Strategic Management Flashcards
Strategy is born out of the need…
of companies to adapt to changes to survive and prosper in complex and changing environments, and they are fundamental for its success. Strategies create value for the organization and its stakeholders and gain a competitive advantage in the market.
Main stages on strategic management
- Strategic analysis
- Strategic formulation
- Strategic implementation
Concept strategy
Strategy is the means by which individuals or organizations achieve their objectives. The determination of the long-run goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals (Chandler, 1962).
Characteristics of strategic decisions (6)
· Complex nature: there are a lot of elements that need to be taken into account
· High uncertainty: the environment is unpredictable
· Affects all the decisions of the company
· Holistic approach: we need to take into account all the decision-making levels (to see the hole picture)
· Not easily reversible: they are expensive (commitment of resources) and big-scale decisions
· Tend to require changes in the organization
Levels of strategy and strategic decisions
· Corporate strategy
· Competitive strategy
· Functional strategies
Corporate strategy
Where to compete. They set the general orientation of the firm by defining the scope of the firm (which business are we going to operate, in which industry and where geographically). Definition of the mission, vision, the objectives and decisions on how to grow/develop in the future
Competitive strategy
How to compete. How to achieve and sustain a competitive advantage and also improve and exploit the resources and capabilities (R&C) of the firm.
Functional strategies
How to use and apply resources and capabilities within each functional area of the firm (marketing, HR, operations, accounting…)
Strategic Business Unit
Set of activities that are sufficiently self-contained to formulate a separate competitive strategy. In diversified companies, because competing in the pharmaceutical industry is different to competing in the marketing industry for instance. It is an independently managed division of a large organisation with its own vision, mission and objectives.
Strategic analysis
We first set the long-term goals, the mission of the company, this guides the rest. Then we have external analysis (outside the firm) we identify the threats and opportunities, and the internal analysis (strengths and weaknesses of the company) (SWOT MATRIX, combination of both internal and external). Is a process that involves researching an organization’s business environment analysis within which it operates, it is essential to formulate strategic planning for decision making and smooth working of that organization.
Strategic formulation
Design of strategic options. Corporate (where to compete) and competitive strategy (how to compete). The process of using available knowledge to document the intended direction of a business and the actionable steps to reach its goals. It allows the firm to plan its capital budgeting, and strategically allocate the capital funds where they will be most effective.
Strategic implementation
Evaluate and select strategies, evaluate them to see if they meet these criteria; suitability, feasibility, acceptability. Once we implement the one that meets those, adapt the organizational structure, company culture, planning and the functional strategies.
Strategic control
review of the strategic decision making process, keep track and verify whether the goals are being met.
Rationality in the decision-making decisions
The rational process presented is, in reality and “ideal process”, there are certain
limitations to these strict rationality, there are some not so rational aspects that also play a role. The rational process takes place under conditions of uncertainty, complexity and conflict.
Limitations of the rational process of strategic decision making: (4)
· Decision-maker’s bounded rationality: we cannot have complete information about all the potential outcomes/scenarios. Top managers might take decisions satisfying what they want but might not be the optimal one
· Learning in the process: we learn from experience, previous mistakes. That learning can be valuable.
· Political aspects of the process. Conflicts of interest considering the stakeholders and their goals in the organizations
· Chance: intuition, the need to take a choice given a rapid change in the environment
Strategic fit
refers to the necessary consistency between the context of the strategy and the strategy selected (needs to be appropriate to take advantage of the opportunities in the environment and the strength of the company while minimizing the threats and the weaknesses in order to achieve firm’s goals
Organizational fit
means that the strategy selected has to be consistent with the characteristics of the organization.
Mission
Statement of organization purpose, the overall purpose. It tends to be stable for cohesive reason, but interpreted in a dynamic way, since it could be reformulated if there are changes in the environment or it is consider non effective. Is a definition of the company’s business, who it serves, what it does, its objectives, and its approach to reaching those objectives
Reflects the identity and personality of the firm; why it exists.
What is the essence of the business and what do we want it to be?
3 variables of the mission
· Scope, the number of different economic activities a firm is engaged in.
· Resources and Capabilities (R&C), are the sources of competitive advantage and the primary source of profitability for any firm. It empowers a company to drive the business and face competition with their products & offerings for the need of costumers.
· Values, the culture of the company. What we want to defense
Vision
Future perceptions, how we see ourselves in a bigger picture. What we would like to see ourselves in the long-term.
It should be formulated in ambitious terms, and should include a profound idea of success (The ultimate goal of a firm)
Stable, we are considering the key concepts that guide the future of the the firm
We require the commitment of the everyone within the organization. AMBITIOUS but REALISTIC.
Strategic Objectives
Help overcome the gap between the future the firm pursues and its present reality
How will we become what we want to be ?
Measurable specific, consistent, successive, realistic, challenging, set within a time frame.
External analysis
Detect threats and opportunities from the environment. It refers to the analysis of the environment, the main objective is to identify threats and opportunities.
Environment
The environment refers to all factors outside the company that cannot be controlled, and that affect the results and success of its strategies
Levels of environment
· General environment, the social economic system in which the company operates, from the political, sociocultural, legal, ecological technological context (MACRO).
· Specific/competitive environment, refers to the industry in which a firm operates
Analysis of the general environment
Identify what factors from the socio-economic system affect firm’s operations and performance.
PESTLE analysis
To define the limits of the environment (geographics), if it is county level. It is used as a tool by companies to track the environment they’re operating in or are planning to launch a new project/product/service.
