Understanding Strategic Management: Concepts, Levels, and Processes

Posted on Nov 8, 2024 in Other subjects

Concept of Strategy

Defining Strategy

Andrews (1977): Strategy is the pattern of major objectives, purposes, or goals and essential policies and plans for achieving them. It defines the current and desired state of the company, specifying the business it operates in and aims to be.

Porter (1982): Formulating competitive strategy involves relating a company to its environment and taking offensive or defensive actions to create a defensible position against competitive forces.

Hax and Majluf (1996): Strategy is multidimensional, encompassing all critical business activities. It provides unity, direction, and purpose, facilitating adaptation to environmental changes across the entire value chain.

Nine Dimensions of Strategy (Hax and Majluf)

  1. Sets medium- to long-term targets, action programs, and resource allocation.
  2. Considers the competitive environment.
  3. Provides sustainable competitive advantage by addressing SWOT analysis.
  4. Defines leadership roles, integrating corporate, business, and functional perspectives.
  5. Creates a pattern of consistent, unifying, and inclusive decisions.
  6. Addresses both economic and non-economic issues.
  7. Directs the organization towards its goals.
  8. Develops core competencies.
  9. Acquires tangible and intangible resources to build sustainable competitive advantages.

Strategy defines the enterprise’s continuity, adapting to a changing environment and providing a framework for business transactions.

Basic Features of Strategic Management (Cuervo, 1995)

  • Development and mobilization of resources and capabilities.
  • Coordination of tangible, intangible, financial, and human resources.
  • Pursuit of business income.

Key Elements of Strategy (Ansoff, 1976; Menguzzato and Kidney, 1991)

  • Field of Activity: Definition of the business and its operating environment.
  • Distinctive Capabilities: Resources (physical, technical, human, etc.) and skills (technological, organizational, managerial, etc.).
  • Competitive Advantage: Positioning the company relative to competitors.
  • Synergistic Effect: Exploiting interrelationships between activities, resources, skills, and organizational units.

Levels of Strategy

1. Corporate Strategy

Defines the relationship between the business and its environment. It’s the general plan of action for diversification, deciding on positions in different industries and how to manage diversified businesses.

2. Business Strategy

Develops internal potential to build a better competitive position. It’s the management plan for single or multiple business units, focusing on distinctive capabilities and competitive advantages.

3. Functional Strategy

Maximizes productivity of resources and skills within each functional area, emphasizing distinctive capabilities and synergistic effects.

Schools of Strategic Thought

Prescriptive Schools

These schools define how strategies should be formulated.

1. Design School

Conceptual process based on SWOT analysis. Strategy should be conscious, formal, simple, unique, and explicitly articulated.

2. Planning School

Formal, conscious, and controlled process with distinct stages. CEO holds responsibility, while planners handle implementation.

3. Positioning School

Analytical process. Strategies are generic positions in the market. Market analysis and data calculation are key.

Descriptive Schools

These schools describe specific aspects of strategic management.

4. Entrepreneurial School

Visionary process driven by the leader’s long-term vision, intuition, and experience.

5. Cognitive School

Mental process occurring in the strategist’s mind. Strategies are concepts shaped by cognitive biases and limited information.

6. Learning School

Emergent process based on accumulated knowledge over time. Strategies emerge as patterns from the past and evolve into future plans.

7. Political School

Strategy formulation as a political process, involving power dynamics and private vs. global purposes.

8. Cultural School

Ideological process based on shared beliefs within the organization. Promotes global change while allowing for small adjustments in strategic position.

9. Environmental School

Passive process where the environment forces the strategy. Internal leadership is considered a myth.

10. Configurational School

Episodic process where strategy formation is context-specific. It combines stratagems (specific actions) and perspectives (global views).

Phases of Strategic Management

  1. Establish company goals, tasks, and forecasts.
  2. Analyze the external environment.
  3. Conduct internal analysis and competitive positioning (SWOT).
  4. Formulate and design corporate, business, and functional strategies.
  5. Evaluate and select the chosen strategy.
  6. Implement the chosen strategy.
  7. Develop the strategic plan and strategic control.

Strategic Analysis

Determine environmental threats and opportunities, as well as company strengths and weaknesses (SWOT).

Formulating Strategies

Develop alternatives to achieve the mission and corporate objectives. Final strategies address future development and actions, including specialization, growth, diversification, forms of implementation (internal, external, cooperation), and degree of internationalization.

Implementing Strategic

Organizational success depends on the selected strategy, management team, organizational structure, and corporate culture.