Strategic management process refers to a process that incorporates critical decisions, commitments and actions aimed at ensuring that a firm achieves strategic competitiveness and earns above-average-returns. This process begins with strategic inputs, strategic actions and then strategic outcomes. The strategic inputs include the external environment and the internal organization. The two are analyzed strategically to determine the core competencies, capabilities and resources available, which are generally termed as sources of strategic inputs. Analysis of the sources of strategic inputs helps a business to develop its vision and mission. This information also becomes paramount in the formulation of a business’s strategies. According to Hitt, Ireland and Hoskisson the business strategies may be referred to as the objectives of the organization, and they must be SMART (“Specific, Measurable, Achievable, Realistic, and Time-bound”).
The second step in the strategic management process involves strategy formulation and implementation. A business cannot operate in the competitive global economy without effective and realistic strategies. Strategies are formulated at a business-level whereby a business considers its internal organization. The business then opens itself to the competitors through a rivalry where they now formulate strategies at the corporate level. This is where a business will engage in the market research, competitor’s analysis and other activities in the external environment.
Depending on the business, strategies may also be made at the international level. For instance, companies such as McDonald’s operating in the global economy will need to do strategy formulation at the international level (Hitt, Ireland and Hoskisson, 2010).The strategies formulated are usually aimed at making a business competitive by having competitive edges. The strategies are, however, flexible considering the rollercoaster economy and the other changes that may occur within the firm. After the strategies are formulated, they have to be implemented. A business is expected to develop or acquire the right assets and skills, before implementing the strategies. This is what will be termed as the strength of the business. In strategy implementation, there are some tactics that have to be emphasized. One of this is consideration of the organizational structure and controls (Hitt, Ireland and Hoskisson, 2010). This means engaging in what the business can afford or what will not create adverse risks. Strategic leadership also becomes crucial such that there are strategic managers and their subjects at the grassroots.
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When strategic inputs are well analyzed, and the right information about the firm got the formulation of strategies and their implementation done to the latter, then the firm looks at the outcomes. This is also termed as the feedback since it is used again in the strategic management process to enhance competitiveness. The strategic management process becomes reliable when strategic competitiveness is achieved, and the returns are above average. It is usually a risk to take activity, however, when a firm is focused and has the right personnel there is a significant possibility of achieving favorable outcomes.
Compare and Contrast the Analysis that a Company undertakes to analyze its Internal Versus External Environments
When analyzing the internal and external environments, there are different things that are considered and involved. The two environments are all under general, industry and competitive environments.
The external environment is closely related to the general environment. This involves establishing business opportunities and threats. An opportunity is a condition in the external environment that can be exploited to enhance strategic competitiveness of a business. On the other hand, threats are the conditions that may hinder a business from achieving strategic competitiveness. Analysis of the external environment will also involve looking at the competitors and their strategies (Hitt, Ireland and Hoskisson, 2010). This becomes crucial in the formulating of a firm’s strategies as they will develop far much better strategies. The external environment will also look at the industry at large. This analyzes the competition in the particular industry and analyzes the ways how to emerge as a winner. Analysis of the external environment involves the use of four main strategies processes that include scanning, monitoring, forecasting, and assessing.
Internal environment on the other hand involves analyzing the structure of the organization, its operations, production and all the activities done within the organization. This involves analyzing resources, capabilities and the core competencies of a firm. This usually acts as the foundation of competitive advantages. Analysis of the resources is usually aimed at analyzing how they can be bundled in order to create value. Resources are either tangible or intangible whereby the tangible resources are quantifiable, and the intangible are not quantifiable (Hitt, Ireland and Hoskisson, 2010). Tangible resources are further divided into financial, organizational, physical and technological resources. The intangible resources are also divided into human, innovation and reputational resources. The capabilities are the businesses strengths which are in turn a source of a firm’s core competencies. Analysis of the capabilities and core competencies helps in the development of the competitive advantages. Therefore, analysis of the external and internal environments is aimed at the developing competitive advantages.
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Your boss informs you that your company has just been acquired. He states that the acquiring company is going to completely relook at your company’s business-level-strategy. Your boss is unsure what that means but knows that you have just learned all about such strategies in class. How can you help your boss?
