Module 4: Background Principles Of Strategy Is A Broad

Module 4 Backgroundprinciples Of Strategystrategy Is A Broad Term Th

Strategy is a broad term that refers to how a company competes in the marketplace. A strategy reflects the firm’s values, its purpose for existing, and how it will compete. It serves as a guide for decision-making and provides direction. There are three levels of strategy: corporate-level, business-level, and functional-level.

Corporate-level strategy addresses the question “What business should we be in?”, exemplified by conglomerates like General Electric operating in multiple industries such as aviation and financial services. Business-level strategy centers on how the firm will compete within a specific industry, considering options like differentiation or cost leadership. Functional-level strategies involve activities within departments like finance or marketing that support corporate and business strategies.

Various models assist strategic decision makers: The BCG Matrix, Michael Porter’s Five Forces Model, Value Chain analysis, and Generic Strategies by Porter. The BCG Matrix analyzes a company’s portfolio, classifying products into Stars, Cash Cows, Dogs, or Question Marks based on market share and cash flow. Porter’s Five Forces analyze industry competitiveness, considering threats like substitutes, new entrants, bargaining power of suppliers and buyers, and rivalry among existing competitors.

The Value Chain analysis segments the company's activities to identify areas where competitive advantage can be established, with strategies like forward or backward integration to improve control over processes or resources. Porter’s Generic Strategies — Cost Leadership, Differentiation, and Focus — help firms define their competitive approach based on industry conditions and resources. Alternatively, the resource-based view shifts the focus inward to the firm’s core capabilities and resources as sources of competitive advantage.

In practice, strategic planning involves assessing industry conditions, evaluating internal resources, and selecting appropriate strategic models and frameworks. These tools enable organizations to position themselves effectively within their competitive environments, leverage strengths, and mitigate threats. Ultimately, developing and implementing appropriate strategies is critical for long-term success, growth, and sustainability in the dynamic marketplace.

Paper For Above instruction

Strategic management encompasses the formulation and implementation of major goals and initiatives taken by a company's top management on behalf of owners, based on consideration of resources and an assessment of the internal and external environments in which the organization competes (David, 2017). To gain a comprehensive understanding of strategic management, it is essential to examine the foundational principles that underpin strategic decision-making and organizational positioning. This essay explores core principles of strategy, highlighting the three levels of strategy, key analytical frameworks such as the BCG Matrix, Porter’s Five Forces, the Value Chain, and Porter’s Generic Strategies, as well as the resource-based view of the firm.

Beginning with the concept of strategy itself, it is vital to recognize that strategy involves guiding an organization on how to compete effectively within its environment. It is not merely a detailed plan but a broad guiding framework that aligns organizational resources and actions with overarching objectives. The three levels of strategy—corporate, business, and functional—serve to structure this guiding framework, each addressing different scopes of decision-making. At the corporate level, the question "What business should we be in?" is central. For example, conglomerates like General Electric operate across diverse industries, necessitating a high-level strategic approach to resource allocation, diversification, and growth. This overarching strategy influences decisions about entering or exiting markets and industries (Hitt, Ireland, & Hoskisson, 2017).

At the business level, the focus narrows to “How will we compete in this industry?” Firms decide whether to compete on cost, differentiation, or niche focus. These choices are made based on the firm's strengths and market conditions, aligning with Porter's (1980) generic strategies. For example, a firm pursuing cost leadership may strive to become the lowest-cost producer, while a differentiation strategy involves offering unique value that commands premium pricing. Functional strategies, meanwhile, such as marketing or HR strategies, support and operationalize the broader competitive positioning (Porter & Millar, 1985).

To assist strategic decision-making, various analytical frameworks have been developed. The BCG Matrix, introduced by the Boston Consulting Group, categorizes a company's products into four types—Stars, Cash Cows, Dogs, and Question Marks—based on market share and growth potential. This portfolio approach guides resource allocation, emphasizing the nurturing of Stars and Cash Cows while divesting or repositioning Dogs and Question Marks (Koller et al., 2010). For instance, Cash Cows generate steady cash flows with minimal investment, funding other strategic initiatives.

Complementing portfolio analysis is Porter's Five Forces model, which evaluates the competitive intensity and profitability of an industry. The model examines five forces: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and rivalry among existing competitors. Understanding these forces allows firms to develop strategies to mitigate threats, such as establishing barriers to entry or strengthening supplier relationships. For example, industries with high rivalry may necessitate differentiation or cost leadership to maintain profitability (Porter, 1979).

The Value Chain analysis, also developed by Porter, dissects activities within an organization to identify sources of competitive advantage. Each step, from inbound logistics to after-sales service, adds value. Firms can improve competitive positioning through increasing efficiency, quality, or differentiation at specific points in the chain. Integration strategies—forward or backward—further enhance control over supply chains, reduce costs, and improve responsiveness. An example of backward integration is a manufacturer acquiring raw material suppliers to reduce dependence and costs (Kenton, 2019).

Complementary to these frameworks are Porter's three generic strategies—cost leadership, differentiation, and focus—that provide broad approaches for gaining competitive advantages. Cost leadership aims to produce goods or services at the lowest possible cost, enabling competitive pricing. Differentiation involves offering unique features valued by customers, allowing premium pricing. Focus strategies target niche markets—either through cost focus or differentiation focus—serving specialized customer segments with tailored offerings (Porter, 1985).

Within the broader strategic landscape, the resource-based view (RBV) emphasizes internal resources and capabilities as key sources of competitive advantage. It posits that firms should identify, develop, and leverage core competencies—what they do uniquely well—to outperform rivals. Unlike industry-centric models, RBV advocates for internal analysis to build sustainable advantages rooted in valuable, rare, inimitable, and non-substitutable resources (Barney, 1991). For example, a firm's proprietary technology or organizational culture may serve as a competitive moat.

Strategic management is inherently dynamic, requiring organizations to continually assess external industry conditions via models like Porter's Five Forces, while also nurturing internal capabilities identified through the resource-based view. Combining external industry analysis with internal resource assessments provides a holistic basis for strategic choice. Effective strategies involve selecting appropriate models, aligning resources, and executing plans effectively to achieve sustainable competitive advantages and long-term success.

References

• Barney, J. B. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), 99-120.
• David, F. R. (2017). Strategic Management: Concepts and Cases. Pearson.
• Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2017). Strategic Management: Competitiveness and Globalization. Cengage Learning.
• Kenton, W. (2019). Backward Integration. Investopedia. Retrieved from https://www.investopedia.com/terms/b/backward-integration.asp
• Koller, T., Goedhart, M., & Wessels, D. (2010). Valuation: Measuring and Managing the Value of Companies. Wiley.
• Porter, M. E. (1979). How Competitive Forces Shape Strategy. Harvard Business Review.
• Porter, M. E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press.
• Porter, M. E., & Millar, M. J. (1985). How Information Gives You Competitive Advantage. Harvard Business Review.
• Porter, M. E. (1985). The Competitive Advantage. Free Press.
• Koller, T., Goedhart, M., & Wessels, D. (2010). Valuation: Measuring and Managing the Value of Companies. Wiley.