Strategic management

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The fallacy of the production orientation was also referred to as marketing myopia in an article of the same name by Levitt. Over time, the customer became the driving force behind all strategic business decisions. This marketing concept, in the decades since its introduction, has been reformulated and repackaged under names including market orientation, customer orientation, customer intimacy, customer focus, customer-driven and market focus.

Jim Collins [34]. Jim Collins wrote in that the strategic frame of reference is expanded by focusing on why a company exists rather than what it makes. In , Professor Ellen Earle-Chaffee summarized what she thought were the main elements of strategic management theory where consensus generally existed as of the s, writing that strategic management: [10]. Chaffee further wrote that research up to that point covered three models of strategy, which were not mutually exclusive:.

The progress of strategy since can be charted by a variety of frameworks and concepts introduced by management consultants and academics. These reflect an increased focus on cost, competition and customers. These "3 Cs" were illuminated by much more robust empirical analysis at ever-more granular levels of detail, as industries and organizations were disaggregated into business units, activities, processes, and individuals in a search for sources of competitive advantage.

By the s, the capstone business policy course at the Harvard Business School included the concept of matching the distinctive competence of a company its internal strengths and weaknesses with its environment external opportunities and threats in the context of its objectives.

This framework came to be known by the acronym SWOT and was "a major step forward in bringing explicitly competitive thinking to bear on questions of strategy". Kenneth R. Andrews helped popularize the framework via a conference and it remains commonly used in practice. The experience curve was developed by the Boston Consulting Group in It has been empirically confirmed by some firms at various points in their history. Author Walter Kiechel wrote that it reflected several insights, including:.

Kiechel wrote in "The experience curve was, simply, the most important concept in launching the strategy revolution Further, the experience curve provided a basis for the retail sale of business ideas, helping drive the management consulting industry. The concept of the corporation as a portfolio of business units, with each plotted graphically based on its market share a measure of its competitive position relative to its peers and industry growth rate a measure of industry attractiveness , was summarized in the growth—share matrix developed by the Boston Consulting Group around This framework helped companies decide where to invest their resources i.

Prahalad and Gary Hamel suggested that companies should build portfolios of businesses around shared technical or operating competencies, and should develop structures and processes to enhance their core competencies. Porter wrote in that corporate strategy involves two questions: 1 What business should the corporation be in? He mentioned four concepts of corporate strategy; the latter three can be used together: [38]. Other techniques were developed to analyze the relationships between elements in a portfolio. The growth-share matrix, a part of B.

Analysis , was followed by G. Companies continued to diversify as conglomerates until the s, when deregulation and a less restrictive anti-trust environment led to the view that a portfolio of operating divisions in different industries was worth more as many independent companies, leading to the breakup of many conglomerates. In , Porter defined the two types of competitive advantage an organization can achieve relative to its rivals: lower cost or differentiation. This advantage derives from attribute s that allow an organization to outperform its competition, such as superior market position, skills, or resources.

In Porter's view, strategic management should be concerned with building and sustaining competitive advantage.

Porter developed a framework for analyzing the profitability of industries and how those profits are divided among the participants in In five forces analysis he identified the forces that shape the industry structure or environment. The framework involves the bargaining power of buyers and suppliers, the threat of new entrants, the availability of substitute products, and the competitive rivalry of firms in the industry. These forces affect the organization's ability to raise its prices as well as the costs of inputs such as raw materials for its processes.

The five forces framework helps describe how a firm can use these forces to obtain a sustainable competitive advantage , either lower cost or differentiation. Companies can maximize their profitability by competing in industries with favorable structure. Competitors can take steps to grow the overall profitability of the industry, or to take profit away from other parts of the industry structure. Porter modified Chandler's dictum about structure following strategy by introducing a second level of structure: while organizational structure follows strategy, it in turn follows industry structure.

