BASIC CONCEPTS OF STRATEGIC MANAGEMENT (PART 1)

Definition of Strategic Management

The phrase "Strategic Management" is sometimes used as a synonym for "Strategy," but the two terms
are not the same.

A strategy refers to a unique plan designed to achieve a competitive position in the market. It is also an
interpretative plan that guides the organization to reach its goals and objectives. Whereas Strategic
Management consists of analyses, decisions, and actions, an organization undertakes to create,
implement, and sustain competitive advantages.

In short, “Strategic management is the process that defines the organization's strategy.”

This definition of Strategic Management entails three (3) ongoing processes:

1. Analyses - Strategic Management is concerned with the analysis of strategic goals (mission, vision, and
strategic objectives) along with the internal and external environments of the organization.

2. Decisions - Strategic decisions address two (2) basic questions: What industries should we compete
in? And how should we compete in those industries?

3. Actions - Strategic actions require leaders to allocate necessary resources and to bring the intended
strategies to reality.

Key Attributes of Strategic Management

The four (4) key attributes of Strategic Management:

1. Directs the organization toward overall goals and objectives. This perspective refers to how efforts
must be directed at what is best for the total organization, not just a single functional area.

That is, what might look "rational" or ideal for one functional area, such as operations, may not be in the
best interest of the overall firm.

Example: Operations may decide to schedule long production runs of similar products to lower unit
costs. However, the standardized output may counter what the marketing department needs to appeal
to a demanding target market.

2. Includes multiple stakeholders in decision-making. Stakeholders are those individuals, groups, and
organizations interested in the organization's success, including owners, employees, customers,
suppliers, the community at large, and so on.

Example: if the overwhelming emphasis is on generating profits for the owners, employees may become
isolated, customer service may suffer, and the suppliers may resent demands for pricing concessions.

3. Needs to incorporate short-term and long-term perspectives. Managers must maintain both a vision
for the future of the organization and a focus on its present operating needs.

Example: If a company has a three-to-five-year plan, this long-term plan should have sequences. of
short-term plans. Once the long-term goal is defined, management must define the short-term steps
necessary to achieve it.
4. Recognizes trade-offs between efficiency and effectiveness. It is the difference between doing the
right thing (effectiveness) and doing things right (efficiency).

Example: Managers must make many trade-offs. In doing so, managers must allocate and use resources
wisely (efficiency) but still direct their efforts toward attaining overall organizational objectives
(effectiveness).

The Study of Strategic Management Process

The study of Strategic Management leads to the development of a strategic position that helps
determine the organization's future sustainability and profitability, simultaneous with the integration of
managerial capabilities, responsibilities, motivation, and reward system.

Originally called business policy, strategic management has advanced substantially with the concentrated
efforts of researchers and practitioners. Today, we recognize both a science and art in applying strategic
management techniques.

Phases In the Evolution of Strategic Planning

The following phases describe the evolution of strategic management:

• Phase 1: Basic financial planning. During this phase, organizations emphasize preparing and
meeting annual budgets. Financial targets are established, revenues are measured, and costs are
carefully monitored. Also, the organization's primary focus is short-term (1 year) and mostly on
the functional aspects.
• Phase 2: Forecast-based planning. During this phase, organizations usually extend time frames
covered by the budgeting process (3-5 years). Organizations tend to seek more accurate
forecasts by considering past and present records and the short-term and long-term effects of its
external environment. Therefore, this phase has more effective resource allocation and timely
decisions relating to organization's long-term competitive position in the market.
• Phase 3: Externally oriented planning. During this phase, organizations attempt to understand
basic marketplace phenomena. Organizations begin to search for new ways to define, meet, and
satisfy customer's needs and wants. The managers are tasked with generating several alternative
strategies for top management. Lastly, the top management begins to evaluate the proposed
alternative strategies in a formalized manner for planning and actions.
• Phase 4: Strategic management. During this phasé, the top management organizes planning
groups of managers and key employees from various departments and workgroups. They
develop and integrate plans emphasizing the company's true competitive advantages. Strategic
plans at this point detail the implementation, evaluation, and control issues. Rather than
attempting to forecast the future perfectly, the plans emphasize probable scenarios and
contingency strategies.
Planning is typically interactive across levels and is no longer strictly top-down. People at all levels are
now involved in overall strategic thinking, comprehensive planning process, and supportive value system.

