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Chapter 3

Chapter Outlines

Tools of the Trade

This chapter moves past simply explaining the different ideas and foundations of strategic management and begins examining the actual tools necessary to carry out a strategy. From the mission statement, all the way to strategy implementation, this chapter explores the physical processes necessary for strategy.

The Tools of the Trade

Turning Great Strategy into Great Performance
Michael C. Mankins and Richard Steele's article in the Harvard Business Review on developing action from strategy

Strategy is not just an idea to be talked about in classrooms. Its very foundation is in actions, and thus without action it does not serve much of a purpose. Strategy is a practical device in understanding and predicting actions necessary to the success of a firm. Various tools are necessary then when undertaking the actions of implementing a strategy.

Organizational, Mission, Values, and Intentions

Corporate Identity: the Role of Mission Statements
Article by Lance Leuthesser and Chiranjeev Kohli on mission statements' importance in the corporate world

At 3M, A Struggle Between Efficiency and Creativity
A Brian Hindo BussinessWeek article concerning 3M's critical balancing act between discipline and innovation

A firm cannot define its strategy without first determining its mission and purpose. Two businesses may offer the same product, but were founded to accomplish very different goals. With different goals in mind, different strategies are necessary to obtain these goals. The 3M company is a great example of a company that has maintained its mission statement with such dedication that it has led to major business advancements and growth.

The SWOT Framework

SWOT Analysis
Video by Mindtools.com outlining the simple steps of a SWOT analysis

K-Mart's Blue Period
Bill Saporito's Time article on K-Mart's attempts to catch up with Wal Mart

The Airline Industry Since 9/11
Dr. Peter P. Belobaba of MIT documents the attempts of the airline industry to recover from the 9/11 attacks

Airlines After 9/11
First Business TV interview recalls airline hardships after 9/11

The SWOT framework takes into account both internal and external issues of a firm to discern its competitive advantage. The “S” and “W” (strength and weakness) of a firm deal with the internal aspects. A firm's strength and weakness in the eyes of its customers determine whether or not they will make a purchase from that firm or one of its rivals.

Different markets have different key success factors that are necessary for obtaining a competitive advantage. Having these factors is a strength, while lacking them is a weakness. Wal-Mart has many things that K-Mart lacks, and thus it has a competitive advantage.

The “O” and “T” (opportunities and threats) deal with external issues related to a firm. To properly identify opportunities and threats, a firm has to narrow its focus by identifying the environment it competes in, as well as what factors in that environment are most relevant to its daily operations. Firms operate as open systems where they must adapt to fit the competitive environment around them. A major factor in evaluating an environment is how much bargaining power a firm has in relation to its customers and suppliers. For example, after September 11, 2001, Delta's environment in the airline industry changed drastically, as did its bargaining power within its environment.

Goals, Objectives, and Strategies

An Incremental Approach to Strategic Change
James B. Quinn's article on the importance of incrementalism

Strategy is a reflection of two different forces, voluntaristic and deterministic. Voluntaristic strategies reflect managerial choices, while deterministic strategies reflect necessary responses to the environment. A strategy can look good on paper, but it must fit within its environment. Strategies must also fit the firm's own resources. Thus, a good strategy must take into account all four factors of SWOT. Strategies must also be careful not to be too specific in the long term, because any environment could change over time. This is an idea called logical incrementalism. Based on this same idea, strategies cannot be too vague in the short term, or they may not have much of an effect. Just as a firm must be able to adapt, every individual strategy must be adaptable to a changing environment.

Functional Strategies and Implementation

Concept of Strategic Implementation
Chapter one of Ryszard Barnat's book The Nature of Strategy Implementation deals with the concepts of implementation and incrementalism in the strategic process

Implementation is the part of strategy visible to customers. It is the actual process of putting into action the ideas formulated in the strategic process. It is a much more tedious and laborious task than actually creating the strategy. Firms must have the resources and knowledge necessary to implement a strategy, or the strategy itself is virtually useless.

