Discuss about the Alternative Approaches to Strategic Management.
Strategic management is the process in which managerial staffs align the organizations resources with the goals of the organization. It entails defining the objectives of the organization, conducting an analysis of the internal environment as well as the competitive environment, determining the strength and weaknesses of strategies before rolling them out. At the core of strategic management is the issue of how the organizations measures up against their competitors. As such strategic management aims at securing a competitive advantage for the organization. An organization can only be described as having competitive advantage if its capability to make profits is higher than that of the average competitors in the industry. In strategic management the managers should carry out an analysis if the strengths, weaknesses, opportunities and threats of the organization (SWOT analysis). There are a number of approaches to this; the entrepreneurial approach, adaptive approach, the design approach, the planning approach, the positioning approach, dynamic capabilities and the resource based approach. This paper will look at three approaches to strategic management; namely the positioning approach, the dynamic capabilities and the resources based approach. The paper will evaluate the viability of each approach, the issues that arise in its implementation and the limitations of the selected approaches.
Positioning is an effort that is made with the intention of influencing the way that consumers and potential clients view an organization’s brand of good or service against the competing brands in the industry (Kuprina 2017, p. 48). It is the aim of a business to stand in a place that is not only unique and clear but also looks like a position of advantage in the view of the customers. This is done in a bid to gain competitive advantage over the other players in the industry. Competitive advantages are conditions that allow an organization to manufacture the same products at a reduced price or in a way that is more attractive to the customers (Huang & Lee 2012, p. 618). In the positioning approach to strategic management, the major concern is the position of the business with regards to the external environment. In this approach the Porters five forces model is a key tool; this model theorizes that when one understands the competitive intensity of a sector then they can begin to assess the appeal of that industry in terms of profitability. The Porter’s five forces model is summarized.
The positioning approach recognizes competitive rivalry as a key ingredient in competitive advantage. In this respect, a business seeking to gain competitive advantage must seek answers to the following questions. How many competitors do they have in the market? Is the business being innovative enough to give itself a position of competitive advantage? Do the competitors have better resources for advertising? Another key factor to consider is if the customers of the competing firms are loyal to their brands.
In an industry that is attractive, there is high chance of new entrants coming in to the market. If a large number of firms get into the market then the profitability is brought down and the industry is no longer attractive (Finster & Hernke 2014, p.658). In the positioning approach to strategic management, the management works to defeat the threat of new entrants coming into the market. The firm may pursue entry barriers in order to position itself in a place of advantage. Barriers to the entry of other players in the market can be through business rights, patents and technology protection as noted in (Manuj et al. 2013, p. 472). Developing customer loyalty becomes a major way for a business to keep new entrants away from the market. In addition, the business may want to benefit from some specialist knowledge which could set it apart from its competitors hence conferring it advantage.
Customers may decide to replace the good or service of one organization with another totally different good or service. This is not just a switch from one company to another. It is a situation where customers absolutely change their preferences and choose to use a substitute product. In order to stay in a position of comparative advantage, a business must navigate the threats of substitution (Finster & Hernke 2014, p.658). The firm therefore has to know of existing substitute products and services that could be used in place of theirs and determine the levels of differentiation as perceived by customers. The cost of switching to the buyers always determines the ease with which buyers can opt for substitute goods. The position approach works to defeat these.
An organization that has fewer suppliers stays in a position where the supplier has power over it. The strength of the distribution channel also determines how the competitive advantage of the business.
If buyers have a range of products and companies they can choose from, then they will have buyer power. Alternatively, if all or a significant portion of buyers coalesce together and begin to press, say for price cuts, then the business may have to bow. Firms may benefit by having information on the number of buyers they have and how sensitive to price they are. Businesses that thrive know their buyers and use information known about them for competitive advantage (Baranov, E 2013 p. 32).
In organizational theory the term dynamic capabilities refers to the potential of a firm to adapt the resource base of the organization. The ability of the organization to integrate its competencies, both external and external is vital to business survival in these changing environments. This section of the paper will provide a description of the processes and theoretical tools that can be employed in the implementation of the dynamic capabilities. The following are the processes of the implementation of the dynamic capabilities.
This is the first stage in the implementation of dynamic capabilities as a strategic management. The employees and managers need to restructure their routines in order to enhance the interactions that have potential to promote interactions which can yield solutions for a number of problems. At this stage the managerial staffs are able to recognize strategic blind spots (Kucherov 2014, p. 112). The managers would the need to acquire new strategic assets too usually from sources outside of the business. This can be a limitation to the firm if it is not in a suitable financial position to acquire the required assets.
