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Understanding How Strategic Management Affects Businesses

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Understanding How Strategic Management Affects Businesses essay
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Strategic Management-Global Approach

Introduction

Strategic management involves activities aimed at identifying and describing strategies that enable managers to achieve improved performance. These strategies are also geared towards improving the organization’s competitive advantage. The competitive advantage is attained when the profitability recorded by an organization is higher than the average profitability recorded by their competitors. In the global scale, strategic management could also refer to the collection of all the activities and decisions made by the management which result in the performance of the organization globally (Frynas & Mellahi, 2015). The global strategy is an important component of strategic management which must follow the basic strategic management principles.

Thesis statement: The development of the global strategy comprises the basic strategic management principles such as the resource-based analysis, competitive advantage and focus on customers among other factors.

Basic Concepts of Strategic Management

Business Strategy

This concept focuses on the improvement of the organization’s competitive advantages as compared to other global competitors (Deresky, 2017). The competitive position could be in terms of its services or products in a particular market segmentation or industry. In this concept, there are two categories involved; the cooperative and competitive strategies.

Environment Scanning and Sustainability

Environmental scanning deals with the monitoring, evaluation, and dissemination of information from both the internal and external environment to the influential people in the organization (Frynas & Mellahi, 2015). Environmental sustainability deals with the application of business practices to reduce the impact of the organization on the physical and natural environment.

Evaluation and Control

All the processes and performances of the organizations are monitored to ensure the organization achieves its desired performance. The evaluation exercise enables an organization to establish any deviation from its desired performance hence adopting the necessary measures to correct the situation.

Functional Strategy

This strategy is focused on the functionality area of the organization. It aims at ensuring that an organization meets its objectives through the adoption of strategies which maximizes the resource productivity. The strategy ensures that the strategies and objectives of an organization are aligned to achieve maximum productivity from the available resources.

Hierarchy of Strategy

An organization must group its strategy according to their importance to the global growth of the organization (Deresky, 2017). The strategies are grouped according to levels and each level must complement the next level. In this regard, the functional strategy must support the business strategy which in turn must support the corporate strategy.

Institutional Theory

This theory provides that organizations are engaged in the imitation of other successful organizations in their specific industry. The imitation is aimed at helping the organizations adapt to the changing business environment and conditions from local to global scale. This theory supports the evidence-based practices which accord the organizations with sufficient information and opportunities to overcome the obstacles in their business environment.

Learning Organization

This is an organization which is skilled in the creation, acquisition, and transfer of knowledge and the modification of its organizational behavior to reflect the newly acquired knowledge and insight. An organization must have the capability to apply the new knowledge to improve its competitive position in the industry.

Mission

The organization mission describes reason and purpose for the organizational operations. It also describes the goods and services which the organization provides, the client base and the technologies adopted by the organization (Frynas & Mellahi, 2015). The mission describes the organization’s current position and position it hopes to be in the future.

Policy

This is the comprehensive guideline for all the decision-making mechanisms of the organization. The policy links the strategy formulation and strategy implementation. The policy is crucial in ensuring that workers of all levels in the organization make decisions and actions that foster the internalization strategies, objectives, and mission of the organization.

Strategic Decision

The aspect of strategy decision focuses on the long-run future of an organization. A strategic decision has three traits namely; Consequential, rare, and directive (Deresky, 2017). The decisions are consequential because they demand a high degree of commitment of everybody involved in each level. The strategic decisions are directive in nature, meaning that they determine the future decisions of the organization. They are rare and have no model to follow.

Strategic Decision-Making Process

The decision-making process in every organization must follow appropriate procedure. There are eight main steps involved in the decision-making process(Frynas & Mellahi, 2015); 1)evaluation of the current organizational performance, 2) review of the corporate governance, 3) scanning and assessing of the external environment, 4) scanning and assessing the internal corporate environment, 5) analysis of the strategic factors (SWOT),6) generation, evaluation, and selection of the alternative strategy,7) implementation of the selected strategy through the budgets, procedures and programs, 8) evaluation of the implemented strategies through control activities and feedback systems to reduce deviations from the desired performances.