Learning, Adaptation, and Change

Camping on Seesaws: Prescriptions for a Self-Designing Organization
Bo L. T. Hedberg, Paul C. Nystrom, and William H. Starbuck's article from the Administrative Science Quarterly examines the individual importance of minimal consensus, minimal contentment, minimal affluence, minimal faith, minimal consistency, and minimal rationality

The tools of learning, adaptation, and change are as vital to a firm as any other. Without them, a firm simply cannot last; survival in the business world is an ongoing struggle. The key for any firm is to never be satisfied, and always strive for improvement. Satisfaction breeds complacency. Six mechanisms necessary for this are:

  1. minimal consensus
  2. minimal contentment
  3. minimal affluence
  4. minimal faith
  5. minimal consistency
  6. minimal rationality

Minimal consensus states that it is best to have a level of dissent within a firm. This way the firm is always exploring new ideas. Minimal contentment means exactly how it sounds: don't grow too content; always pursue new things. Minimal affluence warns a firm from pocketing too much of its profits. As much as is possible, profits should be poured back into bettering the firm. Minimal faith says that no firm should rely too much on its own planning, as anything that can go wrong often will. Minimal consistency emphasizes the need for a firm to regularly change itself voluntarily. This way, when change becomes necessary it won't be as big of an undertaking. Minimal rationality emphasizes the difficult truth that sometimes creativity is more important to a firm than rationality.

Concluding Thoughts and Caveats

Fifty Years of Honda in America
Don Sherman's article for automobilemag.com chronicles Honda's rise to success in America

  • In most instances, strategy does not start from scratch. It is based on history, environment, and available resources.
  • The job of developing strategy is ultimately the responsibility of top management. However, top management rarely has an accurate feel for daily customer interaction. Thus, the burden of strategy really falls on everyone in the firm.
  • Strategies may not always work the way they were intended to, but what is most important is that they work. Honda had a very different vision in mind for its US market, but because its strategy was able to adapt to change, Honda still had great success in the US.
  • While the process of strategic management is often represented as a linear equation, it is really anything but an exact science. It is a very messy process that never works the same way twice. It does, however, always operate under the same principles and guidelines.

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Key Terms

Bargaining power

Refers to the competitive relationship between suppliers and buyers of any good or service and relates to the ability of either party to exert power and influence over the other. The concept and its application to strategic management will be discussed extensively in Chapter 4.

Deterministic

Theories of management view a firm's performance as being largely attributable to factors and forces within the environment. The role of management in this view is simply to assess these forces and respond to them appropriately.

Fit

A concept based on the open systems view, where strategic success is linked simultaneously to the strategy, the characteristics of the firm, and the environment. In this view, any combination of strategies, resources, and conditions can yield competitive advantage, when properly aligned.

Imprinting

Refers to the patterns an organization takes on and repeats over time, without special intent or effort. These patterns may reflect principles of the firm's founders or practices that were instrumental in some early success. Regardless, though, they become part of the routine set of accepted practices or actions within an organization.

Key success factors

The drivers of success within a particular industry, environment, or setting. They are the things that are essential for competitive advantage, in relation to specific sets of customers and specific competitive conditions.

Logical incrementalism

A concept linking the specificity of strategic actions to the certainty of a particular setting. The idea is to set long-term goals in general terms, so as to allow for flexibility and adaptation, but to move forward through incremental and small steps, minimizing commitment and risk and increasing opportunities for learning.

Open systems

Theory views success as the result of interdependence between the conditions of the environment and the characteristics of the firm. All open systems, whether organizations or organisms, survive by acquiring inputs, performing some value added transformations on them, and then returning them to the environment in the form of outputs.

Slack resources

Resources held by the organization but are in excess of what is needed to satisfy immediate needs. Slack is typically either unabsorbed and available in the form of cash, receivables, or excess credit, or absorbed and held in the form of excess capacity, excess inventory, or redundant capabilities.

Voluntaristic

Theories of management, in contrast to deterministic theories, view a firm's performance as being largely a function of specific actions and resources. The role of management in this view is to leverage unique characteristics and assets, so as to be distinct from the competition.

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