Strategic Management - Coursework Example

Strategic Management While formulating a firm’s strategy, innovation often comes into play.More often than not, innovation must be integral to the process of management in all organizations. This is because it is the lifeblood of a market economy. Hence, it improves the way in which firms combine capital and labor, allowing them to produce goods and services more efficiently. By doing this, innovation embodies the entrepreneurial spirit. By definition, innovation strategy can be described as the commercialization of knowledge, either in the form of new or improved products, process, or some combination thereof. Innovation strategy can range from imitative to novel, from incremental to monumental, and from minor to dramatic (Strecker 2009). Assessing the impact of innovation and entrepreneurship on a firm’s strategy is not a walk in the park. Innovation along with entrepreneurial approach due to their relationship of mutual interdependence, are decisive in strategy formulation. Of concern is the relationship between innovation and entrepreneurship and its effects on the formulation and implementation of a firm’s strategy. As a firm is in the process of formulating and implementing its strategy, it will incur increasing costs if there is a poor implementation of the innovation and entrepreneurial framework (Dollinger 2003). The determination of the causes and determinants as well as the tools that a firm can use in designing the processes of formulation and implementation of strategy, innovation and entrepreneurship, are extremely important if one is to identify the factors and determinants that have a major impact on a firm’s strategy (Galbraith 2014). Many new firms initiate their activities with an explicit eye on entrepreneurial innovation which ought to be supported by a clear differentiation strategy. Strategy is often a product of management decisions and actions that determine the long term performance of a firm. The basic elements constituting the cycle of formulation and implementation of a firm’s strategy are innovation and entrepreneurship. In the case of innovation and entrepreneurship approach, it is composed by elements such as analysis of the general environment, industrial competition, organizational structure, corporate culture, and the resources at the firm’s disposal. Being part of a firm’s strategy, innovation is often concerned with bringing something new into use or improving that which already exists. The newness of an innovation can take the form of a new good, a new service, and a new process to manufacture, sell, and support a good or new way of formulating a firm’s strategy. It is important to note that the purpose of innovation is to increase the firm’s performance (Aidis & Welter 2008). On the other hand, firms that encourage entrepreneurship are willing to take risks as well as to be creative while trying to gain a competitive advantage. More often than not, innovation is classified as the specific form of entrepreneurship. The specific focus of entrepreneurship on a firm’s strategy is discovering and exploiting profitable entrepreneurial opportunities. Entrepreneurial opportunities are circumstances suggesting that new goods or services can be sold at a price exceeding the costs incurred to create, make, sell, and support them (Doepfer 2012). Innovation as a core element for the formulation and implementation of a firm’s strategy is a specialized form of differentiation strategy. Hence, it comes with various benefits. First, it allows a potentially more sustainable basis for competitive advantage. Second, innovation should be regarded broadly because it provides substantially new ways of doing business. Third, innovators at entrepreneurial firms are better able to reap the financial gains associated with innovation; thus feeling their motivation to charge ahead (Davila et al 2007). Amazon is a good case in point for illustrating the importance of innovation and entrepreneurship on a firm’s strategy. Amazon employees must devote a least a portion of their time developing innovations. Therefore, employees who are entrepreneurial in nature come with various character traits such as they are highly motivated, willing to take responsibility of their projects, optimistic and self confident. As part of Amazon’s strategy, its employees need to have entrepreneurial mind-set which values uncertainty in the market place and seeks to continuously identify opportunities with the potential to lead to important innovations. Because this mind-set has the potential to lead to continuous innovations, this can be a source for competitive advantage for the firm (Terziovski 2011). In conclusion, a greater emphasis on the role of strategy formulation and execution leads to higher innovation and entrepreneurial performance. Based on the findings above, innovation and entrepreneurial approach is a catalyst for successful formulation and implementation of a firm’s strategy; thus, providing a firm with a basis for distinct and durable competitive advantage. 2. Strategic management is a rational approach that firms use to achieve strategic competitiveness and earn above-average results. Firms analyze the external environment and their internal organization, and then formulate a strategy to achieve a desired level of performance (Samson & Bevington 2012). The effectiveness of the strategic management process is increased when it is grounded in ethical intentions and behaviors. As a result, the pattern of decisions made by organizational managers establishes strategy and creates expectations among other organizational members and other external stakeholders. There are many ethical and legal dimensions related to sustainable strategic management, and there are many questions that need to be answered in order to fully understand these dimensions. In this case, firms will want to explore several issues related to where they stand ethically. For example, they will want to explore their level of commitment to future generations, and they will want to know how they can balance the pressures from short-term profits with the long-run demands of sustainability (Laasch & Conaway 2014). Many ethical issues have emerged such as free trade, open competition, and forging alliances with competitors. It is argued that integrating ethics into the strategic management process is the right thing and the profitable thing