What Is Effective Strategy?

•   Strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company.

•   Strategic positioning is based on the principles that strategy is the creation of a unique and valuable position, requires tradeoffs in competing, and involves creating a “fit” among activities, so that they interact and reinforce each other.

•   Strategic management works best for large firms, but can also be effective for small firms.

•   Every organization needs to have a “big picture” about where it’s going and how to get there, which involves strategy, strategic management, and strategic planning. A strategy is a large-scale action plan that sets the direction for an organization. Strategic management involves managers from all parts of the organization in the formulation and implementation of strategies and strategic goals. Strategic planning determines the organization’s long-term goals and ways to achieve them.

•   Three reasons why an organization should adopt strategic management and strategic planning: They can (1) provide direction and momentum, (2) encourage new ideas, and (3) develop a sustainable competitive advantage. Sustainable competitive advantage occurs when an organization is able to get and stay ahead in four areas: (1) in being responsive to customers, (2) in innovating, (3) in quality, and (4) in effectiveness.

 6.2  The Strategic-Management Process

•   The strategic-management process has five steps plus a feedback loop.

•   Step 1 is to establish the mission statement and the vision statement. The mission statement expresses the organization’s purpose. The vision statement describes the organization’s long-term direction and strategic intent.

•   Step 2 is to do a current reality assessment, to look at where the organization stands and see what is working and what could be different so as to maximize efficiency and effectiveness in achieving the organization’s mission. Among the tools for assessing the current reality are SWOT analysis, forecasting, benchmarking, and Porter’s model for industry analysis (described below).

•   Step 3 is strategy formulation, to translate the broad mission and vision statements into a grand strategy that explains how the organization’s mission is to be accomplished. Strategy formulation is the translation of the grand strategy into more specific strategic plans, choosing among different strategies and altering them to best fit the organization’s needs.

•   Step 4 is strategy implementation—putting strategic plans into effect.

•   Step 5 is strategic control, monitoring the execution of strategy and making adjustments.

•   Corrective action constitutes a feedback loop in which a problem requires that managers return to an earlier step to rethink policies, budgets, or personnel arrangements.

 6.3  Establishing the Mission & the Vision

•   A mission statement should express the organization’s purpose or reason for being.

Page 184•   A vision statement should be positive and inspiring, and it should stretch the organization and its employees to achieve a desired future state that appears beyond its reach.

 6.4  Assessing the Current Reality

•   Step 2 in the strategic-management process, assess the current reality, looks at where the organization stands internally and externally—to determine what’s working and what’s not, to see what can be changed so as to increase efficiency and effectiveness in achieving the organization’s vision.

•   An assessment helps to create an objective view of everything the organization does: its sources of revenue or funding, its work-flow processes, its organizational structure, client satisfaction, employee turnover, and other matters.

•   Among the tools for assessing the current reality are competitive intelligence, SWOT analysis, forecasting, benchmarking, and Porter’s model for industry analysis.

•   Practicing competitive intelligence means gaining information about one’s competitors’ activities, through public news sources, investor information, and informal sources, so that you can anticipate their moves and react appropriately.

•   The next point in establishing a grand strategy is environmental scanning, careful monitoring of an organization’s internal and external environments to detect early signs of opportunities and threats that may influence the firm’s plans. The process for doing such scanning is called SWOT analysis, a search for the Strengths, Weaknesses, Opportunities, and Threats affecting the organization.

•   Organizational strengths are the skills and capabilities that give the organization special competencies and competitive advantages. Organizational weaknesses are the drawbacks that hinder an organization in executing strategies. Organizational opportunities are environmental factors that the organization may exploit for competitive advantage. Organizational threats are environmental factors that hinder an organization’s achieving a competitive advantage.

•   Another tool for developing a grand strategy is forecasting—creating a vision or projection of the future. Two types of forecasting are (1) trend analysis, a hypothetical extension of a past series of events into the future; and (2) contingency planning, the creation of alternative hypothetical but equally likely future conditions.

•   Benchmarking is a process by which a company compares its performance with that of high-performing organizations.

•   Porter’s model for industry analysis suggests that business-level strategies originate in five primary competitive forces in the firm’s environment: (1) threats of new entrants, (2) bargaining power of suppliers, (3) bargaining power of buyers, (4) threats of substitute products or services, and (5) rivalry among competitors.

 6.5  Formulating the Grand Strategy

•   Three common grand strategies are (1) a growth strategy, which involves expansion—as in sales revenues; (2) a stability strategy, which involves little or no significant change; and (3) a defensive strategy, which involves reduction in the organization’s efforts.

•   Strategy formulation (Step 3 in the strategic-management process) makes use of several concepts, including (1) Porter’s four competitive strategies, (2) diversification and synergy, and (3) the BCG matrix.

•   Porter’s four competitive strategies are as follows: (1) The cost-leadership strategy is to keep the costs, and hence the prices, of a product or service below those of competitors and to target a wide market. (2) The differentiation strategy is to offer products or services that are of unique and superior value compared with those of competitors but to target a wide market. (3) The cost-focus strategy is to keep the costs and hence prices of a product or service below those of competitors and to target a narrow market. (4) The focused-differentiation strategy is to offer products or services that are of unique and superior value compared with those of competitors and to target a narrow market.

•   Companies need to choose whether to have a single-product strategy, making and selling only one product within their market, or a diversification strategy, operating several businesses to spread the risk.

•   There are two kinds of diversification: unrelated diversification consists of operating several businesses that are not related to each other; related diversification consists of operating separate businesses that are related to each other, which may reduce risk, produce management efficiencies, and produce synergy or the sum being greater than the parts.

•   The BCG matrix is a means of evaluating strategic business units on the basis of (1) their business growth rates and (2) their share of the market. In general, organizations do better in fast-growing markets in which they have a high market share rather than slow-growing markets in which they have low market shares.

 6.6  Implementing & Controlling Strategy: Execution

•   The last two steps of the strategic-management process are strategy implementation and strategic control.