Strategic Management Areas Critical to Strategic Success of Contemporary Organisations - Literature review Example

Student number: Name: Date Submitted: MGT3SMG-All Instances-S1-2015 Topic: Strategic management areas critical to strategic success of contemporary organisations Campus: Lecture time: Lecturer: Tutor: Tutorial Time: Topic: Strategic management areas critical to strategic success of contemporary organisations Word Count: 2492 Introduction Strategic management is a process that involves a combination of science and art that leads to enhanced chances of organisation success. It requires careful planning of each of the variables in an organisation that can help in attaining goals and objectives. In all organisations, strategic management is supposed to be a central consideration (Grant, Butler, Orr & Murray, 2014). It’s through the strategic management theory that one can learn why organisations fail or succeed. Successful organisations have strategic thinkers and action-oriented managers. A manager is supposed to be a good strategist, leaders as well as an entrepreneur. Through a strategy, the top management can create a competitive advantage. The process of strategic management is made up of five steps. External analysis, internal analysis, strategy formulation, strategy execution and strategy control. To have an effective strategy, an organisation is supposed to base it on their business model. The purpose, mission, vision is vital in determining the needs of major organisation stakeholders and a vital tool in strategy formulation. Strategic management have evolved over time to the present state. It still plays a major role in success and survival of the business (Kaplan & Norton, 2001). This commentary report looks at areas of strategic management that are critical to the strategic success of contemporary organisations. Corporate governance Corporate governance and sustainability is an important aspect of strategic management. Boundaries in corporate governance, role of stakeholder management, understand the implications of the separation of ownership and analysis of internal and external governance structure of organisations are vital in understanding the concept. According to Bowman & Helfat (2001), corporate governance is the process in which strategic decisions are made and controlled. It is important to understand that through corporate governance, it becomes easy to ensure that there are effective strategic decisions (Bowman & Ambrosini, 2003). Board members in an organisation have a responsibility to ensure that they monitor all activities and evaluate proposals by managers on strategies. They also determine board strategy and gives strategic advice to managers. Qantas airlines are one of the companies that have succeeded in corporate governance despite the recent difficulties. This is through strategic decisions that have led to their growth. The company board was established in 1994 and have succeeded in making strategic decisions that have made the airline to be the safest. The corporate social responsibility (CSR) by Qantas has made them win awards in environmental sustainability. The airline is committed to carbon reduction. The board members are expected to promote shareholders best interests (Latemore, 2012). Through corporate governance, it becomes possible to establish order between shareholders and top management (Dyllick & Hockerts, 2002). This ensures that the conflict of interest is eliminated. Through corporate governance, a firm can maintain sustainability. Corporate governance has a role in corporate governance. They ensure that the business is ethical in its operations. Corporate governance is supposed to ensure that corporate affairs are in line with the firm corporate objectives. The agency theory is seen as the starting point in corporate governance. Agency theory looks at the managers as the stewards for the shareholders. This implies that they have to maximise the profits for the owners of the firm (Bowman & Helfat, 2001). As pointed out in the topic, there is a need for a proactive communication between the management and the governing board. Environment analysis Industry analysis is an important part of strategic management. For an effective strategy, the external environment must be well understood (Grant et al., 2014). An example of external analysis can be looked in case of Subway. The external environment for Subway includes McDonalds and KFC (competitors), social trends and political forces among other factors. For example, social trends towards healthy eating have made Subway to reduce the salt level in their sandwiches and introduce healthier menu. The external environment is also referred to as macro-environment. This has a great effect on both medium and long term aspects of the strategy (Albright, 2004). It’s important to note that an organisation have limited influence on the macro factors. Through external analysis, a firm can determine threat and opportunities that exist. The external factors in the firm environment are independent of the activities in an organisation. When analysing the external environment, it is important to use tools. PESTEL analysis is a vital tool in this aspect. All features of the macro environment that can affect an organisation are identified. While using such a tool, it is vital to determine the features that can have a great impact now and in future. This eventually leads to an identification of the key success factors (Kaplan & Norton, 2001). Key success factors are important for and organisation to succeed. Porter diamond also known as the national competitive advantage is identified. The Porter diamond has been identified by the literature as an important