Porter wrote in that strategy target either cost leadership , differentiation , or focus. Porter claimed that a company must only choose one of the three or risk that the business would waste precious resources. Porter's generic strategies detail the interaction between cost minimization strategies, product differentiation strategies, and market focus strategies.

Porter described an industry as having multiple segments that can be targeted by a firm. The breadth of its targeting refers to the competitive scope of the business. Porter defined two types of competitive advantage : lower cost or differentiation relative to its rivals. Achieving competitive advantage results from a firm's ability to cope with the five forces better than its rivals. Porter wrote: "[A]chieving competitive advantage requires a firm to make a choice The focus strategy has two variants, cost focus and differentiation focus. The concept of choice was a different perspective on strategy, as the s paradigm was the pursuit of market share size and scale influenced by the experience curve.

Companies that pursued the highest market share position to achieve cost advantages fit under Porter's cost leadership generic strategy, but the concept of choice regarding differentiation and focus represented a new perspective. Porter's description of the value chain refers to the chain of activities processes or collections of processes that an organization performs in order to deliver a valuable product or service for the market. These include functions such as inbound logistics, operations, outbound logistics, marketing and sales, and service, supported by systems and technology infrastructure.

By aligning the various activities in its value chain with the organization's strategy in a coherent way, a firm can achieve a competitive advantage. Porter also wrote that strategy is an internally consistent configuration of activities that differentiates a firm from its rivals. A robust competitive position cumulates from many activities which should fit coherently together.

What is that strategic management?

Porter wrote in "Competitive advantage cannot be understood by looking at a firm as a whole. It 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 Gary Hamel and C. Prahalad described the idea of core competency in , the idea that each organization has some capability in which it excels and that the business should focus on opportunities in that area, letting others go or outsourcing them.

Further, core competency is difficult to duplicate, as it involves the skills and coordination of people across a variety of functional areas or processes used to deliver value to customers. By outsourcing, companies expanded the concept of the value chain, with some elements within the entity and others without. Peter Drucker wrote in about the "Theory of the Business," which represents the key assumptions underlying a firm's strategy.

What is Strategic Management? definition, process and importance - Business Jargons

These assumptions are in three categories: a the external environment, including society, market, customer, and technology; b the mission of the organization; and c the core competencies needed to accomplish the mission. He continued that a valid theory of the business has four specifications: 1 assumptions about the environment, mission, and core competencies must fit reality; 2 the assumptions in all three areas have to fit one another; 3 the theory of the business must be known and understood throughout the organization; and 4 the theory of the business has to be tested constantly.

He wrote that organizations get into trouble when the assumptions representing the theory of the business no longer fit reality. He used an example of retail department stores, where their theory of the business assumed that people who could afford to shop in department stores would do so. However, many shoppers abandoned department stores in favor of specialty retailers often located outside of malls when time became the primary factor in the shopping destination rather than income.

Drucker described the theory of the business as a "hypothesis" and a "discipline. Strategic thinking involves the generation and application of unique business insights to opportunities intended to create competitive advantage for a firm or organization. It involves challenging the assumptions underlying the organization's strategy and value proposition.

Mintzberg wrote in that it is more about synthesis i. It is about "capturing what the manager learns from all sources both the soft insights from his or her personal experiences and the experiences of others throughout the organization and the hard data from market research and the like and then synthesizing that learning into a vision of the direction that the business should pursue.

General Andre Beaufre wrote in that strategic thinking "is a mental process, at once abstract and rational, which must be capable of synthesizing both psychological and material data. The strategist must have a great capacity for both analysis and synthesis; analysis is necessary to assemble the data on which he makes his diagnosis, synthesis in order to produce from these data the diagnosis itself--and the diagnosis in fact amounts to a choice between alternative courses of action.

Will Mulcaster [44] argued that while much research and creative thought has been devoted to generating alternative strategies, too little work has been done on what influences the quality of strategic decision making and the effectiveness with which strategies are implemented.

