The Nature of Strategic

Management

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Key learning system questions

1 V plc 3 N Airline20 T Inc

Topics

● What is strategy?● The rational model of strategy

development● Alternatives to the rational

model● Formal business strategy● Resource-based vs. positioning

views

● Stakeholders● Mission and objective

setting● Terminology● Critical success factor

analysis● Competing objectives● Tools for strategic analysis

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Common themes in strategy

It is about the purpose and long-term objectives of the business

It is concerned with meeting the challenges from the firm’s business environment

It involves using the firm’s resources effectively, and building on its strategies to meet environmental challenges

It is ultimately about delivering value to the people who depend on the firm, its stakeholders, such as customers and shareholders

The Nature of Strategic Management

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What is strategy?

Definitions

Strategy – a course of action, including the specification of resources required, to achieve a specific objective

Strategic plan – a statement of long-term goals along with a definition of the strategies which will ensure the achievement of these goals

Study tip

Many exam questions will look at the common themes opposite. Make sure you understand the issues involved

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The Nature of Strategic Management

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What is strategy?

You need to be able to discuss these three ‘aspects’ of strategy

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What is strategy?

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Corporate strategy

Acquisitions, mergers, sell-offs or closure of strategic business units

Conduct of relations with key external stakeholders Decisions to enter new markets or embrace new

technologies Corporate policies on public image, employment

practices or Information Systems

Business strategy

Marketing issues such as product, price, promotion, place

Decisions on production technology Staffing decisions

Functional strategy

Long-term management policies for individual functional areas (e.g. sales, production)

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What is strategy?

These are just examples of the three levels of strategy. You need to be able to identify others in a scenario and discuss them

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The rational model of strategy development

Study tip

Make sure you understand, and can reproduce, this diagram

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Stages in the rational model

Mission and objectives Position audit Environmental analysis Corporate appraisal Strategic option generation Strategy evaluation and choice Strategy implementation Review and control

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The rational model of strategy development

And also

You might link the ‘strategic planning tools’ to each of the stages of the rational model, for example PEST analysis and the competitive forces model are both used in environmental analysis

Study tip

You need to know the issues that arise at each of these stages. Exam questions might ask about one or more

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Criticisms of the rational model

Organisations are incapable of having objectives Senior management should not be the only people

involved in setting strategy In reality, strategy setting is not a simple, step-by-

step process The strategies firms follow are not the same as the

ones they set out in their plans Strategy is not something decided in advance by

managers Strategy should not be a rational process

Alternatives

The Nature of Strategic Management

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Alternatives to the rational model

Definitions

Emergent strategies – patterns or consistencies realised despite, or in the absence of, intentions

Logical incrementalism – a manager maps where he or she wants the organisation to go, and then proceeds towards it in small steps, being prepared to adapt if the environment changes or support is not forthcoming

This is sometimes known as ‘muddling through,’ though logical incrementalism can be a deliberate strategic approach

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Features

Designated team Formal information system for strategy Collective decision taking A communication and implementation process Regular review

Benefits

Avoids short-termism Helps issue identification Goal congruence Improved stakeholder perception Basis for strategic control Develops potential and ensures continuity

Drawbacks

Not dynamic Not radical or innovative Difficult to implement Loss of entrepreneurism Impossible in uncertain environment Too expensive and complex for small businesses

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Formal business strategy

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Positioning view

Believes that supernormal profits result from: High market share, A differentiated product or Low costs

Resource-based view

Believes that supernormal profits result from the possession of unique skills or resources, and that the positioning view is invalid because:

Competitive advantage is not sustainable Environments are too dynamic to position in It is easier to change the environment than to change

the firm

However, the resource-based view has been criticised because:

It conflicts with the conventional product/market based view of strategy

It challenges the rational model It conflicts with the notion of network organisations,

as managers would not wish to share core competences

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Resource-based vs. positioning views

Study tip

This debate is quite examinable. Make sure you understand the issues

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Stakeholders include

Shareholders and other investors Management Employees Customers Suppliers Local community Government

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Stakeholders

Definition

Stakeholders – groups or individuals having a legitimate interest in the activities of an organisation

Study tip

Make sure you understand, and can apply, the Mendelow matrix. It is a key stakeholder management tool

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Mission and objective setting

Study tip

Make sure you understand, and can apply, this diagram

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Terminology

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Mission

Provides a basis for planning decisions Assists in translating purpose into objectives Encourages goal congruence Supports ethical behaviour Improves understanding of external stakeholders

Objectives

Should be ‘SMART’: Specific Measurable Attainable Relevant Time-bound

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Terminology

Study tip

These topics are all very examinable

Remember that objectives perform five functions (‘PRIME’):

Planning

Responsibility

Integration

Motivation

Evaluation

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Critical success factor analysis

Definition

Critical success factor (CSF) – the limited number of areas in which results, if they are satisfactory, will enable successful competitive performance

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Conflict occurs

Between financial and non-financial objectives Between profit maximisation and other goals Between the objectives of different stakeholders

Conflict solutions

Prioritisation Weighting and scoring Creation of composite measures Satisficing Sequential attention Side payments Exercise of power

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Competing objectives

Study tip

Identify your own specific examples of stakeholder conflict

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The value chain

Inbound logistics Operations Outbound logistics Marketing and sales Service Procurement Technology development Human resource management Firm infrastructure

PEST analysis

Political Economic Social Technological

SWOT analysis

Strengths Weaknesses Opportunities Threats

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Tools for strategic analysis

Study tip

You need to be able to draw the diagram, explain the model and apply the framework to organisations described in question scenarios

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