INTERNATIONAL UNIVERSITY TRAVNIK

FACULTY OF ECONOMICS

BUSINESS ECONOMY

STRATEGIC MANAGEMENT

SEMINAR PAPER

Subject: English language

Mentor: Prof. Dr. Murat Dizdarević Student: Tarik Bajrić, E-14/20

Mediha Dervišić

Travnik, 2020.
ABSTRACT

This seminar paper presents strategic management as an important business management concept. It
defines strategy; explains the key concepts in strategic management; strategic vision; common
approaches to strategy; the importance of strategy; what's making strategy effective; what differences
are between strategic planning at small versus large firms and the impact of external and internal
factors of strategy.

KEY WORDS

Goals, management, organization, plan, strategy.

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CONTENTS

1. INTRODUCTION.............................................................................................................4
2. COMMON APPROACHES TO STRATEGY...............................................................5
2.1. Richard Rumelt............................................................................................................5
2.2. Michael Porter..............................................................................................................5
2.3. Henry Mintzberg..........................................................................................................5
3. THE IMPORTANCE OF STRATEGY..........................................................................6
3.1. Strategy and Management............................................................................................6
3.2. Key Strategic Questions...............................................................................................7
4. MAKING STRATEGY EFFECTIVE.............................................................................8
4.1. Suitability, Feasibility, and Acceptability....................................................................8
4.2. Mulcaster’s Managing Forces Framework...................................................................9
4.2.1. SWOT analysis...................................................................................................10
5. DIFFERENCES BETWEEN STRATEGIC PLANNING AT SMALL VERSUS
LARGE FIRMS......................................................................................................................11
5.1. Strategic Management in Large Organizations..........................................................11
5.2. Low-cost strategy.......................................................................................................12
5.3. Strategic Management in Small Firms.......................................................................12
5.4. Differentiation............................................................................................................13
6. THE IMPACT OF EXTERNAL AND INTERNAL FACTORS OF STRATEGY. .13
6.1. Internal Conditions.....................................................................................................13
6.2. External Opportunities and Threats............................................................................14
7. SUMMARY......................................................................................................................16
8. REFERENCES................................................................................................................17

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 1. INTRODUCTION

A strategy is a plan of action designed to achieve a specific goal or series of goals within an
organizational framework. Strategy involves the action plan of a company for building competitive
advantage and increasing its triple bottom line over the long-term. The action plan relates to achieving
the economic, social, and environmental performance objectives; in essence, it helps bridge the gap
between the long-term vision and short-term decisions.

Strategic management is the process of building capabilities that allow a firm to create value for
customers, shareholders, and society while operating in competitive markets (Nag, Hambrick & Chen
2006). It entails the analysis of internal and external environments of firms to maximize the use of
resources in relation to objectives (Bracker 1980). Strategic management can depend upon the size of
an organization and the proclivity to change the organization’s business environment.

The process of strategic management entails:

 Specifying the organization’s mission, vision, and objectives

 Developing policies and plans that are designed to achieve these objectives
 Allocating resources to implement these policies and plans 1

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 2. COMMON APPROACHES TO STRATEGY

2.1. Richard Rumelt

In 2011, Professor Richard P. Rumelt described strategy as a type of problem solving. He outlined a
perspective on the components of strategy, which include:

 Diagnosis: What is the problem being addressed? How do the mission and objectives imply
action?
 Guiding Policy: What framework will be used to approach the operations? (This, in many
ways, should be the decision of a given competitive advantage relative to the competition.)
 Action Plans: What will the operations look like (in detail)? How will the processes be
enacted to align with the guiding policy and address the issue in the diagnosis?

2.2. Michael Porter

In 1980, Michael Porter wrote that formulation of competitive strategy includes the consideration of
four key elements:

 Company strengths and weaknesses

 Personal values of the key implementers (i.e., management or the board)
 Industry opportunities and threats
 Broader societal expectations

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 2.3. Henry Mintzberg

Henry Mintzberg stated that there are prescriptive approaches (what should be) and descriptive
approaches (what is) to strategic management. Prescriptive schools are “one size fits all” approaches
that designate best practices, while descriptive schools describe how strategy is implemented in
specific contexts. No single strategic managerial method dominates, and the choice between
managerial styles remains a subjective and context-dependent process. As a result, Mintzberg
hypothesized five strategic types:

 Strategy as plan: a directed course of action to achieve an intended set of goals; similar to the
strategic planning concept
 Strategy as pattern: a consistent pattern of past behavior with a strategy realized over time
rather than planned or intended (where the realized pattern was different from the intent,
Mintzberg referred to the strategy as emergent)
 Strategy as position: locating brands, products, or companies within the market based on the
conceptual framework of consumers or other stakeholders; a strategy determined primarily by
factors outside the firm
 Strategy as ploy: a specific manoeuvre intended to outwit a competitor
 Strategy as perspective: executing strategy based on a “theory of the business” or a natural
extension of the mind-set or ideological perspective of the organization. 2

3. THE IMPORTANCE OF STRATEGY

Strategic management is critical to organizational development as it aligns the mission and vision with
operations.

