STRATMA - Module 1.pdf

BM2212 BASIC CONCEPTS OF STRATEGIC MANAGEMENT (PART 1) Definition of Strategic Management The phrase “Strategic Management” is sometimes used as a synonym for “Strategy,” bu...

BM2212 BASIC CONCEPTS OF STRATEGIC MANAGEMENT (PART 1) Definition of Strategic Management The phrase “Strategic Management” is sometimes used as a synonym for “Strategy,” but the two terms are not the same. A strategy refers to a unique plan designed to achieve a competitive position in the market. It is also an interpretative plan that guides the organization to reach its goals and objectives. Whereas Strategic Management consists of analyses, decisions, and actions, an organization undertakes to create, implement, and sustain competitive advantages. In short, Strategic management is the process that defines the organization’s strategy. This definition of Strategic Management entails three (3) ongoing processes: 1. Analyses – Strategic Management is concerned with the analysis of strategic goals (mission, vision, and strategic objectives) along with the internal and external environments of the organization. 2. Decisions – Strategic decisions address two (2) basic questions: What industries should we compete in? And how should we compete in those industries? 3. Actions – Strategic actions require leaders to allocate necessary resources and to bring the intended strategies to reality. Key Attributes of Strategic Management The four (4) key attributes of Strategic Management: 1. Directs the organization toward overall goals and objectives. This perspective refers to how efforts must be directed at what is best for the total organization, not just a single functional area. That is, what might look “rational” or ideal for one functional area, such as operations, may not be in the best interest of the overall firm. Example: Operations may decide to schedule long production runs of similar products to lower unit costs. However, the standardized output may counter what the marketing department needs to appeal to a demanding target market. 2. Includes multiple stakeholders in decision-making. Stakeholders are those individuals, groups, and organizations interested in the organization's success, including owners, employees, customers, suppliers, the community at large, and so on. Example: If the overwhelming emphasis is on generating profits for the owners, employees may become isolated, customer service may suffer, and the suppliers may resent demands for pricing concessions. 3. Needs to incorporate short-term and long-term perspectives. Managers must maintain both a vision for the future of the organization and a focus on its present operating needs. Example: If a company has a three-to-five-year plan, this long-term plan should have sequences of short-term plans. Once the long-term goal is defined, management must define the short- term steps necessary to achieve it. 01 Handout 1 *Property of STI  [email protected] Page 1 of 5  BM2212 4. Recognizes trade-offs between efficiency and effectiveness. It is the difference between doing the right thing (effectiveness) and doing things right (efficiency). Example: Managers must make many trade-offs. In doing so, managers must allocate and use resources wisely (efficiency) but still direct their efforts toward attaining overall organizational objectives (effectiveness). The Study of Strategic Management Process The study of Strategic Management leads to the development of a strategic position that helps determine the organization's future sustainability and profitability, simultaneous with the integration of managerial capabilities, responsibilities, motivation, and reward system. Originally called business policy, strategic management has advanced substantially with the concentrated efforts of researchers and practitioners. Today, we recognize both a science and art in applying strategic management techniques. Figure 1. Phases in The Evolution of Strategic Planning Source: Evolution of Strategic Management 2021. p. 12 The following phases describe the evolution of strategic management: Phase 1: Basic financial planning. During this phase, organizations emphasize preparing and meeting annual budgets. Financial targets are established, revenues are measured, and costs are carefully monitored. Also, the organization's primary focus is short-term (1 year) and mostly on the functional aspects. Phase 2: Forecast-based planning. During this phase, organizations usually extend time frames covered by the budgeting process (3-5 years). Organizations tend to seek more accurate forecasts by considering past and present records and the short-term and long-term effects of its external 01 Handout 1 *Property of STI  [email protected] Page 2 of 5  BM2212 environment. Therefore, this phase has more effective resource allocation and timely decisions relating to organization’s long-term competitive position in the market. Phase 3: Externally oriented planning. During this phase, organizations attempt to understand basic marketplace phenomena. Organizations begin to search for new ways to define, meet, and satisfy customer’s needs and wants. The managers are tasked with generating several alternative strategies for top management. Lastly, the top management begins to evaluate the proposed alternative strategies in a formalized manner for planning and actions. Phase 4: Strategic management. During this phase, the top management organizes planning groups of managers and key employees from various departments and workgroups. They develop and integrate plans emphasizing the company’s true competitive advantages. Strategic plans at this point detail the implementation, evaluation, and control issues. Rather than attempting to forecast the future perfectly, the plans emphasize probable scenarios and contingency strategies. Planning is typically interactive across levels and is no longer strictly top-down. People at all levels are now involved in overall strategic thinking, comprehensive planning process, and supportive value system. Types of Strategies Strategic alternatives are developed to set direction in which human and material resources of business will be applied for a greater chance of achieving selected goals. It is also involved with the identification of the ways that an organization can undertake to achieve targets, weaken the competitors, gain competitive advantage, and ensure sustainability, The following are the different types of strategies: Corporate-level strategy. This strategy defines the markets and business in which a company will operate. It also entails a clearly defined, long-term vision that organizations set to