component of the strategy. Strategic success in contemporary organisations will depend on the firm ability to analyse its external environment. The four elements of Porter diamond are; factors conditions, demand conditions, strategy, structure and rivalry and lastly related and supporting industries (Grant et al., 2014). Porter 5 forces framework also offers an organisation insight into their internal environment. This helps one to understand the firm micro external environment. Porter 5 analysis enables the firm to determine how attractive an industry is. The firm ability to come up with a strategy will be based on the industry conditions that are identified. All the characteristics of identified by the Porter analysis help in determining the level of competition and the power that each group hold (Kaplan & Norton, 2001). SWOT analysis helps a lot in determining opportunities and threats. For example, Subway was able to take advantage of the opportunity created by Jared Fogle growing popularity and utilise it to position themselves as a healthy restaurant. The company is also able to identify threats such as the emerging companies offering the same menus. It is important to note that there is no specific tool that can help an organisation to eliminate future uncertainty but helps in reducing. Resources and capabilities Analysis of resources and capabilities is another vital area for the success of the contemporary organisations. During the formulation of strategy, attaining a competitive advantage is a vital consideration. The value is central to firm competitive advantage (Grant et al., 2014). An organisation will only attain a competitive advantage depend on the way they place themselves in the business environment. The resource based view, the firm resources helps in coming up with a strategy that will determine the firm competitive advantage (Priem & Butler, 2001). The resources must satisfy scarcity and relevance conditions in order to attain competitive advantage. The attained competitive advantage must be sustainable. This is based on durability, transferability and replicability. An example is Southwest Airlines who have been profitable in the industry while the competitors struggle. The company have a unique culture that is rare, hard to imitate and valuable. This has enabled the airline to succeed in the industry. This has offered the industry a sustainable competitive advantage. When a company is a fast mover, it has a better position to challenge an incumbent. Building a competitive advantage involves being able to understand the need of the consumers. This is followed by the ability to come up with a strategy that will enable the firm to utilise available resources and make firm unique (Priem & Butler, 2001). Without significance effort, it is hard to keep a competitive advantage. It’s one job to create a competitive advantage and another to keep it. The firm has to keep watch of their competitive advantage and ensure that it’s not eroded with time. In the modern business environment, organisations have to be strategically aware (Eden & Ackermann, 2013). They have to be capable of understanding and responding to changes in the competitive environment. Strategic management helps in strategizing on competitive advantage. Business and corporate level strategies Business level strategies can be used by an organisation to gain a competitive advantage. Business level strategies can be looked at in terms of generic strategies. This is a way in which a firm is positioned in the industry it operates in (Grant et al., 2014). Based on Porter, there are two competitive dimensions in business level strategies. Source of the competitive advantage is the first dimension. This occurs in situations where as firm brings a unique offer to market or reduces costs. The second dimension looks at the organisation scope of operations. Source of competitive advantage are; economies of scale, economies of learning and technology and process design (Kaplan & Norton, 2001). Using these dimensions, a firm can use four generic business level strategies. These are focused cost leadership, focused differentiation, cost leadership and differentiation. A successful cost leader is Wal-Mart. The ability of a firm to charge low costs and make profits is the main challenge for the cost leaders. This can be only attained through enhanced efficiency. Cost leadership strategy may lead to the firm reducing costs through minimising advertising budget. The company can also rely on the economies of scale to increase their efficiency. For a company such as Wal-Mart who are large in size, there expenditure in advertising is minimal. The company used cost leadership strategy to become one of the largest retailers worldwide. The success of Wal-Mart is an indicator that through use of cost leadership strategy, a firm can succeed in the industry. Business level strategies when well implemented such as in the case of Wal-Mart have the capability to enhance firm success. Corporate level strategies deal with the markets in which a firm is competing in while business level strategies deal with a single market (Grant et al., 2014). When looking at the corporate level strategies, it is vital to determine how well the organisation is diversified and vertically integrated. To determine diversification, the portion of sales gained from different markets can be looked at. When there are a higher percentage of sales from varying markets, it is an indicator of high level of diversification (Kaplan & Norton, 2001). Using an industry value chain, it is possible to determine the level of integration. Corporate strategy acts as a building block for corporate advantage (Pearce & Robinson, 2000). Strategic