Strategic Management at International Level: Nature of Economic Market - Research Paper Example

Introduction Strategic management is fundamental to business performance. Far from Fayol’s principles of management, strategic management is a complex area of study that has attracted many theorists and management philosophers. Increasing competition and demands have forced organisations to adopt newer ways for doing business in order to sustain and make profits. These numerous new ways of doing business in relation with management has given rise to the field of strategic management. Strategic management is a versatile and dynamic concept ruling all management aspects over last few decades. The concept covers all key management functions described by Fayol, i.e. planning, organising, commanding, coordinating and controlling, but with a different approach, which is long term and interlinked with each other. In the process, strategic management creates vision, mission, objectives and strategies/designs in line with organisational goals. Downward, it is linked to functioning of various divisions of the organisation; in setting targets; framing policies and practices; and designing work processes related to production (operations), marketing and sales, human resources, budgeting etc. Strategic management is complex intertwine of different functions of organisations through specific strategies. A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage (Hitt, Ireland & Hoskissonn, 2008; p.4). Lamb (1984) defines strategic management as ‘an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment’ (p.ix). Strategic management endeavours to help organisation excel in its sphere and achieve a sustainable position in the long term by predefining all functional areas’ objectives based on anticipated external and internal forces, opportunities and threats, and by preparing control/preventive plans accordingly. Theoretical aspects of Strategic Management: Ever since strategic management emerged as an important field of study in management philosophy, numerous models, schools of thought have been proposed by various researchers and philosophers. All these typologies are either based on the content, process or contexts of strategy. Two of the many propositions considered in this study are Whittington’s classification and Mintzberg’s schools of thought. Whittington’s classification includes four perspectives, resource-based view, relational view, dynamic capability perspective and the knowledge based perspective; and two dimensions namely, outcomes and processes (Bowman, Singh & Thomas, 2006). Mintzberg’s ten schools of thought provide a comprehensive version of strategic management in different functions/thoughts. These schools include design, planning, positioning, entrepreneurial, cognitive, learning, political, cultural, environmental, and configurational schools all of which concern process of strategy making. The first three schools of thought, i.e. design, planning and positioning are prescriptive in nature, while the rest are descriptive (McIlwain & Johnson, 1999). Prescriptive schools of thought are based on the belief that strategies can be identified, planned and analyzed before being implemented, i.e. how strategies could be formulated in advance. Secondly, the descriptive schools of thought are based on how strategies evolve in course of time and based on situations. For contemporary management Challenges in contemporary management are very different from the conventional times. The current management demands flexibility, speed, innovation, integration, and readiness to tackle changing demands and conditions. Organisations that fail to sustain their competitiveness may drastically fail and eventually perish. Hence, strategies need to be developed and implemented strategically in order to sustain intense competition; this may be accomplished through appropriate price-quality positioning, creation of new knowledge, establishment of first-mover advantage, and provision of protection to or invasion of established product or geographic markets. Hitt, Ireland and Hoskisson (2009) attribute hypercompetition to two major factors, i.e. global economy and rapidly changing technology. Significance of Strategic management in management functions Strategic management can be categorized into three levels, i.e strategic, management and operational levels (Phillips, Doole & Lowe, 1994). The strategic level involves formulation of goals, vision and mission; resource planning and organisation business process; and controlling corporate processes. Management level involves setting individual objectives; formulating strategies and planning their integration with different management functions including operations, coordination, control, human resources etc. Implementation level involves implementation of strategies, achieving the set objectives, delivering results, and checking effectiveness of the strategies. In coordination function, competitiveness depends on level and extent of coordination of activities between different units of an organisation, and between locations of one organisation operating from different regions (Karimi & Konsynski, 2003). Coordination involves the management of exchange of information, goods, expertise, technology and finances in different business functions such as logistics, order fulfilment, financial etc. For this, organisations would require a strong information and technology network within and between different locations. Coordination between different functions also impacts the value chain system, and requires specific strategies that facilitate coordination. For the control function, strategic control of capital, technology and management resources through administrative mechanisms would be required. In case of multinational organisations, changing environmental demands can create challenges to coordination function in terms of decision making processes and organisational structures that may work in one country and not in others. Strategic integration of coordination and control mechanisms can provide flexibility of adopting localized approaches that are in line with organisational goals. The most effective strategic control system in operations is Kaplan and Norton’s (2005) balanced score card approach. In addition, personal control through organisational culture; output control through performance management; and behaviour control through organisational values are also a part of strategic management (Hill & Jones, 2009). From a human resources perspective, strategic management has been extremely useful for organisations, owing to challenges such as changing employee needs/demands; cultural influences on management styles and organisational behaviours; and impact of globalization. Mabey, Salaman and Storey (1998) have proposed four different perspectives to strategic HRM: firstly, SHRM entails complex activities