firm's actual strategy and how it comes to be. The normative view, on the other hand, is concerned with what the firm's strategy should be.
The product-market view of strategy is primarily concerned with how the firm competes with its products and services. The resource-based view of strategy is concerned with how the firm can secure the factors needed to create the core competencies and capabilities that form the basis for establishing and sustaining competitive advantage.
What does a general manager considering the role of technology in a firm's strategy need to know? According to one school of thought, it is enough to understand the parameters transformed by the technological black box; it is enough to know what the technological device or system does, not how it does it. An alternative view argues that unless one understands the functioning of a device and the laws that delineate its limitations, one cannot make effective judgements regarding the shaping of relevant technologies into successful products.
Porter's "generic strategies" concept is a widely used framework for classifying competitive strategies. The generic strategies are (a) industry-wide differentiation, (b) focused differentiation, (c) industry-wide cost leadership, and (d) focused cost leadership.