Strategic Management
Here is your chance to stand at the executive forefront and create a plan that leads your company towards continued success. Strategic management is the process of discovering what direction an organization should take in order to reach its goals. The market is constantly changing, and any organization that is unable to adapt will inevitably cease to operate. The company as a whole should be evaluated so that decisions are made in the right context. Ultimately, strategic management is the art of decision making to design a blueprint that yields superior results and sustainable performance.
Strategy & Competitive Advantage
A company can outperform rivals only if it can establish a difference that it can preserve.-- Porter
Operational Effectiveness (OE) vs. Strategic Positioning (SP)
OE means performing activities better than rivals perform those same activities. This involves implementing practices that allow a firm to better utilize inputs, typically through increased efficiency. This concept is similar to Hamal and Prahalad’s competitive imitation.
SP means performing different activities from rivals or performing similar activities in a differentiated manner.
Competitive strategy is all about being different – deliberately choosing a different set of activities to deliver a unique value for customers. However, it does require making trade-offs.
Strategic positioning determines not only what activities to perform and how individual activities are configured, but also how those activities relate to one another.
Here, everything is a combination of activities. It is about ‘fit’ – which allows for the attainment of a competitive advantage and its preservation. (.9 x .9 x. .9 x …….)
The Seven S Model
You can easily apply this model today in your business without consulting a strategic analyst. This strategy teaches how everything is interconnected internally within the organization. It is important that a strategic plan must fit your organization. Let’s start by listing the Seven S’s:
The Value Chain to Integration and Expansion Strategies
Value chains are used to understand the business itself, and what value a company adds to its products. By creating a chain of events (A – B – C – D – E – F), the user will learn the most valuable part of the chain in producing a product.
Integration Strategy involves determining where in the chain are you operating, whether it be at the beginning or end. If you’re towards the end, you are forwardly integrated towards the consumer. Conversely, if you are more towards the beginning, you are backwardly integrated near the raw materials. Strategic analysts review industries’ value chains to identify current and future sources of competition. One strategic advantage is being able to secure inputs at lower costs; with a disadvantage of being exposed if a downturn happens.
Expansion Strategy focuses on bringing an existing product into a new market. To be successful, there must be enough money and management time to expand effectively into a new market.
Now that we have obtained elementary strategic knowledge for our organization, we need to put the ideas to use. One way to implement this in your organization is by using an industry analysis approach. The most common tool used is ‘Five Forces Theory of Industry Structure,’ created by Michael Porter of Harvard. Porter offers tools for investigating the five forces that determine the level of competition and, consequently, the level of profit in an industry. Overall, this is a way for companies to analyze their competitive challenges.
Porter’s Five Forces
Threat of Substitutes lies outside our industry. Quality and ease of use are determining factors of how price affects a consumer’s decisions.
Threat of New Entrants If an industry earns a return on capital in excess of its cost of capital, it will attract outsiders. When this happens, additional supply enters the market, however, demand does not expand at the same rate. This causes barriers to entry such as economies of scale, capital requirements, government regulation, switching cost, and expected retaliation.
Bargaining Power of Suppliers Powerful suppliers can dictate pricing, quality, and lead times. This means there exists a level of differentiation of what gets supplied and the resulting costs of changing suppliers. Also, this involves the ability to forward integrate, to substitute the supplier input, and number of suppliers to the industry.
Bargaining Power of Buyers Powerful buyers can impact quality, pricing, and lead times. This means that due to the ratio of buyers in the industry, ability to integrate backwards, informed buyers are more powerful, and buy in greater volumes. Also, we consider buying commodity products/services and the resulting switching costs.
Intensity of Rivalry Among Competitors causes bitter price wars as producers compete for orders from a shrinking group of customers. In turn, this causes competitors to adopt artificially low prices regardless of the impact on profits. They do this because they want to win the account at all cost.
***** These five forces are directly responsible for profit destruction. Managers are responsible for identifying the forces and developing viable, value-creating, long-term responses to this destruction.*****
6 Strategy Types
Cost Leadership achieves the lowest cost of production in an industry. With this strategy, a company can either reduce its prices or retain the increased profits to invest in research to develop new and better products. To sustain a cost leadership advantage, a company will need to produce more units than its competition.
Differentiation is making your product or service appear different in the mind of the consumer. With products, this means offering better design, reliability, service, and delivery. With services, companies can leverage employee courtesy, availability, expertise, and location.
Focus Here, a company concentrates on either a market area, a market segment, or a product. Knowing your customer and product category well is a strength of this strategy.
Competitive Signaling is used to prevent disastrous price wars. Its letting competitors know what’s on your mind and is a good strategic tool to be utilized across industries. Some common, legal signals are media discussions, announcing results, litigation, prior announcements, and price movements.
Portfolio Strategy is mainly used by big corporations to diversify themselves into other companies to shield from economic downturns. This strategy is used to find the best prospects you should be invested in. There are four major portfolio models:
Implementing any type of strategy takes time, and the time frame depends on multiple factors. Some factors can be easily controlled while others cannot. Strategy is a leadership decision and must continuously be reviewed to ensure that it reflects the changes in the business environment, the company, and its goals.
