PART 1 - STRATEGIC ANALYSIS. Chapter 1 - Strategic Management: Creating Competitive Advantages

Intended versus Realised Strategies

Intended Strategy - strategy in which organisational decisions are determined only by analysis. Realised Strategy - strategy in which organisational decisions are determined by both analysis and unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences.

Chapter Overview

LO1.1 The definition of strategic management and its four key attributes. LO1.2 The strategic management process and its three interrelated and principal activities. LO1.3 The vital role of corporate governance and stakeholder management, as well as how "symbiosis" can be achieved among an organisation's stakeholders. LO1.4 The importance of social responsibility, including environmental sustainability, and how it can enhance a corporation's innovation strategy. LO1.5 The need for greater empowerment throughout the organisation. LO1.6 How an awareness of a hierarchy of strategic goals can help an organisation achieve coherence in its strategic direction.

Social Responsibility and Environmental Sustainability: Moving Beyond the Immediate Stakeholders

Social responsibility - the expectation that businesses or individuals will strive to improve the overall welfare of society. Triple Bottom Line - assessment of a firm's financial, social, and environmental performance.

ENSURING COHERENCE IN STRATEGIC DIRECTION

Hierarchy of Goals - organisational goals ranging from, at the top, those that are less specific yet able to evoke powerful and compelling mental images, to, at the bottom, those that are more specific and measurable.

The Four Key Attributes of Strategic Management

1. Strategic management is directed toward overall organisational goals and objectives. 2. Strategic Management includes multiple stakeholders in decision making. Stakeholders - individuals, groups, and organizations who have a stake in the success of the organization, including owners (shareholders in a publicly held corporation), employees, customers, suppliers, and the community at large. 3. Strategic management requires incorporating both short-term and long-term perspectives 4. Strategic management involves the recognition of trade-offs between effectiveness and efficiency. Effectiveness - tailoring actions to the needs of an organisation rather than wasting effort, or "doing the right thing." Efficiency - performing actions at a low cost relative to a benchmark, or "doing things right." Ambidexterity - the challenge managers face of both aligning resources to take advantage of existing product markets as well as proactively exploring new opportunities.

Summary

1. We began this introductory chapter by defining strategic management and articulating some of its key attributes. Strategic management is defined as "consisting of the analyses, decisions, and actions an organisation undertakes to create and sustain competitive advantages." The issue of how and why some firms outperform others in the marketplace is central to the study of strategic management. Strategic management has four key attributes: It is directed at overall organisational goals, includes multiple stakeholders, incorporates both short-term and long-term perspectives, and incorporates trade-offs between efficiency and effectiveness. 2. The second section discussed the strategic management process. Here, we paralleled the above definition of strategic management and focused on three core activities in the strategic management process—strategy analysis, strategy formulation, and strategy implementation. We noted how each of these activities is highly interrelated to and interdependent on the others. We also discussed how each of the 12 chapters in this text fits into the three core activities. 3. Next, we introduced two important concepts—corporate governance and stakeholder management—which must be taken into account throughout the strategic management process. Governance mechanisms can be broadly divided into two groups: internal and external. Internal governance mechanisms include shareholders (owners), management (led by the chief executive officer), and the board of directors. External control is exercised by auditors, banks, analysts, and an active business press as well as the threat of takeovers. We identified five key stakeholders in all organisations: owners, customers, suppliers, employees, and society at large. Successful firms go beyond an overriding focus on satisfying solely the interests of owners. Rather, they recognise the inherent conflicts that arise among the demands of the various stakeholders as well as the need to endeavour to attain "symbiosis"—that is, interdependence and mutual benefit—among the various stakeholder groups. Managers must also recognise the need to act in a socially responsible manner which, if done effectively, can enhance a firm's innovativeness. The "shared value" approach represents an innovative perspective on creating value for the firm and society at the same time. The managers also should recognise and incorporate issues related to environmental sustainability in their strategic actions. 4. In the fourth section, we discussed factors that have accelerated the rate of unpredictable change that managers face today. Such factors, and the combination of them, have increased the need for managers and employees throughout the organisation to have a strategic management perspective and to become more empowered. 5. The final section addressed the need for consistency among a firm's vision, mission, and strategic objectives. Collectively, they form an organisation's hierarchy of goals. Visions should evoke powerful and compelling mental images. However, they are not very specific. Strategic objectives, on the other hand, are much more specific and are vital to ensuring that the organisation is striving toward fulfilling its vision and mission.

THE ROLE OF CORPORATE GOVERNANCE AND STAKEHOLDER MANAGEMENT

Corporate Governance - The relationship among various participants in determining the direction and performance of corporations. The primary participants are (1) the shareholders, (2) the management (led by the chief executive officer), and (3) the board of directors.

Mission Statements

Mission Statement - a set of organisational goals that include both the purpose of the organisation, its scope of operations, and the basis of its competitive advantage.

Alternative Perspectives of Stakeholder Management

Stakeholder Management - a firm's strategy for recognising and responding to the interests of all its salient stakeholders.

Defining Strategic Management

Strategic Management - the analyses, decisions, and actions an organisation undertakes in order to create and sustain competitive advantages. Strategic management is concerned with the analysis of strategic goals (vision, mission, and strategic objectives) along with the analysis of the internal and external environment of the organisation. Next, leaders must make strategic decisions. These decisions, broadly speaking, address two basic questions: What industries should we compete in? How should we compete in those industries? These questions also often involve an organisation's domestic and international operations. And last are the actions that must be taken. Strategy - The ideas, decisions, and actions that enable a firm to succeed. 14 Thus, managers need to determine how a firm is to compete so that it can obtain advantages that are sustainable over a lengthy period of time. That means focusing on two fundamental questions: • How should we compete in order to create competitive advantages in the marketplace? Managers need to determine if the firm should position itself as the low-cost producer or develop products and services that are unique and will enable the firm to charge premium prices. Or should they do some combination of both? • How can we create competitive advantages in the marketplace that are unique, valuable, and difficult for rivals to copy or substitute? That is, managers need to make such advantages sustainable, instead of temporary. Competitive Advantage - A firm's resources and capabilities that enable it to overcome the competitive forces in its industry(ies). Operational Effectiveness - means performing similar activities better than rivals.

THE STRATEGIC MANAGEMENT PROCESS

Strategic Management Process - strategy analysis, strategy formulation, and strategy implementation.

Strategic Objectives

Strategic Objectives - A set of organisational goals that are used to operationalize the mission statement and that are specific and cover a well-defined time frame.

Strategy Analysis

Strategy Analysis - study of firms' external and internal environments, and their fit with organisational vision and goals.

Strategy Formulation

Strategy Formulation - decisions made by firms regarding investments, commitments, and other aspects of operations that create and sustain competitive advantage.

Strategy Implementation

Strategy Implementation - actions made by firms that carry out the formulated strategy, including strategic controls, organisational design, and leadership.

Organisational Vision

Vision - organisational goal(s) that evoke(s) powerful and compelling mental images.