Strategic Advantage – the Concept of StrategyEssay Preview: Strategic Advantage – the Concept of StrategyReport this essayModule outlineLesson 1: The Concept of StrategyThis lesson points out the contested terrain of strategy, in particular its various definitions and descriptions, providing examples and techniques for assessing strategy. Beginning with planning, we outline the basics of the planning process and show the basic analytical tools which can help underpin future plans and trajectories. Taking the perspective that a large proportion of strategy researchers have viewed it largely as a question of alignment (or fit) of the organisation with its environment, the lesson covers the various positioning tools and perspectives which can help determine future actions (strategies). Knowing where the organisation is positioned in relation to its operating environment allows strategists to plan either for achieving a better (more competitive) position or to try and make it more difficult for others to enter the market and compete. The lesson concludes its analysis of planning by looking at the public face of strategic planning for many organisations. This public face is captured in the notions of goals and mission. A few examples of mission statements show how such goal-orientated statements can be the overall guide of strategic decisions taken in the organisation. Such guiding can take the form of a statement about future economic positioning (we want to be number one in the industry) or can take the form of expressed values (we want to be seen as environmentally friendly and socially responsible).
As we progress through the module you will see that we aim to provide a definition of strategy from an examination of the nature of strategic decisions. We analyse the meaning of strategy by breaking it down into its component parts, namely:
its external logic – how the firm positions itself relative to its external contextits internal logic – the levels of the organisation at which strategy has different meanings and what distinctive resources and competences it must acquire
its performance over time – distinguishing between achievement of long-term objectives, meeting milestones along the way, and preserving short-term stability
its managerial requirements – the role of general managers and how strategy is planned and managed.In Lesson 1 we suggest ways of applying practical strategic tools of analysis in the form of simple strategic tools, focusing initially on understanding what is a strategic problem. These are essentially complex and the rest of the lesson indicates ways of dealing analytically with complexity. A number of practical methods are introduced regarding mind mapping, impact wheels, why diagrams and influence diagrams. Strategic management as a subject does not regard these techniques as being an essential part of its theoretical apparatus but for practitioners these methods, which are more often seen in soft operations research modules, are very useful.
[Page 2]
Lesson 2: Achieving the Human Condition. It is said that the human mind is endowed with the capacity to plan (in accordance with a general plan to “survive” one’s life). Such a plan can be expressed in a simple, objective and practical form or, through the creative effort of one’s friends, can be applied in any number of ways: • the acquisition of a new knowledge of human behavior, such as how to think, how to engage others, a way of forming or adapting a relationship, or the maintenance of personal relationships in a way that facilitates social and legal relationships, such as a relationship in which it is to some degree necessary and appropriate, or in which, after the individual has spent time with his or her friends, he or she has the capacity to work with others to develop new relationships, such as those which have been established in a group by the individual. • a strong sense of the need to understand the social order, to relate to other people, and to understand and to maintain order, which is then expressed in practical aspects, such as personal relationships, social connections, communication and business-related activities. • a sense of the need to connect to others through personal and professional relationships. • interpersonal, or the knowledge that someone needs to help others in their personal lives. These forms of organizing and coordinating are not meant to substitute for planning, but rather create a form of coordination.In Lesson 3 we discuss how in a practical way to organize, control and implement human organizations according to these basic principles: • how we operate our organizational processes. • use of technical, nontechnical information. • organization of time, place, and place of human resources. To use them we must begin with an understanding of the basic human structure, in which we will relate to our social, national and cultural relations: the social function, the educational function, the social and financial roles, social, economic, and political activities, and the economic functions, social and political activities of the individuals and of the community — the institutions which are the basis of society, and so on. On the economic side of the equation and on the social side we are looking at how we can take the place of these hierarchical functions, that are the same, and in general will develop and maintain economic, political, social functions and political services. In that respect we shall develop a new kind of hierarchy — one which will provide us with a level of organization. The following principles will guide in any practical sense the organization of the institutions represented in Lesson 4.First of all we will look at the organization of the means of production, including the means of production, and at particular methods and means of control, including the method of the use of money for the purpose and of controlling economic, political, social, social, and psychological activities, including personal relationships, and also at the methods of social and physical control which are the basis for the whole of political life. The following principles are developed as a tool for understanding the organizational functions at the workplace: – (a) the process of organizing
Lesson 2: Macro and Micro Environment Analysis: PESTLE and SWOTThese two simple frameworks are very widely used as the first steps in systematic strategy review and formulation processes. They have reached such a peak of general acceptability that Wikipedia contains extensive explanation and referencing of the two ideas. In this lesson we aim to supplement the more formal economic analysis (e.g. in your Economics of the Business Environment module) under the general heading of macroeconomic and microeconomic analysis. The PESTLE and SWOT tools are economical, shorthand ways of assessing the external and internal environment of companies (and not-for-profit organisations as well).
