Chapter Six: Strategic Management
Fundamentally, the objective of strategic management is to determine, create and maintain competitive advantage, the ability to win consistently in the long-term in a competitive situation. Competitive advantage is created through the achievement of five qualities; superiority, imitability, durability, non-substitutability and appropriability [ugh].
Superiority simply refers to the relative ability of the capacity to perform at a given task (c.f., comparative advantage). Imitability refers to the barriers created that make it hard for others to copy their superiority advantages (i.e., monopoly advantages). Durability refers to the lasting nature (patents, trademarks, brand recognition) of advantages (i.e., more monopolistic advantages). Non-substitutability means the inability of competitors to meet your customer's need to alternative means (i.e., more monopolistic advantages). FInally, appropriability refers to the ability to actually capture the profits that can be made - supernormal returns are the profits that are above average for a comparable set of firms.
Strategic management is a type of planning process in which managers (1) set the organisation's general directions and objectives (2) forumulate a specific strategy, (3) plan and carry out the strategy's implementation and (4) monitor results and make necessary adjustments. Strategic intent involves what an organisation ultimately wants to do. A mission statement articulates the fundamental purpose of the organisation, often containing several components. The strategic objectives translate the strategic intent and mission of a firm into concrete and measurable goals. Generic strategies for competitive advantage include cost leadership, differentiation, and strategic scope. Cost leadership means striving to be the lowest-cost product or service, yet charge only slightly less than industry-average prices. Differentiation strategy is a strategy for making a product or service different from competitors. Strategic scope is the scope of firm's strategy of breadth of focus; a niche strategy is a limited scope or breadth of focus and a customer segment is a group of customers who have a similar preference or place a similar value on product features.
Generic strategies should be pursued after internal and external analysis, including the environmental analysis previous outlined (chapter 3). Customers will engage in value proposition; the ratio of what customers get from a firm relative to how much they pay relative to alternatives from competitors. In terms of organisational analysis, the value chain proposed by Michael Porter is most widely cited and used. A value chain is a set of activities that directly produce or support the production of what a firm ultimately offers to customers. Primary activities are those that are directly involved in the creation of a product or service, getting it into the hands of the customer and leaving it there. Support activities are those that facilitate the creation of a product of service and its transfer to the customer. To determine where value is added in the firm's internal value chains, managers need to understand each of the five primary activities in the chain: Inbound logistics, Operations, Outbound logistics, Marketing and Sales, and Service. In addition to the primary activities there are four support activities; procurement, technology development, human resource management and firm infrastructure.
Integrating internal and external analyses involves product life cycle analysis, portfolio analysis and SWOT analysis. Product life cycles over time consist of birth, growth, maturity, and decline. Levels of activity begins with high levels of investment which gradually declines and low levels of sales which increases. At the point of decline, investment is near zero and sales has dipped to below the initial growth phase. International product life cycles allow this development multiple times. Portfolio analysis involves two considering where products are in their various life cycles and where they are in terms of the strategic plan. The two dimensions are market attractiveness and relative market share; a low-low sector is a dog, a low-high sector is a cash-cow, a high-low sector is a question and a high-high sector is a star. Portfolio analysis can be applies to international markets with the dimensions being ability to compete and market attractiveness. One should avoid/divest from 'Dogs' (Finland, Phillipines), rethink 'Cows' (Mexico, United States, Canada), form strategic alliances and build capabilities in questions (China, Vietnam) and invest and build in stars (Japan, Germany). SWOT analysis is a framework which requires managers to consider their firm's strengths, weaknesses, opportunities and threats to its continued operation.
Once a strategy has been forumulated, it must be effectively implemented for desired results to materialise. Evidence exists that an average strategy superbly implemented is better than a great strategy poorly implemented. Perhaps the most widely-used strategy implementation was that developed by McKinsey Consulting called "Seven S's" of strategy, structure, shared values, systems, skills, style and staff (include image). The final step in the strategic management process is evaluation.