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Strategic Management

Chapter · January 2015


DOI: 10.1002/9781118785317.weom060194

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Tanya Sammut-Bonnici
University of Malta
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strategic management Phase 1: Strategic evaluation. The strategic
management process starts with an in-depth
Tanya Sammut-Bonnici evaluation of the internal organizational envi-
ronment and the external environment. The
CONCEPTUAL OVERVIEW evaluation is a component of SWOT analysis
(internal strengths and weaknesses, external
Strategic management is defined as the process opportunities and threats).
of evaluation, planning, and implementation The main components of an internal anal-
designed to maintain or improve compet- ysis are the firm’s resources (such as premises,
itive advantage. The process of evaluation machinery, financial capital, human capital, and
is concerned with the external and internal distribution networks), which can be combined
environments. Planning involves developing and developed into capabilities. Examples of
business models, corporate direction, competi- capabilities are
tive tactics, international strategy, acquisitions,
and collaborative action. The implementa- • developing innovative technology products,
tion phase requires leadership to build the • reducing the time to market,
appropriate organizational structure, develop • creating more efficient distribution channels
management culture, control the strategic and retail outlets,
processes, and steer the organization through • capturing the consumer’s attention through
corporate governance (Figure 1). marketing, and
Firms are observed to use two perspectives • managing customer relationships for long-
when going through the strategic management term brand loyalty.
process of analysis: planning and implementa-
tion. Capabilities are converted into core compe-
tences, which are difficult to imitate and lead to
Resource-based view. This perspective suggests a position of competitive advantage. An internal
that a firm’s unique internal resources are the analysis evaluates how they can be developed
critical determinant of strategic competitive- to continue creating competitive advantage for
ness. If a firm’s resources are unique, difficult the firm.
to imitate, and without close substitutes that The external macroenvironment consists of
competitors can adopt, they will create compet- variables that are beyond the control of an orga-
itive advantage. When these conditions are nization, but require analysis in order to realign
maintained over time, the firm’s resources will corporate and marketing strategy to shifting
create the foundations for sustainable long-term business environments. Firms are affected
competitive advantage. by forces that can be political, economic,
Industrial organization. This is the second social, or technological (summarized in the
perspective, which assumes that the external mnemonic PEST) as well as legal, ecological,
environment determines the strategic actions a demographical, ethical, or regulatory.
firm can deploy. The corollary of this concept is
Phase 2: Planning strategic activity. A compre-
that a firm should identify and seek to operate
hensive set of strategic plans would include a
in environments that allow strategic activity
roadmap for the firm’s business-level, corporate-
creating competitiveness and profitability.
level, competitive, international, collaborative,
STRATEGIC MANAGEMENT PROCESS and acquisition strategies:

International competition has increased the 1. Business strategy is formulated around


accessibility that customers have to products the customer perspective and aim for lead-
around the globe. Intense competition has called ership and differentiation in both product
for a concerted effort to build strategic action and pricing policies. The business-level
through the process of environmental evalu- strategy defines which customer segments
ation, developing a set of strategic plans and and needs will be addressed, and how the
implementing them. customer need will be satisfied.

Wiley Encyclopedia of Management, edited by Professor Sir Cary L Cooper.


Copyright © 2014 John Wiley & Sons, Ltd.
2 strategic management

Strategic plans
Business strategy
Corporate strategy

Competitive
strategy International
strategy

Collaboration Phase 4
strategy Outcome of
Mergers and strategic action:
acquisitions Phase 3 Competitiveness,
Implementation market shares,
of strategic profits and growth
activity
Phase 2
Planning
strategic
Leadership
activity
Phase 1
Strategic Corporate governance
evaluation

Internal Management factors


environment
External
Performance feedback on
environment
Internal and external environment
Environmental factors

Figure 1 Components of strategic management. Source: Adapted from McGee, Thomas, and Wilson (2010) and Hitt,
Ireland, and Hosskisson (2012).

