The New Strategic Management

THE NEW STRATEGIC MANAGEMENT
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(21 January 2011)
Table of Content TOC \o "1-3" \h \z \u 
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Abstract  PAGEREF _Toc283383066 \h
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Introduction  PAGEREF _Toc283383067 \h
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Strategic Management  PAGEREF _Toc283383068 \h
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The Porter’s Five Forces  PAGEREF _Toc283383069 \h
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The Threat of Entry of New Competitors/ Barriers to Entry  PAGEREF _Toc283383070 \h
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The Threat of Substitutes  PAGEREF _Toc283383071 \h
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The Intensity of Rivalry  PAGEREF _Toc283383072 \h
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Buyers’ Power  PAGEREF _Toc283383073 \h
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Suppliers’ Power  PAGEREF _Toc283383074 \h
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Five Porter Forces Critique  PAGEREF _Toc283383075 \h
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Analysis  PAGEREF _Toc283383076 \h
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Strengths of the Model  PAGEREF _Toc283383077 \h
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Weaknesses of the Model  PAGEREF _Toc283383078 \h
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Conclusion  PAGEREF _Toc283383079 \h
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List of Reference  PAGEREF _Toc283383080 \h
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The New Strategic Management
Abstract
Decision making is a very important process in every firm; with the most effective and efficient decisions made in a firm then the growth and sustainability of the business are guaranteed. Strategic management models have helped managers to make those decisions and solve dilemmas and problems in the firm. This paper tackles the issues of strategic management in a firm through the use of models. It specifically tackles the Porters Five Forces developed by Michael E. Porter in 1979. They include threat of entry of new competitors, the intensity of competitive rivalry, the threats of substitutes, the buyers bargaining power, and the supplier bargaining power (Porter, 1980a). Other models such as SWOT and PEST used to assist managers in making decision are also identified.
The critique of the Five Porters Forces is discussed with the weaknesses and strengths being discussed in length and the assumptions that underlie the development and implementation of the model. The managers are advised to apply a combination of models since there is no perfect model developed. This allows the managers have the required information required in making decisions.
Introduction
Strategic management involves the managers of a firm or business making the right decisions at the right time so that the business may have a competitive advantage over its rivals. The manager must be able to analyze very many factors in order to be sure that the decision being taken doesn’t affect the business negatively. According to Kotler (1997) the manager has very many decisions in the company and in any decision there are factors that must be considered such as the environment, cultural aspects, natural, external and internal factors so as to make a comprehensive decision.
To make such decision the manager may apply strategic management models such as five porter forces, Strength Weakness Opportunity Threat (SWOT) analysis, and Political Economic Social Technological (PEST) analysis among others. The application of these models seeks make basic strategies; issue based planning, alignment of the business, scenario planning, and self firm organizing (Haberberg, & Rieple, 2001). In making the decisions and planning the manager must identify the purpose, goals and objectives, specific action plans, specific approaches, and monitor the plan. According to Kippenberger (1998) this will give the manager the basis of external and internal assessment, identify and give priority to specific issues, and make an updated vision, mission, objectives and values of the firm.
This paper focuses on how a manager can be able to make the best and effective choice in managing the business to ensure growth and sustainability of the business. According to Porter (1980a) the five porter forces were developed by Michael E. Porter in 1979. The paper has three sections where the first section will include a general explanation of the need to use models in strategic management where two questions are focused on. Firstly, is how might models help senior managers deal with the challenges facing them? And secondly, Can the use of models actually improve decision-making? The second section is a brief description and explanation of five porter’s forces. Where they are stated and explained. The third section is a reflection of the meaning and deep explanation of the five porter forces; it evaluates the strengths and weaknesses of the forces through analyzing what different authors say on them. It gives a critical look on the forces and explains how they can be applied by managers.
Strategic Management
As explained by Luffman et al. (1996) any firm needs to make decisions to be able to continue growing; in making these decisions the person responsible for making them must be very informed to make an informed decision. Strategic management models have been used time and again to analyze the decisions made which ensure the resources are managed effectively. If resources are to be managed one need to make sure substantial evidence is collected to support an idea before adopting it. Models including five porter forces, SWOT, and PEST analysis among others are mainly used by the managers to give the necessary analysis of the situations (Sanderson, 1998).
In every decision made by the manager or management it must be aimed at getting a competitive advantage to the firm and be able to be above the rest. Balancing all aspects can prove to be difficult but using the models all the factors are incorporated and analyzed making it more easier to make an efficient decision. The firm is able to make a passive, accepting decisions or an active aggressive decision. The business models are able to incorporate the vision, mission, goals, strategies, tactics, and action plans in the decision ensuring a stable and known business environment and building existing competencies.
As stated by Thurlby (1998) models also have the ability to stretch to include the strategic management ideas and structure of the firm i.e. top-down and bottom-up, and incorporate the strategic goals and the challenges and opportunities to realize new potential for the firm. In view of this idea the manager may take advantage of the models in that the decision made is all inclusive and the business focuses on doing all things rights.
Strategic management aims at integrating various functions that produces cross functional excellence that creates a dynamic force that enables different functional efforts to have innovation that is an asset in the growth and sustainability of the business. It is also aimed at achieving the wide goals of the organization; this is done through seeking to understand the difference between the needs of the organization and the area of functioning of the business. This makes it able to discover how the business functions can be manipulated to achieve the goals set by the firm or business. Strategic management also aims at efficiency and effectiveness where the managers are required to balance the corporate and venture objective (Wheelen, & Hunger, 1998).