that are beyond the responsibilities of personnel or HRM managers and extend to all aspects of managing people including social and economic context of management of internal and external environments impacting the organisation and its people; secondly, it includes impact of strategies on business performance, and thus emphasizes on measurement of performance; thirdly, management styles are more defined and according to the existing people and goals; and lastly, development of organisational capability is encompassed through strategic knowledge management. Levels of Strategic Management Every organisation has formulates strategies at various levels or functions to establish its business as well as sustain a steady growth pattern. These strategies could be at functional level, business level, corporate level, international, human resources, cooperative levels and acquisition and restructuring strategies (Hitt, Ireland & Hoskisson 2009). At every level, the strategies may differ according to the organisations goals and requirements. However, most of the strategies all these levels can be related to one or more of Mintzberg’s schools of thought. Business Level strategies Hitt et al (2009) identify five business level strategies, namely, cost leadership, differentiation, focussed cost leadership, focussed differentiation and integrated cost leadership. Every strategy involves in identification of competitive area to establish business that can provide a competitive edge to the company. Mintzberg’s design school can be related to Hill and Jones’ (2009; p.19) example of Times Inc, where its managers identified strategies to exploit external opportunities that existed in web-based reading. Their strengths included their brand and reporting capabilities, which could be used for web-based publishing as well. However, moving their editorial team towards web-based publishing was a weakness. Times Inc adopted strategies such as merging the print and online newsrooms to remove distinctions between them; investing significant financial resources in online sites; and entering into partnership with CNN, which already had a strong online presence. In such cases, functional level strategies have to support business level strategies. However, this process assumes that the past and future are easily predictable and deterministic, and decisions cannot face any future challenges. Moreover, the competencies required in this approach can determine its success rates. Formal planning process may not be effective due to constant changing nature of businesses and demands; it blocks the creativity and potential of managers at middle and lower levels; and evidence suggest that strategies that are formed instantaneously have been extremely successful. Corresponding to the emergent process or Mintzberg’s learning school of thought, Google’s business model based on revenue generation from advertising links associated with search results posed a threat to other internet advertising giants like Yahoo and Microsoft which did not anticipate such a differential thinking by Google (Hill & Jones, 2009; p.21). The critical element of emergent strategies is the willingness of employees to learn and implement new ideas in a strategic manner. Management must ensure to check these emergent strategies are in line with organisational goals and objectives. This school of strategic management is also facilitated by corporate culture and organisational structure and systems. Pettigrew (1985) and Johnson (1987) have argued that normative management literature explains strategy as analytical, systematic and deliberate process of planning; however, the managerial deliberations, decisions and actions are influenced by political, cultural, and external factors (Bailey and Johnson, 2001). Against the theoretical consensus, strategy development is usually multidimensional and exclusive. Strategists assert that customer satisfaction is the key to success of business strategies. Corporate level Strategy: Corporate level strategies are concerned with the markets and businesses in which a company operates. Corporate strategies are considered as intangible compared with business strategies. One of the most successful methods of corporate strategy planning and implementation has been the Balanced Score Card System (Kaplan and Norton, 2005). This system has been extremely useful not only in corporate level strategy, but also with business, international cooperative levels. It works on the principle that an appropriate balance of strategic controls and financial controls allows firms on effectively monitor performance (Hitt et al, 2009; p.357). Limitations to the BSC include linking intangible goals to tangible objectives; complex nature; frequent updation to check performance. For successful integration of the BSC into strategic planning, it requires strategic thinking and acting by personnel at all levels (Bryson, 2004), which has not been evidenced in many organisations and hence failed. Reason may be inability to convert goals to measurable objectives, thus hampering performance management. Entrepreneurial school of strategic management focuses on visionary leadership that provides strategic direction; facilitates learning and knowledge building; builds social capital through relationships inside and outside the firm; sustain an effective organisational culture. The best quotable example of this visionary process is that of General Electric under the leadership of Jack Welch (Hitt, Ireland & Hoskisson, 2009; p. 350). Entrepreneurial school of thought is based on facilitation of entrepreneurial opportunities for growth and innovation. Hitt et al (2009) define five dimensions to entrepreneurial mind-set: autonomy, innovativeness, risk taking, proactiveness, and competitive aggressiveness. This approach strongly depends upon leadership, and favourable leadership qualities with respect to Jack Welch include high integrity which shows trustworthiness of the leader, business acumen to know how to make money, global mindset, understanding and anticipation of customers’ needs, strong adaptability to change acting as change ambassador and strictly not advocating for bureaucracy, self-confidence with humility and sense of humour, open-minded communication and good listening skills, team building, ability to realign organisation energies to business objectives, mobilize and energize through infectious enthusiasm, delivering bottom-line results, and enjoying the job (Welch & Byrne, 2003). ‘Change’ was the action taken by Welch that helped in achieving success. Buckingham and Coffman (2009) attribute qualities of both internal and external vision to define Jack Welch. With the external vision he was able to use internal understanding in order to gain that competitive edge over the market. He was able to optimally utilize all the internal resources in this regard. Another dimension to the corporate level