Key Terms in Strategic Management

1. Management

Management is the process of getting things done, effectively and efficiently, through
and with people. The functions of Management are: planning, organizing, leading,
staffing and controlling.

Planning Organizing Leading Staffing Controlling

Figure 1 Functions of Management

The management process involves five functions (Davis, 2019)

1. Planning: When you think of planning in a management role, think about it as the
process of choosing appropriate goals and actions to pursue and then determining
what strategies to use, what actions to take, and deciding what resources are
needed to achieve the goals.

2. Organizing: This process of establishing worker relationships allows workers to

work together to achieve their organizational goals.

3. Leading: This function involves articulating a vision, energizing employees,

inspiring and motivating people using vision, influence, persuasion, and effective
communication skills.

4. Staffing: Recruiting and selecting employees for positions within the company
(within teams and departments).

5. Controlling: Evaluate how well you are achieving your goals, improving
performance, taking actions. Put processes in place to help you establish
standards, so you can measure, compare, and make decisions.

Planning Organizing Leading and Controlling

Staffing

Strategy Strategy Strategy Strategy

Formulation Implementation Implemetation Evaluation

Figure 2 Management Functions and Process

2. Strategy
 Defined as a firm’s theory on how it can gain competitive advantages. (Barney
& Heslerly, 2012).

It comes from the Greek word “Strategos” meaning the “the art of the
general”. It was originally used in the military to describe the grand design
behind a war or battle (how to invade territories, how to win a war). Strategy,
then, is choosing and implementing the best possible alternative to attain the
organization’s long-term objectives and gain competitive advantage. (Go,
1992).

The Benefits of Business Strategy (https://www.vlinkd.com)

1. Gives direction – 

One of the biggest benefits of a business plan is the direction it can give your
organization. Setting out a well-planned business strategy will ensure your entire
organization is working towards the same goals and instills a sense of shared
responsibility amongst employees.

2. Creates a measure for success – 

Business strategies allow you to measure your organization’s performance and growth
against your desired goals. Are you achieving what you had hoped to achieve within
the stipulated timeframe? If not, why? Following a business strategy will allow you to
measure success and better identify areas that require improvement in future.

3. Increases adaptability – 

In our current innovation-focused society, businesses need to be responsive to change.

An effective business strategy will allow your organization to predict and meet the
changing demands of the current market. By analyzing and reviewing customer’s
expectations and needs, businesses can better identify new market trends and adapt
their strategy as required.

4. Drives decisions – 

Strategy is what drives decisions in business. By helping organizations identify their

strengths and weaknesses, an effective strategy will help you decide where your
efforts and resources are best spent. These decisions are crucial in ensuring your
business has a profitable and sustainable future.
Hierarchical Levels of Strategy

Figure 3. Hierarchical Level of Strategy (Ilano, 2017)

1. Corporate Level

Corporate Level is consists of a Chief Executive Officer (CEO) along with the so-
called C-level positions: Chief Operating Officer, Chief Finance Officer, and so
on. They are responsible for the corporate level strategies (Ilano, 2017)

Note: The CEO is the top decision maker of any firm, whether small or large. His
or her important role is to “THINK”, to have a clear vision and direction for the
organization. CEO is expected to be a generalist who understands all facets of
the different businesses and how to communicate with the heads of each or
different businesses and synthesize feedbacks into a unified whole. CEO reports to
a Board of Directors who assess his or her performance.
2. Business Level

The President of a business unit serves as the head and is responsible for the
business level strategies of his or her unit (battle plans, tactics used to fight and
beat the competition in the industry that your company currently participates in).
(Ilano, 2017)

The President reports to the CEO.

