Strategic Management Out Perform example essay topic

"Research has revealed that organisations that engage in strategic management generally out-perform those that do not " The connotation of the ancient Greek word " ", in its various grammatical forms, implies meaning of skilful leading to achieving a highly crucial position or attaining a desired end. Commonly associated with the military operations, strategies aim at methodical out-performance of adversaries. Analogically, application of deliberate strategies in the business management context suggests combination of activities directed at becoming superior to business opponents. Hence, it can be assumed that engaging in these activities will produce better business results than not doing so.

This essay attempts to provide evidence to support the opening statement. It firstly reviews the purpose of managerial activities from the historic perspective. It, then discusses the impact of strategic management process components on organisational performance and finally describes benefits of strategic thinking and strategic integration. The analysis concentrates on matching the theoretical principles of strategic management with the pragmatic business examples. For the purpose of this discussion, out-performance has been defined as surviving on the existing or successful entering the new market. Although definitions of management range from very simple statements, like the one of Frederick Taylor - "knowing exactly what you want people to do and then seeing that they do it in the best and cheapest way" (Taylor, 1903, p. 21) to complex postulates listing managerial activities and objectives (Davidson & Griffin, 2003, p. 5), their common denominator points to a set of deliberate actions to achieve organisational efficiency - "using resources wisely" (Davidson & Griffin, 2003, p. 7) and effectiveness - "making the right decisions" (Davidson & Griffin, 2003, p. 7).

Accompanied by a large volume of the theoretical work, management practice, can therefore be broadly described as a constant search for the optimal performance methodologies. Thus, from the historical point of view, it can be proposed that strategic management is a twentieth century form of the management discipline that emerged as a result of the evolution process necessitated by the changes in the organisational internal and external environment. The environmental changes of management have been occurring throughout the history on social, economic and political arenas. Social forces, represented by "norms and values that characterise the people in a culture" (Davidson & Griffin, 2003, p. 35) influence demand of the management process stakeholders. Economic factors encompassing "systems of producing, distributing and consuming wealth" (Bartol, Martin, Tein & Matthews, 1998, p. 92) impose economic ground rules on the management activities. Political elements define legal boundaries in which the management process occurs.

These dimensions are dynamic and evolve adequately to the cultural and technological progress of the civilisation. In consequence, they affect the search for the optimal performance. Management has been practised for thousands of years. It is believed that Egyptians "proposed limits to the number of men that one supervisor could effectively manage" (Davidson & Griffin, 2003, p. 38) around 1750 BC.

Remarkable assembly-like production system of the Venetian shipyard in the Middle Ages is often thought of as a precursor of the Operations Management. The importance of the field has been emphasised by the theoretical work since Socrates and Plato. As a field of knowledge, however, management developed due to the environmental changes posed by the industrial revolution and growth of factories in the early 1800's. Wealthy factory owners expected better returns for their resources input into the production system and workers expected better remuneration for their effort. Political system evolved to its capitalist stage from the previous feudal form and new technological inventions provided opportunities and threats to the business world.

The search for the optimal performance has begun. At the end of the nineteenths century, Bethlehem Steel's productivity was significantly increased "from 16.3 tonnes shovelled per worker per day to 60.2" (Davidson & Griffin, 2003, p. 41) through the realisation of the plan developed by the factory employee F.W. Taylor who, by posteriority, has been named the father of scientific management. Primarily, Taylor emphasised a need for the study of methods to improve worker efficiency. His fundamental contribution to the search for managerial excellence, however, was imposing the responsibility for the performance outcome on the managerial methods, which introduced the concept of performance improvement. The environmental forces continued to impact industrial arena. Developments in psychology provided opportunity to seek efficiency by focusing on human behaviour.

Industrial psychologist, Hugo Mu nsterberg, and political scientist Mary Parker Fol let proposed that individuals work better under specific psychological conditions (Bartol et al., 1998, p. 68). Hawthorn studies, conducted by Elton Mayo, empirically proved that there is a relationship between productivity and working conditions. Human Relations movement, represented by Maslow and McGregor (Robbins, Millett, Cacioppe & Waters-Marsh, 2001, p. 198) advocated improving efficiency through motivation techniques. Quantitative management philosophy stemming from the military theory saw better performance as a result of using mathematics and statistics (Miller & Field man, 1986, p. 58). By the late 1960's the omnipresent social, economic and political forces were changing the organisational environment very rapidly demanding innovative and effective methods to gain high profitability. Industrial leaders and management theorists realised that environmental changes are constant and unavoidable and the search for the optimal performance was transforming into the search for survival.

