Strategic control aims to assess the progress made towards achieving the desired outcome It gives feedback and alerts top management to problems or potential problems before a situation becomes critical Strategic visualisation p7 [study] Visualisation, the graphic representation of strategic content, can improve the quality of the strategic management process p7 Table 1: Strengths of visualisation p8 Organisational direction and environmental analysis p8 [study] Figure 1.1: The strategic management process p9 Environment analysis consists in evaluating and analysing (SWOT analysis) p8: The external environment for possible opportunities and threats The internal environment for possible strengths and weaknesses The internal environment is also known as the company profile p9 Environmental analysis is essential for the next phase, strategy formulation p10 The use of visualisation methods to structure vast amounts of information p10: Quantitative data (sales and marketing data) – structured by means of standard techniques such as bar charts, line charts, pie charts Qualitative data – structured by means of standard structures (2x2 matrixes) customised by the user or for specific tasks (SWOT matrix) Porter’s five forces p10: Threat of new competition Threat of substitute products or services Bargaining power of customers (buyers) Bargaining power of suppliers Intensity of competitive rivalry S-curve diagram p10: Strategy formulation (strategy planning) p10 [study] Given the strategic direction and environmental analysis, the organisation is now in a position to develop long-term goals, derived from the mission statement p10
Administration Finance Table 3 Organisational Profile | Functional Areas Framework SG131/206 Critical success factors Results of 2007 internal environmental analysis Results of 2005 internal environmental analysis Strengths Weaknesses Strengths Weaknesses Functional areas: Finance Marketing Production Purchasing Public relations HR Administration Research and development Figure 13 Internal Environmental Analysis | Learning Outcomes Introduction p109 The stronger an organisation’s overall performance, the less need will be for radical changes in strategy p109 Methods of internal analysis p110: view – tangible and intangible resources Organisational capabilities
Substitution – replacing it with an alternative resource that achieves the same results Capacity to exploit the resource Resource-based analysis should be considered an on-going activity SG122/206: Figure 18 The Resource-based Analysis Process Capabilities p116 [study] Definition: capabilities – capabilities are the glue that emerges over time and binds the organisation together p116 Organisational strategic capabilities – are the complex network of processes and skills that determine how efficiently and effectively the inputs in the organisation will be transformed into outputs p116 The foundation of many organisation’s capabilities lies in the skills and knowledge of the employees and often in their functional expertise p116 The essence of capabilities is the human capital of the organisation – as employees do their work, combining the tangible and intangible resources of the structure of the organisational processes, they accumulate knowledge and experience about how to create value from the resources for the organisation and turn them into possible core competencies or distinctive organisational capabilities p116 The majority of capabilities are developed in specific functional areas p117 Definition: dynamic capabilities – the organisation’s ability to build, integrate and restructure capabilities to address the rapidly changing environment p117 To be a successful organisation requires p117: Demonstrating timely responsiveness Rapid and flexible product innovation Management expertise in coordinating and deploying organisational resources and capabilities Definition: competitive advantage – resources and capabilities must be truly distinctive and also contribute to the development of an organisation’s core competencies p118 Definition: core competencies – only possessed by those organisations whose performance is superior to the industry average p118 Core competencies are based on superior organisational skills and knowledge p118
Generic strategies (sometimes referred to as competitive strategies) SG158 Generic strategies provide and direct organisational activities. Organisations mhave to select specific generic strategies that complement their competitive advantage. Competitive strategy is formulating a strategy that enables the organisation to compete against other organisations within its industry. In order to gain a competitive advantage, an organisation must decide to adopt one of these generic strategies. An organisation also decides on a grand strategy in order to strengthen the generic strategy in its pursuit of competitive advantage. Generic strategies fall into four categories: Cost leadership strategy: by being more cost-effective than its competitors; Differentiation strategy: by adding value to the product or service through differentiation; Focus strategy: by narrowing its focus to a special market segment which it can monopolise. Combining the cost and differentiation advantage adds another generic competitive strategy: Best-cost strategy: by offering the lowest (best) prices compared with rivals offering products with comparable attributes. Figure 6.2: Three generic competitive strategies p180 These strategies combine the organisation’s “scope of operations” and competitive advantage to derive the three generic types of competitive strategy. Generic strategy 1 | Cost-leadership strategy Organisation’s pursuing a cost-leadership strategy usually sell a product or service that appeals to a broad target market. Their products or services are highly standardised and nor customised to an individual’s tastes, needs or desires. According to David (2009), the cost leadership strategy emphasises the production of standardised products at a very low per-unit cost for price-sensitive consumers. To achieve a cost advantage, an organisation’s cumulative across its overall value chain must be lower than its competitors’ cumulative costs. There are tow ways to accomplish this: Out-manage rivals in the efficiency with which value chain activities are performed and in controlling the factors that drive the costs of value chain activities; Revamp the organisation’s overall value chain to eliminate or by-pass some cost-producing activities. The underlying premise of cost leadership is that, by making products with as few modifications as possible, the organisation can exploit the cost-reduction benefits that accrue from: High capacity utilisation; Economies of scale; Technological advances; and Learning and experience.
Comparison between the generic strategies Distinguishing features of each generic strategy Table 4 Distinguishing features of the different generic strategies Parameter Cost leadership strategy Differentiation strategy Focus: low cost differentiation Best-cost strategy Strategic target A broad cross-section of the market A broad cross-section of the market A narrow market niche in which buyer needs and preferences are distinctively different A narrow market niche in which buyer needs and preferences are distinctively different Value-conscious buyers Basis of competitive advantage Lower overall costs than those of competitors Ability to buyers something attractively different from that of its competitors overall costs that rivals in serving niche buyers Attributes that appeal specifically to niche buyers Ability to give customers more value for money Product line A good basic product with few frills (acceptable quality and limited selection) Many product variations; wide selection; emphasis of differentiating features Features and attributes tailored to the tastes and requirements of niche buyers Features and attributes tailored to the tastes and requirements of niche buyers Items with appealing attributes; assorted upscale features Production emphasis A continuous search for cost reduction without sacrificing acceptable quality and essential features Differentiating features that buyers are willing to pay for; product superiority A continuous search for cost reduction incorporating features and attributes matched to niche buyer preferences Custom-made products that match the tastes and requirements of niche buyers Produce upscale features and appealing attributes at lower cost than rivals Marketing emphasis Trying to make a virtue out of product features that lead to low cost Flaunting differentiation features; charging a premium to cover the extra costs of differentiating features Communicating attractive features of a budget-priced offering that fits niche buyers’ expectations Communicating how the product offering does the best job of meeting niche buyers’ expectations Flaunt delivery of best value; deliver comparable features at a lower price than rivals or match rivals’ prices
strategy can often be imitated too easily; A degree of differentiation is often still needed. Charging too high a premium; A uniqueness that is easily imitated; Dilution of brand identification through product-line extensions. decrease the profit potential of this segment; Competitors may develop technologies or innovate products that may redefine the preferences of the niche; The segment may become so attractive that it is soon inundated with competitors, intensifying rivalry and eroding profits. challenges and expenses associated with providing low prices and differentiating at the same time; Organisations may miscalculate the sources of revenue within the industry and fail to achieve expected profitability.