to do. The effectiveness of processes used to implement a firm’s strategies increases when they are based on ethical practices. Therefore, strategic leaders as well as others in the organization are most likely to integrate ethical values into their decisions when the company has explicit ethics codes, the code is integrated into the business through extensive ethics training, and stakeholders expect ethical behavior (Carroll & Buchholtz 2014). For this reason, establishing and enforcing a meaningful code of ethics is an important action to take to encourage ethical decision making as a foundation for using the strategic management process. There will always be an increasing demand on organizations towards a higher ethical behavior. The main ethical dimensions in strategic management are; formulating the vision, implementing strategic change, ethical decision making mode, and corporate social responsibility. Although it is the duty of the management to formulate a company’s vision, they often seek information from outside sources while they are developing it. The firm’s leaders are called upon to choose an ethical image from those available at the moment, articulate it, give it form and legitimacy, and focus attention on it (Rao & Parvathiswara 2009). Corporate social responsibility means that the firm will be increasingly held responsible for protecting the welfare of society in terms of not polluting the environment, not exhibiting in any form of discrimination, producing safe and quality products, and not misleading people through deceptive advertisements. Strategic management should always address these ethical dimensions with increased attention (Ladkin 2015). There are ethical dimensions that are considered important over others. For example, a survey of business faculty members in fifty American colleges and universities belonging to the American Assembly of Collegiate Schools of Business found that two ethical dimensions as being the most important concerns; Wall Street ethics and environmental issues. As a comparative measure, responding faculty were also asked what they felt were most important issues a decade ago. Their responses were discrimination by race, sex, age, product liability and safety; and personal business ethics. Examples cited, while perhaps not a direct example to ethical dimensions on strategic management, are nonetheless valuable from the standpoint of illustration. Specifically, these strategies should be assessed on the basis of what strategists ought to consider (Geckeler, 2010). In a nutshell, strategic decisions including those that might be less than ethical and result in tragic circumstances are the result of individual strategists who presumably are themselves ethical human beings. It would be argued that it is when a firm disengages its values and ethical beliefs from its strategic management process that is often made in a business context, which problems tend to be created. Ethical dimensions to strategic management seem to be valuable based on research that has demonstrated that individual’s perception of, and reaction to, ethical issues is strongly shaped by the firm and/or organization. In other words, the most well meaning and well-written ethical dimension has strategic relevance only to the extent that it is seen as being important component of the strategic management process. 3. There has been no consensus about the definition of corporate culture. Nonetheless, there is a broader agreement that a major aspect of culture is that groups share or hold certain things in common. These things are often referred to as norms, values, behavior patterns, and attitudes et cetera that usually form the core identity of an organization or of one of its subunits. The common and frequently used definition for corporate culture originates from Schein. He defined corporate culture as the glue that holds together an organization through a shared pattern of meaning (Schein 2010). Schein, who is often considered as the foremost leadership and corporate culture theorists, takes the position that the process of culture creation is the essence of leadership and that leadership and culture are two sides of the same coin. In other quarters, experts often define corporate culture as the organization’s operating system. This is because it guides how employees think, act, and feel. Hence, corporate culture is dynamic and fluid, never static. From this perspective, it can be seen that corporate culture refers to those elements of an organization that are most stable and less malleable (Davis 2003). The importance of corporate culture is likely is to become obvious as one describes the culture. Corporate culture is important in several respects. To begin with, some corporations have a culture that is often referred to as benefit-friendly culture, which tends to give benefits to the employees. Such organizations focus on the positive aspects of benefits, and are less likely to be deterred by administrative obstacles. The attitude of such organizations is that if they think a program will benefit the employees, they will find a way to implement it. Second, support by the management is critical to success (Woodside 2010). If the corporate culture as reflected by attitudes of managers supports transit benefits, such benefits will likely be implemented. Furthermore, corporate culture helps to reduce operating costs for corporate social responsibility activities which often tend to enhance the motivation of the employees. By doing this, it will result into increased productivity and lower operating costs. The number of lawsuits by employees and others would be reduced resulting in increased funds for business growth. Corporate social responsibility which is a core element of the corporate culture can help top managers and other stakeholders understand if operational managers are building valuable long term relationships and assets. Successful organizations and/or businesses understand the importance of community involvement in creating a responsive corporate culture. For example, Home Depot encourages its employees get involved both on the job and in their communities. Hence, every new employee including executives spends two weeks working the sales floor, learning what customers need, and receiving firsthand knowledge of the company’s core business. By getting to embrace the existing corporate culture, participating employees increase