Types of Strategies

Strategic alternatives are developed to set direction in which human and material resources of business
will be applied for a greater chance of achieving selected goals. It is also involved with the identification
of the ways that an organization can undertake to achieve targets, weaken the competitors, gain
competitive advantage, and ensure sustainability,

The following are the different types of strategies:

Corporate-level strategy. This strategy defines the markets and business in which a company will
operate. It also entails a clearly defined, long term vision that organizations set to create corporate value
and motivate the workforce to implement proper actions to achieve customer satisfaction. It is a
continuous process that requires constant effort to engage investors in trusting the company with their
money, thereby increasing its equity. Organizations that manage to deliver customer value consistently
are those that revisit their corporate strategy regularly to improve areas that may not deliver the aimed
results.

Business level strategy. This strategy emphasizes strengthening the company's competitive position of
products or services. Business strategies are composed of competitive and cooperative strategies. It
covers all the activities and tactics for competing in contrast to the competitors and the management
behaviors requiring strategic alignment and coordination. Business strategies focus on product
development, innovation, integration, market development, and diversification, among others.

Functional level strategy. This strategy is formulated to achieve some objectives of a business unit by
maximizing resource productivity. Functional strategy is concerned with developing a distinctive
competence to provide a business unit with a competitive advantage. Each business unit or company has
its own set of departments, and every department has its functional strategy.

Functional strategies are adapted to support the competitive strategy. For instance, a companyfollowing
a low-cost competitive strategy needs a production strategy that emphasizes on reduction cost operation
and a human resource strategy that emphasizes retaining the lowest possible number of highly qualified
employees for the organization.

Operating level strategy. This strategy is usually created at the field level to achieve immediate
objectives. An operating strategy is formulated in the operational units of an organization. In some
companies, managers develop an operating strategy for each set of annual objectives in the departments
or divisions.

Part of strategizing is planning on how to navigate unchartered territories. Take for example, the global
health crisis brought by Covid-19. Nobody predicted Covid-19 and how bad it will get. Companies must
consider how the world is changing and move towards strategic thinking. It is about making quality
decisions, learning from history, and using foresight on what will be needed by the company to gain a
competitive advantage.
Competitive Advantage

Competitive advantage means superior performance relative to competitors in the same industry or
superior performance relative to the industry average. It can also be defined as the factor that makes a
business's goods or services superior to the available options in the market.

The following are the determinants of competitive advantage:

 Benefit. It pertains to the value offered by a product or service to the market. Aside from the
product features, companies must also identify the unspoken benefits of their product or
service.

This means constantly being aware of new trends that affect a product's or service's value.

Example: Newspapers slowly adapt to the current technological trends because most news and
information are already available via the Internet. Other newspaper companies may perceive that some
people are still willing to pay for news delivered daily on a piece of paper.

• Target market. It pertains to a selected group of customers within a business' available market at
which a business aims its marketing efforts and resources. Companies must be aware of their
target market to innovate their products and services based on the particular needs of their
customers.

Example: Newspapers' target market is drifted towards older people who are not comfortable or capable
of getting their news online.

• Competition. It pertains to the rivalry between companies that sell similar goods and services.
Aside from the companies that sell similar products, a business must also identify its indirect
competitors in the market.

Example: Newspaper companies thought their competition was with other newspaper companies until
they realized it was the advent of modernization because of the Internet.

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 Cost advantage. This pertains to the strategy of a company that involves producing a product or
providing a service at a lower cost than its competitors. Companies with this advantage produce
products in higher quantities and provide customer benefits. This is mainly influenced by
multiple factors such as access to low-cost raw materials, efficient processes and technologies,
low distribution and sales costs, and efficiently managed operations.

Example: A global company that employs cost advantage is Unilever, which is influenced by its large
operation and massive presence in the market.

• Differentiation strategy. This pertains ta company's strategy that involves marketing the
qualities of a product that sets it apart from other similar products and uses that difference to
drive consumer choice. Product differentiation makes consumers' attention focused on one or
more key benefits of a brand that make it better than others.
Example: A global company that employs a differentiation strategy is Apple, which creates its operating
system (105) that distinguishes its product as superior apart from its competitors.