Strategic management (06)

Question 1

What is Strategic Management?

Answer 1

• Strategic management is the role of management when setting long-term goals and implementing cross-functional decisions that should enable a business to achieve these goals.
• It deals with decisions that determine and influence the long term direction of the entire business
• which have an impact on all functional departments

Question 2

What are the importance of strategic management?

Answer 2

• Assess the current position of the business relative to its market, competition, and external environment -> allows management to make appropriate and effective decisions based on existing state of the business
• Sets or modifies the mission, vision, and objectives of the business, if the business is new or undergoing a major change in direction.
• Integrates and coordinates the activities of the different functional areas
• Allocates resources to implement decisions
• Evaluates the overall performance and success of the business, and its progress the towards objectives

Question 3

Note: As strategic directions are cross-functional, all departments must work together to implement them successfully. All strategic decisions will require input from
finance, marketing, human resources and operations department.

Question 4

Note: Implementing strategic decisions are usually costly, and sufficient resources must be provided in a timely manner
for the strategy to be successful.

Question 5

Note: The outcome of the strategy should be measured against the original objectives set. The management could then draw key
learning from both successful and unsuccessful strategies.

Question 6

What is Competitive Advantage?

Answer 6

Competitive advantage is the superiority gained by the business when it can provide the same value good or service as competitors, but at a lower price; or provide a greater value than competitors for its good or service.

Question 7

Why would a business build competitive advantage?

Answer 7

-MARKETING: allows the business to be well recognised by customers

-RESOURCES: will be able to tap on resources of other business as other businesses will be keen to form partnerships e.g. strategic alliances for mutual benefits

-PRICING: business can be a price leader, especially if it offers the best good or service -> able to charge price premium

-NEW MARKET: business with competitive advantage and strong reputation can create demand in markets in markets it is currently not offering its good or service -> if business ventures into new market, CA can help attract new customers easily

Question 8

What creates greater value?

Answer 8

Advanced technology, patent-protected products or processes, better customer service, and strong brand equity are elements which contribute to greater value. -> contribute to high profitability
and large market share.

Question 8

What are the ways to obtain comparative advantage?

Answer 8

-Creating greater value
-Provide equivalent value at lower price

Question 9

How does a business provide goods and services at a value equivalent to competitors at lower price?

Answer 9

Economies of scale and efficient processes help business to produce a good or service at lower cost

Question 10

What is sustainable competitive advantage?

Answer 10

refers to a business outperforming competitors or the industry average over a prolonged period of time

Question 11

What are the ways to sustain competitive advantage?

Answer 11

-FOCUS ON TANGIBLES: focusing on intangibles such as customer loyalty, relationship with suppliers, and efficient processes. Competitors will find it difficult to win over loyal customers, while an excellent relationship with suppliers will ensure that the business will be prioritised

-DIFFICULT TO COPY:
-BUILD STRONG BRANDING: No business can replicate another’s unique branding, especially the favourable associations to
the brand and products.

-PROVIDE ENDURING VALUE: e.g. technological companies must
develop competitive advantages beyond one product, and must be aware of the changes in the external environment that affect tastes and preferences. i.e. movie rental giant Blockbuster failed to adjust to consumers’ changing preference to online streaming, and its reputation and other advantages eventually lost value in the market.

Question 12

SUMMARY

Answer 12

1. Strategic management allows a business to manage its activities and attain long-term competitive advantage.
2. Strategic management sets the long-term direction of the business, and allows for deliberate logical decision-making that emphasises on differentiation and competition.
3. Competitive advantage is the superior performance of a business relative to its direct competitors or the industry average.
4. The benefits of competitive advantage are profitability and market share.
5. To obtain a competitive advantage, a business must either create more value for customers while keeping its costs comparable to competitors, or provide goods and services at a value equivalent to competitors at a lower costs.
6. Sustainable competitive advantage refers to a business outperforming
   competitors or the industry average over a prolonged period of time.
7. A business can sustain competitive advantage by focussing on intangibles, making their products difficult to copy, build strong branding or provide enduring value.