all rights reserved ch. 2: 1 strategic management © oxford fajar sdn. bhd. (008974-t) 2010 chapter...

All Rights Reserved

Ch. 2: 1

Strategic Management© Oxford Fajar Sdn. Bhd. (008974-T) 2010

Chapter 2

Elements of Strategic Management

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LEARNING OBJECTIVES

After reading this chapter, you should be able to: Define the key terms in strategic management:

competitive advantage, resources, capabilities, vision and mission statements, objectives, strategies, strategists, stakeholders, opportunities and threats, and strengths and weaknesses.

Discuss different perspectives on competitive advantage.

Identify different types of organizational resources.

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Explain what makes organizational resources unique.

Identify the components of a mission statement.

Identify the characteristics of an objective.

Identify and discuss components and levels of strategies.

Explain different stakeholders of an organization.

LEARNING OBJECTIVES (cont.)

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ELEMENTS OF STRATEGIC MANAGEMENT

Some of the important elements of strategic management are: 1. Competitive advantage

2. Sustained competitive advantage

3. Resource- based view

4. Industrial/organizational view

5. Resources and capabilities

6. Relationship between resources, capabilities, competitive advantage and strategy

7. Vision and mission statements

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ELEMENTS OF STRATEGIC MANAGEMENT (cont.)

8. Objectives

9. Strategy

10. Strategist

11. Stakeholders

12. Opportunities and threats

13. Strengths and weaknesses

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1. Competitive Advantage

Firms strive to achieve a position that will enable them to outperform its competitors and earn higher revenue.– E.g. DIGI, MAXIS, CELCOM, smart phones

companies, Ipad. Competitive Advantage refers to anything that a

firm does exceptionally well compared to its competitors

Can include superior customer service, innovative products, strong distribution channels or low pricing– Something Unique that the firms offers.

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2. Sustained Competitive Advantage

Sustained competitive advantage comes from maintaining higher profits than competitors over long periods of time.

It is usually difficult for a company to develop a sustained competitive advantage because of the rapid changes in the environment.

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RBV vs I/O view

Views that enable the firms to achieve its competitive advantage

Resource-based view Industrial/Organizational view

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3. Resource-based View

Takes the view that a firm’s internal resources are more important than external factors for the firm to achieve and sustain its competitive advantage

Internal resources:– Skills, financial resources, HR and physical

resources. Firms with superior resources and capabilities tend

to enjoy greater competitive advantage over other firms.

When firm is able to develop its competencies successfully from the resources it possesses – competitive advantage achieved.

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3. Resource-based View

When firm is able to develop its competencies successfully from the resources it possesses – competitive advantage achieved.

Competencies– Competence– Core competence– Distinctive competence

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4. Industrial/Organizational (I/O) View

Takes the opposing view from the resource-based view theorists

I/O view contends that external factors are more important than internal factors in a firm achieving competitive advantage.

Able to avoid weak or faltering industries and having full understanding of key external factors, their relationships within that attractive industry would be in more competitive advantageous position.

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5. Resources and Capabilities

Resources refer to the inputs such as equipment, human resources, processes, patents or finances used by a firm to create its products or services.

Resources come from three categories:– Tangible resources: the assets such as production

equipment, manufacturing or sales facilities, raw materials and financial capital

– Intangible resources: the firm’s reputation, patents, organization’s culture, knowledge, technological know-how and copyrights

– Human resources: the skills, knowledge, abilities, intelligence, experiences and competencies of the organization’s employees

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5. Resources and Capabilities (cont.)

ValuableDoes the resource create value for the firm in delivering the firm’s products or services?

RareIs this resource rare or do current or potential competitor’s possess this resource? In order to be a source of competitive advantage, a resource should be both valuable and rare.

Hard to imitate and substituteIs this resource difficult to imitate? Can my current and potential competitors develop a substitute for this resource? Is this resource costly to imitate?

Organized to exploitDoes my firm have the necessary systems, policies, procedures and processes to take full advantage of this resource in order to develop it into a competitive advantage?

Characteristics of resources as a source of competitive advantage

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Capabilities refer to the firm’s capacity to transform its resources into outputs valued by the firm’s customers and which can generate profits for the firm.

5. Resources and Capabilities (cont.)

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6. Relationship between Resources, Capabilities, Competitive Advantage and Strategy

Resources Competitive Advantage

Strategy

Shapes

OrganizationalCapabilities

Builds

Transforms

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7. Vision and Mission Statements

Vision and mission statements can often be found in the firm’s annual report. They are often placed in the front or beginning of the annual report.

Most of the time they are displayed throughout a firm’s premises and are distributed with the company information sent to constituencies.

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7. Vision and Mission Statements (cont.)

Vision Statement Vision statement is a statement about what the

organization wants to become – its guide, shapes and give direction to the company. A powerful motivator

A vision must be aligned with the core values of both the individuals and the firm, and be effectively communicated to and accepted by everyone involved in the firm.

Developing a vision statement is the first step in the strategic planning process.

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A vision statement ranges in length from a couple of words to several pages.

A short vision statement is recommended because the employees will find it easy to remember a short organizational vision and capture the firm’s aspirations and strategic direction.

In addition, a vision statement has to be simple, understandable and shared by everyone in the organization. It must be sufficiently clear and concise that everyone in the organization understands it.

Often used to describe the strategist’s plan for closing the gap between current reality and a potential future.


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Mission Statement Mission statement is a statement which deals with

questions such as ‘What is our business?’, ‘Why are we here?’ and ‘Why do we exist?’