For instance, in retrospect it can be seen that the financial crisis of —9 could have been avoided if the banks had paid more attention to the risks associated with their investments, but how should banks change the way they make decisions to improve the quality of their decisions in the future? Mulcaster's Managing Forces framework addresses this issue by identifying 11 forces that should be incorporated into the processes of decision making and strategic implementation. Strategic planning is a means of administering the formulation and implementation of strategy.

In other words, strategic planning happens around the strategy formation process. Porter wrote in that formulation of competitive strategy includes consideration of four key elements:. The first two elements relate to factors internal to the company i. There are many analytical frameworks which attempt to organize the strategic planning process. Examples of frameworks that address the four elements described above include:.

A number of strategists use scenario planning techniques to deal with change. The way Peter Schwartz put it in is that strategic outcomes cannot be known in advance so the sources of competitive advantage cannot be predetermined. Instead, scenario planning is a technique in which multiple outcomes can be developed, their implications assessed, and their likeliness of occurrence evaluated.

According to Pierre Wack , scenario planning is about insight, complexity, and subtlety, not about formal analysis and numbers. Some business planners are starting to use a complexity theory approach to strategy. Complexity can be thought of as chaos with a dash of order. Complexity is not quite so unpredictable. It involves multiple agents interacting in such a way that a glimpse of structure may appear.

Once the strategy is determined, various goals and measures may be established to chart a course for the organization, measure performance and control implementation of the strategy. Tools such as the balanced scorecard and strategy maps help crystallize the strategy, by relating key measures of success and performance to the strategy. These tools measure financial , marketing , production , organizational development , and innovation measures to achieve a 'balanced' perspective.

Advances in information technology and data availability enable the gathering of more information about performance, allowing managers to take a much more analytical view of their business than before. Strategy may also be organized as a series of "initiatives" or "programs", each of which comprises one or more projects. Various monitoring and feedback mechanisms may also be established, such as regular meetings between divisional and corporate management to control implementation. A key component to strategic management which is often overlooked when planning is evaluation.

There are many ways to evaluate whether or not strategic priorities and plans have been achieved, one such method is Robert Stake 's Responsive Evaluation. In expanding beyond the goal-oriented or pre-ordinate evaluation design, responsive evaluation takes into consideration the program's background history , conditions, and transactions among stakeholders. It is largely emergent, the design unfolds as contact is made with stakeholders. While strategies are established to set direction, focus effort, define or clarify the organization, and provide consistency or guidance in response to the environment, these very elements also mean that certain signals are excluded from consideration or de-emphasized.

Mintzberg wrote in "Strategy is a categorizing scheme by which incoming stimuli can be ordered and dispatched. As such, Mintzberg continued, "Strategy [once established] is a force that resists change, not encourages it. Therefore, a critique of strategic management is that it can overly constrain managerial discretion in a dynamic environment.

In , Gary Hamel coined the term strategic convergence to explain the limited scope of the strategies being used by rivals in greatly differing circumstances. He lamented that successful strategies are imitated by firms that do not understand that for a strategy to work, it must account for the specifics of each situation. Strategy should be seen as laying out the general path rather than precise steps. There will usually be only a small number of approaches that will not only be technically and administratively possible, but also satisfactory to the full range of organizational stakeholders.

In turn, the range of feasible implementation approaches is determined by the availability of resources. Various strategic approaches used across industries themes have arisen over the years. These include the shift from product-driven demand to customer- or marketing-driven demand described above , the increased use of self-service approaches to lower cost, changes in the value chain or corporate structure due to globalization e. One theme in strategic competition has been the trend towards self-service, often enabled by technology, where the customer takes on a role previously performed by a worker to lower costs for the firm and perhaps prices.

One definition of globalization refers to the integration of economies due to technology and supply chain process innovation. Companies are no longer required to be vertically integrated i. In other words, the value chain for a company's product may no longer be entirely within one firm; several entities comprising a virtual firm may exist to fulfill the customer requirement.