In addition it must consider all stakeholders including customers, employees, suppliers, the public and owners, and their functions thus making the management able to balance their needs and considerations in the best way possible. What's more is that strategic management incorporates multiple time horizons; this is established in the ability of the management to be able to balance the short term results to make them attain the long term goals and objectives. It is also possible to ensure a basic competitive advantage and a sustainable competitive advantage making the business efficient at all times.
In answering the question how might models help senior managers deal with the challenges facing them? Then the above points clearly define this. The chance for the senior managers to be able to apply them to make sure every aspect of the situation are applied and none is left out is the most important fact. With a strategic management plan there is a higher probability of making efficient and effective decisions. For example, when faced with the challenge of expanding a business the have to apply one or a combination of models to ensure they make the right decision.
For instance, in expanding the business to other global areas the political, economic, social, and technological analysis must be met to ensure the business is not at a risk of loses (Liebeskind, 1996). The strengths weakness threats and opportunities must also be established to know if the project is viable. In addition the entry of competitors, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and rivalry among existing players is also needed in a view of having a comprehensive informed decision.
However, there is no perfect strategic model developed for a specific business, the management has the task of establishing the best model suited for the business (Baker, 1992). This is done through strategic planning where the manager must select effectively the best model suiting the situation and the business all at the same time. In this regard balancing is the most important factor in view of the fact that the performance of the business needs to be very carefully thought out (Liebeskind, 1996). The business may also settle on plans to use integrated models making it easier to have a comprehensive success plan.
Strategic management will involve evaluating and controlling the business and the sector in which the business is participating in. It will include assessing the risks involved in the business especially from competitors and the goals and strategies set so as to counter the potential and current competitors’ risks (Quinn, 1992). The strategies adopted are evaluated from time to time and revised according to the success and failures they have achieved in the business. It assesses the requirement of new policies or strategies or models if the circumstances, political environment, economic environment, social environment, technology, and competitors have changed.
The strategy formation will involve performing an internal and external, and macro and micro environmental situation analysis, competitor analysis, self evaluation of the decisions made. The strategy must also be simultaneous with the assessment and the objectives set. This ensures that the business never looses sight of the short term and long term objectives and this must be done while the managers still incorporate the vision, mission, goals and financial strategic and tactical objectives (Castells, 1996).
The strategy evaluation will involve analyzing the effectiveness of the strategy formed; this ensures that the manager monitors all the decisions and their contribution to the business success. The manager must ensure all decisions are suitable, feasible, and acceptable. The decision made must be suitable in that it must make financially viable sense, the ability of the business to attain economies of scale or scope, and the environment and capabilities of the plans.
Feasibility evaluates the availability of the resources that the plan requires; this will be in terms of finances, human resources, time and data needed. To evaluate the feasibility the manager needs to use the cash flows of the business and budget forecasts, break even analysis and they can also make decisions to deploy resources (Scott-Morton, 1991).
The strategy decided by the managers must be acceptable by the stakeholders. This means that the manager will use the facts collected using the strategic management model to convince them on the need to accept the ideas. This will mean that the models will help the managers identify the returns and risks involved then make the stakeholders accept the strategies. This can be achieved if the managers effectively use the ‘what if analysis’ or stakeholders mapping.
Another question to answer is ‘Can the use of models actually improve decision-making?’ as noted earlier not every model suits every business at every time; this means that the manager must be very critical when choosing any model. The models have in no doubt enabled the making of strategic and planned decisions (Luffman, et al. 1996). The decisions made by the managers guided by the models are very informed and critically evaluated. This means that the decision made is better than making decisions without consulting a model.
When a model is identified then it guides the managers to have the basic and required knowledge on each decision such as knowing the purpose, goals and objectives, mission, the action plan, and the approaches and strategies needed to succeed (Freeman, 1984). Such is the guide forwarded by models and if they are implemented to the letter they will actually improve decision-making process.
The business manager is able to evaluate the internal and external including the macro and micro environment that will be important in identifying, design and prioritizing the most important issues. They are also able to update the vision, mission, and values that may be important in achieving success as stated by Ghemawat et al. (2001). In addition the action plan is able to combine the goals and objectives roles and responsibilities, and resources needs to implement the strategies. In doing this the decision making process is enhanced and improved.
The Porter’s Five Forces
The five porter forces were developed by Michael E. Porter in 1979; where the model was developed upon the industrial organization economics. Its major aim is to establish the intensity of the market and thus determines how much the market is attractive to invest in. it establishes various types such as monopolies, duopoly, and pure competition markets in a given industry (Porter, 2008).
The five forces are; firstly the threat of entry of new competitors, secondly the intensity of competitive rivalry, thirdly, is the threats of substitutes, fourth is the buyers bargaining power, and fifth is the supplier bargaining power (Porter, 1980a). Some scholars add government as a sixth factor and this should also be considered as a factor since it affects the markets through regulation. The first three mentioned above are related to external competition while the fourth and fifth are internal threats (Porter, 2008). The forces analyze the micro environment making it possible for managers to have an informed choice in the decision making. The figure below gives an illustration of the five forces.


Figure 1: showing the five porter forces (Source:  HYPERLINK "/pdf/p5f.pdf"
/pdf/p5f.pdf)
The Threat of Entry of New Competitors/ Barriers to Entry
When the market is open to everyone then new entrants can come up and be a threat to the business. With entry of new firms or businesses competition becomes intense this means the customers will be share by the new entrants. The business must make sure that it always aims to have a competitive advantage over the new entrant so as to act as barrier of other entrants (Porter, 1980b). The threats to entry may depend on the economies of scale; where the business needs to produce in bulk so as to attain the more profits through bulk purchasing. Brand loyalty where the business develops customers means to be attached to the product and services they produce. With loyal customers the business creates a barrier to new entrants since th...