their ability to provide better quality solutions (Miroshnik & Basu 2014). This often creates a team orientation for employees throughout the business. A strong corporate culture is characterized by explicitly instructing the acting of the workforce through clearly stating what is desired and what is undesired. This is often the case in monolithic organizations as values, symbols and standards are relatively consistent and the cultural-ideal is almost all embracing, so it sets standards not only in special, but in almost every situation. More often than not, a strong corporate culture is spoken of when many or all employees are lead by the values and ideals (Inceoglu 2002). On the other hand, in a weak corporate culture, organizational members are believed to have different values and norms. For example, many large public universities can be thought of as having weak cultures. This is because behavioral consistency across the organization is tough to achieve. Among students at a large state university, the fraternity-sorority subculture coexists with the political activist subculture, the devout Christian subculture, the jock subculture as well as many other subcultures, and behavior is quite different within each. Nonetheless, weak corporate culture does not necessarily mean bad. There are situations where weal corporate cultures are desirable. In some cases, there are organizations continue to perform well because of their monopolistic market positions and the relative autonomy that the weak corporate culture allows. It is advantageous to have strong culture for mono-cultural organizations which is economically relevant in various aspects. A strong culture comes with various advantages namely; smooth communication, little supervision, quick decision making process, high motivation and loyalty, stability and reliability, and action orientation (Herzog 2011). In conclusion, the popularized literature for organizational culture with its emphasis on the benefits of fostering cohesiveness within the organizational structure has gained prominence in business circles. However, corporate cultures cannot be deemed good or bad, but this depends primarily on the match between cultural assumptions and environmental realities. However, individual organizational goals impact on manifestation of corporate culture in certain contexts. A particular cultural orientation that proves to be successful in one organization may be a liability in another case. The notion of strong corporate culture is a concept with broad appeal because it fills a need for consistency in organizations. 4. According to theorists, corporate politics is neither inherently good nor bad. Even though corporate politics leads to divisiveness that is not good for an organization, there are times when it needs to be shaken up in order to bring about changes. These are occasions when the organization is emerging from a phase of stability and entering into a period requiring some fundamental changes. Strategy implementation is basically about change management which is basically about power and politics (Bremmer & Keat 2009). For this reason, corporate politics has a definite role to play in strategy implementation. It is important for organizational leaders to know when to use politics and power to get things done, and when to shun politics and encourage harmony. Politics is concerned with the use of power and relates to managing coalitions, consensus-building, and the creation of commitment to organizational purpose and mission. The nature of the organization creates an atmosphere for corporate politics to manifest itself. With the establishment of an organizational structure, not only are the positions, hierarchy, and relationships created, but structure is often a catalyst for coalitions, conflicts ambitions, and drives among the people who constitute an organization (Harrison & John 2013). Most managers are aware that the higher they move upwards, the pyramid of the organizational narrows down progressively. This causes jockeying for power resulting in political play. For every manager who considers corporate power and politics as bad, there could be another manager who embraces these elements for the benefit of the organization. Corporate power and politics will always be part of behavioral implementation by strategists. Politics and power may have a positive or negative effect on an organization’s strategic development (Thompson & Martin 2010). It is often difficult for a manager to formulate and implement strategy without having an understanding about corporate power and politics. The ability to use power and to manage political behavior has always been a key part of the process of strategic management (Freeman 2010). When analyzing power within an organization, there is often a distinction between macro power and micro power. The latter relates to the exercise of power within the organization in connection with the processes of strategic management. It is often argued that the strategic behavior and strategic choices displayed by management are an outcome of corporate power and politics (Morden 2012). Hence, political strategy rests on the ability of the management to demonstrate effectively an understanding of corporate power. The premises of corporate power and politics are summed up as: strategy formulation is shaped by power and politics. In this case, the resultant strategies tend to be emergent and take the form of positions or ploys as opposed to perspectives. Most of the research on human cognition overlooks the fact that strategic decision making is not simply about dealing with complex mental challenges in threatening environments. More than this is involved: corporate power and politics matter, particularly in multinational organizations. Strategic management is about steering a course in a politically constituted organization (Boxall & Purcell 2011). For example, Cadbury’s attempt to transform itself faced the concentration and growth of corporate power, politics and rising oligopolistic competition in a saturated home market. The company was in dire need of strategic renewal. It needed to move from some key elements of its product including some key human resource policies such as life-time commitment. The leaders who brought about this change were people who had a wealth of experience in corporate power and politics. In this case, they had power to influence events and