For example, some companies have chosen to outsource production to third parties, retaining only design and sales functions inside their organization. The internet has dramatically empowered consumers and enabled buyers and sellers to come together with drastically reduced transaction and intermediary costs, creating much more robust marketplaces for the purchase and sale of goods and services. Examples include online auction sites, internet dating services, and internet book sellers.

In many industries, the internet has dramatically altered the competitive landscape. Services that used to be provided within one entity e. Author Phillip Evans said in that networks are challenging traditional hierarchies. Value chains may also be breaking up "deconstructing" where information aspects can be separated from functional activity. Data that is readily available for free or very low cost makes it harder for information-based, vertically integrated businesses to remain intact. Evans said: "The basic story here is that what used to be vertically integrated, oligopolistic competition among essentially similar kinds of competitors is evolving, by one means or another, from a vertical structure to a horizontal one.

Why is that happening? It's happening because transaction costs are plummeting and because scale is polarizing. The plummeting of transaction costs weakens the glue that holds value chains together, and allows them to separate. In the recent decade, sustainability—or ability to successfully sustain a company in a context of rapidly changing environmental, social, health, and economic circumstances—has emerged as crucial aspect of any strategy development.

Research focusing on corporations and leaders who have integrated sustainability into commercial strategy has led to emergence of the concept of "embedded sustainability" — defined by its authors Chris Laszlo and Nadya Zhexembayeva as "incorporation of environmental, health, and social value into the core business with no trade-off in price or quality—in other words, with no social or green premium. In , Peter Senge , who had collaborated with Arie de Geus at Dutch Shell, popularized de Geus' notion of the "learning organization".

To do this, Senge claimed that an organization would need to be structured such that: [65]. Geoffrey Moore and R. Frank and P. Cook [66] also detected a shift in the nature of competition. Markets driven by technical standards or by "network effects" can give the dominant firm a near-monopoly.

Examples include Internet Explorer 's and Amazon's early dominance of their respective industries. IE's later decline shows that such dominance may be only temporary. Moore showed how firms could attain this enviable position by using E. Rogers' five stage adoption process and focusing on one group of customers at a time, using each group as a base for reaching the next group. The most difficult step is making the transition between introduction and mass acceptance.

See Crossing the Chasm. If successful a firm can create a bandwagon effect in which the momentum builds and its product becomes a de facto standard. In , Peter Drucker coined the phrase Age of Discontinuity to describe the way change disrupts lives. But according to Drucker, we are now in an age of discontinuity and extrapolating is ineffective.

He identifies four sources of discontinuity: new technologies , globalization , cultural pluralism and knowledge capital. In , Alvin Toffler in Future Shock described a trend towards accelerating rates of change. In past eras periods of change were always punctuated with times of stability. This allowed society to assimilate the change before the next change arrived. But these periods of stability had all but disappeared by the late 20th century.

In in The Third Wave , Toffler characterized this shift to relentless change as the defining feature of the third phase of civilization the first two phases being the agricultural and industrial waves. In , Derek F. Abell Abell, D. This led some strategic planners to build planned obsolescence into their strategies. In , Noel Tichy wrote that because we are all beings of habit we tend to repeat what we are comfortable with. He developed a systematic method of dealing with change that involved looking at any new issue from three angles: technical and production, political and resource allocation, and corporate culture.

In , Charles Handy identified two types of change. By contrast, "transformational change" is sudden and radical. It is typically caused by discontinuities or exogenous shocks in the business environment. The point where a new trend is initiated is called a "strategic inflection point" by Andy Grove. Inflection points can be subtle or radical. In , Richard Pascale wrote that relentless change requires that businesses continuously reinvent themselves. Prevailing strategies become self-confirming.

To avoid this trap, businesses must stimulate a spirit of inquiry and healthy debate.

