Article: Strategy

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Strategic Management

1 Strategic Management

According to Johnson and Scholes^[1] , Strategy may be defined as "the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations". Strategic Management is about charting how to achieve a company's objectives, and adjusting the direction and methods to take advantage of changing circumstances. Another popular definition of Strategic Management is "the art, science and craft of formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its objectives".^[2]

The core of strategic management as a practical endeavor is formulating a successful strategy for the firm. To be a useful guide for decision making, a strategy must have elements that clearly define the firm's goals and the direction it will take to achieve them. Any coherent strategy must have four components: Goals, Scope, Competitive advantage and Logic.

Firstly, it should include a clear set of long term goals.
Second, it should define the scope of the firm, the kinds of products the firm will offer, the markets it will pursue and the broad areas of activity it will undertake.
Third, a strategy should have a clear statement of what competitive advantage it will achieve and sustain.
Finally, the strategy must present the essential logic,what is it about the firm's internal context that will allow it to achieve a competitive advantage in the environment in which it has chosen to compete ? ^[3]

Mission Statement

Companies often commit their major goals and corporate philosophy in the form of a mission statement or a statement of purpose. It might be varied in its form, but essentially it gives the reason for its existence. It also outlines sometimes the 'core values' on which the company is based and to which it expects corporate behavior to conform. It tells about the mission, purpose and values of a firm.

Competitive Strategy

Competitive strategy is about finding a strategy that is better than that of a firm's competitors, and which enables a firm to make repeatable profits from selling their products or services. The primary area of interest for a competitive strategist is to achieve a sustainable competitive advantages for the products, and are concerned about issues like how to configure their value chain optimally, how to remain price competitive etc. ^[4]

Different levels of Strategy

Strategies exist at different levels in a firm, as listed below:

Business Strategy vs Corporate Strategy

In an organization of any size or diversity, Corporate Strategy applies to the whole enterprise, while Business Strategy defines the choice of product or service and market of individual businesses within the firm. Business Strategy is the determination of how a company will compete in a given business and position itself among its competitors. Corporate strategy defines the businesses in which the company will compete, preferably in a way that focuses resources to convert distinctive competence into competitive advantage. ^[5]

In other words, from a company's perspective, Corporate strategy could be "what businesses shall we be in ?" and Business strategy could be "How shall we win in each business ?". ^[6]

Operational Strategy

According to Slack and Lewis, "Operations strategy is the total pattern of decisions which shape the long-term capabilities of any type of operations and their contribution to the overall strategy, through the reconcilliation of market requirements with operations resources." ^[7]

Strategy Process

Principles of the Strategy Process

A summary of the important characteristics of strategic management are discussed below:

Strategic thinking is more important than strategic planning
At the heart of the strategy is a statement of objectives, scope, competitive advantage and logic.
Strategy is a creative process
It is not just the domain of the firm's most senior management
The firm's organization and its strategy are intimately interrelated
No matter how much planning the firm does, the strategy will still evolve in unintended ways.
Corporate Strategy must add value to the business level strategies.

Developing Strategy: The Strategy Process

The various steps in formulating a strategy could be summed up as follows:

Strategy Identification
Strategy Evaluation
Strategic Option Development
Strategic Option Evaluation
Strategy Selection
Strategy Communication
Implementation

Resource-based view of the firm

As the name suggests, the resource based view of the firm emphasizes the firm's internal resources as a source of potential competitive advantage. To the extent that firm's capabilities are based on its resources its routines and organization and it also encompasses capabilities. More details about this can be found in Resource based View.

Strategic Management and Game Theory

There are many situations in which a manager needs to think about how her competitors will respond to the actions she takes, there is usually a strategic interdependence between her and the other actors, the outcome for all of the actors depends on their own actions and on those of others. For example, a firm's profitability depends not only on the prices of its own goods, but also on the prices of its competitors' products. A firm's success in innovating depends on whether its rivals are also innovating.

Relevance to Software Business

Strategic management plays a crucial role in the success of any business, and is very true with Software business as well. The software companies in order to succeed in the current global environment need to revise their strategies from a historically technology driven product proliferation to strategies that control the rate of technological advances, segment markets according to customer needs and design according to those customer needs.

Academic Journals

References

↑ Johnson, G. & Scholes, K. 1993, Exploring corporate strategy, Prentice Hall New York.
↑ David, F Strategic Management, Columbus:Merrill Publishing Company, 1989
↑ G Saloner, A Shepard, JM Podolny, 2000, Strategic Management, John Wiley & Sons
↑ FAULKNER, D. and CAMPBELL, A., 2006. The Oxford Handbook of Strategy: A Strategy Overview and Competitive Strategy. Oxford University Press, USA.
↑ Andrews, K.R. 1987, "The concept of corporate strategy", Irwin Homewood.
↑ Chaffee, E.E. 1985, "Three models of strategy", Academy of Management Review, vol. 10, no. 1, pp. 89-98.
↑ Nigel Slack, Mike Lewis, Operations Strategy,Financial Times/ Prentice Hall; 2 edition, Sep 2007.

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