Strategic Direction and Management: A Comprehensive Guide

Posted on Nov 13, 2024 in Economy

UNIT 10. The Strategic Direction of a Company

10.1 What is the Strategic Direction?

The strategic direction is the process of managing one or a set of business strategies within a company. It must adapt to a changing environment, and competition will react accordingly. The goal is to achieve business success by improving the company’s competitive position or solving problems that threaten it.

Elements of Strategic Management

Strategic management is composed of three elements:

Strategic Analysis

Before defining a strategy, you must consider:

  • Environment (economic, social, political, and technological): The characteristics of everything that surrounds the company define the set of threats to be avoided or opportunities that can be taken advantage of. These external factors influence the strategy.
  • Capacity: Resources available to the company and the set of skills or competencies that can be developed throughout the organization. These are internal factors that determine the strategy, namely the weak points that should be avoided and the strengths that should be boosted.
  • Expectations of entrepreneurs or promoters of the business: Business owners, their managers, or professionals must advance with clearly defined objectives to be achieved.

Strategic Choice

You must determine what kind of company you want to implement. There are three types of strategies:

  • Corporate
  • Business
  • Operational

Implementation of the Strategy

This involves defining and planning how to apply the company’s strategy with regard to:

  • The resources that must be allocated
  • The organization of the process (which company departments must participate)
  • Defining a temporary plan of strategic actions to be developed

Types of Strategies

There are three types of generic strategies:

Corporate Strategies

These strategies carry out decisions related to the overall objective of the business and meet the expectations of owners/managers to add value to parts of the company. They are characterized by:

  • Establishing the framework for making decisions.
  • Being global, as they are at the upper level of the scope of strategic management. This means that they are often applied to large companies/economic groups that form a wide range of products or business units.
  • Having a long-term (L/T) time dimension.

Business Strategies

These refer to more specific aspects, such as defining the elements that can make the company’s products competitive within its market or market segment. They are characterized by:

  • Being more specific in scope regarding the product or the business unit that the company wants to strengthen, develop, or make more competitive. Usually applies exclusively to SMEs, which operate as a single product or a limited variety of products.
  • Having a medium-term (M/T) time dimension.

Operational Strategies

These are concerned with efficiently managing the resources that exist in the company at both a departmental and a more general level, taking the company’s strategy as a benchmark. They are characterized by:

  • Being related to day-to-day operations.
  • Having a short-term (S/T) time dimension.

Strategic Principles

These principles define strategic guidelines that can develop a strategy and are the basis for strategic decisions.

  1. Strengths and Weaknesses: A strategy should enhance the strengths that a business presents but also counteract and minimize the weaknesses presented.
  2. Opportunities and Market Environment: You must seize the opportunities that arise for a company at a point in time.
  3. Forces of Innovation: A strategy based on innovation presents considerable potential for acceptance and market penetration.
  4. Synergy Potential: Strategic direction does not create anything new but relates elements already in the business that have not been developed jointly so far.
  5. Media: Must be related to the objectives. Each strategy for achieving a set of objectives has a set of media that is more suitable than others.
  6. Value of Simplicity: Simple solutions and strategies that can be easily implemented are often the basis of a company’s success.
  7. Constancy in Business: A company’s business success is not the result of a fluke or fortune but often comes from dedication and patient perseverance.

10.2 The Process of Strategic Management

This process is characterized by different stages: Goal Definition, Assessment, Assessment of internal resources, External resources, Competitive environment analysis, Preparation of future scenarios, Strategy formulation, Evaluation of strategic alternatives, Strategic tools, Strategic control.

10.3 Competitive Strategy: Advantage and Value Creation

The Basis of Competitive Strategy

  • Low Prices Strategy: Offer a lower price than the competition but provide the same value.
  • Differentiation Strategy: Based on providing a product substantially different from the competition.
  • Hybrid Strategy (Reduced-Price Differentiation): Where the company can offer a product with an important differentiating factor and prices below the competition.
  • Strategy of Low Production Costs: Achieved through industrial scale or operational advantage. Not to be confused with a strategy of low prices, since in this case, the low production costs allow the company to obtain large commercial banks without having to change prices in reference to the competition.
  • Segmental Differentiation Strategy: Where the company is distinguished by offering important added value in relation to the competition, allowing it to justify higher prices. It is known as the “quality has its price” strategy.

All competitive strategies that are based on the existence of a competitive advantage attempt to have a factor that prevents competition from taking it or imitating it.

Value Creation

Value creation is one of the most important engines for achieving a successful competitive strategy. This becomes a very valid option for those markets where there is a lot of competition and trade margins are small, and therefore, the strategies of low prices have no effect. Creating value means that a traditional product, very competitively exploited, adds a very innovative feature which enables it to obtain a special competitive advantage, a factor that is always difficult to imitate by competitors.