credibility needed within the firm to effect strategic change. By doing this, they cleverly perceived which parts of the products needed to be changed and which parts ought to be enduring (Enz 2009). That being said, it is evident that much of the corporate power and politics occurs within the management structure itself. The way that organizational leaders use power and influence is a manifestation of their political abilities. Corporate power and politics can be positive if at all they are used to bring about positive change and enhance the organization’s strategic management. Power and politics can also be a negative tool for Machiavellian managers whose main goal is to pursue self interest at the expense of other colleagues and at the expense of the organization’s strategic development. The rational analysis of corporate power and politics must be tempered by a thorough understanding of the working of the organization through an analysis of its strategic and operational expenses. 5. Competition is at the core of the success or failure of firms. It determines the appropriateness of a firm’s activities that can contribute to its performance such as innovation, good implementation, or a cohesive culture. However, before developing a business-level strategy, the business must understand what forces determine the profits in an industry. The Porter’s Five Forces Model is the tool that is often used to make such analysis. This model is based in industrial organization economics (Wit & Meyer 2010). According to Porter, all firms in a particular industry face forces within their industry that significantly affect profitability. If a firm understands these forces, it can develop a business-level strategy that allows the firm to create a competitive advantage or to protect it from these forces, which in turn allows the firm to be consistently profitable (Maguire 2005). This model focuses on how the five forces in an industry impact each other, but not how they impact an individual firm. These forces are; buyers suppliers, substitutes, new-entrants, and rivalry. The collective strength of these five competitive forces determines the ability of firms in an industry to earn, on average, rates of return on investment in excess of the cost of capital. In industries where the Five Forces are favorable such as pharmaceuticals, soft drinks, and data base publishing, many competitors earn attractive returns. However, industries such as video games, rubber and steel where pressure from one or more of the forces is intense, few firms command attractive returns despite the best efforts of management (Hills & Jones 2009). The Five Forces can help a firm to establish its competitive bases as well as determine industry profitability because they influence the prices, costs, and required investment of firms in an industry. Buyer power has an impact on the prices that firms can charge; hence, this might affect the competitive advantage of the firm. The power of buyers can also influence cost and investment because powerful buyers demand costly service. The intensity of rivalry influences prices as well as the costs of competing in areas such as advertising, plant product development, and sales force. The threat of entry of places a limit on process, and shapes the investment required to deter entrants. The strength of each of the five competitive forces in helping a firm to gain competitive advantage is a function of industry structure or the underlying economic and technical characteristics of an industry. Structural change unlike industry structure shifts the overall and relative strength of the competitive forces and this can have positive or negative impact on a firm’s profitability as well as its competitive advantage. The industry trends that are most important for competitive advantage are those that affect structural change (Mclvor 2005). If the five competitive forces and their structural determinants were solely a function of intrinsic industry characteristics, then competitive strategy would rest heavily on picking the right industry and understanding the five forces better than competitors. While these are surely important tasks for any firm, and are the essence of competitive strategy in some industries, a firm needs not to be a slavery of its industry’s structure. In any particular industry, not all of the Five Forces will be equally important and the particular structural factors that are important will differ. The Five Forces framework allows a firm to see through the complexity and pinpoint those factors that are critical to competition in its industry (Ahlstrom & Bruton 2009). Nevertheless, some of the forces that influence the competitive forces are beyond the control of any given firm. For example, increasing deregulation has meant that many companies have been unable to prevent the threat of foreign competitors. On the other hand, it is possible to influence some of these competitive forces in a way that will positively impact the competitive position of the organization. In this case, an organization may redesign one of its products in order to differentiate it from competitive offerings. Such actions may allow the company to change a premium price and reduce the level of rivalry with competitors. In Japan, automobile firms such as Honda, Toyota and Daihatsu own their dealer networks which are part of a strategy to establish bases of competitive advantage. The fierce competition in Japan’s automobile industry has encouraged more forward integration as auto manufacturers look to control distribution and repair of their products and to get closer to their customers, as well as locking out the competition. This often has a positive impact on the bargaining power of buyers such that they are in a position to switch among different suppliers in the industry. At a more general level, the Five Forces Model can be used to understand the implications of outsourcing an activity or keeping it in-house. Choosing a particular sourcing option will have an impact upon one or a number of the five forces (Schermerhon 2009). A case in point is where an organization may decide to maintain control of the distribution network in an industry in order to limit the threat of new entrants. The five forces that influence competition will allow the organization to identify the strengths and weaknesses in certain activities. 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