Lesson 3: Industry Analysis and Competitive StrategyEquipped with a microeconomic toolkit and a sense of how to analyse the economic environment, Chapter 3 of the textbook introduces the key notion of competitive advantage. This is the foundation stone for any strategy analysis. It is a powerful intellectual construct that is used universally. The idea of competitive advantage is gained through the denial of perfect competition, the economists competitive ideal. Whereas perfect competition leaves no room for individual firms and their strategies, the whole idea of strategy is built on the presence of imperfections in markets. This starting point for strategy is explained in this lesson and further explored in other basic concepts, industry analysis (often referred to as Porters Five Forces Analysis), the generic competitive strategies, and the value chain.
Moving from these foundations for strategy analysis, the rest of the lesson introduces a more practical flavour. If we understand the idea of competitive advantage as a key attribute that is specific to the firm, then we have the beginnings of a description of strategy. We look at a template for describing and identifying a strategy – how would you recognise a strategy if you saw one? Whereas competitive advantage is an external positioning concept, strategy also needs to say something about the internal disposition of resources and assets. The internal logic of strategy is shown in the Strategy Cycle and cost analysis is reflected in the Value Chain. The latter is extremely well known being another product of Porters analysis (1985). The Strategy Cycle illustrates the significance of the balance between internal resources, external market positioning and financial performance. The value chain builds directly on cost analysis and enables us to identify a picture of the internal asset structure and activity structure of the firm.
Of core concern to this lesson is the nature of strategic positioning. We call this the market-based view and others have called it the activity-based view. Strategic positioning is about what activities have to be pursued in chosen markets so as to gain competitive advantage. Positioning is about the deployment of cost and differentiation-based advantages. It is about the identification of distinctive cost strategies and distinctive differentiation strategies. In practice we see the need for detailed analysis of markets and industries, firstly to see what the rules are and how to play them, but second (hopefully) to see how we might innovate with our strategies so as to break the rules and get ahead. In industry terms, this means understanding how we can be better than our competitors. In market terms, it means understanding what the customer wants. Strategy is about value creation and value analysis is an important element of this chapter.
The Strategy
While you are starting a business, consider the following:
An entrepreneur has chosen an investment strategy. He or she is already using it and will use it for a number of reasons.
The entrepreneur has an opportunity to expand this strategy.
When considering other options that are more profitable, the entrepreneur should do more research and understand the markets that are less likely to attract investors.
The opportunity to increase returns and reduce costs that the entrepreneur might otherwise incur, particularly when it comes to capitalization.
The entrepreneur needs to invest enough. When the entrepreneur wants to return, that is a good thing as long as he or she is careful not to overindulge. The amount needed for growth is a key factor, however, as it provides a certain level of return on capital required. There are more benefits to spending, but for most entrepreneurs the need is minimal.
The best, and most widely available, strategies usually are based on short- term “growth strategies” (i.e., “price signals” that a company makes with its products or services). These are very basic investment strategies, however it is possible to get a greater understanding of them in a short time and develop techniques to create “market-based indicators”. These are tools that can help the entrepreneur to gain deeper understanding by developing better market-based indicators of investment cost, market segmentation, and other characteristics. By using these tools, the entrepreneur can avoid costly risk, increase profitability, reduce the need to repeat steps, and get ahead easily. For these very different reasons, the “growth” approach might be better understood as a “market-based approach” instead of as “growth strategy” in the normal sense of the word (see below for more details about this).
The Success
The success of the successful entrepreneur depends on several factors. On one hand he or she is likely to receive a well-structured financial plan. On the other hand, he or she is the business leader in achieving and managing his or her goals. To give an explanation, consider what an entrepreneur makes while serving as CEO – for example, you have $200,000 in capital and $100,000 in earnings. There is always more to success in the business, but more to it in every business: no one really knows what you will do or spend. In short, we need to see how our business can get ahead, and see how our business is able to advance along the way. The success of a successful entrepreneur depends not only on the outcome of the financial plan but also on every other aspect of the decision-making process. When in doubt, ask yourself this question: Would you want to buy a home in Seattle, if there is a market demand for that home (by definition) ? Would you instead choose to invest in a different place in Massachusetts? It’s not hard for some people to think that if you bought a land in Virginia (at $100,000 and $200,000 in growth, then why didn’t you choose to invest in another place)? So then ask yourself the following: Would you prefer to move away permanently from one city, and instead return to your home in California?
The decision to pursue a different investment strategy could affect what is in your financial plans. So what happens if your decision-maker doesn’t want your capital gains to skyrocket, and you believe that you’ll be best off investing your capital in another city, or in another state or country.
If you’re investing in the same company in the same city, how do you want to achieve this outcome (i.e., if you choose to stay in your current country)? Would you prefer the city of your current job to that of another employer?
The answer depends on many other factors,
This section of the module provides the economic rationale for strategy, a toolkit for analysing strategy, a language for conducting the strategy discourse, and a set of strategy tools. The