create corporate value and motivate the workforce to implement proper actions to achieve customer satisfaction. It is a continuous process that requires constant effort to engage investors in trusting the company with their money, thereby increasing its equity. Organizations that manage to deliver customer value consistently are those that revisit their corporate strategy regularly to improve areas that may not deliver the aimed results. Business level strategy. This strategy emphasizes strengthening the company’s competitive position of products or services. Business strategies are composed of competitive and cooperative strategies. It covers all the activities and tactics for competing in contrast to the competitors and the management behaviors requiring strategic alignment and coordination. Business strategies focus on product development, innovation, integration, market development, and diversification, among others. Functional level strategy. This strategy is formulated to achieve some objectives of a business unit by maximizing resource productivity. Functional strategy is concerned with developing a distinctive competence to provide a business unit with a competitive advantage. Each business unit or company has its own set of departments, and every department has its functional strategy. Functional strategies are adapted to support the competitive strategy. For instance, a company 01 Handout 1 *Property of STI  [email protected] Page 3 of 5  BM2212 following a low-cost competitive strategy needs a production strategy that emphasizes on reduction cost operation and a human resource strategy that emphasizes retaining the lowest possible number of highly qualified employees for the organization. Operating level strategy. This strategy is usually created at the field level to achieve immediate objectives. An operating strategy is formulated in the operational units of an organization. In some companies, managers develop an operating strategy for each set of annual objectives in the departments or divisions. Part of strategizing is planning on how to navigate unchartered territories. Take for example, the global health crisis brought by Covid-19. Nobody predicted Covid-19 and how bad it will get. Companies must consider how the world is changing and move towards strategic thinking. It is about making quality decisions, learning from history, and using foresight on what will be needed by the company to gain a competitive advantage. Competitive Advantage Competitive advantage means superior performance relative to competitors in the same industry or superior performance relative to the industry average. It can also be defined as the factor that makes a business's goods or services superior to the available options in the market. The following are the determinants of competitive advantage: Benefit. It pertains to the value offered by a product or service to the market. Aside from the product features, companies must also identify the unspoken benefits of their product or service. This means constantly being aware of new trends that affect a product's or service's value. Example: Newspapers slowly adapt to the current technological trends because most news and information are already available via the Internet. Other newspaper companies may perceive that some people are still willing to pay for news delivered daily on a piece of paper. Target market. It pertains to a selected group of customers within a business' available market at which a business aims its marketing efforts and resources. Companies must be aware of their target market to innovate their products and services based on the particular needs of their customers. Example: Newspapers' target market is drifted towards older people who are not comfortable or capable of getting their news online. Competition. It pertains to the rivalry between companies that sell similar goods and services. Aside from the companies that sell similar products, a business must also identify its indirect competitors in the market. Example: Newspaper companies thought their competition was with other newspaper companies until they realized it was the advent of modernization because of the Internet. 01 Handout 1 *Property of STI  [email protected] Page 4 of 5  BM2212 Cost advantage. This pertains to the strategy of a company that involves producing a product or providing a service at a lower cost than its competitors. Companies with this advantage produce products in higher quantities and provide customer benefits. This is mainly influenced by multiple factors such as access to low-cost raw materials, efficient processes and technologies, low distribution and sales costs, and efficiently managed operations. Example: A global company that employs cost advantage is Unilever, which is influenced by its large operation and massive presence in the market. Differentiation strategy. This pertains to a company's strategy that involves marketing the qualities of a product that sets it apart from other similar products and uses that difference to drive consumer choice. Product differentiation makes consumers' attention focused on one or more key benefits of a brand that make it better than others. Example: A global company that employs a differentiation strategy is Apple, which creates its operating system (IOS) that distinguishes its product as superior apart from its competitors. References Amadeo, K. (2022). What is competitive advantage? https://www.thebalance.com/what-is-competitive- advantage-3-strategies-that-work-3305828 Bamford, C., Hoffman, A., Hunger, D., & Wheelen, T. (2018). Strategic management and business policy: Globalization, innovation and sustainability (15th ed.). United Kingdom: Pearson Education Limited. Bdc. (n.d.). Cost advantage. https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates- business-guides/glossary/pages/cost-advantage.aspx Dess, G., Eisner, A., Lee, S., McNamara, G. (2021) Strategic Management: Creating Competitive Advantages (10th ed.) New York. McGraw-Hill Education. Higher Study. (2022). Types of strategies in strategic management. http://higherstudy.org/types- strategies-strategic-management Management Study Guide. (n.d.). Strategy - definition and features. Retrieved on January 23, 2019, from https://www.managementstudyguide.com/strategy-definition.htm. My Accounting Course. (n.d.). What is corporate strategy. Retrieved on January 23, 2019, from https://www.myaccountingcourse.com/accounting-dictionary/corporate-strategy Witcher, B. (2020) Absolute Essentials of Strategic Management. New York. Taylor & Francis Group Ltd. 01 Handout 1 *Property of STI  [email protected] Page 5 of 5