Strategic management (06) Flashcards
(9 cards)
What is Strategic Management?
Strategic management is the role of management when setting long-term goals and
implementing cross-functional decisions that should enable a business to achieve
these goals.
It deals with decisions that determine and influence the long-term direction of the entire business.
These decisions have an impact on all functional departments.
What are the areas of Strategic Management and its importance?
Assesses the current position of the business relative to its market, competition
and the external environment. This allows the management to make
appropriate and effective decisions based on the existing state of the business.
Sets or modifies the mission, vision and objectives of the business, if the
business is new or undergoing a major change in direction. Having clear and
well-defined objectives would provide a clear sense of overall direction to all
employees. This will be covered in greater detail in Topic 7, Strategic analysis.
Integrates and coordinates the activities of the different functional areas. As
strategic directions are cross-functional, all departments must work together to
implement them successfully. All strategic decisions will require input from
finance, marketing, human resources and operations department.
Allocates resources to implement decisions. Implementing strategic decisions
are usually costly, and sufficient resources must be provided in a timely manner
for the strategy to be successful.
Evaluates the overall performance and success of the business, and its progress
towards the objectives. The outcome of the strategy should be measured
against the original objectives set. The management could then draw key
learning from both successful and unsuccessful strategies.
What is Competitive Advantage?
Competitive advantage is the superiority gained by the business when it can provide
the same value good or service as competitors, but at a lower price; or provide a
greater value than competitors for its good or service.
What is the importance Competitive Advantage?
Businesses invest time and resources to build competitive advantage for the
following reasons:
Marketing.
Developing a competitive advantage allows a business to be well-
recognised by consumers. The business could tap on this recognition in its
marketing effort. If the business launched a new product, customers would be
interested to find out more due to its recognition as an industry leader or simply
because they are familiar with the branding of the business.
Resources.
As the reputation of a business grows due to its competitive
advantage, other businesses would be keen to form partnerships, such as a
strategic alliance, that allow for mutual benefits. The business will thus be able
to tap on resources of other businesses if such partnerships are formed.
Pricing.
When a business establishes competitive advantage for its product, it
can become a price leader. This is especially so if it offers the best good or
service, and hence able to charge a price premium that customers are willing to
pay for.
New market.
A business with competitive advantage and a strong reputation
can create demand in markets it is currently not offering its good or service. If
the business chooses to grow and venture into new markets, the competitive
advantage can help the business attract new customers more easily.
Overall, the benefits of competitive advantage are profitability and market share.
What are the ways to GAIN competitive advantage?
1) Creating greater value
A business creates greater value when its goods or services differ from competitors’
offerings and are seen as superior. Advanced technology, patent-protected
products or processes, better customer service, and strong brand equity are
elements which contribute to greater value. These contribute to high profitability
and large market share.
2) Provide equivalent value at lower price
A business that is able to produce a good or service more efficiently than
competitors would lead to greater profit margins. Rational consumers will buy from
the cheaper provider if the product is similar. Economies of scale and efficient
processes help businesses to produce a good or service at a lower cost.
What is Sustainable Competitive advantage?
Sustainable competitive advantage refers to a business outperforming competitors
or the industry average over a prolonged period of time.
What are ways to sustain competitive advantage?
The following are some ways to sustain competitive advantage:
Focus on intangibles.
Businesses generally achieve sustainable competitive advantage by focussing on intangibles such as customer loyalty, relationship with suppliers, and efficient processes. Competitors will find it difficult to win
over loyal customers, while an excellent relationship with suppliers will ensure
that the business will be prioritised over others.
Difficult to copy.
If the good or service provided by a business is easy to replicate, the competitive advantage is definitely not sustainable. Competitive advantage achieved using advanced equipment or slashing prices are relatively
easy to copy. A motivated workforce with a strong sense of belonging, resulting
in better quality goods or services provided is more difficult to copy.
Build strong branding.
The cumulative effect of building a strong brand over time contributes to sustainable competitive advantage. No business can replicate another’s unique branding, especially the favourable associations to
the brand and products. This is the reason for long queues when new iPhones
are launched, and how McDonald’s consistently attract families and children for
its Happy Meals.
Provide enduring value.
For competitive advantage to sustain, the value customers perceive to receive from them must be enduring. It is limiting to build competitive advantages around fads. Thus, technological companies must
develop competitive advantages beyond one product, and must be aware of the
changes in the external environment that affect tastes and preferences.
For example, movie rental giant Blockbuster failed to adjust to consumers’ changing
preference to online streaming, and its reputation and other advantages
eventually lost value in the market.
SUMMARY
In summary, the following are covered in this topic:
- Strategic management allows a business to manage its activities and attain long-
term competitive advantage. - Strategic management sets the long-term direction of the business, and allows
for deliberate logical decision-making that emphasises on differentiation and
competition. - Competitive advantage is the superior performance of a business relative to its
direct competitors or the industry average. - The benefits of competitive advantage are profitability and market share.
- To obtain a competitive advantage, a business must either create more value
for customers while keeping its costs comparable to competitors, or provide
goods and services at a value equivalent to competitors at a lower costs. - Sustainable competitive advantage refers to a business outperforming
competitors or the industry average over a prolonged period of time. - A business can sustain competitive advantage by focussing on intangibles,
making their products difficult to copy, build strong branding or provide
enduring value.