Strategic management is critical to the development and expansion of all organizations. It represents
the science of crafting and formulating short-term and long-term initiatives directed at optimally
achieving organizational objectives. Strategy is inherently linked to a company’s mission statement
and vision; these elements constitute the core concepts that allow a company to execute its goals. The
company strategy must constantly be edited and improved to move in conjunction with the demands of
the external environment.
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 3.1. Strategy and Management

As a result of its importance to the business or company, strategy is generally perceived as the highest
level of managerial responsibility. Strategies are usually derived by the top executives of the company
and presented to the board of directors in order to ensure they are in line with the expectations of
company stakeholders. This is particularly true in public companies, where profitability and
maximizing shareholder value are the company’s central mission.

The implications of the selected strategy are also highly important. These are illustrated through
achieving high levels of strategic alignment and consistency relative to both the external and internal
environment. In this way, strategy enables the company to maximize internal efficiency while
capturing the highest potential of opportunities in the external environment.

3.2. Key Strategic Questions

The initial task in strategic management is to compile and disseminate the organization’s vision and
mission statement. These outline, in essence, the purpose of the organization. Additionally, they
specify the organization’s scope of activities. Strategic planning is the formal consideration of an
organization’s future course, and all strategic planning deals with at least one of three key questions:

 What do we do?
 How do we do it?
 How do we excel?

In business-related strategic planning, the third question refers more to beating or avoiding
competition.

Strategic management is the art, science, and craft of formulating, implementing, and evaluating cross-
functional decisions that will enable an organization to achieve its long-term objectives. It involves
specifying the organization’s mission, vision, and objectives; developing policies and plans to achieve
these objectives; and then allocating resources to implement the policies and plans. Strategic

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management seeks to coordinate and integrate the activities of a company’s various functional areas in
order to achieve long-term organizational objectives. 3

Table 3.2.1. Product improvement strategies

(resource:https://courses.lumenlearning.com/boundlessmanagement/chapter/strategic-management/)

4. MAKING STRATEGY EFFECTIVE

Effective strategies must be suitable, feasible, and acceptable to stakeholders.

Effectiveness is the capability to produce a desired result. Strategy is considered effective when short-
term and long-term objectives are accomplished and are in line with the mission, vision, and
stakeholder expectations. This requires upper management to recognize how each organizational
component combines to create a competitive operational process.

4.1. Suitability, Feasibility, and Acceptability

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With the above framework in mind, a number of academics have proposed perspectives on strategic
effectiveness. Johnson, Scholes, and Whittington suggest evaluating the potential success of a strategy
based on three criteria:

Suitability deals with the overall rationale of the strategy. One method of assessing suitability is using
a strength, weakness, opportunity, and threat (SWOT) analysis. A suitable strategy fits the
organization’s mission, reflects the organization’s capabilities, and captures opportunities in the
external environment while avoiding threats. A suitable strategy should derive competitive
advantages.

Feasibility is concerned with whether or not the organization has the resources required to implement
the strategy (such as capital, people, time, market access, and expertise). One method of analyzing
feasibility is to conduct a break-even analysis, which identifies if there are inputs to generate outputs
and consumer demand to cover the costs involved.

Acceptability is concerned with the expectations of stakeholders (such as shareholders, employees,

and customers) and any expected financial and non-financial outcomes. It is important for stakeholders
to accept the strategy based on the risk (such as the probability of consequences) and the potential
returns (such as benefits to stakeholders). Employees are particularly likely to have concerns about
non-financial issues such as working conditions and outsourcing. One method of assessing
acceptability is through a what-if analysis, identifying best and worst case scenarios.

4.2. Mulcaster’s Managing Forces Framework

Will Mulcaster argued that while research has been devoted to generating alternative strategies, not
enough attention has been paid to the conditions that influence the effectiveness of strategies and
strategic decision -making. For instance, it can be seen in retrospect that the financial crisis of 2008
and 2009 could have been avoided if banks had paid more attention to the risky nature of their
investments. However, knowing in hindsight cannot address how banks should change the ways they
make future decisions.

