By Comparison with the Other Factors, Evaluate How Important Stakeholders Are in Strategic Management.
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The first intention of this paper is to give a clear understanding of key terms used throughout, helping illustrate their meanings and importance.
Strategy: Johnson et al (2005, p9) argues, “Strategy is the direction and scope of an organisation over the long term, which achieves an advantage in a changing environment through its configuration or resources and competences with the aim of fulfilling stakeholder expectations.”
I feel that this gives a clear understanding to the term, as it involves the four key areas every organisation needs to manage; firstly, what areas the business wishes to operate within, i.e. that markets and its activities. Secondly, creating the advantage, the selling point, while recognising the environment it operates within is constantly changing.
R Lynch (2006, p7) concurs with time being an important feature of strategy, while developing a competitive advantage. Thirdly, the reliance on resources to create the advantage combined with the skills and knowledge to apply them. However, while I agree that the aim of strategy is to fulfil stakeholder expectations, I do not believe this is applicable for all stakeholders, this is confirmed by A Crane and D Matten (2004, p50) who state that a stakeholder “is harmed by, or benefits, from the corporation”. This demonstrates that a strategy can adversely affect stakeholders, even if they have no prior awareness or expectation of an organisations strategy.
This definition of stakeholders is generated by A Crane and D Matten (2004, p50) from using Freemans (1984) original definition and applying Evan and Freemans (1993) suggestion of principle of corporate rights and principle of corporate effect. This adapted definition will apply to this paper as it makes clear that for even the same company; the range of stakeholders can differ when undertaking different projects or tasks.
My applied definition of Strategic management is also provided by Johnson et al (2005, p16), as it brings together three key concepts, strategic position, strategic choices, and how to turn strategy in to action, which all interlink. This is important as I believe there is no set route when implementing strategic management in practice, so the ability for the strategic management process to be represented as free flowing, is essential.
Initially we shall examine the factors of strategy, as identified in the definition and highlight the relative importance of each. A case study, sourced from R Lynch (2006) will be used as a contextual illustration. The long term direction and scope of the organisation, is a key factor for sustained success. For example, Apple made a shift in 2001 from the relatively safe market of innovative, premium priced computers, into the fiercely competitive consumer electronics market. This change in strategy not only affected Apples broadening of its product range, it identified them as making a significant, long term commitment as they would have an awareness of the new depth taken on in the consumer electronics market. The question must be asked why would Apple add a new direction and change the scope of their strategy.
Apple recognised the environment which it operated was changing, but importantly, they would have also analysed their key resources and identified these as the principal source of their successful corporate strategy. This can be identified as a resource based strategy. Drucker (1967) emphasises that it is important to build on strengthto look for opportunities rather than for problems. Apples strengths were its exceptional resources. Chaharbaghi and Lynch (1999) recognize that there is a hierarchy of resources and Apple certainly had breakthrough resources using these resources they were able to bring a major strategic shift in the market.
By looking at their unique resources, Apple was able to create a sustainable competitive advantage, another factor in strategic management. Lynch (2006) has suggested that there are seven elements that comprise the resource-based view of creating a sustainable competitive advantage. Apple certainly has several of these elements, such as innovative capability that generate their sustainable competitive advantage. The return potential associated with utilizing such a capability can be tested using the VRIO framework suggested by Barney (2002). When using this mechanism, Apples resources and capabilities are indicated to be excellent contributors towards creating a sustainable competitive advantage.
The need for this competitive advantage to be sustainable is due to the changing environment in which it competes, another component to strategy. The environment in which a business operates is diverse and complex, Johnson et al (2005), suggest layering the business environment helps to identify key areas and ways of coping with complexity and change. Within these layers tools can be used for further understanding of the issues associated within it. The ability to react to changes in the environment is essential for maintaining a competitive advantage; it is an interactive process, with changes in either component affecting the other. For example, Apple was aware that competitors such as Sony and Panasonic had identified customers wanted an alternative to a large ipod and were producing, smaller, cheaper units, albeit with less capacity. Apples response was to produce the ipod shuffle, a stripped down MP3 player, technically inferior to the competitors offerings. However, Apples unique selling point was to use the durability of its iconic styling and strong brand image. The ipod shuffle was a success, and helped Apple secure around 60% of all portable music devices sold worldwide.
From identifying the factors of strategy; markets, resources, creating a sustainable competitive advantage and the environment, we can see the complexities of being successful. The final aspect of strategy, the stakeholders, I have identified as the most important aspect of strategy. To fulfil stakeholders expectations is what every other aspect of strategy is looking to achieve. The company has obligations not only to one group, but to many different groups affected by its activities; this can be seen using the stakeholder model, Crane and Matten (2004). However which stakeholders to serve depends on many factors influencing the organisation.
We will now examine conflicts between stakeholders, which stakeholders to serve, how relationships are managed, and the role of culture and ethics when dealing with stakeholders.
There are many different definitions of conflict, but throughout