A company can outperform rivals only if it can establish a difference that it can preserve.-- Porter
Operational Effectiveness (OE) vs. Strategic Positioning (SP)
OE means performing activities better than rivals perform those same activities. This involves implementing practices that allow a firm to better utilize inputs, typically through increased efficiency. This concept is similar to Hamal and Prahalad’s competitive imitation.
SP means performing different activities from rivals or performing similar activities in a differentiated manner.
Competitive strategy is all about being different – deliberately choosing a different set of activities to deliver a unique value for customers. However, it does require making trade-offs.
Strategic positioning determines not only what activities to perform and how individual activities are configured, but also how those activities relate to one another.
Here, everything is a combination of activities. It is about ‘fit’ – which allows for the attainment of a competitive advantage and its preservation. (.9 x .9 x. .9 x …….)
The Seven S Model
You can easily apply this model today in your business without consulting a strategic analyst. This strategy teaches how everything is interconnected internally within the organization. It is important that a strategic plan must fit your organization. Let’s start by listing the Seven S’s:
- Structure
- Systems
- Skills
- Style
- Staff
- Superordinate Goals / Shared Values
- Strategy
The Value Chain to Integration and Expansion Strategies
Value chains are used to understand the business itself, and what value a company adds to its products. By creating a chain of events (A – B – C – D – E – F), the user will learn the most valuable part of the chain in producing a product.
Integration Strategy involves determining where in the chain are you operating, whether it be at the beginning or end. If you’re towards the end, you are forwardly integrated towards the consumer. Conversely, if you are more towards the beginning, you are backwardly integrated near the raw materials. Strategic analysts review industries’ value chains to identify current and future sources of competition. One strategic advantage is being able to secure inputs at lower costs; with a disadvantage of being exposed if a downturn happens.
Expansion Strategy focuses on bringing an existing product into a new market. To be successful, there must be enough money and management time to expand effectively into a new market.
Now that we have obtained elementary strategic knowledge for our organization, we need to put the ideas to use. One way to implement this in your organization is by using an industry analysis approach. The most common tool used is ‘Five Forces Theory of Industry Structure,’ created by Michael Porter of Harvard. Porter offers tools for investigating the five forces that determine the level of competition and, consequently, the level of profit in an industry. Overall, this is a way for companies to analyze their competitive challenges.
Porter’s Five Forces
Threat of Substitutes lies outside our industry. Quality and ease of use are determining factors of how price affects a consumer’s decisions.
Threat of New Entrants If an industry earns a return on capital in excess of its cost of capital, it will attract outsiders. When this happens, additional supply enters the market, however, demand does not expand at the same rate. This causes barriers to entry such as economies of scale, capital requirements, government regulation, switching cost, and expected retaliation.
Bargaining Power of Suppliers Powerful suppliers can dictate pricing, quality, and lead times. This means there exists a level of differentiation of what gets supplied and the resulting costs of changing suppliers. Also, this involves the ability to forward integrate, to substitute the supplier input, and number of suppliers to the industry.
Bargaining Power of Buyers Powerful buyers can impact quality, pricing, and lead times. This means that due to the ratio of buyers in the industry, ability to integrate backwards, informed buyers are more powerful, and buy in greater volumes. Also, we consider buying commodity products/services and the resulting switching costs.
Intensity of Rivalry Among Competitors causes bitter price wars as producers compete for orders from a shrinking group of customers. In turn, this causes competitors to adopt artificially low prices regardless of the impact on profits. They do this because they want to win the account at all cost.
***** These five forces are directly responsible for profit destruction. Managers are responsible for identifying the forces and developing viable, value-creating, long-term responses to this destruction.*****
6 Strategy Types
Cost Leadership achieves the lowest cost of production in an industry. With this strategy, a company can either reduce its prices or retain the increased profits to invest in research to develop new and better products. To sustain a cost leadership advantage, a company will need to produce more units than its competition.
Differentiation is making your product or service appear different in the mind of the consumer. With products, this means offering better design, reliability, service, and delivery. With services, companies can leverage employee courtesy, availability, expertise, and location.
Focus Here, a company concentrates on either a market area, a market segment, or a product. Knowing your customer and product category well is a strength of this strategy.
Competitive Signaling is used to prevent disastrous price wars. Its letting competitors know what’s on your mind and is a good strategic tool to be utilized across industries. Some common, legal signals are media discussions, announcing results, litigation, prior announcements, and price movements.
Portfolio Strategy is mainly used by big corporations to diversify themselves into other companies to shield from economic downturns. This strategy is used to find the best prospects you should be invested in. There are four major portfolio models:
- Growth/Share Matrix
- Multifactor Analysis
- SBU System
- Customer Retention
Implementing any type of strategy takes time, and the time frame depends on multiple factors. Some factors can be easily controlled while others cannot. Strategy is a leadership decision and must continuously be reviewed to ensure that it reflects the changes in the business environment, the company, and its goals.
