STRATEGIC MANAGEMENT

CHAPTER 1:
WHAT IS STRATEGY AND WHY IS IT IMPORTANT

BASIC CONCEPT OF STRATEGY

Strategy is the quest to gain and sustain competitive advantage:

 It is the managers theories about how to gain and sustain competitive advantage.

 It is about being different from your rivals.

 It is about creating value while containing cost.

 It is deciding what to do, and. what not to do.

 It combines a set of activities to stake out a unique position.

 It requires long-term commitments that are not easily reversible.

WHAT IS A STRATEGY

Strategy describes the goal-directed actions a firm intends to take in its quest to
gain and sustain competitive advantage. The firm that possesses competitive
advantage provides superior value to customers at a competitive price or acceptable
value at a lower price. Profitability and market share are the consequences of superior
value creation.

A Strategy is an overarching approach taken to meet or exceed one’s goals and

the actions taken relative to the original and overall goal set by higher authority, whether
in a private enterprise or public organizations.

Strategy is about understanding where you are now, where you are heading and
how you will get there. Effective strategic decision-making is vital - not just for the Chief
Executive Officer or Board deciding a company’s overall direction but for the managers
at all levels of the organization who will determine how that vision can be transformed
into action.
 The important point here is that strategy is about creating superior value, while
containing or controlling the cost to create it. It has been observed that the greater the
difference between value creation and cost, the greater the economic contribution the
firm makes, and thus the greater the likelihood for competitive advantage.

To gain a competitive advantage, a firm needs to provide either goods or

services consumers value more highly than those of the competitors, or goods or
services similar to the competitors’ but at a lower price. Making money to most
businessmen was the consequence of providing a product or service consumers
wanted.

The essence of strategy, therefore, is being different from rivals. Managers

accomplish this difference through strategic positioning, staking out a unique position
in an industry that allows the firm to provide value to customers, while controlling costs.

Strategy on how to compete provides managers with a roadmap to navigate the

competitive territory. The more accurate the map, the better strategic decisions
managers can make. In the competitive world, managers test their theories and
assumptions in the marketplace. Positive feedback validates managers’ strategic
assumptions while negative feedback allows managers to adjust their assumptions.

A firm's relative performance in the competitive marketplace provides managers

with the necessary feedback to assess how well their strategy works in their quest for
competitive advantage. The strategic management process, therefore, is a never-
ending cycle of analysis, formulation, implementation and feedback.

WHAT STRATEGY IS NOT

Although it is important to know what strategy is and why it is important, it is also

useful to appreciate what strategy is not. There is much confusion about the nature of
strategy. Strategy is not:

 A vision or mission statement such as “Our strategy is to be a leading-

edge provider/employer”. This explains neither where the firm is going nor how
it will make progress. Consequently, it is not a strategy.

 A goal, budget or business plan. Strategy is not a goal such as “We aim to be
the best or number one”. This is, at best, an aspiration. Also, strategy is neither a
budget nor a business plan, although elements of these may contribute to how a
strategy is implemented.
  Data analysis. Too often, data analysis leads to strategy, when what should
happen is that strategic choices are made first and then refined and explored
further using data analysis.

Strategy is not, a zero-sum game — it is not always the case that one party wins
while all others lose. Many strategic successes are accomplished when firms and
individuals cooperate with one another. Even direct competitors cooperate occasionally
to create win-win scenarios. When competitors cooperate with one another to achieve
strategic objective, it is called co-opetition.

Many people today refer to a host of different plans and activities such as pricing
strategy, alliance strategy, operations strategy, marketing strategy and so on. While all
these elements may be part of a firm’s functional strategy to support its business model,
the term strategy should be reserved for describing the firm’s overall efforts to gain and
sustain competitive advantage.

Competitive benchmarking is not “strategy”. Best-in-class practices such as just-in-

time inventory system, enterprise resource planning system and so on, all fall under the
“tools” for operational effectiveness. Being best-in-class is a sufficient but not a
necessary condition for competitive advantage.

Operational effectiveness, marketing skills and other functional expertise, along with
best practices, contribute to a unique strategic position but by themselves, they are not
a substitute for Strategy.

WHAT CAN STRATEGY ACHIEVE

The following are some of the significant benefits of applying Strategy.

 An inspired and clearly considered strategy provides the impetus for commercial
success. A clear and effectively communicated strategy is crucial in developing a
successful business.

 A focus on strategy will highlight where a unit or group of businesses can be

more successful as well as those areas where it is weak, vulnerable, or failing. It
will show in detail where the business is making its money and why.

