Academic Models in Strategic Management - Essay Example

CRITICALLY ANALYZE THE USE OF ACADEMIC MODELS IN STRATEGIC MANAGEMENT School Introduction Definitions of strategic management focus on effectiveness and organizational efficiency - "making the right decisions" and "using resources wisely" (Davidson et al, 2003, p. 7). The large volumes of theoretical work supporting management practice aim to develop optimal performance strategies. There are numerous techniques and approaches that support strategic decision making, like PEST, SWOT, portfolio matrixes, life cycles, value chain concepts and many others. The most important aspect of these academic tools is to "what extent [these tools] enhance or inhibit creative competitive strategy making in organizations" (Clark, 1997, p. 417). Some authors argue (Eilon, 1980, cited by Clark, 1997, p. 418) that there is an absence of strong focus on academic tools because they play a secondary role being "the means to an end, not an end in [itself]". Still, the usage of academic business models should not be underrated, because these promote the development of "strategic thinking in organizations" (Clark, 1997, p. 418). Strategic management tools perform basically a "support role" (Clark, 1997, p. 418) in the strategic management process. This is so, because academic instruments offer useful insights into the benefits of different strategies and suggest a more systematic approach towards strategy implementation. These tools provide information generation, framework for analysis, also coordination and control mechanisms (Clark, 1997, p. 418). Further on, schemes and visualized models have the benefit of presenting ideas, model relationships and help management identify opportunities and convict others about the usefulness of suggested strategies. 2. The use of tools during the different strategic management stages Academic models are visible throughout the strategic management process, from planning and defining of mission and purpose to crafting different strategies and strategy execution and evaluation (Thompson et al, 1996, p. 3). Situation analysis Analysis of the business environment is regarded "as a fundamental part of the strategic management planning process" (Pickton, 1998, p. 102), because academic strategists have realized that environmental changes are constant and unavoidable. A research undertaken by Clark (1997) points out that for many companies environmental analysis includes evaluation of remote environment, meaning PEST analysis; and evaluation of the companies' operating environment, meaning competitors, customers, markets, suppliers and stakeholders. PEST and Porter's five forces model are basically similar tools for environmental audit and are ranked in the top set of tasks in UK (Clark, 1997, p. 423). In an increasingly diverse competition, industries are no longer viewed as isolated independent markets. This makes the application of the Porter's model insufficient, because it "tends to be focused on the single industry or strategic business unit", which means that it's much narrower in its scope. Another largely used academic tool is SWOT analysis, which is regarded as the simplest "easy-to-use technique for getting a quick overview of a firm's strategic situation" (Thompson et al, 1996, p. 92). SWOT is praised for its simplicity and practicality and is widely adopted uncritically (Pickton et al, 1998, p. 101); it underscores the basic principle that strategy must be a good fit between a company's internal capabilities and its external situation. Authors like Farjourn (2002) observe that SWOT is only suitable to a stable and predictable world. Too simplistic adoption of SWOT is reflected by the fact that most academic papers review it as a static strategic framework (Pickton et al, 1998, pp. 102-103); academicians simplify it to a list of factors and fail to conduct further analysis, which limits the usability of the model. Another tool, the value chain concept is a "primary analytical tool of strategic cost analysis"; it identifies costs and value drivers for primary and support activities (Wikipedia, 2006), from raw materials supply, to retailing to the ultimate end-user (Thompson et al, 1996). Being very specific, this tool needs to be applied with caution; since competing companies have different degrees of vertical integration, undertaking strategic cost analysis for rival companies "should go beyond comparing costs of activities comprising rivals' value chains" (Thompson et al, 1996).croonmental influences and market facrodels. 777777777777777777777777777777777777777777777777777777 Strategic analysis and implementation According to Clark (1997) "strategic analysis involves tasks [that include generation, evaluation and selection of strategies] to identify and select the best strategy for the future". Strategy implementation, on the other hand, involves development of specific plans, assistance in implementation, monitoring and review of strategic performance. A number of academic models try to identify best-fitting strategies for different business situations. Porter's five generic strategies outline five distinct strategies that "involve fundamentally different approaches to managing business" (Thompson et al, 1996), stressing on costs and differentiation. Important critique of these generic strategies is that they lack specificity and flexibility (Wikipedia, 2006). Fitting into one strategy does not reflect realistic business environment; whereby companies for example enter markets as niche players and expand. Alternatively, a range of strategic matrixes are used to assess the businesses of diversified companies. The most popular ones are the BCG growth-share matrix, the GE industry attractiveness-business strength matrix, and the life-cycle matrix. The major contribution of the BCG matrix is the "attention it draws to the cash flows and investment characteristics" (Thompson et al, 1996) of the different types of businesses. Still, ranking business units into question marks, stars cash cows or dogs "has a subjective element involving guesswork about the future" (Wikipedia, 2006). This matrix also underestimates other elements of industry attractiveness and competitive advantage. The GE matrix tries to overcome this deficiency, but is difficult to implement, because of its multi-factorial dimensions, whereby one dimension comprises of several industry attractiveness measures. All in all, each matrix has its pros and cons and "tells a different story about the portfolio's strengths and weaknesses" (Thompson et al, 1996). Using one matrix only makes analysis and decisions subject its deficiencies therefore in practice managers need to implement a variety of tools to overcome the bias that stems from one instrument only. 3. Conclusion Research undertaken by Clark (1997) shows that a large number of companies from different countries use basically the same academic approaches; pointing at approximately 30 tools. Still, during the strategic management process companies do not distinguish between what models to use in what situations; instead they universally apply similar tools throughout the process of planning and implementation. This means that companies dispose of a wide variety of financial, marketing, behavioural and technological tools, but fail to link the specific usage of the tools to the specific strategic tasks. Therefore the problem with academic models is not only about how to use them, but also when and what models to use. In their everyday usage practitioners fail to observe the limitations of these tools and implement a rather simplistic approach, since the "most commonly used tools tend to be the simple basics rather than more complex approaches" (Clark, 1997, p. 426). This calls for the need for better typology of academic tools and the distinction between general and specific tools with reference to the subject area of their application. References 1. Clark, D. (1997) "Strategic Management Tool Usage: a Comparative Study" John Wiley & Sons Ltd., Strategic Change Vol. 6 pp. 417-427. 2. Davidson, P. & Griffin, R. W. (2003), "Management: An Australasian Perspective", John Wiley & Sons Australia, LTD, Milton. 3. Farjourn, M. (2002), "Towards an organic perspective on strategy", Strategic Management Journal, vol. 23, pp. 561-594. 4. Pickton, D. & Wright Sh. (1998) "What's SWOT in Strategic Analysis" John Wiley & Sons Ltd., Strategic Change Vol. 7 March-April 1998, pp. 101-109. 5. Thompson A. Jr., Strickland A. (1996) "Strategic Management. Concepts and Cases" Ninth Edition. University of Alabama. Irwin/McGraw-Hill. 6. Wikipedia contributors (2006). "Growth-share matrix" Wikipedia, The Free Encyclopedia. Retrieved pril 2, 2006 from http://en.wikipedia.org/w/index.phptitle=Growth-share_matrix&oldid=38591315. 7. Wikipedia contributors (2006). "Value chain" Wikipedia, The Free Encyclopedia. Retrieved April 2, 2006 from http://en.wikipedia.org/w/index.phptitle=Value_chain&oldid=44668059 8. Wikipedia contributors (2006). "Porter generic strategies" Retrieved April 2, 2006 from http://en.wikipedia.org/w/index.phptitle=Porter_generic_strategies&oldid=45623714. Read More