Mulcaster’s Managing Forces Framework addresses this issue by identifying 11 forces that should be
taken into account when making strategic decisions and implementing strategies:

 Time
 Opposing forces

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  Politics
 Perception
 Holistic effects
 Adding value
 Incentives
 Learning capabilities
 Opportunity cost
 Risk
 Style

While this is quite a bit to consider, the key is to be as circumspect as possible when analyzing a given
strategy. In many ways it is similar to the potential issues a scientist faces. A scientist must always be
objective and conduct experiments without a bias toward a specific outcome. Scientists don’t prove
something to be true; they test hypotheses. Similarly, strategists must not create a strategy to get to an
end point; they must instead create a series of likely endpoints based on organizational inputs and
operational approaches. Uncertainty is key, allowing strategic improvement for higher efficacy. 4

4.2.1. SWOT analysis

A SWOT analysis is one of the types of strategic management frameworks used by organizations to
build and test their business strategies. A SWOT analysis identifies and compares the strengths and
weaknesses of an organization with the external opportunities and threats of its environment. The
SWOT analysis clarifies the internal, external and other factors that can have an impact on an
organization's goals and objectives.

The SWOT process helps leaders determine whether the organization's resources and abilities will be
effective in the competitive environment within which it has to function and to refine the strategies
required to remain successful in this environment. 5

The acronym SWOT consists of four parts: strengths, weakness, opportunities, and threats. This
simplistic approach has helped corporations capitalize on their strengths, improve upon their
weaknesses, identify and take advantage of opportunities, and minimize threats to maximize their
chances for success. SWOT gives businesses much-needed insight to strategically position them for
success with developing a long-term marketing plan. 6

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https://searchcio.techtarget.com/definition/strategic-management
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 Table 4.2.1.1. SWOT Analysis
(resource: https://adamsmediagroup.com/marketing/the-swot-analysis-what-it-is-and-why-you-should-
use-it/)

5. DIFFERENCES BETWEEN STRATEGIC PLANNING AT SMALL VERSUS LARGE

FIRMS

The effectiveness of a strategy is heavily dependent upon the size of the organization.

Strategic management can depend on the size of an organization and the proclivity of change in its
business environment. In the U.S., an SME (small and medium enterprise) refers to an organization
with 500 employees or less, while an MNE (multinational enterprise) refers to a global organization
with a much larger operational scope. Size is highly relevant to organizational strategy and structure,
and understanding the influencing factors is important for management to elect optimal strategic plans.

5.1. Strategic Management in Large Organizations

MNEs (multinational enterprises) may employ a more structured strategic management model due to
its size, scope of operations, and need to encompass stakeholder views and requirements. MNEs are
tasked with aligning complex and often dramatically different processes, demographic considerations,
employees, legal systems, and stakeholders. Due to the wide variance and high volume of business,

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upper management needs stringent control systems embedded in the managerial strategy to enable
predictability and conformity to mission, vision, and values.

For example, McDonald’s operates restaurants all over the globe. They have different menus in China
than in France due to differing consumer tastes. They also have different hiring standards, regulations,
and sourcing methods. How does management create a strategy that doesn’t confine these geographic
regions (and lose localization) yet still maintains each region’s alignment with the mission, vision, and
branding of McDonald’s?

5.2. Low-cost strategy

Ideally, McDonald’s can construct careful strategic models and systems which control the critical
components of the operations without hindering the localization. From a strategic point of view, this
involves creating a system of quality control, reporting, and localization that maintains the competitive
advantage of scale economies and strong branding. Large firms such as McDonald’s often achieve
better scale economies and thus can pursue low-cost strategies. This requires enormous managerial
competency with meticulously crafted strategies at various levels in the organization (including
corporate, functional, and regional).

5.3. Strategic Management in Small Firms

SMEs (small and medium enterprises) may employ an entrepreneurial approach due to its
comparatively smaller size and scope of operations and limited access to resources. A smaller
organization needs to be agile, adaptable, and flexible enough to develop new strengths and capture
niche opportunities within a competitive industry with bigger players. This requires fluidity in strategy
while simultaneously maintaining a predetermined vision and mission statement.

Achieving this requires a great deal of balance; it often requires a strategy that is created to enable
multiple paths to the same objectives. Small firm strategies often incorporate flexibility to capture new
opportunities as they arise, as opposed to maintaining an already well-established competitive
advantage.

