In 1940s, Austrian economist Joseph Schumpeter argued that large firms would be more effective innovators and he point out that better able to obtain financing for R&D projects and better able to spread costs of R&D over large volume. Large size firms may also enable for greater economies of scale and learning effect and taking on large scale or risky projects. However, large firms might also be disadvantaged at innovation because; R&D efficiency might decrease due to loss of managerial control Large firms have more bureaucratic inertia More strategic commitments tie firm to current technologies Small firms often considered more flexible and entrepreneurial. Many big firms have found ways of “feeling small” because break overall firm into several sub-units and can utilize different culture and controls in different units. A large firm gains experience in choosing and developing innovation projects, it may learn to make better selections of projects that Continue reading
Strategic Management Concepts
Firm That is Stuck in the Middle
The three Porters generic competitive strategies are alternative, viable approaches to dealing with the competitive forces. The converse of the previous discussion is that the firm failing to develop its strategy in at least one of the three directions – a firm that is stuck in the middle – is in an extremely poor strategic situation. According to Porter, a company’s failure to make a choice between cost leadership and differentiation essentially implies that the company is stuck in the middle. Porter argued that cost leadership and differentiation are such fundamentally contradictory strategies, requiring such different sets of resources, that any ï¬rm attempting to combine them would wind up “stuck in the middle” and fail to enjoy superior performance, Cost leadership requires standardized products with few unique or distinctive features or services so that costs are kept to a minimum. On the other hand, differentiation usually depends on offering customers Continue reading
Analysis of Competitive Position Using Porter’s Five Forces Model
Michael Porter’s Five-Forces Model of competitive analysis is a widely used approach for developing strategies in many industries as the intensity of competition among firms varies widely across industries. According to Porter, the nature of competitiveness in an industry can be viewed as a composite of five forces: rivalry among competing firms, potential entry of new competitors, potential development of substitute products, bargaining power of suppliers and bargaining power of consumers. There are 3 steps to use Porter’s Five Forces Model can reveal whether competition in a given industry is such that the firm can make an acceptable profit. Firstly, identify key aspects or elements of each competitive force that impact the firm. Secondly, evaluate how strong and important each element is for the firm. Lastly, decide whether the collective strength of the elements is worth the firm entering or staying in the industry. Rivalry among the competing firms is Continue reading
The Growth of Strategic Planning
Many of today’s most successful business organizations continue to survive because many years ago they offered the right product at the right time; the same can be said for nonprofits and government organizations. Many critical decisions of the past were made without the benefit of strategic thinking or planning. Whether these decisions were based on wisdom or luck is not important. They resulted in momentum that has carried these organizations to where they are today. However, present day managers increasingly recognize that wisdom and intuition alone are not sufficient to guide the destinies of large organizations in today’s ever changing environment. These managers are turning to strategic planning. In earlier, less dynamic periods in our society, the planning system utilized by most organizations extrapolated current year sales and environmental trends for 5 and 10 years. Based on these, they made plant, product, and investment decisions. In most instances, the decisions Continue reading
Analysis of Porter’s Diamond Model of National Advantage
Michael Porter introduced the diamond model of national competitive advantage (1990) to explain why a number of countries are more competitive than others and why a number of businesses within the countries are more competitive. Porter’s Diamond Model proposes that the national home base of an industry plays an important role in achieving an advantage on a universal scale. This home base contributes the essential factors that will support the organisations in building advantages in global competition. Porter identified four determinants in attaining a national competitive advantage he concludes that a combination of the four determinants within a nation has an enormous influence on the competitive strength of the firms located there. Porter argues that competitive industries take the form of specialized clusters of home based firms. Clusters are correlated through vertical relations such as buyers integrating with suppliers or through horizontal relations through customers, technology, skills, distribution channels etc. Continue reading
Mintzberg’s Model of Organizational Structure
Management expert Henry Mintzberg proposed that traditionally organizations (profit making or not for profit) can be divided into five components. In practice organizational structure may differ from proposed model. Factors influencing organizational structure are industry norms, size, experience, culture, external forces (competition, inflation, minimum wage legislation etc). Components identified by Mintzberg is useful for understanding the workflow of organizations. The structure of an organization can be defined simply as the sum total of the ways in which it divides its labor into distinct tasks and then achieves coordination among them” – The Structuring of Organizations, Henry Mintzberg. 1. Strategic Apex Strategic apex is the most senior level in the organization. Management working at this level is referred as board of Directors (chairman, CEO, executes and non executive directors). They set the objectives (increase sales by 10% in one year) and strategic direction (new product and markets developments) of Continue reading