Strategic Management - Critic of Management Models - Essay Example

? STRATEGIC MANAGEMENT Strategic Management Critic of management models Porter’s Five Forces model is designed with a focus on factors that built up the competitive advantage of a firm within the market (Afuah, 2003). It has achieved significant success in analyzing the industry in general and forms a very useful tool for assessing a company’s own stability through the SWOT analysis. Its success in providing market insights increases within deregulated markets. Presently, there has been a drop in its popularity amongst managers, economists and scholars. Why is it this so? It is clear that the globalization of markets has led to a paradigm shift in how organizations-and especially multinationals-conduct their business operations. The deregulation of national and regional markets has led to eradication of bottlenecks to cross border trade leading to increased competition for the vast and diverse, global markets. Porter’s competitive model was build based on the prevailing economic conditions of the eighties. It assumed the classical perfect market conditions of intense competition and a relatively stable market structure that is subject to cyclical developments. Therefore, by design, this model loses significance in the modern global market. Modern global business is characterized by dynamic markets where industries have complex and multiple relations and product groups (Have, 2003). The upsurge of internet technology and e-business platforms has meant that the effectiveness of the model is in providing a still image of the industry. This is as opposed to providing holistic projections of future trends and developments that can be ably translate into strategy for the particular market segment. The model assumes the idea of competition based on a need for profitability and market survival only loses relevance in modern markets. It wrongly approaches some of the five factors i.e. suppliers and customers as a threat to the organization that needs to be addressed. Modern economics postulate that business strategies should be focused in incorporating, as opposed to reacting to these particular factors (Miles, 2011). The Boston Consulting Group (BCG) matrix was developed with a focus on the efficient allocation of resources within business enterprises. It adopts an evaluative criteria based on two prime factors i.e. market share and market growth has been widely used as a tool for portfolio planning, marketing and business strategy development. The basic principle in risk management is in diversification of assets through portfolio investments. The BCG model provides a useful pictorial comparison of the firm and its products versus the leading competitor and its products in the same market. The model, therefore, becomes a critical tool for implementing a firm’s short to medium-term profitability and growth objectives by providing forecast solutions of the market as it is now and as expected in the near future. In the short-run, the model is capable of providing strategies that are designed to provide quick-fix solutions to a firm. The disposal and optimization of loss making assets or ventures can be easily identified using this model. On the down side, the model, the model’s application is often limited to a scope of a year. The model lacks the ability to provide a long-term picture of the market conditions and thus strategy development towards achieving the firm’s overall long-term goals becomes very challenging. The BCG assumes a direct relationship between market shares, seems irrelevant in the current global market. There are small businesses in the small market segments especially within the information technology segment that have surpassed even the largest multinational corporations in profitability (Kaplan & Norton, 2000). The model also places an inaccurate reliance in market growth as a dominant factor in determine the attractiveness of a market segment. There are other factors such as aggregate market risk and regulation that equally influence new market entrants. The one-size-fits all approach is inapplicable in today’s dynamic business environment where business structures and operations are equally varied as they are complex. McKinsey's 7-S Model is a change management model that assesses the organizational structure of the firm in developing and effecting positive change in its operations. Change implementation in an established company is very challenging primarily due to the threat of resistance by the shareholders of the firm particularly the employee (Kaplan & Norton, 2000). It is a function that cannot be avoided since it is only through change that the firm can continuously maintain relevance in the market and find better ways of achieving its overall long-term goals. Managers are able to better understand the organization and the people-process relationships within it. This approach is a conclusive inclusion of both rational and emotional approach to change implementation thus helps in increasing acceptance of change by the organizational members. The key demerits of the model are that where any change in one part of the model, the total approach and, therefore, its implementation plan changes. This makes it a tedious approach for management. Secondly, the model ignores differences between its elementary parts. Firm’s that used this model were seen to have dropped from the top after a period of 5 years (Kaplan & Norton, 2000). Comparison and Contrast of Blue Ocean model and Porter’s Generic strategies The Blue Ocean model differs significantly from Porter’s Generic Strategies model according to their formation and design. The rational involved in the implementation of the Blue Ocean model is based on the argument that there is neither an infinitely greater company nor market segment (industry); instead, there are permanently great strategies (Afuah, 2003). The rational involved in the generic strategies analysis is to provide an advantage over the competitors in the industry which in turn will guarantee the profitability of the firm. Porter’s generic strategy model was developed in the 1980 when the prevalent concern in businesses was maintaining profitability by achieving of competitive advantage. The Blue Ocean model completely avoids the concept of competitive advantage for optimization of profits. The model was developed following a decade-long research into 150 strategic moves in over 30 industries covering the periods 1880-2000. Porter’s Strategy approach is based on the organization’s reaction to premises which the firm thinks will affect its competitiveness within the market. The Blue Ocean model involves a simultaneous approach intended to achieve product diversification and a lowering of the overall cost of production. The aim of the Blue Ocean strategy is not to out-do the competitors in the existing market segment or industry but to create a new market space i.e. a blue ocean of opportunities; effectively making the competition irrelevant. The main conceptual foundation blocks for the Blue Ocean model are value innovation, fair process and strong, competent leadership. The building block of Porter’s competition model is market dominance. In the former, strategy formulation and execution is engineered in a manner that strategy informs structure and where innovation follows an integrated approach at the systems level i.e. innovation is enshrined through the model’s systematic and reproducible processes In the latter model, structure informs strategy and where innovation is seen as an experimental process where spin-offs and entrepreneurs are key drivers. The conventional theory for organizational change, which is also propagated by Porter’s Strategies model, rests on transforming the organization’s employees-as block-through training. The efforts required steep resources and long time-frames thereby creating a bias against small firms, which does not have such cash flows at their disposal. Under the Blue Ocean model, organizational change takes a reverse approach. It focuses on transforming the extremes i.e. the people, relations therein and their activities which have a disproportionate impact on the organization’s performance. Leadership is able to transform the organization at low costs and in significantly short time periods. Porter’s model indicates that the interests of the firm are first and dominant. It ignores issues of corporate social responsibility and promotes an anything-is-possible approach for firms engaged in an industry provided that the result is profiteering. This concept is very harmful to both the environment and the general public since the moral fabric of the organization’s activities and processes are not called into scrutiny. The Blue Ocean model adopts all the concerns of the public and the organization’s stakeholders so as to ensure that the pursuit of profit is not done at the extent of the environment or the consuming public. However, the two models have some similarities between them. In the very least, they are designed towards attaining the basic function of all business organizations which is to make a profit and sustain growth. The models provide a foundation for which decisions on policies and strategies can be made so as to enable drive the organization’s activities towards achieving its set targets and goals. Secondly, the development of these models provided effective managerial tools useful indecision making in the economic conditions of the time. Reference Afuah, A., 2003. Business Models: A Strategic Management Approach. McGraw-Hill/Irwin. Baye, M., 2009. Managerial Economics & Business Strategy. McGraw-Hill/Irwin. Burnes, B., 2000. Managing Change. Prentice hall. Have, S.T., 2003. Key Management Models. FT Press. Kaplan, R.S. & Norton, D.P., 2000. The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Harvard Business Review Press. Miles, D.A., 2011. Risk Factors and Business Models: Understanding the Five Forces of Entrepreneurial Risk and the Causes of Business Failure. Universal-Publishers. Read More