Strategic Management

This refers to the managerial activities and decisions which determine the global performance of an organization. This set of decisions and actions include strategy implementation, strategy formation, environmental scanning, evaluation, and control. The strategic management is also referred to as the business policy.

Strategy Formulation and Strategy Implementation

Strategy formulation involves the development of long-term plans for the effective management of the organizational opportunities and threats. The effective management of the opportunities and threats are assessed in line with the strength and weaknesses of the organization (Deresky, 2017). The strategy implementation deals with all the processes by which the organization puts into action its policies and strategies following the predetermined procedures, budgets, and programs.

SWOT Analysis

SWOT analysis focuses on establishment and evaluation of the internal factors of an organization, such as weaknesses and strengths, and external factors such as the threats and opportunities. The analysis enables an organization to carry out a detailed scanning of its internal and external environments.

Triggering Event

Triggering event refers to the actions that stimulate the need for change in an organization’s strategy. Some of these events include the introduction of a new chief executive officer. The new CEO could be focused on taking the business to global levels as opposed to his predecessors. Interventions by external institutions could also stimulate changes in the organization’s strategy (Frynas & Mellahi, 2015). Threats on the ownership of an organization and performance gaps are serious events that could lead to a shift in the strategies adopted by an organization. Smooth corporate transitions could be achieved by good corporate governance strategies.

Corporate Governance

Significance of Corporate Governance

Corporate governance ensures fairness and transparency in the business environment. Good corporate governance ensures that organizations are responsible and accountable for all their activities (Deresky, 2017). Weak corporate governance creates opportunities for corruption, mismanagement, and wastage. The corporate governance is mostly associated with the management of the joint stock organizations, but it is equally significant in the management of the family, cooperatives and state-owned organizations. Sustainable business performance is only possible with the good governance regardless of the business venture.

Benefits of Corporate Governance

Organizations with complete compliance to the corporate governance principles stand a better chance of increasing transparency within their operations and disclosure through the improvement of access to financial and capital markets. It also helps organizations to improve their competitive advantage through risk reduction, partnerships, acquisitions, and mergers. The organization is provided with an exit policy in case the conditions become unfavorable. As well as provide smooth transfer of wealth to avoid conflicts of interests among family-owned organizations (Frynas & Mellahi, 2015). Good corporate governance also enables organizations to improve their internal control systems aimed at enhancing accountability leading to higher profit margins. It would also pave way for future organizational growth, and improves the attractiveness of the organization to potential investors.

By ensuring transparency, corporate governance enables the organization to strike a balance in its economic development. The balance ensures that the interests of all the shareholders are taken into consideration (Deresky, 2017). Both the minority and the majority shareholders interests are safeguarded in good corporate governance. The shareholders also benefit from good corporate governance as it ensures that they exercise their rights fully and that the organization recognizes these rights. Good corporate governance also ensures that an organization develops and maintains clear objectives, strategies, and mission in its global business approach

Global Objectives, Mission and Strategies

Every organization has its objectives which clearly states what should be done to move the organization from its current position to the desired position. In global strategy, an organization must have clear objectives on how it hopes to shift from its local culture to the global vision. The organization’s mission must state the role the organization wishes to play at the global level. The strategies adopted by the organization must incorporate the principles of globalization. The managers are required to learn and understand the reasons behind the industry and market industrialization (Deresky, 2017). The strategies and mission of the organization must take issues of environmental and globalization turbulence into consideration.

Hofstede’s cultural dimensions play a crucial role in the strategies and objective formulation. The organization must invest some time and resources towards understanding the culture of the foreign countries they wish to operate in. Failure to understand the culture of the people could spell doom to an organization. An example of an organization which failed because of its failure to consider cultures of the people is Wal-Mart in Germany.

The organization had moved to Germany with the same business practices it applied in the U.S. It failed to recognize and respect the cultural differences between the German and the American cultures (Frynas & Mellahi, 2015). Other scholars such as Trompenaar and Tayeb have also argued that cultural dimensions are important in global strategic management approach. Therefore, the cultural analysis must form part of the global business environment scanning.