alignment is required to ensure that there is a strategic fit between the organisation internal culture and external culture. Strategic alliances To attain competitive advantage, firms combine asset (Grant et al., 2014). In a strategic alliance, value creation and alliance management are vital (Das & Teng, 2000). To attain a successful strategic management, a firm is expected to come up with strategic sense and way of managing them to get business results. For competitive advantage, a strategic alliance is supposed to be people oriented. There is also need for high cooperation among the partners (Grant & Baden‐Fuller, 2004). This involves an integration of cultures. This is through identifying the predominating culture in every firm and integrates the cultures for the best. While there are numerous benefits of strategic alliance, there is a risk of competitive collaboration. This can occur if one of the firms involved in the alliance is able to create an alliance over the other through collaboration (Dyer, Kale & Singh, 2001). Strategic alliances lead to technology exchange (Gupta & Govindarajan, 2000). This enables the firms in the alliance to benefit from enhanced innovation. Organisation structure In strategy implementation, organisational structure plays an important role. The structure is supposed to follow the strategy. For an organisation to implement new strategy successfully, they require to refashion their structure. Highly centralised structures make it hard to make strategic decisions. According to Grant et al., (2014) for the strategy to be implemented successfully, it requires an appropriate structure. For an effective management system, there is a need for coordination and control. There are three main dimensions in an organisation structure that have an influence on strategy implementation (Eden & Ackermann, 2013). These are centralisation, specialisation and the formalisation of the structure. Centralisation determines the level of control on decision making by the top management. An organisation has to determine the level of control before implementing a strategy. While decisions are easily made in a centralised structure, it takes time in a decentralised structure. This implies that a strategy may be implemented fast in a centralised structure (Kaplan & Norton, 2001). Specialisation looks at the way activities are allocated in an organisation. Highly specialised organisations are in a better position to implement a strategy. Formalisation looks at the level of utilisation of formal rules in an organisation. Formal rules lead to high level of efficiency while organic structures have effective information sharing. Low formality is preferable in encouraging innovation (Hunger & Wheelen, 2003). A firm is supposed to match their structure and behaviour to the strategy. Global strategy The main elements of global strategic management are similar to those of domestic strategic management. Through global strategies, there is higher security. The local conditions give global operators a comparative advantage. This is advantage based on regions. A global strategy is driven by global complexity, competitive context, international market analysis and global leadership (Grant et al., 2014). An example of a successful global strategy is by McDonalds. The company menu is tailored to meet the local market preferences. General Electrics have diversified products portfolio through acquisitions in different countries. This is through coming up with strategic decisions and controlling them. Well drafted global strategy enables the business to adapt to the local business environment. This is through a well-crafted strategy that can fit in the entire operations in the subsidiaries. This helps an industry to leverage the synergies in different areas of operations (Hunger & Wheelen, 2003). Conclusion To attain strategic success in contemporary organisations, strategic management is vital. This commentary has looked at the main areas of strategic management that are vital to success in contemporary organisations. Strategic management involves both planning and implementing strategies. The organisations capabilities have to be matched with the environmental demands. The organisation must start by defining their current business. This involves what they sell, market and location. This is followed by external and internal environmental analysis. This involves using tools such as SWOT analysis, PESTEL analysis and Porter five forces analysis. The business is then supposed to come up with a mission statement that is based on the situational analysis. This is the mission that is them translated to the organisation strategic goals. Strategies formulated should be able to attain strategic goals. Corporate governance when well implemented is a source of competitive advantage for a business. The resources available are a source of competitive advantage if they are rare and hard to imitate. Both business and corporate level strategies are required for the firm to succeed. Strategic alliances also aid in strategic success as firms combine assets through cooperation and integration of cultures. Organisation structure will also play a role in strategic success. Lastly, global strategies help organisations such as McDonald attain success in different markets. References Albright, K. S. 2004. “Environmental scanning: radar for success.” Information Management Journal, Vol.38, no.3.p.38-45. Bowman, C., & Ambrosini, V. 2003. “How the resource‐based and the dynamic capability views of the firm inform corporate‐level strategy.” British Journal of Management, Vol.14, no.4, p.289-303. Bowman, E. H., & Helfat, C. 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