Discuss the elements of strategic management and explain why it is crucial to an organizationâ€s survival. Excluding the examples from the textbook, give an example of a company that failed as a result of poor strategic management. Explain the difference between a strategy and a business model. Please discuss in 200-250 words.
Analyzing the Industry
An industry is a group of organizations producing products that are close substitutes for each other (Abraham, 2012, p. 22). As organizations compete for market share, their competitive strategies influence each other as each organization pursues strategic competitiveness and profitability. We need to consider the specific strategies that organizations put into place to gain an edge in industry. Letâ€s review a few of them.
The Five Forces Model of Competition
To determine the intensity or strength of competition, it is necessary to review Porterâ€s Five Forces Model of Competition which asserts that these forces ultimately determine the profitability of the industry:
- Rivalry among existing competitors
- Bargaining power of buyers
- Bargaining power of suppliers
- Threat of new entrants
- Threat of substitutes (Abraham, 2012, p. 22).
There are organizations within industries that employ similar strategies for strategic competitiveness. These organizations are generally classified as strategic groups (Abraham, 2012, p. 129). Membership in a particular strategic group is determined by the organizationâ€s strategy, which may include the:
- Extent of technological leadership
- Degree of product quality
- Pricing policies
- Choice of distribution channels
- Degree and type of customer service
Strategic groups are useful in analyzing the competitive structure of an industry and assessing the organizationâ€s competition.
For an interesting discussion on growing companies trying to gain a competitive edge, you may find the following article on customer service helpful: A Big Strategic Mistake Fast Growing Companies Make (Links to an external site.).
Analyzing the Competition
Competitor analysis enables the organization to focus its attention on those organizations with which it will directly compete as the analysis focuses on how competitors might be expected to respond to an organizationâ€s strategic moves. The process involves developing answers to a series of questions about competitors such as:
- Future objectives
- Current strategy
- Assumptions about the industry
Competitor analysis is critical because it helps an organization understand competitorsâ€ intentions and the strategic implications resulting from them.
For students interested in marketing, you may find the following video interesting as it contains an in-depth discussion of online competitive analysis geared toward direct marketers: 10 Competitive Analysis Tools for Direct Marketers (Links to an external site.)
Analyzing The General Environment
Industry and competition are not the only concerns of managers, as we should also consider the general environment that impacts organizations. The general environment is composed of trends in the broader society that can indirectly influence an industry and the organizations within the industry (Abraham, 2012, p. 152). The trends of the general environment include:
- The economic trend represents the general economic health of the country or region in which the organization operates. For example, in the last few years, the weakened U.S. economy has had a devastating effect on small businesses. Nevertheless, there is still tremendous vitality in the small business sector of the economy.
- The regulatory/legislative trend includes federal, state, and local government regulations designed to influence company behavior. For example, government regulations influence organizations such as Occupational Safety and Health Administration (OSHA) and the Environmental Protection Agency (EPA).
- The political trend includes the power, actions, and activities that people take to redress perceived inequities.
- (Links to an external site.)The demographic trend is concerned with a populationâ€s size, age structure, geographic distribution, ethnic mix, and income distribution. For example, changes in a nationâ€s life expectancy directly impact the development of products targeted to an older population.
- The attitude/lifestyle trend is concerned with how consumers live and their patterns of living such as consumer choice and consumption.
- The sociocultural trend is concerned with different societiesâ€ social attitudes and cultural values. For example, managers should take into account an employeeâ€s need to telecommute when trying to balance work and family life.
- The technological dimension includes scientific and technological advancements in a specific industry as well as in society at large.
- The challenge for managers is to assess all seven trends, focusing the primary effort on those elements in each trend that have the greatest potential impact on the organization.
For further information on general environments, please view Episode 146: The General Environment: What It Is and How to Evaluate It (Links to an external site.).
When analyzing external and internal influences on an organization, the SWOT (strengths-weaknesses-opportunities-threats) is helpful as it summarizes the external and internal analysis in the same management tool (Abraham, 2012, p. 152).
- Strengths are positive internal characteristics organizations can exploit to achieve strategic performance goals.
- Weaknesses are internal characteristics that may inhibit or restrict the organizationâ€s performance.
- Opportunities are characteristics of the external environment that have the potential to help the organization achieve or exceed its strategic goals.
- Threats are characteristics of the external environment that may prevent the organization from achieving its strategic goals.
The SWOT analysis can be seen as a summary of a more detailed and extensive analysis process throughout businessesâ€ external and internal environments. It is also used to achieve a quick first glance at environmental factors. For a helpful presentation on SWOT, consider the following video: How to Perform a SWOT Analysis (Links to an external site.).
Analyzing the Internal Organization
The Context of Internal Analysis
When managers analyze their internal environment, they should not focus only on the traditional sources of competitive advantage such as labor costs but should focus on resources and capabilities that make the organization unique. An organizationâ€s resources are the source of its capabilities, some of which can lead to core competencies that enable an organization to perform value-creating activities better than its competitors or that its competitors cannot imitate.
Core competencies emerge over time and are the resources and capabilities that are a source of competitive advantage for the organization over its competitors (Abraham, 2012, p. 158). Core competencies are the activities the organization performs better than competitors and through which the organization adds unique value to its goods or services.
Protector & Gamble is an excellent example of turning an acquisition into a competency. For a brief discussion of Protector & Gambleâ€s strategy, visit Preview: How P&G Turned Acquisition Into a Core Competency (Links to an external site.).
Value Chain Analysis
The value chain is a framework that the organization uses to understand its cost position and to identify the multiple means that might be used to facilitate the implementation of its business-level strategy (Abraham, 2012, p. 165). Managers should use value chain analysis to develop new ways to combine capabilities and resources to create value that are difficult for competitors to duplicate; thus, creating a competitive advantage.
The Forbes website provides valuable information on designing a value chain analysis: How to Design the Value Chain You Need (Links to an external site.).
Abraham, S. C. (2012). Strategic management for organizations. Retrieved from https://content.uagc.edu/
Alanis Business Academy. (2013, December 9). Episode 146: The general environment: What it is and how to evaluate it (Links to an external site.). Retrieved from https://youtu.be/Rfn_gfWJloQ
Ballowe, T. (n.d.). How to perform a SWOT analysis (Links to an external site.). Retrieved from https://onstrategyhq.com/resources/video-how-to-perform-a-swot-analysis-a-whiteboard-video/
Harvard Business Review. (2013, February 7). Preview: How P&G turned acquisition into a core competency (Links to an external site.). Retrieved from https://youtu.be/PWsHTrSWHKw
Hennerberg, G. (2013, July 25). 10 competitive analysis tools for direct marketers (Links to an external site.). Retrieved from https://youtu.be/P8NWr69g4Mo
Hopkins, M. S. (2010, March 25). How to design the value chain you need (Links to an external site.). Retrieved from https://www.forbes.com/2010/03/25/value-chain-supply-leadership-managing-mitsloan.html
Mourdoukoutas, P. (2014, April 11). A big strategic mistake fast growing companies make (Links to an external site.). Retrieved from https://www.forbes.com/sites/panosmourdoukoutas/2014/04/11/a-big-strategic-mistake-fast-growing-companies-make
Welsh, J. (2013, August 9). Tesla’s success so far has some analysts eating crow (Links to an external site.). Retrieved from http://blogs.wsj.com/speakeasy/2013/08/09/teslas-success-far-has-some-analysts-eating-crow