Competition, technological advances and the increasingly international nature of the business changed its context into the war-like area requiring a strategic approach in order to survive. Initially, the essence of the strategic approach, as stated by the Harvard Business School, was "to match the internal capabilities of the organisation with the demands of the environment" (Hubbard, 2000, p. 3). It was then further defined by the works of Porter (Hubbard, 2000, p. 3) to analysis of a particular industry and establishing generic strategies. Recent research underlines the need of flexibility in strategic management caused but hyper competition. Farjourn (2002) observes that as the mechanistic theories like SCP (Strategy-Conduct-Performance) or SSP (Strategy-Structure-Performance) and design models like SWOT (Strengths, Weaknesses, Opportunities and Threats) proved to be suitable only to a stable and predictable world, a new organic perspective has emerged, which addresses time, continuity and iteration of processes. Historical review of the management theory sets the context and reasons for the rise of the strategic management concept.

It demonstrates that it is a mature outcome of the searching for the optimal performance process mandated by the dynamics of the environment. Strategic management facilitates organisational survival in the 21st century to the same degree that scientific management facilitated efficiency in the 19th. Therefore, logically concluding, organisations that are armed in the strategic management process out-perform the comparable organisations that do not embrace this technique. During the time of the unprecedented growth of competition and mobilisation of business organisations is to battle their competitors, strategic management offers valuable principles and tools towards understanding internal and external environment, creating organisational integration and focus as well as promoting strategic thinking. These factors, in turn, contribute to achieving competitive advantage enabling out-performance of the business rivals. Existence of business organisations is entirely dependent on providing products or services sought by the customers and creating value for the stakeholders.

Understanding customers' needs and preferences is, therefore, a pre-requisite to a success. Disciplines such as Marketing Research, Buyer Behaviour or Demographics capture those characteristics of groups of the population that are potential influence rs of the customers' requirements. Their findings can serve as an input into the analysis of a firm's external environment, of which customers are part of. This analysis can be performed through the strategic management process tool SWOT where S (Strengths) and W (Weaknesses) refer to internal capabilities while O (Opportunities) and T (Threats) are concerned with the external factors. It is the OT part of the SWOT analysis that revealed the unfulfilled customer needs and current trends in tests, in turn, formulating a basis for a strategy of The Body Shop International. In the early 1980's Anita Roddick, the founder of the firm, entered a highly competitive market of the cosmetics industry.

Her strategy of commitment to the social responsibility and environmental awareness reflected customers' preferences and societal trends of that time. Davidson and Griffin (2003) report that through the introduction of products not tested on animals and the emphasis on the company's ethical conduct, which was a response to the world wide debate on the business ethics, The Body Shop entered, gained a strong position and maintains successful operations on the market dominated by cosmetic giants like Dior or L'Oreal. Similarly, the environmental scanning caused a strategic shift in the operations of the long established fast food chain McDonald's. Criticised for high in fat and unhealthy products, McDonald's management recognised the threat of losing customers to more health aware competitors and the opportunity of developing a new product line. The company responded by expanding their focus strategy to the health conscious group and introduced a low-fat menu items.

The case of Laura Ashley clothing company, on the other hand, demonstrates how absence of the environmental analysis can lead a successful business to a decline. According to Sull (1999), founded in the 1950's, with the designs inspired by the English country side, Laura Ashley expanded to over 500 retail outlets and enjoyed the international brand recognition throughout the 1970's. By the 1980's, the socio-economic context has changed and many women entered the workforce requiring more professional and functional wear rather than traditional garments produced at Laura Ashley. The company, however, continued unchanged, which in effect, caused a serious downturn of the initially successful business. Originated in economics, the Resource Based View theory argues that "sustainable competitive advantage is built on the unique resources that the organisation has within it" (Hubbard, 2000, p. 11). In alignment with this postulate, strategic management offers a mechanism to build competitive advantage and out-perform competitors.

It is the Strengths and Weaknesses component of the SWOT model that analyses financial, material, human and intellectual assets of a company. Woodridge (1999) notes that since its entry into the Australian telecommunication market in 1992, Cable and Wireless Optus, succeeded through the quality of its platform and secured 33% of the market in 2002. Research indicates that price oriented telecommunication industry will soon exhaust business growth opportunities. Thus, Optus' management turned to the valuable resources the company has created for identifying new strategic possibilities. Optus has a substantial subscriber base which could be used to attract customers to Optus' mobile portal. However, Optus has no real capability in operating mobile portals and many of those have been already offered by other carriers.

