The Rational and Dynamic Approaches to Strategic Management

Strategic management is a not a new concept. It has been defined as a management system which links strategic planning and decision making with the day-to-day business of operational management. Strategic management is not a simple, step by step process, but a complex and iterative process which needs hard work and dedication from many people in an organization to implement it toward the objective. It is the process for the leading members of an organization to forecast its future and develop the necessary procedures and operations to achieve its future. Strategic management is usually found in high levels of management to help organization gather, analyze and organize useful information to keep up with industry and competitive trends. The rational and dynamic approaches to strategic management are two different schools of thought. The rational approach is well-planed and more prescriptive on strategy selection. However, the dynamic approach is opposite.

Rational Approach to Strategic Management

The rational choice model of strategic management is a principal responsibility of upper-level management. It has a deep-rooted tradition in organization management. Once management decides on the Strategic Plan, lower-level managers should implement the Strategic Plan through an Operating Plan. The rational model provides a structured and sequenced approach to strategies making. The rational approach is included on the corporate agenda and approached in a systematic manner. In rational approaches, objectives and main elements are always defined before strategy commences. It is propitious in a stable and predictable environment. The rational approach normally focuses on the ability of an organization to realize its goals.… Read the rest

Fitzgerald and Moon’s Building Block Model

Fitzgerald and Moon’s Building Block Model suggests the solution of performance measurement problems in service industries. But it can be applied to other manufacturing and retail businesses to evaluate business performance.

Fitzgerald and Moon has provided a framework for performance management in service organization using three criteria, called as building blocks, they include, standards of performance (against these dimensions are measured to review performance), rewards for performance (rewards are necessary for achieving standards of performance) and dimensions of performance (these are measures of performance).

1. Standards: You can think of standards as rules that employees of a company must follow in order to achieve the long term objective of the organization. For the standards to be motivating enough, it must have three important ingredients. These ingredients are;

  • Equity: Performance measures should be equally challenging for all parts of business. Relaxation given to one part of the business leads to perception of unfair treatment which hinders productivity.
  • Ownership: Performance measure should be acceptable to everyone. Employees should be got involved in the identification of measures rather than being imposed on them. Ownership means here is responsibility for the results.
  • Achievable: Performance measure should be realistic. Eg. Using actual results for the competitors to set as target. Employee will not be motivated to achieve targets if consider them impossible.

2. Rewards: In line with Vroom’s valence theory, managers expect to be rewarded not just for doing their job but for doing it right. To be effective, the components of rewards must be clear, concise, motivating and controllable by the employees.… Read the rest

Bowman’s Strategy Clock

In many open markets, most goods and services can be purchased from any number of companies, and customers have a tremendous amount of choice. It’s the job of companies in the market to find their competitive edge and meet customers needs better than the next company. So, how, given the high degree of competitiveness among companies in a marketplace, does one company gain competitive advantage over the others? When there are only a finite number of unique products and services out there, how do different organizations sell basically the same things at different prices and with different degrees of success?

This is a classic question that has been asked for generations of business professionals. In 1980, Michael Porter published his seminal book, “Competitive Strategy: Techniques for Analyzing Industries and Competitors”, where he reduced competition down to three classic strategies: Cost leadership, Product differentiation and Market segmentation. These three generic strategies represented the three ways in which an organization could provide its customers with what they wanted at a better price, or more effectively than others. Essentially Porter maintained that companies compete either on price (cost), on perceived value (differentiation), or by focusing on a very specific customer (market segmentation).

Bowman’s Strategy Clock is a model used in marketing to analyse the competitive position of a company in comparison to the offerings of competitors. It was developed by Cliff Bowman and David Faulkner as an elaboration of the three Porter generic strategies. As with Porter’s Generic Strategies, Bowman considers competitive advantage in relation to cost advantage or differentiation advantage.

Read the rest

Ashridge Portfolio Matrix

Corporate Parenting is a strategy employed by highly centralized and diversified firms with large resource pools. It views the corporation in terms of resources and capabilities that can be used to build business units value as well as generate synergies across business units. Corporate parenting generates corporate strategy by focusing on the core competencies of the parent corporation and on the value create from the relationship between the parent and its businesses.

There are basically three styles of corporate parenting as follows; financial control, strategic planning and strategic control.

  1. Financial Control: Under this style the role of the corporate parent is to monitor and evaluate the financial performance of investment portfolio of the respective business units. The corporate managers act as agents on behalf of share holders and financial markets to identify and acquire viable assets and businesses. The business unimanagers are given the autonomy to carry out business activities and make decisions at their level. However the corporate parent sets performance standards for control purposes.
  2. Strategic Planning: Under this style the role of the corporate parent is to enhance synergies across the business units. This may be achieved through envisioning to build a common purpose, facilitating cooperation across businesses and providing central services and resources.
  3. Strategic Control: Under this style the corporate parent leverages its resources and competences to build value for its businesses.
Read the rest

Strategic Lenses

Organisations strategic issues are commonly analysed from different strategy lenses. Strategic lenses are a concept of strategic management. The lenses are different ways of viewing strategy development. It examines the flow of tasks and information, or how you get things done. Each lens reveals many different traits and qualities. Using the strategic lens, one looks to optimize workflow to meet the goals and objectives of the company. This article a will cover four angles from which strategy can be viewed and implemented on a corporate level; they are strategy as design, strategy as experience, strategy as ideas and strategy as discourse.

1. Strategy as a Design

This takes the view that strategy development can be a local process in which the forces and constraints on the organisation are weighted carefully through analytic and evaluative techniques to establish clear strategy direction. This creates conditions in which carefully planned strategy implementation should occur. They are rationally, thoroughly researched, analytically considered strategies made by experts.

It is top-down approach to strategic decision making. It takes no input from manager involved in day to day operations. Strategic decisions are imposed on them, they may resent this approach. It is suitable in fast and rapidly changing environment where decision making is separate from implementation.

It is suitable where major cultural change required and where employees input is of less important or they are not able to give their inputs may be because of lack of knowledge and willingness. It can be used where close-control is necessary and where employee turn-over is higher.… Read the rest

Strategic Decisions for Sustainable Business

Strategic Management is a constant object of curiosity among psychologists and thinkers. On several occasions, senior managers are asked how they come up with strategic decisions. They have one pattern of making these crucial and company-light decisions. One would suppose these to be mathematical, based on rigid rules of logic or statistical treatments. But here’s the catch: The managers decisions were product of informal data gathering, intuition, innovation, and oral exchanges in 2-way communications. These managers have the feel of the whole situation besetting their companies and their impulse always has an accompanying relevance. Their minds transcend logical rules that are immutable and mechanical and perhaps by age and experience, they acquired an almost instantaneous and discrimination of what is effective and practical. They give a whole new meaning to the words feeling, judgment, common sense, proportion, balance, and appropriateness. They use these terms to effect viable actions that would sustain their companies in the tests of domestic or external competition, recession, changing market attitudes, inflation, to mention only the majors. These street-smart guys are not much into science when they make a decision. Instead, they stay at the helm of art which is a combination of wisdom, experience, common sense, and a lot of prudence and daring.

Senior managers usually see problems of their companies as big opportunities in disguise. They remain flexible in finding ways but that does not mean foolish weighing the indefinite till the situation clears or worsens. They are flexible in making solutions to give provisions for modifications, adjustments, shifts, or even u-turn without compromising company principles.… Read the rest