Chapter 1:The Nature of Strategic Management

Question 1

What is the essence of strategy?

Answer 1

The long-term direction and scope of the organisation which achieves competitive advantage and generates value through appropriate allocation of resources in an ever-changing competitive environment
* Requires large amount of resources
* Affects entire organisation
* Influenced by stakeholder expectations
* Directed by company vision

Question 2

What are the 5 Ps of strategy

Answer 2

5 Ps describe the nature of strategy:
Strategy as a:
* Plan- a formal, logical top-down process (Linking internal resources and dynamic capabilities to external opportunities)
* Position- concerns which products to sell in which markets (focus is on outside-in/external market perspective)
* Perspective- concerns the collective experiences of past strategies and employees and how this influences future strategies (How does management interpret internal resources & capabilities) (Focus on inside-out perspective)
* Ploy- a specific manouver/action to outwit a competitor
* Pattern- consistent behaviour over time, such as low-cost strategy.

Question 3

What are the different types of strategies?

Answer 3

• Intended strategies: strategies that were formally planned to be pursued
• Deliberate strategies: Intended, planned strategies that are fully realised
• Unrealised strategies: Those that are not realised due to unpredicted change
• Emergent strategies: pattern of decisions followed due to learning/adaptation to unexpected changes in the environment

Question 4

What are the 3 levels of strategy?

Answer 4

• Corporate level- concerned with the overall scope and direction of the business( How will value be added at all levels of the organisation?)
• Business Level- Concerned with how the market position and competitive advantage can be strengthened in each business unit (Strategic link between internal capabilities & external relationships is important)
• Functional Level- concerned with implementing/promoting business level/corporate strategies within each functional department (Synergy between functions is NB)

Question 5

What is Strategic Management?

Answer 5

Concerned with the choice and effectiveness of a company direction in a dynamic, complex environment.
* Concerns not only planning long-term goals/directions, but also determines how the organisational structure & culture will be built to ensure those goals are achieved
* Essentially 2 functions: Strategic planning and then strategy implementation

Question 6

What is the inside-out perspective on strategic management?

Answer 6

Looking first at the internal capacity of the firm before looking for an appropriate industry to target.
* Step 1: Identify available resources
* Step 2: Identify distinctive capabilities
* Step 3: Select competitive advantage based on resources and capabilities
* Step 4: Formulate strategy- select strategy that best allows business to use its resources/capabilities on an external market opportunitiy
* Step 5: superior returns

Question 7

What is the outside-in perspective on strategic management?

Answer 7

First considering the external environment, and thereafter acquiring necessary resources/capabilities to implement strategy that fits external environment opportunities
* Step 1: Evaluate external market environment opportunities
* Step 2: Select appropriate industry
* Step 3: Develop strategy to create above-average returns in chosen industry
* Step 4:Link strategy to internal environment by acquiring appropriate resources and capabilities to execute strategy
* Step 5: Implement the strategy
* Step 6: Above average returns

Question 8

How do you test for a winning strategy?

Answer 8

• Good fit test: how well does the strategy fit the organisation’s situation? (there must be strong strategic link between internal and external environment)
• Competitive advantage test-Is strategy helping achieve a competitive advantage? (Larger=better)
• Performance test- Is strategy resulting in strong performance (Financial & non-financial) by adding value?
• Social impact test- Is strategy contributing to expectations of stakeholders by generating value for all capitals?
• Environmental system test- is strategy contributing towards protection & sustainability of natural environment?