— BUS501: Strategic Management —
What is strategy? When your friend tells you that his "strategy” in basketball is to win, he is not telling you a strategy at all. A strategy is a plan of action designed to achieve a goal--in the case of your friend, a more appropriately defined strategy for his basketball game would be: "I am going to apply defensive pressure and force the opposing team to make mistakes with the end goal of winning the game.” In this course, you will learn that you must first clearly define your goals before you develop strategies in order to achieve them. You will also learn that strategy in business is similar to strategy in sports, war, or politics; the parallels are so close that early business strategists studied military strategies in depth. The science of strategy development has developed beyond this by now, but the parallels still exist.
Strategic management involves two processes: first, the process of identifying specific goals for a firm and designing strategies to achieve those goals, and second, the process of implementing those strategies. It is easy to say that your goal is to increase sales by 50% in three years, but how do you go about achieving that goal? Are you going to lower prices, acquire a competitor, move into other businesses, or something else? Assuming you are going to lower prices, how are you going to do so and keep profits up? These are the sorts of questions that strategists must answer.
This course is the capstone of the business major, because it incorporates elements from all of the core courses you should have already completed. Almost every topic should be familiar to you to some degree; however, Strategic Management ties them all together. This course begins with an introduction to the field and the definition of some important terms and concepts. You will then move on to identifying goals and formulating strategies before addressing implementation topics. This course will conclude with strategies for the 21st century. This course should be taken after all core courses have been completed and, ideally, near the end of your completion of the elective courses.
In order to understand how to design a strategy, you must first review some definitions. Accordingly, this unit will open by defining the terms strategy, markets, firms, and management. This unit will also underscore that firms must identify the market that they compete in. It is not enough to identify competitors, which will be discussed in a later unit; Microsoft and Google are competitors, but they do not compete in all of the same markets. Google mostly competes in the search engine market, to which Microsoft has recently started to devote an increasing number of resources in the hopes of competing with the new "decision engine” called Bing. Likewise, Microsoft competes in the operating system market, and Google has recently diverted resources to compete in this market with Google Chrome OS. However, competitors do not always compete in the same markets. For example, Apple competes in many markets with Google and Microsoft, but makes these companies' products available on its own platform. Apple does not have a search engine, so it allows Google and Microsoft to compete on the iPhone.
Identifying markets and industries gives a firm the foundation it needs to develop goals and strategies. Microsoft may aim to take 5% of the search engine market from Google and then develop a strategy in which to accomplish this. This unit focuses on topics such as these as well as issues like designing strategies at different levels within a firm. There are corporate strategies, but there are also strategies designed by a line of business or department.
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Strategic planning is the phase of strategic management that comes after goals are defined but before the strategy is put into place. In this phase, the financial situation of your firm must be taken into account. For example, if your firm wants to grow, this usually involves additional investment of capital. If your firm does not have the cash or the means to raise money to spend, then the goal may be dead in its tracks.
Likewise, there are external issues that must be taken into consideration. Google cannot grow much in the advertising space market without facing reviews from the Department of Justice for anti-trust issues. These are political issues, but there are also economic, social, and technological concerns at play. By considering these factors, strategic planners can design a strategy that can be implemented without being stalled or shut down by some unforeseen issue.
There are many ways to analyze a system and develop a strategic plan. Hopefully, you will study the methods in this course, and then further research systems that may be best catered to your desired industry of employment.
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The success of a strategy depends on the firm's competitive advantage, or whether its position in a competitive market allows it to achieve its goals--which might include higher returns on investments, greater efficiency or superior effectiveness in comparison to competitors. What sets your product or service apart from the competition? Two generic strategies for developing a competitive advantage are cost leadership and differentiation. Cost leadership is a strategy that Walmart follows. This company aims to offer the lowest prices in order to draw in customers. Differentiation is a strategy designed to make your product or service so unique that it stands out from the competition in a desirable way to a target market. Nintendo launched the Wii video game consul by differentiating their product with motion sensitive controllers. (This company pursued a cost leadership strategy in conjunction with this differentiation strategy.)
There are a number of ways to achieve competitive advantage, and they all require a focus on the competitors. It is important to keep this in mind when studying this unit. This unit's primary takeaway should be the concept of sustainable competitive advantage. As soon as your competitors see a strategy of yours working, they will either copy or leapfrog it. Sony immediately attempted to copy Nintendo by developing its own motion-sensitive controllers, and Microsoft has moved to motion recognition via cameras. Sustainable competitive advantage involves not only jumping ahead, but staying there.
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Corporate strategy is perhaps the most important strategy, because it sets the metric by which all other strategies are formed within the company. For example, BMW has a focus on quality vehicles that they can sell for a premium. If a business unit of BMW decides to pursue a cost leadership strategy that will not work well with the overall firm strategy, it would be very difficult and could tarnish BMW's brand image, although that is not to say that it is impossible.
The subject of corporate strategy is vast; however, corporate strategies are usually based around one central goal: growth. It is up to the management to determine the best way to achieve growth. Some prefer to integrate into the value chain, which was discussed in sub-sub-unit 3.1.3 of this course. For BMW, this would mean pursuing opportunities to produce parts for its cars instead of paying contractors. Other firms may want to grow by diversifying. While a firm like GE, which has produced engines, financial products and entertainment programming, can diversify across industries, most diversify with closely-related industries. BMW also makes motorcycles and owns the Mini and Rolls-Royce brands, which cater to different markets than do BMW vehicles. Companies may create subsidiaries, different branches of a major company, in order to cater to these different markets. For example, in educational textbook publishing, a company like Pearson Education also has subsidiaries (although this company has since moved to combine these subsidiaries into the whole of Pearson Education, Inc.). The subsidiaries Prentice Hall and Addison-Wesley focus on specific fields, such as mathematics and economics, in which to market textbooks. At one point, these subsidiaries competed against each other, while at the same time both brought in market share for the Pearson Education company as a whole. Pearson Education has since merged these subsidiaries, although it has kept the names for branding, and now focuses on selling its products without this internal competition.
This unit focuses on the various methods a firm can use to pursue growth. Growing is not just about buying the competition, because that is not always possible or expeditious. This unit will explore why that is and how to determine the best strategy for growth.
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Research in strategy really picked up steam in the 20th century. However, new research shows that there are other factors that can seriously impact strategies. For example, the use of psychology in business has moved up in the strategic planning world. Managers used to assume that all employees were the same and that all employees would do what they are told. We now know that employees are unique and motivated by different goals themselves. Understanding the culture of a firm and what motivates employees will allow strategy managers to extract more out of each individual.
Additionally, the idea of innovation as a strategy leader has complemented the competitive advantage strategy. There are issues with getting to the top of an industry by innovating and then falling behind to rising competitors. Collectively, these issues are known as the innovator's dilemma, and technology companies have been fighting tooth and nail to avoid falling victim to this problem (as have many other industries). One way to avoid this dilemma is by maintaining a high level of cash and simply acquiring the innovating companies. From 2007 through 2009, Google acquired 24 companies (that were disclosed) and Microsoft acquired 34.
Finally, as globalization makes the world a real global economy, the focus of strategy must go beyond the borders of your own country. Technology has enabled even small companies of just a few people to outsource work to the other side of the world. A global view will be essential to any 21st century strategy.
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