2. Corporate strategy defines how the firm National strategy is created for each country
can widen its scale of operation from a single in which the firm operates. The strategy is
business to a portfolio of businesses, oper- sensitive to the national context and builds
ating in international markets. The strategy on the knowledge of the local competitive
helps companies with strategic positioning landscape. It defines the products, pricing
of their products and brand. policies, distribution strategies, and adver-
3. Competitive strategy focuses on how the tising campaigns for each country. National
firm will defend and protect its resources, strategies may include country-specific
capabilities, and core competences that have procurement policies, manufacturing, and
created its current competitive advantage. human resource management. National
This part of the plan includes reactive stra- strategies are instrumental in creating the
tegies that preserve the current core compe- core competences of a firm which are later
tences, and proactive responses that develop aggregated into global and transnational
the firm’s competences even further. strategies. When a firm operates in several
4. International strategy defines which countries, the complexity of handling too
products and businesses are assigned to many national strategies would lead the
different geographic regions and countries. firm to introduce a more harmonized global
International corporations are observed to approach.
use three types of international strategies: Global strategy determines the standard-
national, global, and transnational. ization of products and processes across
strategic management 3
geographic boundaries and harmonizes In the communications industry, Vodafone,
national strategies into a more homoge- T Mobile, and Orange, among others, coop-
neous format. The objective is to reduce the erate to maintain interconnected telephony
complexity of managing diverse markets, platforms, which in turn generate a larger
lower the need for local responsiveness, subscriber base for the industry. Coopera-
and gain economies of scale. With a global tion in telecommunications is ubiquitous.
strategy in place, best practices are easier to It created compatible communications
replicate across different locations. Global networks, uniform technology standards
strategies work when the customer needs (such as global system for mobile (GSM),
are similar across the different markets. universal mobile telecommunications
Another prerequisite for a global strategy to system (UMTS), and 3G), and facilitated
work is the standardization of operational the coordination of complex subscriber
and financial reporting, which provides billing across networks and borders.
head office with the tools of analysis and 6. Mergers and acquisitions strategies are
control. carried out to improve a firm’s competitive
Transnational strategy integrates the bene- position through two main venues. First,
fits of both national strategies and global economies of scale and synergies are gained
strategies. It aims to emphasize local sensi- from combining similar operations and
tivity and increasing local responsiveness overhead costs. Second, core competences
while standardizing operations in different are bought in, which are otherwise difficult
regions in order to gain from economies of to replicate. Firms would gain access to
scale. The duality of the strategy makes it new products, new distribution networks,
difficult to conceptualize and implement. established customer bases, and financial
resources.
Successful transnational strategies are built
International mergers and acquisitions were
around a strong common vision for local
dominant strategies in the 1990s. In more
orientation and an equally strong oper-
recent corporate history, firms are favoring
ational infrastructure which is common
the more flexible and adaptive collaborative
across different countries. It requires a
strategies over the high cost and commit-
substantial investment in infrastructure and
ment of mergers and acquisitions.
managerial resources.
In international mergers and acquisitions,
HSBC has embraced the role of “world’s the inefficient integration and develop-
local bank,” which epitomizes the essence ment of the incumbent cultures may cause
of transnational strategy. However, post strategic challenges. During the integration
the recession in 2011 the bank declared it process of the two firms, much attention
would have to abandon the concept as costs is given to drawing synergies through cost
to maintain an intensive local sensitivity was reduction at the expense of developing new
spiraling. Lower profit margins were placing strategies. The leading party in a merger
pressure on the firm to focus more on oper- tends to force its managerial culture and
ational efficiency and standardization across mode of operation on the target organiza-
all geographic regions. tion. Managers assume that the methods
5. Collaboration strategy is based on both deployed to run the original organization
competition and cooperation between a will function equally well in creating a new
firm and its competitors, suppliers, distrib- strategy involving new corporate partners.
utors, partners, and regulators. The most The misplaced paradigm often leads to the
common motives for firms to engage in inefficient distribution of physical resources
collaboration are to develop larger markets, and tacit capabilities, and eventually leads
improve industry standards, spread the to strategic drift.
costs of research and development, and
increase consumer awareness for the benefit Phase 3: Implementation of strategic activity. It
of all the industry players. requires two main capabilities: leadership and
4 strategic management
corporate governance. Strategic leadership is shares, profits, and return on investment for
necessary to communicate the vision of the firm stakeholders. The outcomes create a feedback
and objectives of the strategic plans (outlined loop, which in turn affects the external and
above) to the management level. Leadership internal environment of the organization.
captures the cognitive side of management
which goes beyond financial performance
measurement. It can be the source of motiva- See also strategic management
tion, empowerment creativity, and innovation,
which often are required to steer firms out of Bibliography
challenging situations. Corporate governance
is a firm’s underlying infrastructure that facil-
Angwin, D.N. (2007) Motive archetypes in Mergers and
itates and controls strategic action. It provides
Acquisitions (M&A): the implications of a configura-
a monitor for ethical behavior and regulatory tional approach to performance, Advances in Mergers
compliance. Corporate governance determines and Acquisitions, Vol. 6, JAI Press, pp. 77–106.
the relationships among the shareholders, the Hitt, M.A., Ireland, R.D. and Hoskisson, R.E. (2012)
board of directors, and the company’s manage- Strategic Management Cases: Competitiveness and
ment. The traditional mechanisms of corporate Globalization, South-Western Pub.
governance were the stakeholders, the board Karaevli, A. and Zajac, E. (2009) When does CEO
of directors, and executive compensation. The Outsiderness Generate Strategic Change? When
triad of control mechanisms has come under paradox and irony meet.
criticism and scrutiny. Trends in corporate McGee, J., Thomas, H. and Wilson, D.C. (2010) Strategy:
governance are to include business performance Analysis and Practice, McGraw-Hill.
measurement and stakeholder feedback with Sammut-Bonnici, T. (2010) Information economy strate-
traditional financial measures of control. gies in the mobile telecommunications industry, in
Understanding Global Strategy (eds S. Segal-Horn and
Phase 4: Outcomes of strategic activity. These D. Faulkner), Thomson Learning.
are visible in increases in revenues, market

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