Strategic Management and Competitive Advantage - Essay Example

Introduction Strategic management, which primarily concerns the formulation and implementation of an organization’s cross-functional decisions (Virtual University of Pakistan, 2010), and is essential for an organization to fulfill its mission (The Enterprise Foundation, 1999). StrategicManagement.co.uk (2010) further adds to this, citing its importance in managing the concerted efforts of a company’s different departments as well as its role in a company’s growth. QuickMBA.com (2010), a site focusing on tips for business majors and full-fledged executives alike, cites it as essential if an organization is to remain competitive. Needless to say, it is something every company executive must keep in mind in running their business. Quite frankly though, this is a bit of a no-brainer for me; I have been raised from birth to be responsible in all aspects of life, so strategic management isn’t something I am incapable of. While it is true that different people may have varying degrees of success in this regard, this will still help any business no matter what field. Case in point: all big name companies that we have known, regardless of whether they were forced to declare bankruptcy, were able to pull this off somehow else they would never have gotten off the ground. Most of us, even non-business majors, no doubt already know this. This being the case, it becomes even more important to learn this skill which will spell the difference between success and failure in our careers. In particular, three steps are most important in my opinion – scanning both the external (knowing one’s surroundings) and internal (knowing oneself) environments, as well as the competition (knowing the enemy), which will be the focus of this paper. As I heard somewhere before, only by knowing both oneself and the enemy (or in this case, competition) can success be guaranteed. External Scanning According to Elisabeth Chapus et al (2010), environmental scanning, both internal and external, is meant to aid managers in making decisions and to respond adequately to weak signals coming from the environment. Coming up with plans usually entails taking into account the current situation, and strategic management is no exception. However, unlike normal planning that focuses mainly on thinking of the future, strategic management emphasizes good decision-making in order to achieve a desirable future (Craig Dobbins, 2010). To this end, managers must be able to make educated guesses about the future based on what they see now, achieving a fit in terms of how the company can get what it needs from the environment, and how, in turn, the company can provide the needs of its consumers. In this regard, one’s external environment must first be taken into account. That is, managers must glean as much information as they can from the external environment – the level of competition (as well as the competition itself, to be discussed further in succeeding chapters), their target market, among other things. Dobbins (2010) refers to these as the societal and industry environments. The former, societal environment, includes factors that have little to no bearing on the short-term but significantly impact an organization’s long-term decisions. Under these are economic forces, government policies and changes therein, other such political/legal forces, and sociocultural forces. All of these will definitely affect one’s business, some more than others, and so all of these must be taken into account if one’s business is to succeed. Most obviously, the economic aspect is most visible. For instance, the appreciation of the dollar’s value will most likely lower the demand for US exports, leading to reduced prices. Conversely, the general level of demand could increase when the income of consumers goes up. Technology also plays a part, whether this refers to production technology or information technology, both of which are vital to an organization’s day-to-day affairs. Government policies and other political-legal factors (taxes, for instance) will likewise have impact, as will sociocultural forces – for instance, as compared to other cultures, Muslims are of course unlikely to buy pork products. The industry environment, meanwhile, simply refers to what goes on in the industry. For instance, new, up-and-coming companies could serve as fierce competition as they become more and more successful. The existence of substitute products may end up lowering the demand for one’s own products, as will the bargaining power of both suppliers and buyers. In both of these cases, it is important for one’s product or service to have a key trait that sets them apart from other similar products/services in the industry. And of course, the rivalries that currently exist in the industry are things to take note of and shall be discussed separately. Clearly, the external environment is something every company should be aware of. At the same time, though, it is only one of the three things to take note of in strategic management. Next would be the internal environment – knowing oneself, as I mentioned in the introduction. Internal Scanning According to Prof. M. Thenmozhi of the Indian Institute of Technology Madras (2010), the internal environment consists of variables, such as an organization’s strengths and weaknesses, culture, structure and resources, which are often beyond its short run control. Larry Dwyer and Sharon Kemp (2004) discuss this in more detail, explaining how it involves business areas such as administration, marketing, finance, human resources, production and operations, and finally R&D, all of which help in assessing the aforementioned strengths and weaknesses. In understanding these, one can better understand his organization’s capabilities and make the necessary adjustments from there. Administrative duties refer mainly to the acts of planning, organizing, motivating, staffing, and controlling, and are up to the managers to carry out effectively (Dwyer and Kemp, 2004). Merely passive involvement in these duties is ill-advised. Dwyer and Kemp relate how a Fijian resort, Fiji’s Hidden Paradise, and how the absentee management of the Australian partners running it had a hand in the poor performance of the staff. Specifically, in this case, it was only upon confirmation of the arrival of guests that the resort manager attended to his duties, and his Australian superiors were too busy attending to other matters to give FHP much of their attention. All these coupled with the practically nonexistent controlling function left much to be desired of the level of service the resort offered. Next on the list would be marketing capability, which deals with defining, anticipating, and finally fulfilling customer needs, which, again, FHP only barely did. While they did gather some information about hotel guests, it was very limited (name, address, feedback upon leaving), and even then some of these guests neglected to give feedback. As a result, the resort staff was