Importance of strategic management to excel in business

By Priya Chetty on December 11, 2019

In today’s competitive world, market dynamics and constant technological advancements have compelled businesses to devise sustainable competitive advantage. This article is an attempt to critically evaluate the relevance of strategic management in the present commercial landscape. In the pretext of intensifying competition businesses have attempted to increase productivity, quality and service delivery by the adoption of:

  • total quality management,
  • benchmarking and,
  • process reengineering.    

However, these techniques showed temporary benefits and could not guarantee sustainable profitability. This is because the due efforts on viable competitive positioning are drifting by contemporary managers. Porter (1994) maintains that though organizational effectiveness is critical to improving organizational performance, it is not adequate as the technological improvements are subject to emulation.

This is where strategy becomes instrumental. It is a well-thought strategy that helps businesses to establish a unique value proposition by stemming from the structures of organizational processes.

Understanding the meaning of business strategy

It is evocative to identify the reasons behind the success of a few business and failure of others. Some businesses work well, while others succumb to competition and bankruptcy. For instance, Dell has been an epitome of direct marketing, Apple revived like a phoenix and is now one of the most popular electronic company, Wal-Mart is in constant profits in spite of global economic recession while many companies like United Airlines had to resort to bankruptcy, mergers and acquisitions.

Many regard this differentiating factor to the difference in strategic management. In common parlance, a strategy can be comprehended as the persuasion of business heads that have a significant impact on organizational performance. A strategy is a set of aligned actions intended to enhance organizational performance (Hill & Jones, 2013).

Understanding the meaning of strategy from the perspective of different scholars

“Strategy” is an intricate term. Different scholars explain it in accordance with different schools of thought. French (2009) however highlighted the disparity between the approach of business and academia wherein business has a significant emphasis on operational pragmatism rather than strategic planning. While academia stresses more on strategic planning. Moreover, a strategy is often mistaken with “objectives” and “tactics” but in actual they are the subsets of an effectual strategy. This difference of opinion can be further elaborated through the critical analysis of the definitions of strategy propounded by scholars over a period of time.

Hart (1967) defined strategy in context to the military outfit from where it derives.

The art of distributing and applying means to fulfill the ends of policy.

Hart (1967)

This definition can be easily applied to businesses in the context of making the ends meet by the means of business objectives. Chandler (1962) and Hart (1967) both adopted a practical approach to meet the objectives through accessible resources. However, a more business-centric definition was given by Steiner (1979) who made critical contributions towards strategic planning.

A strategy is that which top management does that is of great importance to the organization.  It refers to basic directional decisions, that is, to purposes and missions. Strategy answers the question: What should the organization be doing? What are the ends we seek and how should we achieve them? 

Steiner (1979)

The pattern of objectives, purposes, or goals and the major policies and plans for achieving these goals, stated in such a way to define what business the company is in or is to be in and the kind of company it is or is to be.  

Andrews (1980)

Modern perspectives of strategy

All the above definitions emphasized the accomplishment of business objectives with the help of the available resources. None paid any heed to the external environmental factors influencing business performance. It was the growing competition and globalization that made scholars redefine strategy. 

Porter (1986) viewed strategy in the light of “competition” and as a source of, “differentiation wherein managers intend to develop an exclusive set of activities to deliver a unique mix of value”. Porter has always advocated and propounded theories based on competitive strategy.

However, one definition that befittingly defines strategy in the present-day business context has been given by Viljoen (1994).

The process of identifying, choosing and implementing activities that will enhance the long-term performance of an organization by setting direction and by creating ongoing compatibility between the internal skills and resources of the organization, and the changing external environment within which it operates. 

Viljoen (1994)

This definition is all-embracing which is based on the mission and vision of an organization, available resources and the externally influencing environmental factors. Today’s business cannot work in isolation and competitive scenario has both explicit and implicit influence on the business. To survive organizations keep a constant tab on both the internal and external factors and modify their strategies. This helps with business objectives that are attained with sustainable competitive advantage and profitability.

The contemporary relevance of strategic management theories

After understanding the progression of strategy and its relevance, it is essential to assess the underpinning strategic management theories. During the past two or three decades, the documented literature on management is predominantly based on strategic management and strategy. In common parlance, strategic management and strategy are used as synonyms but in reality, strategic management is the stem of academic management study and strategy is the primary concept of the subject (Saloner, Shepard & Podolny, 2008).

Strategic management is the means to administer and approach the formulation of business goals and objectives. Strategic management helps to develop sequential policies to accomplish the objectives within the stipulated time frame. Furthermore, these predetermined objectives help with the allocation of requisite resources for smooth execution of policies and procedures (David, 2005).

The theories work as a guiding tool for strategy formulation and effectual management decision making. They cannot be applied in isolation but need to be collaboratively implemented.

Theories of strategic management
Theories of strategic management ( Source: Raduan et al, 2009)

Profit-maximising and competition-based theory of strategic management

The profit-maximizing and competition-based theory has the reinforcing postulation that the primary objective of all organizations is profit maximization. Furthermore, on long-term, this theory bases the establishment of sustainable competitive advantage. This theory holds relevance today as businesses are not only competing within their industry but also across industry vertices (Vroom & McCann, 2010). However, it rejects the conventional within the industry competition approach as proposed in Porter’s Five Force Model. 