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 5.4. Differentiation

In most cases, low-cost strategies require substantial economies of scale. Because of this constraint,
smaller firms most often use differentiation strategies that focus on innovation over efficiency.
Enabling creativity and innovation is strategically difficult to do as it requires a hands-off approach
that empowers autonomy over structure. Innovate ideas are primarily trial and error, and so instilling
creativity into a strategic process is also a high-risk approach. 7

6. THE IMPACT OF EXTERNAL AND INTERNAL FACTORS OF

STRATEGY

Analysis of both internal factors and external conditions is central to creating effective strategy.

Strategic management is the managerial responsibility to achieve competitive advantage through

optimizing internal resources while capturing external opportunities and avoiding external threats.
This requires carefully crafting a structure, series of objectives, mission, vision, and operational plan.
Recognizing the way in which internally developed organizational attributes will interact with the
external competitive environment is central to successfully implementing a given strategy —and thus
creating profitability.

6.1. Internal Conditions

The internal conditions are many and varied depending on the organization (just as the external factors
in any given industry will be). However, management has some strategic control over how these
various internal conditions interact. The achievement of synergy in this process derives competitive
advantage. While different businesses have different internal conditions, it is easiest to view these
potential attributes as generalized categories.

A value chain is a common tool used to identify each moving part. It is a useful mind map for
management to fill in during the derivation of internal strengths and weakness. A value chain includes
supports activities and primary activities, each with its own components.
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 6.2. External Opportunities and Threats

Table 6.2.1. Michael Porter’s value chain

(resource: https://www.researchgate.net/figure/Michael-Porters-value-chain-6_fig1_316889653)

The external environment is even more diverse and complex than the internal environment. There are
many effective models to discuss, measure, and analyze the external environment (such as Porter’s
Five Force, SWOT Analysis, PESTEL framework, etc.). For the sake of this discussion, we will focus
on the following general strategic concerns as they pertain to opportunities and threats:

Markets (customers): Demographic and socio-cultural considerations, such as who the customers are
and what they believe, are critical to capturing market share. Understanding the needs and preferences
of the markets is essential to providing something that will have a demand.

Competition: Knowing who else is competing and how they are strategically poised is also key to
success. Consider the size, market share, branding strategy, quality, and strategy of all competitors to
ensure a given organization can feasibly enter the market.

Technology: Technological trajectories are also highly relevant to success. Does the manufacturing
process of the product have new technologies which are more efficient? Has a disruptive technology
filled the need that was currently being filled?

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Supplier markets: Suppliers have great power as they control the necessary inputs to an organization’s
operational process. For example, smartphones require rare earth materials; if these materials are
increasingly scarce, the price points will rise.

Labor markets: Acquiring key talent and satisfying employees (relative to the competition) is critical
to success. This requires an understanding of unions and labor laws in regions of operation.

The economy: Economic recessions and booms can change spending habits drastically, though not
always as one might expect. While most industries suffer during recession, some industries thrive. It is
important to know which economic factors represent opportunities and which threats.

The regulatory environment: Environmental regulations, import/export tariffs, corporate taxes, and
other regulatory concerns can poise high costs on an organization. Integrating this into a strategy
ensures feasibility.

While there are many other external considerations one could take into account during the strategic
planning process, this list gives a good outline of what must be considered in order to minimize
unexpected threats or missed opportunities. 8

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 7. SUMMARY

Strategic management is based around an organization's clear understanding of its mission; its vision
for where it wants to be in the future; and the values that will guide its actions.

The process requires a commitment to strategic planning, a subset of business management that
involves an organization's ability to set both short- and long-term goals. Strategic planning also
includes the planning of strategic decisions, activities and resource allocation needed to achieve those
goals.

Having a defined process for managing an institution's strategies will help organizations make logical
decisions and develop new goals quickly in order to keep pace with evolving technology, market and
business conditions. Strategic management can help an organization gain competitive advantage,
improve market share and plan for its future.9

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 8. REFERENCES

Website:

1. https://courses.lumenlearning.com/boundless-management/chapter/strategic-management/
(Date of access: 25.12.2020.)
2. https://searchcio.techtarget.com/definition/strategic-management (Date of access:
25.12.2020.)
3. https://adamsmediagroup.com/marketing/the-swot-analysis-what-it-is-and-why-you-should-
use-it/ (Date of access: 25.12.2020.)
4. https://www.researchgate.net/figure/Michael-Porters-value-chain-6_fig1_316889653
(25.12.2020.)

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