3. Functional Level

Under the President serve the different Vice Presidents (VPs) who specialize in
their own respective fields of expertise. They are responsible for the
implementation of the operational and functional strategies (strategies pertaining
to: manufacturing and operations; marketing, promotion and distribution; research
and development and technology; human resource and financial). (Ilano, 2017)

4. Operational Level

This level is consists of functional specialists at supervisory levels below the

VPs. Strategy is limited in scope. (Ilano, 2017)

Porter’s Criteria for Effective Strategies

Michael Porter, recognized as an authority in strategy, noted that strategy should lead
to sustainable competitive advantages. He explained what an effective strategy should
and should not be (Porter, 1966).

1. The strategy should be about operational effectiveness.

 Operational effectiveness is all about outperforming competitors by being able to
utilize resources better. But it is not yet strategy.

2. The strategy should be about unique activities.

In a competitive environment, finding a way to do things differently from your
competitors, in a way that allows you gain distinctive advantages.

3. The strategic positions require trade-off.

To get to a place of competitive excellence, you have to learn to sacrifice certain
attributes to be better than others.

4. The strategy should fit the strategist in order to be sustainable.

Firm needs to identify strategies that are a good fit with their culture,
organization, and
resources.
a. Culture - strategy should match the organization’s culture including its
people.
b. Organization – should also think and consider whether the strategy will
be reached by their capability.
c. Resources – are enough to sustain and continue the strategy they want to
implement.

5. The strategy needs to be constantly revisited.

The environment is ever dynamic. This means that a strategy that once
worked may eventually lose relevance under a changed environment.
Therefore, there will be a need to constantly check one’s strategy to make sure
that it is still the best way to achieve what one wants to achieve.

3. Competitive Advantage

It refers to any edge that a firm has over its competition. It is an edge that ideally will
be felt by consumers, and it answers “Why would I buy from this firm rather than
from other firms?” (Ehmke, 2008).

Examples:
 When a firm is consistently outperforming other companies.
 When the firm’s profitability is higher than the profitability of all companies in
its industry.
 When a firm provides the same value as its competitors but at a lower price or
charge higher price by providing greater value through differentiation.

The explicit mention of the term “competitive advantage,” means that a company may
not survive by continuously marketing the same way as in the past. Thus, “sustainable
competitive advantage” should be aimed.

4. Sustainable Competitive Advantage

Company assets, attributes, or abilities that are difficult to duplicate, imitate or

exceed, and provide a superior or favorable long-term position over competitors (Ken
Faulken, 2019).
Types and Examples of Sustainable Competitive Advantages
1. Low Cost Provider/ Low pricing

Economies of scale and efficient operations can help a company keep

competition out by being the low cost provider.

2. Market or Pricing Power

A company that has the ability to increase prices without losing market share
is said to have pricing power.

3. Powerful Brands

It takes a large investment in time and money to build a brand. It takes very
little to destroy it. A good brand is invaluable because it causes customers to
prefer the brand over competitors. Being the market leader and having a great
corporate reputation can be part of a powerful brand and a competitive
advantage (i.e. Coca-Cola (KO).

4. Strategic assets

Patents, trademarks, copy rights, domain names, and long term contracts
would be examples of strategic assets that provide sustainable competitive
advantages. Companies with excellent research and development might have
valuable strategic assets (i.e. International Business Machines (IBM).

5. Barriers to Entry

A cost advantage of an existing company over a new company is the most

common barrier to entry. High investment costs (i.e. AT&T (T)) and
government regulations are common impediments to companies trying to enter
new markets. High barriers to entry sometimes create monopolies or near
monopolies (i.e. utility companies).

6. Adapting Product Line

A product that never changes is ripe for competition. A product line that can
evolve allows for improved or complementary follow up products that keeps
customers coming back for the “new” and improved version
(i.e. Apple iPhone) and possibly some accessories to go with it.

7. Product Differentiation
 A unique product or service builds customer loyalty and is less likely to lose
market share to a competitor than an advantage based on cost. The quality,
number of models, flexibility in ordering (i.e. custom orders), and customer
service are all aspects that can positively differentiate a product or service.

8. Strong Balance Sheet / Cash

Companies with low debt and/or lots of cash have the flexibility to make
opportune investments and never have a problem with access to working
capital, liquidity, or solvency (i.e Nike (NKE). The balance sheet is the
foundation of the company.

