The nature of competition in an industry in large part determines the content of strategy, especially business-level strategy. Based as it is on the fundamental economics of the industry, the very profit potential of an industry is determined by competitive interactions. Where these interactions are intense, profits tend to be whittled away by the activities of competing. Where they are mild and competitors appear docile, profit potential tends to be high. Yet a full understanding of the elements of competition within an industry is easy to overlook and often difficult to comprehend. Porter’s Competitive Forces Model is one of the most recognized framework for the analysis of business strategy. It is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on an understanding of industry structures and the way they change. Porter’s Competitive Forces Model Continue reading
Strategic Management Concepts
Scenario Planning as a Strategic Management Tool
Formal scenario planning emerged during the Second World War, when it was used as a part of military strategy as countries prepared themselves for different contingencies. Since then, the use of scenario planning has become increasingly popular. Scenarios are tools for ordering one’s perception about alternative future environment in which today’s decision might be framed. In practice, scenarios resemble a set of stories, written or spoken, built around carefully constructed plots. These stories can express multiple perspectives on complex events, scenarios give meaning to these events. Scenarios are powerful planning tools precisely because the future is unpredictable. Unlike traditional forecasting or market research, scenarios present alternative images instead of extrapolating current trends from the present. Scenarios also embrace qualitative perspectives and the potential for sharp discontinuities that econometric models exclude. Consequently, creating scenarios requires decision-makers to question their broadest assumptions about the way the world works so that they can Continue reading
Big Hairy Audacious Goal (BHAG): A Tool for Goal Setting
Big Hairy Audacious Goal (BHAG) is the term coined by James C Collins and Jerry I Porras in their well known book “Built To Last”. Visionary Companies set Big Hairy Audacious Goals (BHAGs) that raise the bar and inspire people across all levels. According to Collins and Porras: “A true BHAG is clear and compelling, serves as a unifying focal point of effort…It has a clear finish line, so the organization can know when it has achieved the goal. It is tangible, energizing, highly focused. People get it right away; it takes little or no explanation.” BHAG is a goal, not a statement and it has a clear finish line. It’s a highly focused, tangible, and energizing goal. They typically take a 10- to 30-year commitment, but they are exciting, tangible and something everyone just “gets” without any further explanation. BHAGs only help an organization as long as it has Continue reading
Organizational Performance – Meaning, Definition and Measures
Managers are concerned with organizational performance–the accumulated end results of all the organization’s work processes and activities. It’s a complex but important concept, and managers need to understand the factors that contribute to high organizational performance. After all, they don’t want (or intend) to manage their way to mediocre performance. They want their organizations, work units, or work groups to achieve high levels of performance, no matter what mission, strategies, or goals are being pursued. Managers measure and control organizational performance because it leads to better asset management, to an increased ability to provide customer value, and to improved measures of organizational knowledge. In addition, measures of organizational performance do have an impact on an organization’s reputation. Managers at high-performing companies do–they manage the organizational assets in ways that exploit their value. Asset management is the process of acquiring, managing, renewing, and disposing of assets as needed, and of designing Continue reading
Alignment – A Strategic Management Concept By Kaplan & Norton
Alignment is a key factor in effective implementation of strategy. Most large organizations are divided into business units which are out of sync and work at cross purposes. The challenge is to coordinate the activities of these units and leverage their skills for the benefit of the organization as a whole. Kaplan & Norton call this alignment on their book “Alignment: Using the Balanced Scorecard to Create Corporate Synergies.” “Most organizations attempt to create synergy, but in a fragmented, uncoordinated way,” Robert S. Kaplan and David P. Norton. By aligning the activities of its various business and support units, an organization can create additional sources of value in various ways. Financial synergies can be generated through centralized resource allocation and financial management. Value can also be created if corporate headquarters can operate internal capital markets better than external market mechanisms and share knowledge across business units, in a manner that Continue reading
Boston Consulting Group(BCG) Growth-Share Matrix
The BCG matrix (aka B-Box, B.C.G. analysis, BCG-matrix, Boston Box, Boston Matrix, Boston Consulting Group analysis, portfolio diagram) is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1970 to help corporations with analyzing their business units or product lines. This helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis. Analysis of market performance by firms using its principles has called its usefulness into question, and it has been removed from some major marketing textbooks. Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix). It is the most renowned corporate portfolio analysis tool. It provides a graphic representation for an organization to examine different businesses in it’s portfolio on the basis of their related market share and industry growth rates. It is a two dimensional Continue reading