It differs from vision statement as it refers not to the future, but to the present.

A mission is concerned with the way an organization is managed today, with its purpose or reason for being, and also the purpose or reason for the organization’s existence.

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The mission statement also defines the long-term vision of the organization in terms of what it wants to be and whom it wants to serve.

A firm’s mission statement should be clear and concise in order to distinguish it from any other firm.

It also has to be backed up with specific objectives and strategies.


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Components of Mission Statement

Mission statements can vary in length, content, format and specificity

In general, an effective mission statement exhibits nine components as follows:


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1. Customers: Who are the firm’s customer?

2. Products or services: What are the firm’s major products or services?

3. Markets: Geographically, where does the firm compete?

4. Technology: Is the firm using the latest technology?

5. Concern for survival, growth and profitability: Is the firm committed to growth and financial soundness?


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6. Philosophy: What are the basic beliefs, values, aspirations and ethical priorities of the firm?

7. Self-concept: What is the firm’s distinctive competence or major competitive advantage?

8. Concern for public image: Is the firm responsive to social, community and environmental concerns?

9. Concern for employees: Are employees a valuable asset to the firm?

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8. Objectives

An objective is a desired or specific result of a planned activity that should be achieved by a specific time.

The term goal is often used interchangeably with the term objective. Some companies and writers use the word goal in the same sense that the word objective is used.

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Types

Objectives may be short, medium or long term.

Although there is no precise dividing point among the three classes of objectives, many would agree that one year or less refers to short-term objectives whereas five years or more refers to a long-term objective.

8. Objectives (cont.)

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An objective should be measurable in order for the company to monitor its progress and make corrections as needed.

Some of the characteristics of a good objective are:

Specific, Measurable, Attainable/achievable,

Realistic and Time-phased (SMART).

8. Objectives (cont.)

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9. Strategy

A strategy of an organization forms a comprehensive master plan that states how the corporation will achieve its mission and objectives.

It maximizes competitive advantage and minimizes competitive disadvantage.

It is concerned with integrating company activities and allocating resources so that the present objective can be met.

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9. Strategy

When planning strategies, decisions are not taken in a vacuum, but that any action taken in a business firm is likely to be met by a reaction from those affected:

Competitors, Customers, labour force or suppliers.

It is critical, the effects in such reactions should be evaluated before taking decision.

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9. Strategy (cont.)

Levels of Strategies The typical business firm usually considers three levels of

strategy: corporate, business and functional

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A. Corporate Level Strategies

Corporate level strategies are meant to be considered for the overall movement of the organization and the decisions have to be made at the top corporate level with the inputs and participation from the various divisions.

E.g. UNITEN as the University

It typically fits within the three main categories of stability, growth and retrenchment.

9. Strategy (cont.)

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B. Business Level Strategies

Business level strategies usually occur at the business unit or product level. They emphasize on the improvement of the competitive position of a corporation’s products or services in the specific industry or market segment served by that business unit.

E.g. CoIT as the business unit

The business strategies are grouped into three generic strategies: cost leadership, differentiation and focus.

9. Strategy (cont.)

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C. Functional Level Strategies

Functional strategies (also known as departmental level strategies) are the actions to be considered at the various functional or operational levels of the organization.

E.g. IS department, admin department, Technician dept.

The strategic issues at the functional level actually are related to business processes and the value chain.

9. Strategy (cont.)

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C. Functional Level Strategies

The organization have to look at its management, marketing, financial and operation divisions to assist in realizing the overall corporate level strategy that has been decided.

9. Strategy (cont.)

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10. Strategist (reading)

The strategist is a skilful person in designing and planning action and policy to achieve a major or overall aim.

They are also the individuals who are most responsible for the success or failure of an organization.

The strategists have various job titles such as chief executive officer (CEO), president, owner of the firm, chair of the board, executive director, chancellor, dean or entrepreneur.

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10. Strategist (cont.)

A strategist helps an organization to gather, analyse and organise information.

He or she tracks industry and competitive trends, develop forecasting models and scenario analyses, evaluate corporate and divisional performance, spot emerging market opportunities, identify business threats, etc.

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11. Stakeholders (reading)

Stakeholders refer to individuals or groups who can affect or is affected by the organization’s actions, decisions, policies or practices.

Groups Primary stakeholders Secondary stakeholders

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11. Stakeholders (cont.)

Source: Steiner, G.A. and Steiner, J.F. (2006), Business, Government and Society: A Managerial Perspective, Text and Cases, New York: McGraw-Hill/Irwin, p. 17.

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12. Opportunities and Threats

External environment forces such as political, legal, economic, social, technological and the competitive environment can harm or benefit the organization.

Opportunities and threats refer to factors beyond the control of a firm and hence are largely external.

Opportunities refer to external environmental factors such as political, legal, economic, social or technological factors that can help the organization in achieving its objectives.

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13. Strengths and Weaknesses

Strengths and weaknesses are the two internal, controllable activities/variables performed especially well or poorly in an organization.

A strength is defined as anything internal to the company that may lead to an advantage relative to competitors and a benefit relative to customers.

In general, strengths and weaknesses are typically located in functional areas of the firm such as management, marketing, finance and accounting, production/operation, research and development (R&D), and computer information system (CIS).

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Strengths refer to the competitive advantages and other distinctive competencies that a company can exert in the marketplace. Conversely, weakness is defined as anything internal that may lead to a disadvantage relative to competitors and customers.

Therefore, a firm should play on its strengths while improving on its weaknesses, presupposing that a firm knows its current position.

13. Strengths and Weaknesses (cont.)

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