Strategic Management Issues - Essay Example

Strategic Management Your Name: Lecturer’s Name: Class Name: Date Assignment Due: Strategic Management The fierce competitive global economy demands that an organization creates and successfully implements strategies that are aimed to maximize its profits and enable it attain a competitive advantage in the industry. Various approaches are used to explain the origin of competitive advantage for organizations. For instance, some theorists argue that competitive advantage arises from the company’s position in relation to its competitors and stakeholders while others argue that it arises as a result of the unique resources and competencies that an organization possesses. This paper discusses the two approaches: competitive positioning and resource based view of strategy, and critically evaluates the similarities and differences between them. The competitive positioning approach to strategy holds that the competitive advantage of the organization stems from its position in respect to its industry. In this approach, the supernormal profits of an organization are attributed to high market share in relation to its rivals, differentiated products and lower costs. According to Hamel & Prahalad (1994), this approach to strategy is ‘outside-in’ and it is aimed at establishing a competitive position for the organization in its environment so as to outperform its rivals. The analysis of the company’s competitive position starts with the five forces framework which evaluates the nature of competition in the company’s industry. A generic strategy is then selected followed by a chain analysis through which the value-adding activities are configured in the organization. This supports the strategy either by cost leadership or differentiation. The major strengths of the approach include the readiness in applying the frameworks (such as Porter’s five forces, value chain and generic strategies) while analyzing the environment of the organization (Mintzberg & Quinn, 1996). The approach is highly structured to simplify the complexity of the organization as well as its environment. In addition, it can help to identify opportunities and threats in the business environment. However, this approach has its weaknesses that include the following: it overlooks the importance of the specific business competencies as compared to the wide factors of the industry. There has been also a wide criticism on some of its frameworks like generic strategies. According to Hamel & Prahalad (1994), the strategic positioning overemphasizes on the role of the industry when determining its profitability while underestimating the significance of the individual organization. In addition to this, Botten (2009) indicates that the environments are unpredictable to analyze since they are too dynamic to allow an effective positioning. We also recognize that it is hard to change the organization than it is to change the environment. Campbell, Stonehouse and Houston (2002) further criticizes Porter’s frameworks as being too static meaning that the organization’s strategic management will be devoid of most of the practical and applicable analytical tools. On the other hand, the resource based view of strategy emphasizes on the importance of the organization’s resources and competencies in determining its performance. According to Campbell, Stonehouse and Houston (2002), the combination of resources, knowledge, skills and technology distinguishes the company from its competitors and the distinctiveness leads into competitive advantage. Resources are thought to be the inputs which enable a business organization to carry out its activities. Resources themselves have no value to the organization, but what matters is their level of utilization. Kirsch (2007) categorizes them as either tangible or intangible. The tangible resources are the physical assets of the organization and they include human resources, physical resources and financial resources. Intangible resources include reputation and technological/ intellectual resources. Reputation is the ‘goodwill’ of the organization and is regarded as the most valuable intangible asset. While technological resources refers to the company’s ability and speed to innovations, the intellectual resources refer to the copyrights and patents that may be derived from the firm’s technological resources. It is, however, necessary to note that resources without adequate competencies render no benefit to the organization. Therefore, resources should be efficiently configured in the organization for it to compete favorably in the market (Olsen & Zhao 2008). This strategy is ‘inside-out’ since it not only emphasizes on the significance of the business in attaining competitive advantage and strategic intent, but also the vision and creativity of the organization. According to Botten (1999), the resource based view of strategy focuses on the internal resources and capabilities of the organization. In other words, the internal capabilities of an organization assist in determining the strategic decisions made in competing in its environment. It adds value to the consumer and creates new markets. The criticisms for this approach include the lack of well developed analytical frameworks of