 The process of developing and implementing strategy enables managers to

understand their customers and competitors. The company is able to develop its
products and approach in line with its customers changing preferences.
  Developing and implementing strategy strengthen a business by making sure
that resources are devoted to the most important customers in order to retain
their loyalty and get them to buy even more of the company’s products or
services.

 A clear strategy shows managers where business skills need to be added or

strengthened. It also highlights where productivity can be improved and why
particular initiatives and activities have succeeded or failed.

 A strategy that employees understand provides a guiding view of the future that
influences employees’ decisions, priorities and way of working.

 For owners or stakeholders, strategy provide a way of measuring their

businesses’ progress.

 A successful strategy benefits customer. The crucial component of strategy is

how it will result in greater appeal to customers and how they can achieve their
goals.

STRATEGY VS OBJECTIVE

WHAT IS A STRATEGY?

A strategy is an overarching approach taken to meet or exceed your goals, and

the actions taken must relate to the original goal set by management. For example, a
marketing company’s strategy can be to increase the amount of written content on a
company’s website; the execution of the strategy includes hiring writers to streamline
the process.

WHAT IS AN OBJECTIVE?

An objective is a measurable action taken to execute the strategy agreed on by

management and the rest of the organization. An objective follows the paradigm of the
SMART formula (Specific, Measurable, Actionable, Relevant and Time-based). Thus, a
series of objectives must be assigned and completed in order to complete the strategy
and meet the company’s primary goal.
How the SMART formula can be used in pursuing an objective:

Specific

This step details what you want to achieve. In fact, the formulation of your goals and
strategy should meet the requirements of this step to proceed. Double-check and
ensure that this is the direction you want to go and whether the steps in the Strategy
can be easily understood. The more clarity you have, the more likely it is to produce
successful results.

Measurable

Stating your evidence is crucial in finding out how you are measuring your goal. Setting
up milestones can assist you in breaking down a timeline to reach the desired steps of
your objectives. If you are applying for a job, you can use this step as a benchmark to
see the number of positions you’ve applied to and number of interviews you landed.
You can plan and adjust in case you run into any disruptions and establish a rewards
system when you reach a milestone, too.

Achievable

Ensure that the objective is one you can achieve and is aligned with your strategy.
Identifying your motivations in meeting your objectives helps you keep your focus on
current tasks. Also, it can outline the effort and resources needed to achieve your
objective and move onto the next one.

Relevant

Make sure that the objectives are aligned with your core values and with your long-term
aspirations. Rethink your objective if you continue to express doubts about it
representing your core values.

Time-based

Decide on the appropriate timeline to complete this objective and review if that pursuit is
dependent on the completion of other objectives. You want to ensure that you can move
forward after an objective’s conclusion. There are times where you will need to consider
variables that may affect the timeline of certain tasks.
STRATEGY VS. OBJECTIVE: KEY DIFFERENCES

A strategy helps you create a plan for how you want to achieve a goal, whereas
an objective is a list of documented steps that assist you in fulfilling the goals of the
strategy.

The differences between a strategy and an objective also include:

Purpose

A strategy is meant to solve problems and determine a pathway towards a goal. An

objective has measured elements that relate to the execution of the strategy and when it
should be finalized.

Execution

To build a strategy, you need to have an overview of your core values and the
motivations for why you are coming up with a strategy. Consistent motivation is the
driver of diligence in the workplace. A robust strategy can maximize the output of a
team if it fully buys into the mission of the organization. Preparing objectives occurs
once you have a finalized set of core values and motivations. Objectives also assess
how you’ll apply your core values and motivations to perform tasks and find out how you
can improve in the process.

ILLUSTRATION OF HOW STRATEGY RELATES TO OBJECTIVE

Here is an example of a strategy to increase a company’s client base and the objectives
that follow:

Strategy

A Strategy is designed to measure a goal. For example, a goal may be for a company to
increase the client base of Stevie’s Marketing from five clients to 10 by the end of the
year. To accomplish this goal, the company needs to do the following:

 Increase the size of its sales staff.

  Clean up the lead generation software and have management inspect for
execution.

 Schedule proposal meetings and dates for the sales manager to close sales.

 Hold weekly meetings on progress.

Objectives

Here are objectives that can lead to the success of the strategy:

 Human resources will hire five new members of the sales team by the end of
September.

 Three members of the sales team will work on inserting the right data into the
lead generation software and complete it by the end of November.

 The sales manager will be on proposal calls in order to secure five in-person
meetings with prospects by Thanksgiving and will meet with the prospects to
close five deals to bring them onboard.

 Sales team meetings are held on Monday afternoon to report on the progress of
these meetings. Jan, from human resources will take notes on progress and
action items for the team to work on during the week. The CEO is continually
monitoring the progress to ensure the completion of all