The resource-based theory of strategic management

Conversely, the resource-based theory is based on the postulation that a business can attain competitive advantage only through its internal resources rather than their positioning in the market (Ainuddin et al, 2007). It is based on SWOT analysis, where external opportunities and threats can be confronted with internal strengths and weaknesses. Furthermore, this theory is critical in the present scenario as the unique resources of a business can be the critical source of competitive advantage. 

On the other hand, the human resource-based theory stresses on production and operations. Human resource is responsible for strategy formulation and its implementation. Also, this theory emphasizes the core relationship between the shareholders and the managers. 

Survival and contingency theory of strategic management

The survival-based theory proposes that organizations need to continuously improvise in order to survive industry dynamism and competition (Otungu, et al, 2011). This theory has relevance especially in the scenario of global recession wherein companies need to adopt sustenance strategies to avoid growth retardation. 

The contingency theory concludes that there are no solitary means of managing businesses effectually but organizational managers need to be flexible and develop strategies based on the prevalent situation and impending internal and external conditions (Raduan et al, 2009).

An overview of different strategic management models

It is essential to comprehend how suitable strategies are developed in the pretext of contemporary business scenario. Today’s market scenario is highly intricate and possesses disorderly open-ended undercurrents on the global platform. This makes it important for the organization heads to develop an accurate, unswerving, coherent and all-embracing framework for a strategic outlook. 

Thus, strategic management has gained more relevance with times and business performance is subject to the strategies adopted. There have been many assessment models like:

  • the Ansoff’s growth vector,
  • McKinsey Matrix,
  • Shell Directional Policy Matrix and,
  • Boston Consultancy Group’s growth-share matrix.

These models have been pivotal for strategic diagnosis and formulating strategies on the basis of situational analysis and assessment of organization’s assertiveness to reciprocate (Watts, Cope & Hulme, 1998; Udo-Imeh, Edet & Anani, 2012).

Another key contributor to strategic management theories is Michael Porter, who propounded theories like:

  • generic strategies,
  • five–force model,
  • value chain model and,
  • the diamond mode.  

Porter opinionates that organization heads need to comprehend the undercurrents of the industry to survive the competition. The generic strategies of cost optimization, differentiation, focus and combination strategies are widely used as a strategic topology for organizations (Allen & Helms, 2006).

The five-forces model proposes that the competitive environment of a business is fashioned by the interaction of the five different forces influencing a business. These are rivalry among existing businesses and the threat of new entrants, supplier advantage, the power of the buyers, and the threat of substitute products or services (Ruocco & Proctor, 1994).

References

  • Ainuddin, R., Beamish, P., Hulland, J. & Rouse, M. (2007). Resource attributes and firm performance in international joint ventures,  Journal of World Business, 42, 47- 60
  • Allen, R. & Helms, M. (2006). Linking strategic practices and organizational performance to Porter’s generic strategies, Business Process Management Journal 12(4), 433 – 454
  • Chandler, A. (1962). Strategy and Structure: Chapters in the History of Industrial Enterprise, Cambridge: MIT Press
  • David, F. (2005). Strategic Management: Concepts and Cases (10th ed.), London: Prentice Hall
  • French, S. (2009). Critiquing the Language of Strategic Management, Journal of Management Development, 28(1), 6-16
  • Hart, B. (1967). Strategy, London: Penguin Books
  • Hill, C. & Jones, G. (2013). Strategic Management Theory (2nd ed.), Mason: Cengage Learning
  • Otungu, O., Nyongesa, W., Ochieng, O. & Simeon, K. (2011). Strategic Management: The Link Between The Agency Theory And The Company’s Competitive Advantage, International Journal of Business and Social Science 2(23), 232-237
  • Porter, M. (1986). Competitive Strategy, Boston: Harvard Business School Press
  • Porter, M. (1994). What Is Strategy?, Harvard Business Review,  November– December 1996, 1-20
  • Raduan, C., Jegak, U., Haslinda, A., & Alimin, I. (2009). Management, Strategic Management Theories and the Linkage with Organizational Competitive Advantage from the Resource-Based View, European Journal of Social Sciences 11(3), 402-417
  • Ruocco, P. & Proctor, T. (1994). Strategic Planning in Practice: A Creative Approach, Marketing Intelligence & Planning 12(9), 24 – 29
  • Saloner, G., Shepard, A. & Podolny, J. (2008). Strategic Management, New Delhi: Willey India
  • Steiner, G. (1979). Strategic Planning: Whatever Every Manager Must Know, New York: The Free Press
  • Udo-Imeh, P., Edet, W. & Anani, R. (2012). Portfolio Analysis Models: A Review, European Journal of Business and Management 4(18), 101-120
  • Viljoen, J. (1994).  Strategic Management: Planning and Implementing Successful Corporate Strategies, Melbourne: Longman
  • Vroom, G. & McCann, B. (2010). Ownership Structure, Profit Maximization and Consumer Behavior, Working Paper,WP-800, Barcelona: IESE Business School, University of Navarra
  • Watts, G., Cope, J. & Hulme, M. (1998). Ansoff’s Matrix, pain and gain: Growth strategies and adaptive learning among small food producers, International Journal of Entrepreneurial Behaviour & Research 4(2), 101 – 111
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