strategies is added by the mergers and acquisitions processes. In these cases, corporate first determines its competitive businesses and industries; secondly, activities that create value to these businesses; and thirdly, exit plan to maximize its long-term profitability. Corporate level strategies demand long-term planning in terms of business competitiveness through products, technology, customers and competitors. Holistically, corporate level strategies encompass three levels, horizontal, vertical and strategic outsourcing. In addition, diversification may also be a profitable business model. Hill and Jones (2009; p.284) quote the example of News Corp, a media company that formulated its corporate strategy based on expansion of business activities into various other markets like news papers and broadcasting companies. Its horizontal integration strategies included acquisitions various news papers such as the British Sunday Telegraph, San Antonio Express etc. Vertical integration strategy included venturing into software and hardware side of media such as TV channels, news papers movies, TV programmes etc. News Corp’s corporate strategy falls into Mintzberg’s cognitive school of thought, and is formed by strategist’s social construction of reality. This thought premises that ‘strategies emerge as perspectives in the form of concepts, maps, schemas and frames’ (Sadler & Craig, 2003; p.19). Corporate social responsibility (CSR) is another process organisations adopt to create business-oriented initiatives to achieve business competitiveness through specific social initiatives. For example, Whole Foods’ CSR initiative of promotion of organic foods impacted entire supermarket segment, and eventually forced other giants such as Safeway to follow the same strategy. In addition, working with its suppliers, Whole Foods was able to improve overall quality of the products. It is also tied up with 2400 independent suppliers from farms in a way that their business improves local agriculture quality and generates good revenue for the farmers (Idowu & Filho, 2008). In this manner, Whole Foods has been able to drive CSR in other organisations too. This strategic drive falls into the positioning school, considering strategy formation as an analytical process, explained by Porter (1980). A business strategy in the form of CSR, this approach fills gaps missing in the actual planning process and adopts strategies that fit the business situation; it is potentially not beneficial or applicable for small businesses, and depends on analytical data (Griffin & Vivari, 2008). Stakeholder approach is also a strategy that falls into this school of thought. Freeman and McVea (2001; p.192) have described stakeholder approach to strategic management as “to manage and integrate the relationships and interests of shareholders, employees, customers, suppliers, communities and other groups in a way that ensures the long-term success of the firm. A stakeholder approach emphasizes active management of the business environment, relationships and the promotion of shared interests”. The stakeholder approach, according to Mintzberg and Lampel (1999), fall under three schools of thoughts, planning, learning or power. While stakeholder approach uses ethics, CSR uses social values of construction; from a strategic rationality perspective, social values and ethics are considered as resources. However, Mele & Guillen (2006; p.17) have argued that ethics cannot be considered as business strategy for achievement of goals, owing to the morality and character of leaders associated with the firms. Pettigrew’s study of Imperial Chemical Industries (ICI) is a classic example of the culture school of thought based on the premise that strategy formation is a process of social interaction. ICL embraced all kinds of political energies in its crisis time, and implemented a strategic change process (Sadler & Craig, 2003). This case can also be related to power school of thought as it is shaped by political links and establishing relationships with external entities, and internally through persuasion, bargaining and confrontation. This approach is potentially risky and can cause chaos and distortion within the system. In addition, relationships outside the organisation also may be at stake. International level strategies At an international level, strategic management demands greater cooperation, learning and adjustment, as seen in General Motor’s operations in Chinese market. General Motor had to adopt various strategies in cooperation with other organisations and subsidiaries located in other nations in order to compete with industry giants like Toyota (Hitt, Ireland & Hoskisson, 2009; p.216). Specifically related to strategic human resources management, much research and evidences have suggested the need for localization of strategies in order to fit the demands and requirements of personnel. This has been proven true in all sectors of human resources including performance management systems, HR policies and practices, and work procedures. For example, failure of foreign firms’ native HRM practices in Chinese subsidiaries has led to formation of Chinese HRM practices including rules, behaviour, managerial role, selection systems, labour management, job design and training (Ferner, 2009). Strategic integration of HR strategies that ‘fit’ the national culture and values can be explained on the bases of cultural school as well as environmental school that are anti-strategic in nature. Lack of knowledge and awareness can be challenges to implementing these strategies. Conclusions Literature on strategic management is expansive, depicting the significance of this dimension of management. In conclusion, Mintzberg’s schools of thought provide comprehensive idea about various strategies adopted by organisations at various levels, which can be categorized either into prescriptive type or descriptive type. While prescriptive types are considered as conventional and have less impact or practically inapplicable, the descriptive types are regarded as most suitable for contemporary organisations and businesses. Every school of thought has its benefits and disadvantages depending upon factors such as organisational goals (short and long term), market segments, customers’ changing demands, and national and cultural influences on human resources and management styles. Strategic management is employed by organisations at corporate level to define overall purpose and course of the company; at business level to achieve competitive advantage in specific sphere, market, product line, etc. With globalization taking over as the rule of current economic and political trend, strategic management at international level is becoming increasingly complex owing to the continually emerging demands and changes in addition to environmental and societal demands. 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