The dynamic capabilities approach to strategic management holds that the organizational performance depends on the strategy for collecting and analyzing information. This stage of the strategy involves aligning the design choices and technologies with the customer needs and preferences (Huang & Lee 2012, p. 619). A proper synergy in working relations between the component suppliers and the firm is also crucial. Collaborations and partnerships also help the firm to gain competitive advantage through the integration of technologies and external activities.
The use of dynamic capabilities approach in the rapidly evolving market today requires that the existing assets be reconfigured to be able to accommodate fast changes both internal and external. It requires the managerial staff create processes which make transformational changes to be inexpensive. This propensity for transformation is vital to ensure that the business transforms in anticipation of competition and gives competitive advantage (Kucherov 2014, p. 112).
The dynamic capabilities approach utilizes the sources and mechanisms of creating wealth. It also employs the capture methods common in private sector organizations that work in environments confronted with fast changes in technology. The viability of this framework of strategic management is the fact that it confers firm’s competitive advantage that is rested on the distinctive processes that is also defined by the asset positions of the firm (Pan et al. 2016).
Limitations of Dynamic Capabilities as a Strategic Management Approach
Competitive advantage is dependent on the stability of the market. In this approach, whether a business maintains its position of competitive advantage or not depends on the stability of the market and the ease of expanding internally (reliability as well as replication by competing firms or brand (Guerras-Martin et al. 2014, p. 72). The approach is deficient in postulating that in regimes of fast evolving technology, wealth creation is reliant on perfecting the managerial, technological and organizational processes of the firm. In simple terms the management strategy is far less valuable than identifying new opportunities and embracing them.
The resource based approach to strategic management also known as the Resources Based View (RBV) assess and analyses the internal resources of the organization together with its capabilities in the process of forming strategies for sustainable competitive advantage. Resources may be taken to mean inputs that facilitate the firm to meet its operational demands. Internal resources and the firm’s capabilities dictate the strategic decisions that managers make as the firm competed in its external environment. The resource based approach hold that not every resource owned by the firm is a strategic resource (Kuprina 2017, p. 49). It further postulates that for a position of competitive advantage to be realized there has to be varied resources across the firm and the resources of competing firms should be immobile. The RBV approach holds that it is easier to exploit external opportunities by using the existing internal resources as opposed to having to develop or hire new skill sets for every opportunity. In this approach, resources take the first priority in enhancing the organizational performance.
These are physical things such as land, property houses, machines, equipment and capital (Buckley & Graves 2016 p. 158). According to RBV these can be bought and sold with ease in the market and as such do not give much advantage to the firm.
The term is used in reference to all other resources that do not have a physical presence but are recognizable and are owned by the fussiness. Intellectual property falls in this category. Brand reputation and trademarks are also intangible assets. Contrary to physical assets, the intangible assets such as brand reputation takes time to build and cannot be bought from any market. These types of assets are the core of sustainable competitive advantage.
- Heterogeneity- it postulates that skill sets and capabilities possessed by firms are different and hence the reason why different businesses employ different strategies to outdo each other (Buckley & Graves 2016 p. 158).Therefore, one strategy could yield a competitive advantage for a specific firm, yet when tried by another it wouldn’t. The RBV approach therefore holds that different businesses will outshine each other owing to the differences in the resource bundles they own. For instance Samsung and Apple are both manufacturers of smartphones. Apple sells its products at much higher prices and earns higher profits. Samsung cannot employ the same strategy (simply up its prices) because it does not have a similar brand reputation.
- Immobile-The RBV also assumes that resources are not movable from one firm to another (at least not in the short run). Owing to this, the companies cannot copy each other’s strategies and implement them in order to outshine rival firms (Buckley & Graves 2016 p. 158). Most intangible resources are usually immobile.
Limitations of the RBV
- The RBV argues that resources such that are rare, valuable or difficult to imitate confer competitive advantage to the firm. However the approach does not specify how the managerial team can obtain the same resources
- The approach has potential to set a firm on the path to infinite regress, constantly pursuing the best resources.
- The RBV approach is also constrained in terms of applicability. Only established firms with sizeable market stretch can make use of it.
Strategic management has become a valuable method of improving organizational performance in recent years. Managerial staffs are increasingly embracing the methods in a bid to enhance the performance of their organizations in the market. Businesses always strive to gain competitive advantage over their rivals in the same industry.
The use of the right choices of strategic management approaches can be a suitable way of achieving that desired competitive advantage. The choice of the approach has to be informed by the organizational goals and its current positioning in the market. The firm must also be aware of the strategies of the competing firms in the industry. It is worth noting though that a management strategy that works for one organization may not necessarily work for another. Each firm must know its unique resource capabilities which it can exploit to gain competitive advantage in the industry.
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