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- NHL Stenden Hogeschool (NHL)
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Chapter 2: Strategic Management2.1 Introduction
- comprehensive approach to defining the direction and scope of an organization over the
long term
- aims to achieve a competitive advantage by configuring resources to meet market
demands
2.2 The Classical Approach to Strategic Management
This section outlines the traditional, step-by-step method for strategic planning, involving
several critical stages:
Situational analysis: This involves a comprehensive review of the organization’s
current vision, mission, goals, and strategies, combined with internal and external
analysis.
o Internal analysis: Examines the organization's strengths and weaknesses.
o External analysis: Uses tools like PESTLE (Political, Economic, Social,
Technological, Legal, and Environmental) to identify external opportunities and
threats.
Key models:
7S model: Focuses on seven organizational elements that must be aligned for
success: strategy, structure, systems, shared values, skills, style, and staff.
BCG matrix (Boston Consulting Group): Categorizes business units into four types
based on market share and market growth: Stars, Cash Cows, Question Marks,
and Dogs.
ABCD analysis and Porter’s 5 Forces: ABCD analysis involves examining various
aspects like Activities, Behavior, Competitors, and Differentiators. Porter’s 5 Forces
analyzes the competitive environment based on threat of new entrants, bargaining
power of suppliers and buyers, threat of substitutes, and industry rivalry.
Strategy formation: Strategy is developed using various models, including:
o Ansoff Matrix: A growth strategy tool that provides options like market
penetration, market development, product development, and diversification.
o Porter’s Generic Strategies: Focuses on cost leadership, differentiation,
and focus as competitive strategies.
o Treacy & Wiersema's value disciplines: Classifies competitive advantage
into operational excellence, customer intimacy, and product leadership.
2.3 Critical Comments on the Classic Approach to Strategic Management
This section critiques the classical approach as being too rigid and linear. The main critique
is that it fails to accommodate rapid changes in dynamic environments. The sequential
steps of analysis, planning, and implementation are often too slow for industries facing
constant technological disruptions and market shifts. The classical approach also assumes a
degree of predictability that may not be realistic in today’s fast-paced world.
2.4 Strategic Management in the 21st Century
In this sub-chapter, the focus shifts to more contemporary strategic management
approaches, which are better suited for today’s rapidly changing markets. These approaches
include:
Hamel & Prahalad’s Core Competence: Emphasizes leveraging an organization's
core competencies—areas where the company excels over competitors—to gain
long-term competitive advantage.
Lean Strategy Process: Suitable for start-ups and businesses in volatile
environments, this strategy emphasizes flexibility, continuous learning, and rapid
, adjustments to strategy based on real-time data and market feedback. This process
is iterative, focusing on quick decision-making and experimentation.
2.5 Strategic Management and Business Intelligence
In the modern era, data plays a crucial role in strategic decision-making. This sub-chapter
focuses on the integration of business intelligence (BI)—the use of data analytics, big
data, and machine learning to enhance decision-making processes.
Business intelligence systems: Tools like dashboards, data warehouses,
and analytics platforms help organizations gather real-time information about their
operations and market trends. By doing so, companies can make more informed
strategic choices, particularly in pricing, customer segmentation, and supply
chain management.
2.6 Types of Collaboration
Organizations today often form partnerships and collaborations to access new markets,
technologies, or resources. This sub-chapter covers various forms of collaboration:
Joint ventures: Two or more companies form a separate entity to pursue a shared
goal, with both contributing resources and sharing risks and rewards.
Mergers and acquisitions: Mergers involve the combination of two companies into
one, while acquisitions involve one company taking control of another. Both
strategies aim to grow market share, acquire new capabilities, or reduce competition.
Outsourcing and franchising: Outsourcing involves contracting out business
processes to external firms, while franchising allows another party to operate under a
company’s brand in exchange for fees and adherence to operational standards.
2.7 Collaboration Between Competitors and Partners
This sub-chapter introduces the concept of coopetition—a blend of cooperation and
competition, where companies that are normally competitors work together to achieve
mutual benefits. For example:
Collaboration between competitors: Firms might collaborate in areas
like R&D, standards development, or shared infrastructure while competing in the
marketplace. This helps companies mitigate risks and share the costs of innovation.
Collaboration between non-competitive partners: Partnerships are formed with
non-competing organizations, such as suppliers or service providers, to improve
efficiencies or gain access to new resources and capabilities.
2.8 Mergers and Acquisitions
This sub-chapter delves deeper into the motives behind mergers and acquisitions (M&As):
Strategic motives: Firms may seek to enter new markets, acquire new technology
or skills, or achieve economies of scale through M&As.
Financial motives: Companies might acquire others to improve financial
performance, eliminate competition, or gain tax advantages.
Post-merger challenges: Integrating two companies presents numerous challenges,
including cultural clashes, integration of systems and processes, and retaining
key talent. The success of a merger depends on careful planning and alignment of
strategic objectives.
,Blue Ocean Strategy:
The Blue Ocean strategy emphasizes creating a new market space, free of competition. By
doing so, the organization can establish its own rules and enjoy the absence of competitive
pressures. The aim of Blue Ocean strategy is to focus on value innovation, which consists of
two main components:
1. Value creation: Providing customers with the highest value.
2. Low costs: Maintaining a high level of cost efficiency.
Key principles include re-establishing market boundaries, keeping a broad perspective, and
looking beyond current customers to potential new ones. The strategy demands
organizational change and leadership. Successful examples include companies like Apple,
Tesla, and Cirque du Soleil .
Red Ocean Strategy:
In contrast, the Red Ocean strategy involves competing in existing markets, where companies
strive to outperform their competitors. This approach can result in intense competition and a
"bloodbath," where the market is saturated, and organizations fight for a competitive
advantage. The focus is often on either differentiation or cost leadership within an established
industry .
The main difference between Blue Ocean and Red Ocean strategies lies in their approach to
competition and market creation:
1. Market Space:
o Blue Ocean Strategy: Seeks to create new, uncontested market spaces by
offering innovative products or services, making competition irrelevant.
o Red Ocean Strategy: Focuses on competing in existing market spaces, where
companies fight to outperform rivals in a crowded and highly competitive
environment.
2. Competition:
o Blue Ocean Strategy: Avoids direct competition by innovating and tapping
into untapped demand. The goal is to create and capture new demand.
o Red Ocean Strategy: Competes within established boundaries and strives to
win over existing customers by either differentiation or cost leadership.
3. Focus:
o Blue Ocean Strategy: Focuses on value innovation, which combines
differentiation and low cost to open new market opportunities.
o Red Ocean Strategy: Focuses on beating the competition through either
cutting costs (cost leadership) or offering superior products/services
(differentiation).
4. Risk:
o Blue Ocean Strategy: Higher risk because it involves creating new markets or
products, but it also offers the potential for higher rewards with minimal
competition.
, o Red Ocean Strategy: Lower risk as it operates in known markets, but intense
competition can squeeze profit margins and limit growth potential.
5. Customer Focus:
o Blue Ocean Strategy: Looks beyond existing customers and tries to attract
non-customers by redefining industry standards.
o Red Ocean Strategy: Concentrates on winning over existing customers
within the current market structure.
In summary, Blue Ocean strategies are about innovating to escape competition, while Red
Ocean strategies involve competing within established markets.
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