9. Outstanding Management / People

There is always the intangible of outstanding management. This is hard to

quantify, but there are winners and losers. Winners seem to make the right
decisions at the right time. Winners somehow motivate and get the most out of
their employees, particularly when facing challenges. Management that has
been successful for a number of years is a competitive advantage.

5. STRATEGIC PLANNING

Strategic planning is the development of an organization’s purpose and goals, beyond

the immediate future, and actions to achieve those goals.
The 5 Steps of Strategic Planning
Step 1: Choose a framework.

Your first decision is to pick a strategic planning framework. Working from a specific
format will make it much easier to determine which elements need to be included in
your strategic plan. The Balanced Scorecard, Ansoff Matrix, and Hoshin Planning
model are a few examples of strategic planning frameworks, and each has its
strengths. The Balanced Scorecard works for any organization or industry, whereas
the Ansoff matrix is specifically focused on aggressive sales growth, and the Hoshin
model is project-centric. The framework you choose should suit the structure of your
organization.
Step 2: Define your organization’s mission, vision, and values.

This is your “big picture” step, so put on your visionary thinking cap. Now is the time
to nail down the purpose and direction of your organization. It involves three
important elements:

 Your mission: It defines why you exist as an organization. Every aspect of

your strategic plan should ultimately tie to your overarching mission.
 Your vision: It tells where you want to be in the future. Your vision should be
feasible, based on ambitious but achievable targets.
 Your values: It states what you stand for as an organization.

No strategy is complete without a mission statement—it is mandatory. Vision and

values are also important, but not integral to a strategic plan.

Step 3: Get into the details of your strategy.

Once you’ve defined your mission, zero in on the details and address the actual
components of your strategic plan. (For the purposes of this article, we’ll use
Balanced Scorecard terminology, but the general concepts are universal.)

You’ll begin by defining your strategic plan’s high-level goals for both individual
departments and the corporation as a whole. Then, create measures (metrics) with
targets so you can track and evaluate progress toward these goals. Finally, develop
initiatives, or projects, to drive your measures and support your goals. Your goals,
measures, and initiatives form the backbone of your strategy. Getting this right is
critical to the strategic planning process.

Step 4: Create a reporting process.

Most organizations pull together monthly, quarterly, and annual reports for different
audiences (divisions, executives, boards/councils). At this point in strategic planning,
you’ll document the reports needed and the process to get them created.
Your reporting process should outline details such as the reporting calendar,
frequency, owners and stakeholders, and more. The strategic reports you require
should all tie to your strategy—don’t report on something just because “Pat asked for
it.”

Step 5: Communicate with your organization.

This isn’t as much of a final step as a best practice that spans the entire strategic
planning process: Open the lines of communication between your strategy team and
the rest of your organization throughout all four previous steps. Get feedbacks—even
using something as simple as a survey—from department heads and internal
stakeholders on everything from the mission statement to the most important metrics
to track, measure, and report.

Senior leadership may think they have these answers, but without asking the people
on the ground doing the day-to-day work, nothing’s certain and your strategy could
miss the mark. Department leads and managers should be given a say in how the
strategic plan is defined, and they will be on board and motivated to improve
performance.

Once your strategy is complete, don’t let it sit on a shelf. Put it in play with this
guide on how to execute your strategic plan.

Remember to keep communication flowing even after you’ve wrapped up your

strategic planning—the last crucial piece is to share your finalized strategy.
Organizations do this in different ways. For example, an international financial
institution effectively communicated its new plan to all staff using videos, progress
reports, brochures, posters, and its internal corporate social network. A smaller
organization held meetings with each department to review the new strategic plan and
followed up by emailing each department its goals and how each tied to the strategy.
There’s no single right way to communicate, but integrated efforts will ensure the
strategic plan is recognized as part of the organization’s core culture.

Don’t be intimidated by strategic planning. Embrace the process.