Identify the key variables to be considered within each critical dimension of the environment. We can consider the threats and the opportunities of the firm.
How it affects the change in the environment
Similar characteristics of the environment may have different effects in different industries.
The impact the general environment has varies also even among companies from the same industry
Not all the variables in the general environment have a significant impact on a specific firm/industry
Industrial districts
Group of similar firms and institutions, connected by the same economic activity, located in a specific geographic environment. Group of firms that share the same economic activity located in the same geographic era. Also known as a cluster.
In a cluster sometimes we can see coordination between competitors.
The location in an industrial district can improve firm competitiveness for the following reasons:
· Increase in productivity, due to a better access to resources to help them to be more productive. More resources, specialize employees.
· Innovation, know the trends.
· New start-ups develop, in the cluster there are more favorable conditions to get a venture.
Objective of the analysis of the specific environment
Examine industry attractiveness ( a factor that conditions the profitability of the firm). Whether the industry is attractive or not, if it is worth it to invest in it.
Steps of the analysis of the specific analysis
Who are our main competitors? We define the industry, Industry concept. Group of companies that offer products or services that are close substitutes for each other.
From a strategic P.O.V, what matters is to define the competitive environment of the firm -> it includes competitors, customers and suppliers.
Porter’s five forces model
· Intensity of rivarly among the established firms
· Threat of new entrants
· Threat of new substitute goods
· Bargaining Power of suppliers
· Bargaining Power of customers
Objectives of the internal analysis
To identify a firm’s strengths and weaknesses. That looks at basic
characteristics of the firms, such as the size, age, the scope of the firm… In order to have an overall idea, which provides basic information.
Value chain defenition
The value chain separates the activities of the firm into key operations necessary to sell a product or deliver a service.
Primary activities are related to selling. Whereas the support activities they will support the primary activities, and will help increase the effectiveness of primary activities.
Primary activities value chain
· Inbound logistics - Include the receiving, warehousing, and inventory control of a company’s raw material, it also covers all relationships with suppliers.
· Operations - Line of the production. The process of converting raw materials into a finished product or service.
· Outbound logistics - Distribution, once we have the final product to the consumers.
· Sales Marketing - Promotion, let the client know about the product. All types of strategies to enhance visibility and target appropriate customers.
· After-Sales services - Customer service and support.
Objective of the value chain
Identify sources of competitive advantage, that can come from:
· Specific activities of the value chain
· Interrelations of activities within the value chain (horizontal links)
· Interrelations between the value chain and the value system (vertical links)
Analysis of resources and capabilities
To identify the firm’s potential for obtaining competitive advantages through the identification and strategic evaluation of the resources and capabilities it has or to which it may have access.
VRIO anlaysis
Is an analytical technique brilliant for the evaluation of the company’s resources and thus the competitive advantage.
· Valuable
· Rareness
· Imitable
· Organization
SWOT analysis
Strengths, weaknesses, Opportunities and threats, analysis is a framework used to evaluate a company’s competitive position and to develop strategic planning. This technique assess the performance, competition, risk and potential of a business.
How to do a SWOT analysis
1- Determine Your Objective
The objective of a SWOT analysis may focus only on whether to perform a new product, with this analysis it could help the firm guidance on how to act and what should we do.
2. Gather resources
Data it is needed in order to analyze the SWOT.
3- Compile ideas
Create a listing of ideas in each category to know the weakness, the strengths, the opportunities and the threats of the firm
How to define a CA
any characteristic of a firm that puts it in a superior position to compete and achieve a higher level of profits than other firms in the industry. Not all characteristics imply a CA.
Any feature of the firm that distinguishes it from other rivals, placing the company in a relatively better position for competing and obtaining higher profitability.
Characteristics that are related to the key success factors in the industry(C.A)
_ Those characteristics have to be substantial (to make a difference in relation to others).
_ Has to be also sustainable (overtime).
- Everything at the end has not generated a higher level of profitability.
Competitive advantage
Any feature of the firm that distinguishes it from other rivals, placing the company in a relatively better position for competing and obtaining higher profitability. They are all the factors that allow a company to produce goods or services better or more cheaply than their rivals, this generates an entity of the product and could lead to more sales or superior margins.
Margin
Price - Cost. To increase it we can either increase prices or lower cost
Cost leadership
gain a competitive advantage by being the lowest-cost producer
Differntaition strategy
The company will charge a higher price for a product. But, at the same time the customers will be perceived as more unique and they will be willing to pay more.
External factors (for creating competitive advantage)
Related to how a company identifies changes and opportunities in the environment, responds to them and takes advantage of them before other competitors.
Internal factors (for creating competitive advantage)
they are mainly related to the resources and capabilities of the firm that can help the company increase its sufficiency, improve the quality of the products, promote innovation (developing new products and services) or even improve customer satisfaction in a way they satisfy their needs.
Factors for sustaining a competitive advantage(3)
- Imitation barriers. The existence of imitation barriers: obstacles that would prevent other competitors from copying or imitating that CA. If a company has a valuable technology a patent would be a CA.
- Competitors’ imitation capability. Ability of other rivals to copy/imitate the CA or even to introduce innovations in a way that my CA would disappear.
- Industry dynamism. When an industry is very dynamic it means that there are a lot of changes. The sustainability of the CA in a dynamic industry will be difficult to sustain.
Cost competitive advantage
The firm is able to offer similar products or services than its competitors but at a lower cost.We have two companies that are offering similar products. The difference is that the company with the higher competitive advantage can produce the product at a lower cost, and as a result, the margin is higher, so the company is able to achieve a competitive advantage based on cost.