left in the dark as to what things their guests did and did not enjoy, and consequently they were not able to improve on the strengths and weaknesses yet to be made known to them. Which is a pity; considering that FHP charges rather high rates for its level of service, such feedback could have helped them make the high price of their service worth it. Financials must also be taken into account. Companies that flourish in this regard are more likely to be seen as competitive and attractive to investors, and related strengths and weaknesses are important in coming up with effective strategies and implementation plans. The financial process often involves decisions related to investments, finance and dividends, and in the case of FHP, investment plans substituted for both business and marketing plans; specifically, the Australian partners focused more on providing a livelihood for the Fijian villagers rather than on the acquisition of profit which, while certainly altruistic, was somewhat impractical. This lack of focus on profit coupled with debts and other expenses resulted in FHP gaining very little in the way of finances, and subsequently closing down in late 1999. Meanwhile, with regard to human resources, arguably the most important thing to remember in internal scanning, FHP’s staff fell short in as many areas as they excelled – a major handicap in the hospitality industry, which places emphasis on good customer service. While it was true that those handpicked by the hotel manager had been accurately described as friendly, flexible, and otherwise with pleasing personalities, none of them were formally trained in customer service. Thus, while their hospitality and overall demeanor endeared them to tourists, the fact that they fell flat with regard to providing more sophisticated service spelled failure for the FHP. This account of the FHP’s failure taught me that internal scanning is just as, if not more important than external scanning. Clearly, the Fijian hotel manager as well as the Australian partners failed to adequately assess the capabilities and limitations of their services and staff, which was the biggest factor in their business failure. In this way, it can be said that if success depends on knowing the enemy, even more focus should be placed on knowing oneself. Competitive Rivalry Of course, as in any field, competition in the business world is inevitable. Not only that, one could say it is encouraged, even vital, for there to be fierce competition among companies in a certain field. Fierce competition ensures that each company will be doing their best to outdo the other, in the process guaranteeing a certain standard with regard to their products and services. Ultimately, such competition breeds good business, which benefits most if not all companies involved in the competition. Companies that are ahead of their peers and rivals in this regard are said to have a competitive advantage (Jay Barney and William S. Hesterly, 2007). Which brings us to the subject of competitive rivalry. As described on OpenLearningWorld.com (2007), this exists when two or more companies come into conflict in the quest for a better position in the market. That is, any sudden moves, gains or advances on the part of one of the competing parties leads the others to attempt to acquire gains of their own, ad infinitum. This comes as a result of competitive asymmetry, which means that different companies will vary in terms of their resources, capabilities and core competencies, among other things – in this case, it is unavoidable that one or more companies will have a certain trait or characteristic unique to them, which their competitors will then try to outdo in other ways. Such competition is said to result in mutual independence among companies. In the process of maintaining competitiveness, outdoing each other and earning substantial returns, it is vital that these companies realize that the various strategies they formulate and implement must take into account the actions and responses of the competition. In this way, strategic management boils down to taking action, anticipating reactions, and then responding accordingly to them. Competitive rivalry begins with assessing one’s competitors, from which one can infer the best attacks/courses of action. These attacks are in turn affected by the level of motivation among employees, and will end up affecting competitive dynamics via company awareness, motivation and overall level of capability. It becomes more intense as those involved in it become more inclined to respond; that is, competition with a passive company will not be as fierce as that with a highly aggressive, dominant one. Conclusion All in all, strategic management is a lot like fighting a war. In both cases one must take into account the current playing field, his current condition as well as that of his opponents in order to ensure success. And just as in war, where inept generals are just as likely to lead as competent ones, anyone can attempt strategic management. However, only a handful can do this effectively; luckily, such skills can be learned. As said by Sun Tzu (Ron Karnahan, 2010), not only must one know both oneself and his enemy, but heaven and earth – the environment – as well, if victory is to be achieved. In the business world, this means that, yes, it is important to know oneself, but know what the competition is capable of, too. Not only that, always be prepared for anything unexpected that may arise. If managers and executives keep this in mind, their chances of success could rise ten- or even a hundred-fold. References Barney, J.B. and Hesterly, W.S. (2007). Strategic Management and Competitive Advantage: Concepts, 2nd ed. Prentice-Hall. 14 Chapus, E., Lesca, H. and Raymond, L. (2010) Collective learning within an environmental scanning coalition of small regional firms: towards a modelization. Retrieved 04/14/10 from http://www.sbaer.uca.edu/research/icsb/1999/154.pdf Dobbins, C. (2010) Strategic planning: external environment scanning. Purdue University. Dwyer, L. and Kemp, S. (2004) Closure of an ecolodge: Poor strategic management? The Journal of Pacific Studies, 26(1-2). 51-75 Effective strategic planning: Getting your organization focused and directed (1999). The Enterprise Foundation. Columbia, MA. The Enterprise Foundation, 1-35. Kernahan, R. (2010) Sun Tzu – “The Art of War”, commentary on the book plus excerpts. Oxford University Press. Nature of Strategic Management (2010) Virtual University of Pakistan. Retrieved 04/14/10 from The strategic planning process (2010). Retrieved 04/14/10 from http://www.quickmba.com/strategy/strategic-planning/ Thenmozhi, M. (2010) Module 9 – 9.1. Strategy Formulation: An Overview. Indian Institute of Technology Madras. Management Science I. Indian Institute of Technology Madras. What is strategic planning and strategic management? (2010). Retrieved 04/14/10 from http://www.strategicmanagement.co.uk/strategic-planning/what-is-strategic-planning-and-strategic-management.html Read More