Scanning and Analysis of the Competitive Global Environment

Nature of the Global Business Environment

Global business is described as the environment in the various foreign countries with a connection to the environment of the organization’s home country. These environments influence the decision-making process in the organization especially with regard to its capability and resources use. The international business environment is also viewed in terms of the internal and external environment of an organization. The external environment comprises of the economic, political, regulatory, social, legal and cultural factors among others. Effective operation requires that an organization understand these factors before engaging in international business.

The Fives Forces and Globalization Drivers

Porter’s five forces tool enables organizations to analyze competition in the industry. The framework draws its five forces from the industrial organization economics (Deresky, 2017). Through this analysis, an organization would establish the competitive intensity at the global level hence determines the attractiveness of doing business in the global level. Porter’s five forces include the threat of new entrants, threats of substitutes, bargaining power of the consumers, bargaining power of the suppliers, and industry rivalry.

The globalization drivers are factors that indicate the potential viability of engaging in global approach in the organization strategy. They are divided into the market drivers, cost globalization drivers, competitive drivers, and government drivers. The market drivers are concerned with the gradual increase in demand for different products and services in various parts of the world. This steady growth of customer demands leads to increased opportunity for organizations to engage in global business. The cost of globalization focuses on the costs of manufacturing, product development, and sourcing (Frynas & Mellahi, 2015). An organization must evaluate these costs to establish the profitability of engaging in an international business as costs could have a great impact on the organization’s profitability.

Competitive drivers evaluate the total sales makeup, whether it comprises mainly the import or export volumes. It also looks at the diversity and capability of the competitors. High levels of competitive diversity, trade, and interdependence would promote globalization in an industry. The government drivers include the existence or lack of favorable policies, technical standards, regulations, and subsidies. Understanding these drivers and forces enables an organization to leverage on its core competencies in the global competition.

Transnational and Global Strategy

Transnational Strategies

The transnational strategy involves the incorporation of the maximization of the unique local advantages, improved coordination of business operations and global reach to increase market share, sales and profit margins of an organization (Deresky, 2017). The strategies involve operation in various countries, development of responsive business models, and the establishment of value-addition to take advantage of differences and similarities among nations.

Knowledge and Competence-Based Strategy

Core competence strategy views business in terms of its uniqueness within a particular industry. It views business as systems which mingle with their environments to produces specific and different types of outputs. In this regard, businesses are supposed to concentrate on building core competencies which are unique and set them apart from their competitors.

In the global approach, an organization could create competitive advantage by concentrating on its core competencies alone which could be achieved in a number of ways. It could leverage on its existing core competencies, develop new competencies, and create satisfying alliances with suppliers, consumers, and competitors. Knowledge is, therefore, the main component of the competence-based strategy. Knowledge involves all the rules, skills, principles, perspectives and facts that influence decision making in an organization.

Competitive Positioning

In competitive positioning, an organization is more concerned with ways of differentiating its services and products from those of its global competitors. The organization must understand the kind of value it adds to the lives of its consumers, and what set it apart from its competitors (Frynas & Mellahi, 2015). The competitive position emphasizes on the creation of a unique spot in the competitive global landscape and standing out for the provision of certain things.

Achieving good competitive position requires that an organization understands its market profile in terms of its size, the competitors and its stage in business growth. It must also understand its market segment which dictates the various needs and wants of the customers. An organization must also conduct a competitive analysis to determine its strength, weaknesses, threats, and opportunities. Lastly, the organization must have clearly defined methods of delivering the identified values to its global customers.

Conclusion

The global strategy is an important concept in strategic management. Business managers must understand that the globalization trend affects business mostly and every ambitious business manager should focus on expanding the operations of their businesses globally. The development of the global strategy comprises the basic strategic management principles such as the resource-based analysis, competitive advantage and focus on customers among other factors.

The global approach builds on the basic principles of strategic management with the incorporation of other concepts to ensure business success on the global scale. Understanding the basic principles of strategic management is the foundation of global approaches in strategic management. Global approaches should be the main focus for the business managers in the contemporary world.

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