They must encourage a creative process of self-renewal based on constructive conflict. In , Adrian Slywotzky showed how changes in the business environment are reflected in value migrations between industries, between companies, and within companies. Slywotsky and his team identified 30 patterns that have transformed industry after industry.

In , Clayton Christensen took the position that great companies can fail precisely because they do everything right since the capabilities of the organization also define its disabilities. He called the approach to discovering the emerging markets for disruptive technologies agnostic marketing , i. In , Constantinos Markides reexamined the nature of strategic planning. Strategic management is planned and emergent, dynamic and interactive. Moncrieff stressed strategy dynamics. The unplanned element comes from emergent strategies that result from the emergence of opportunities and threats in the environment and from "strategies in action" ad hoc actions across the organization.

In , Gary Hamel discussed strategic decay , the notion that the value of every strategy, no matter how brilliant, decays over time.

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A large group of theorists felt the area where western business was most lacking was product quality. Edwards Deming , [82] Joseph M. Juran , [83] A. Kearney , [84] Philip Crosby [85] and Armand Feignbaum [86] suggested quality improvement techniques such total quality management TQM , continuous improvement kaizen , lean manufacturing , Six Sigma , and return on quality ROQ.

They gave us fishbone diagramming , service charting , Total Customer Service TCS , the service profit chain, service gaps analysis, the service encounter, strategic service vision, service mapping, and service teams. Their underlying assumption was that there is no better source of competitive advantage than a continuous stream of delighted customers. Process management uses some of the techniques from product quality management and some of the techniques from customer service management. It looks at an activity as a sequential process. The objective is to find inefficiencies and make the process more effective.

Although the procedures have a long history, dating back to Taylorism , the scope of their applicability has been greatly widened, leaving no aspect of the firm free from potential process improvements. Because of the broad applicability of process management techniques, they can be used as a basis for competitive advantage. Carl Sewell, [92] Frederick F. Reichheld , [93] C. Gronroos, [94] and Earl Sasser [95] observed that businesses were spending more on customer acquisition than on retention.

They showed how a competitive advantage could be found in ensuring that customers returned again and again. Reicheld broadened the concept to include loyalty from employees, suppliers, distributors and shareholders. They developed techniques for estimating customer lifetime value CLV for assessing long-term relationships. The concepts begat attempts to recast selling and marketing into a long term endeavor that created a sustained relationship called relationship selling, relationship marketing , and customer relationship management.

Customer relationship management CRM software became integral to many firms. Michael Hammer and James Champy felt that these resources needed to be restructured. In this way a team of people saw a project through, from inception to completion. This avoided functional silos where isolated departments seldom talked to each other. It also eliminated waste due to functional overlap and interdepartmental communications. In Richard Lester and the researchers at the MIT Industrial Performance Center identified seven best practices and concluded that firms must accelerate the shift away from the mass production of low cost standardized products.

The seven areas of best practice were: [97].

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The search for best practices is also called benchmarking. Professor Richard P. Rumelt described strategy as a type of problem solving in He wrote that good strategy has an underlying structure called a kernel. The kernel has three parts: 1 A diagnosis that defines or explains the nature of the challenge; 2 A guiding policy for dealing with the challenge; and 3 Coherent actions designed to carry out the guiding policy.

What is Strategic Management? What is Strategy Execution?

Active strategic management required active information gathering and active problem solving. Senior HP managers were seldom at their desks. They spent most of their days visiting employees, customers, and suppliers. This direct contact with key people provided them with a solid grounding from which viable strategies could be crafted.

Management consultants Tom Peters and Robert H. In , IBM released a study summarizing three conclusions of CEOs around the world: 1 complexity is escalating, 2 enterprises are not equipped to cope with this complexity, and 3 creativity is now the single most important leadership competency. IBM said that it is needed in all aspects of leadership, including strategic thinking and planning.

Similarly, McKeown argued that over-reliance on any particular approach to strategy is dangerous and that multiple methods can be used to combine the creativity and analytics to create an "approach to shaping the future", that is difficult to copy. A treatise by Chester Barnard , based on his own experience as a business executive, described the process as informal, intuitive, non-routinized and involving primarily oral, 2-way communications.