the school of competitive positioning. In fact, they are currently in their infancy and are poorly developed. It also overlooks the potential significance of the business environment in determining its performance. Both the approaches used in strategic management recognize that the organizations thrive for supernormal profits by the virtue of competitive advantage. They can both be used to complement one another in achieving economic performance of an organization. The approaches, however, differ with one another over the source and sustainability of the organization’s competitive advantage. According to Kirsch (2007), the position based view is a classical approach which regards the external environment as the prime determinant of business strategy while the resource based view regards the internal environment as the prime determinant of strategy. While profits arise by the high market share relative to the rivals, differentiated products and lower costs in positioning approach, they arise through the effective utilization of the organization’s resources and competencies (Connor, 2002). In the position based view strategy, the organizations are regarded as discrete systems with interrelated socio-economic activities and the strategy should therefore create a fit between the activities of the organization and its environment within its industry. On the other hand, the review based theory regards an organization as a unique bundle of resources. Its competitive advantage is all about exploiting the differences in the resource base of the organization. Further, Hemmatfar, Salehi & Bayat (2010) says that in the resource based view, the above average returns are as a result of rare, valuable, immobile, non-imitable and non-substitutable resources while in the position based view; it is the industry structure which determines the organization’s economic performance. In attaining and maintaining strategic competitiveness in the 21st century, organizations need to adopt an integrated approach to strategy. They should consider the contributions of both the positioning school and the resource based school as complementing one another since they represent different perspectives of the same situation. Mintzberg & Quinn (1996) explains that each of the two approaches represent different form of analysis that can be used to improve strategic thinking and analysis. Therefore, managers should acknowledge the contribution of each strategy in understanding the complexity of strategic management. For instance, Conner (1991) argues that a profit making organization should adopt the components of the resource based view so as to obtain above-normal returns. This can be possible by creating distinctiveness for the customer and applying low cost effectiveness. It should offer them an attractive attribute or a dissimilar relationship when compared to its substitutes. Alternatively, the organization should sell the identical products at a low cost position as compared to its competitors {Pommerening 2010). The distinctiveness of the product is associated with the distinctiveness of the resources and competencies used to produce the product. In conclusion, unlike the positioning theory where performance and strategy lies exclusively on the structure of the industry, performance in the resource based view depends on endowment of resources and development within the company. This means that the resource positioning is more fundamental for economic performance of the organization in resource based view than the strategic positioning which is crucial for the positioning based view. Positioning based view is concerned with how the organization holds strongly to its current position if is positioned to improve or maintain its position in the future. The resource based view asserts that an organization can create a strong competitive position by committing its resources, which become a bundle of unique capabilities and products. References Botten, N. (2009). CIMA Official Learning System Enterprise Strategy (6th ed). Woburn, MA: Butterworth-Heinemann. Campbell, D., Stonehouse, G & Houston, B. (2002). Business Strategy (2nd ed). California: Butterworth-Heinemann. Connor, T. (2002). “The Resources-Based View of Strategy and its Value to Practicing Managers”. Journal of strategic change. 11(1): 307-316 Hamel, G. & Prahalad, C. K. (1994) Competing for the Future. Boston: Harvard Business School Press, Harris, D. (2006). CIMA Learning System 2007 Integrated Management). California: Butterworth-Heinemann Hemmatfar, M., Salehi, M. & Bayat M 2010, “Competitive advantages and strategic information system.” International Journal of Business Management. 5(7): 158-169. Kirsch, K. (2007). Critically Review how the Resource-based View Has Developed Our Understanding of Strategy. New York: GRIN Verlag, Mintzberg, H. & Quinn, J. B. (1996). The Strategy Process: Concepts, Contexts and Cases (3rd ed). New Jersey: Prentice Hall International. Olsen, M & Zhao, J. (2008). Handbook of Hospitality Strategic Management. London: Butterworth-Heinemann. Pommerening, T. (2010). Strategic Changes for Business Models in the German Retail Banking Industry in the Post Financial Crisis Era: Using the Example of the Post Bank AG. New York: GRIN Verlag. Read More