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
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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
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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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