Strategic management is a process of devising organizational strategies: decisions and actions, which ensure success of an organization. Strategic management covers all aspects of an organization that include planning, organizing, directing and controlling, staffing and leading. One of the biggest advantages of strategic management is that it has an impact on the performance of every division in an organization. Studies indicate that organizations, which incorporate strategic planning in their operations, are better prepared to handle difficulties and stand a better chance of succeeding than organizations, which operate in haphazard manner (Learning the Importance of Strategic Management to Help Streamline your Business, 2010).
Recently, the top management personnel of XYZ Ltd. made a strategic choice to help the company to achieve better competitive edge in the market. The strategic choice is to launch a website, which the company will use to market its products and services online. Over the years, XYZ Ltd. had been operating a website but it only provided more information concerning what the company does and its location. Due to the increased competition in the industry in which XYZ Ltd. operates, the management team decided to have a sales and marketing website, which will allow the company to market and sell its products to various customers over a large geographical area without having to establish physical branches in different geographical areas.
Based on the Porter’s Generic Strategies, this strategic choice can be categorized as the cost leadership strategy (Porter’s Generic Strategies, 2010). The cost leadership strategy entails offering goods and/ or services at lower prices than other producers of similar goods/ services do. By launching a sales and marketing website, XYZ Ltd. will be able to cover a wider market with a low budget. This is because the company will not incur expenses associated with operating physical branches in different location: depreciation costs of physical assets, cost of holding inventory and administrative costs of running a physical office. This will allow XYZ Ltd. to sell its products to its customers at relatively lower prices than its competitors do in the market.
In addition, the management team has decided that the company is going to introduce a new product line to market to the middle-income consumers. This decision was arrived at after realizing that many middle-income consumers were unable to make frequent and bulk purchases of the company’s products due to their high prices. The new product line will have a relatively low price and will be packaged in smaller quantities to enable the middle-income consumers to make bulk and frequent purchases for the product. The new product line will have the ability to satisfy the needs of the consumers in the same manner like the existing products. The company’s R&D team has ensured that the new product line incorporates the features of the existing products, but incurs less cost in its production process. Based on Porter’s Generic Strategies, this strategic choice can be categorized as differentiation strategy (Porter’s Generic Strategies, 2010). Differentiation features of the new product line include smaller quantity packages and unique packaging features. This strategic choice is also categorized as a focus strategy because it concentrates on a specific segment of consumers in the market: the middle-income consumers using both the cost and the differentiation advantages (Porter’s Generic Strategies, 2010).
One of the greatest strengths of XYZ Ltd. is the presence of highly qualified IT personnel. This has enabled the firm to easily deal with technological changes in the market. The strategic choice of online sales and marketing will help the company to capitalize on this strength. With its IT-savvy personnel, the company will undertake its e-marketing activities with much ease. Besides, this strategic choice will enable the company to expand its market share, given the rapid increase in demand for goods and services offered by the company in the market, thus capitalizing on one of its opportunities. Furthermore, the strategic choice of developing a new product line for the middle-income consumers will enable the company to minimize its weakness: production of varieties of commodities targeted specifically to the high-income earners. This strategic choice will also help the company to minimize the threat of reduction of the market share due to the entry of new competitors in the high-income consumers’ market segment.
This module has enabled me to understand more about internal and external factors, which affect operation of business entities. I have learnt that a business can utilize its internal strengths to take the advantage of opportunities present in the external environment in which it operates (Gareth & Jennifer, 2011). A business entity can also minimize its weaknesses and threats by capitalizing on its strengths and opportunities. Furthermore, I have learnt the importance of strategic planning in an organization and the various categories of strategies that an organization can apply to increase its attractiveness and profitability in the market where it operates.