Optus' existing billing and credit control systems could facilitate developing further sales through mobile commerce. As it is not certain which strategic direction Optus will follow, its strategic management activities will certainly equip the organisation for the future. Strategic management is about making decisions that "have long term impact on the activities of the organisation and are directed to out-perform competitors" (Hubbard, 2000, p. 14). These decisions, therefore, must be focused on the future.

In the face of unpredictable and highly competitive market place "a capacity for divergent strategic thinking which takes place at multiple organisational levels is central to creating and sustaining competitive advantage" (Eisenhardt & Brown, 1998, p. 787). Strategic thinking, imposed by strategic management, is a dynamic and intuitive process, which responds to undefined future by creativity and capitalists on opportunities provided by unexpected situations. Success of Honda's entry on the US motorcycle market provides evidence of how strategic thinking leads to performing better than competitors. Honda's initial strategy to enter US market, as depicted by Hubbard (2000), was to target its big bike end since that was the main segment of this market. Big Japanese bikes, however, failed to perform in the US climatic conditions. Honda's marketers observed a considerable interest in the small 50 cc machines, which they rode around to get to their customers.

Their observation, then, was used as an opportunity to market small bikes as "fun" bikes to those who were not serious bikers. Subsequently, Honda developed a new market for 125 cc machines. By the time US manufacturers discovered them as serious competitors, the Japanese gained credibility and market position. Strategic management can be thought of as managing "the pattern or plan that integrates organisations' major goals, policies and action sequences into a cohesive whole" (Quinn, 1980).

Thus, it is an integration mechanism that forces all organisational functions and processes to progress into one direction. Strategic decisions affect systemically all departments and present the potential to increase a firm's competitive advantage in two ways. Firstly, it can establish a strong cohesive team of people producing greater outcome than the sum of the individual efforts, and secondly, it can ensure synchronized work towards organisational objectives. Burgelman and Doz inform that when Carly Fiorina was appointed the new Chief Executive Officer of Hewlett-Packard in 1999, she recognised that the lack of a clear, overarching, corporate strategy was the cause of HP experiencing disappointing profit growth between 1996 and 1999. The company consisted of autonomous business units, all serving different markets causing delays and confusion among customers.

Fiorina understood that to survive on a highly competitive market HP needed strategic integration. In August 1999, the HP senior executives, representing all departments and regions, developed strategies based on co-operation and inter-dependence of organisational functions. In 2001 HP was still facing its strategic challenge to be number one in each of its core businesses against high performing competitors. Its performance, however, showed improvement in comparison to "unfocused and wide years" (Burgelman & Doz, 2001, p. 32). Once a strategy is formulated it serves as guidance for all organisational activities enabling fulfilling plans and achieving goals. It acts like a binding substance which penetrates to each area through procedures, job design and culture, transforming organisations into solid market players.

The Body Shop's strategy of product differentiation through the commitment to social and environmental issues described by Wheelen and Hunger (2004), defines the company's product development, packaging, supplier relations, human resource management and customer service. All products are made from natural ingredients, packaging is re-usable to minimise the exploitation of natural resources and suppliers are chosen on the basis of their contribution to the local economies and business ethics. The Body Shop empowers its human resources by sophisticated training not only in the company products but also key social and environmental issues; its customer service is based on friendliness and honesty. The holistic implementation of the strategy secured a lasting success for the Body Shop also laid a foundation for a world-wide recognised image. Do the organisations, which engage in strategic management, out-perform those that do not?

The affirmative answer to this question presented in the above paragraphs has been constructed around general benefits of strategic management rather than statistical comparison. Cases described prove that application of the strategic management concepts is a superior performance factor while the historical review emphasizes its incremental value in identifying competitive advantage as a performance determinant. The main strength of strategic management, as discussed in this essay, originates in its integrative qualities. In his article on the emergence of the organic perspective on strategy, Farjoun (2002) offers a solution to the traditional mechanistic approach to strategic management by defining strategy as "continuous co-aligning sustained through actions aimed at creating, re-defining and integrating the firm's domains" (Farjourn, 2002). It is in the sense of continuous awareness of internal and external dynamics and co-ordinated adaptation to it, that strategic management empowers its practitioners to out-perform others.

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