Bernard says "The process is the sensing of the organization as a whole and the total situation relevant to it. It transcends the capacity of merely intellectual methods, and the techniques of discriminating the factors of the situation. The terms pertinent to it are "feeling", "judgement", "sense", "proportion", "balance", "appropriateness". It is a matter of art rather than science. In , Mintzberg found that senior managers typically deal with unpredictable situations so they strategize in ad hoc , flexible, dynamic, and implicit ways.

He wrote, "The job breeds adaptive information-manipulators who prefer the live concrete situation. The manager works in an environment of stimulus-response, and he develops in his work a clear preference for live action. In , John Kotter studied the daily activities of 15 executives and concluded that they spent most of their time developing and working a network of relationships that provided general insights and specific details for strategic decisions.

They tended to use "mental road maps" rather than systematic planning techniques. Daniel Isenberg 's study of senior managers found that their decisions were highly intuitive. Executives often sensed what they were going to do before they could explain why. Zuboff claimed that information technology was widening the divide between senior managers who typically make strategic decisions and operational level managers who typically make routine decisions.

She alleged that prior to the widespread use of computer systems, managers, even at the most senior level, engaged in both strategic decisions and routine administration, but as computers facilitated She called it "deskilled" routine processes, these activities were moved further down the hierarchy, leaving senior management free for strategic decision making.

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In , Abraham Zaleznik distinguished leaders from managers. He described leaders as visionaries who inspire, while managers care about process. Lack of leadership is most damaging at the level of strategic management where it can paralyze an entire organization. According to Corner, Kinichi, and Keats, [] strategic decision making in organizations occurs at two levels: individual and aggregate.

For a long time, consultants were the strategy "high-priests" of business. Until it all fell apart. Many past approaches have now fallen into disfavor, having risen spectacularly and failed even more spectacularly. Indeed, the history of business strategy making could be called a "March of Folly" historian Barbara Tuchman uses this expression to describe a tendency in human history to repeat the same mistakes, again and again. This module explores what the past can teach us, how we might avoid repeating past mistakes. Changing World, Changing Strategies -In the past several decades, a lot has changed in the world.

Many more people and nations China, India, Russia, etc have joined the global market economy. The number of Internet users has skyrocketed and continues dramatically upward. Shipping traffic between countries has multiplied and also continues to grow. All this world change has changed the strategy situation of most companies in a big way. It means, for example, that companies in advanced economies have to compete against rivals that have structural cost advantages, because they operate in lower cost parts of the world.

This module describes the shifted and shifting strategy landscape, due to the advance of technology and the relentless march of globalization. Capstone Project Intro -- Strategy in a 21st Century Creative Company -An up-and-coming and very ambitious design firm is unexpectedly invited to bid for a work against more prominent competitors.

The job: Design the logo and other elements of the public identity of the national sports team. Winning will vault e-Types to much greater prominence. Their work will be displayed on TV and on t-shirts. And they believe they have what it takes to win. But there's a problem. The e-Types designers, who have always thought of themselves as design revolutionaries, don't like the guidance they're receiving from this somewhat conservative client.

It's not the kind of work they want to do or be known for Meanwhile, more business oriented e-Types managers and staff can hardly believe what they're hearing from the designers -- don't they see the opportunity? This is business and there's money to be made. Controversy grips e-Types. At stake: what kind of company will they be going forward? Can they continue to be revolutionary and still satisfy their growth ambitions? Or is it time for them to "grow up" in order to appeal to a wider range of customers. The battle is on for the soul of this company -- what will YOU recommend?

Taught by Robert Austin. Tags europe. Browse More Coursera Articles. This is a wonderful subject Strategic Management. I love to read about it and i also make a project by taking Assignment Help in UK. Was this review helpful to you?