I can help my boss by explaining what is meant by a business level strategy. These are the strategies set at the business level aimed at providing value to the customers and gaining competitive advantages. This is normally done by exploiting the core competencies. This strategy is particularly concerned about the position of the firm in the industry relative to the competitors. This involves the five forces model analysis. A business level strategy must identify the need of the customers and the crucial role they play towards the success of a business. This is the plan that a firm has for its customers different from that of competitors in the industry. The strategy defines who the customers to be served are in the business (Hitt, Ireland and Hoskisson, 2010). This makes considerations of factors such as personality traits, tastes and values, demographic, geographic, consumption behaviors, industry characteristics and the size of the organization. A business has to show that it understands its customers. A business level strategy must also identify what goods or services are required by the potential consumers. This becomes crucial in satisfying their needs as it will make the business competitive. Then there is a need to consider how to satisfy the customer needs that have been identified. This means working out resources, capabilities and core competencies to satisfy the customer needs (Hitt, Ireland and Hoskisson, 2010).
I would also answer by explaining the available business level strategies. There are four main generic strategies that are used to establish a competitive edge by firms. One of these strategies is cost leadership. With the current economic conditions, consumers are exceptionally price sensitive. Prices are set to ensure that above average returns are maintained, and customers are friendly with prices in order to make purchases. When setting prices, a firm must consider the price of its competitors and ensure that its products or services are accepted by the consumers. Considering the five forces model, cost leadership is a strategy that can work out effectively in remaining profitable (Hitt, Ireland and Hoskisson, 2010). A cost advantage is usually established by determining and controlling cost together with the reconfiguration of the value chain as needed. In cost leadership, there are some risks such as technology, tunnel vision and imitation.
Differentiation is another business level strategy whereby a business offers its consumers unique products and services rather than the low prices. This is done through the innovation, advancement in technology, image management, high quality and high customer service. There are risks that are, however, associated with the use of this strategy including uniqueness, loss of value and imitation (Hitt, Ireland and Hoskisson, 2010).
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Focused differentiation is another business level strategy whereby businesses do not only compete on differentiation grounds, but also select a small segment of the market. This helps to serve customers well especially those with special needs. The risks in this are that the business may be focused by the competitors and the segment may also get the interest of the bigger firms.
The last business level strategy that I would explain to my boss is focused low cost. This is a strategy whereby they do not compete on the price, but also by select a small segment of the wider market (Hitt, Ireland and Hoskisson, 2010).
After all it I would explain the reasons for selecting a business level strategy. This is crucial because, at the end of the day, the success of the business will be determined by the customers. The strategy, therefore, helps to ensure that opportunities are exploited fully and threats eliminated in business planning. This also helps in developing competitive advantages to ensure that a business is unique from its competitors. One will also understand the capabilities of a business by analyzing its business level strategies rather than looking for the wider organization.
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Your company president informs you that she has just read an article in the Harvard Business Review that mentions the “Five Forces Model of Competition”. She is unfamiliar with what that means and asks you for a “one-pager” that gives her the salient points about the model.
Five forces model is a model of competition used in the competitive analysis. This model may be used by an existing business or a business that needs to establish itself. It helps a business to understand the profitability ratios and potentials within that industry. There are five forces to be looked at:
Threat of new entrants: new entrants are usually a threat to existing competitors as they threaten to the market share. This happens as they bring additional production capacity especially in a case where the demand will remain constant. However, firms can set barriers to entry by having strong competitive advantages, having wide economies of scale, product differentiation, setting massive capital requirements and switching costs (Hitt, Ireland and Hoskisson, 2010).
Rivalry among competing firms: firms in the industry usually compete with one another. If the actions of a competitor challenge a firm, then this results to rivalry. Each firm usually seeks to differentiate its products and services and switch costs in order to win the interest of consumers.
Threat of substitute products: this happens in cases, where goods or services performing the same functions are produced outside the industry. For instance, plastic containers can substitute glass jars. This usually presents a strong threat to the industry (Hitt, Ireland and Hoskisson, 2010).
Bargaining power of buyers: this refers to a condition whereby customers are powerful in the industry. This happens when buyers get a large portion of an industry’s total output, and they are also in a position to switch to other cheaper products.
Bargaining power of suppliers: a supplier becomes powerful when the firm is not in a position to increase its pricing structure with increase in supply costs (Hitt, Ireland and Hoskisson, 2010). The suppliers become powerful when they are dominated by a few large companies and satisfactory substitute products are not available or are extremely expensive, and supplier’s goods are mandatory requirements.