OL 4240 Bethel Theoretical Perspectives on Firm Performance Discussion 250 words APA format, cite 2 scholarly journals Review Table 1-2: Theoretical Pe

OL 4240 Bethel Theoretical Perspectives on Firm Performance Discussion 250 words APA format, cite 2 scholarly journals

Review Table 1-2: Theoretical Perspectives on Firm Performance (p. 6)

Two Part Question (Be sure to answer both parts)

1) Describe one of the three perspectives which you’ve seen in your organization or an organization which you’re familiar with.

2) Make the case for one of the three perspectives—as in argue why one of the three is likely best for firm performance.

REPLY Fundamentals
of Strategic
Management
1
BChapter Outline
E1-1 What Is Strategic Management?
N 1-1a Intended and Realized Strategies
N 1-1b Scientific and Artistic Perspectives on Strategic Management
E1-2 Influence on Strategic Management
T1-3 Strategic Decisions
1-4 Summary
TKey Terms
, Review Questions and Exercises
Practice Quiz
BNotes
AReading 1-1
R
B
A
R
A
2
8
8
2
T
S
9781111219802, Strategic Management: Theory and Practice, John Parnell – © Cengage Learning
2
Chapter 1
T
oday’s business world is global, Internet driven, and obsessed with
speed. The challenges it creates for strategic managers are often complex, ambiguous, and unstructured. Add to this the constant allegations
of top management wrongdoings, ethical blunders, and skyrocketing
executive compensation, and it is easy to see why firm leaders are under greater
pressure than ever to respond to strategic problems quickly, decisively, and
responsibly. Hence, the need for effective strategic management has never been
more pronounced than it is today. This text presents a framework for addressing
these immediate strategic challenges.
This chapter introduces the notion of strategic management, highlights its
importance, and presents a five-step process for strategically analyzing an organization. The remaining chapters expand on the various steps in the process, with
special emphasis on their application to ongoing enterprises.
1-1 What IsBStrategic Management?
Source: Comstock.com
Strategy
Top management’s
plans to attain outcomes
consistent with the
organization’s mission
and goals.
Competitive
advantage
A state whereby a
business unit’s successful
strategies cannot be
easily duplicated by its
competitors.
Strategic Management
The continuous process
of assessing its external
environment and its
internal strengths and
weaknesses, formulating and implementing
strategies, and exerting strategic control to
achieve success.
Strategy refers to top E
management’s plans to develop and sustain competitive
advantage—a state whereby a firm’s successful strategies cannot be easily
N
duplicated by its competitors1—so that the organization’s mission is fulfilled.2
N it is assumed that an organization has a plan, its comFollowing this definition,
petitive advantage is understood, and that its members understand the reason
E
for its existence. These assumptions may appear self-evident, but many strateT to fundamental misunderstandings associated with
gic problems can be traced
defining the strategy. Debates
over the nature of the organization’s competitive
T
advantage, its mission, and whether a strategic plan is really needed can be wide, as “We’re too busy to focus on developing a strategy”
spread.3 Comments such
or “I’m not exactly sure what my company is really trying to accomplish” can be
overheard in many organizations.
B is a broader term than strategy and is a process that
Strategic management
includes top management’s
A analysis of the environment in which the organization operates prior to formulating a strategy, as well as the plan for implementation and control of R
the strategy. The difference between a strategy and the
strategic managementB
process is that the latter includes considering what must
be done before a strategy is formulated through assessing the success of an
A
implemented strategy. The strategic management process can be summarized in
five steps, each of which
R is discussed in greater detail in subsequent chapters of
the book (see Figure 1-1).4
A
1. External analysis: Analyze the opportunities and threats or constraints that exist in
the organization’s external environment, including industry and macroenvironmental
forces.
2
2. Internal analysis: Analyze the organization’s strengths and weaknesses in its inter8 the appropriateness of its mission.
nal environment. Consider
3. Strategy formulation:
8 Formulate strategies that build and sustain competitive
advantage by matching the organization’s strengths and weaknesses with the envi2 and threats.
ronment’s opportunities
4. Strategy execution:TImplement the strategies that have been developed.
5. Strategic control: Measure
success and make corrections when the strategies are
S
not producing the desired outcomes.
Is it necessary to address these steps sequentially? The answer depends on
one’s perspective. Outsiders analyzing a firm should apply a systematic approach
that progresses through these steps in order. Doing so develops to a holistic
understanding of the firm, its industry, and its strategic challenges.
9781111219802, Strategic Management: Theory and Practice, John Parnell – © Cengage Learning
Fundamentals of Strategic Management
FIGURE
1-1
O rg a n i z a t i o n o f th e Book
B
E
N
N
E
T
T
,
B
A
R
B
A
R
A
In organizations, however, strategies are2being formulated, implemented, and
controlled simultaneously while external 8
and internal factors are being assessed
and reassessed. In addition, changes in one stage of the strategic management
process will inevitably affect other stages8 as well. After a planned strategy is
implemented, for example, it often requires
2 modification as conditions change.
Hence, because these steps are so tightly intertwined, insiders treat all of the steps
as a single integrated, ongoing process.5 T
Consider the strategic management process
S at a fast-food restaurant chain. At
any given time, top managers are likely assessing changes in consumer taste preferences and food preparation, analyzing the activities of competitors, working
to overcome firm weaknesses, controlling remnants of a strategy implemented
several years ago, implementing a strategy formulated several months ago, and
formulating strategic plans for the future. Although each of these activities can
9781111219802, Strategic Management: Theory and Practice, John Parnell – © Cengage Learning
3
4
Chapter 1
Business Model
The economic mechanism by which a business hopes to sell its
goods or services and
generate a profit.
be linked to a distinct stage in the strategic management process, they occur
simultaneously.
An effective strategy is built on the foundation of the organization’s business
model, the mechanism whereby the organization seeks to earn a profit by selling
its goods. In a general sense, all firms seek to produce a product or service and
sell it at a price higher than its production and overhead costs, thereby generating a profit. A business model is stated in greater detail, however. For example, a
magazine publisher might adopt a “subscription model,” an “advertising model,”
or perhaps some combination of the two. Profits would be generated primarily from readers in the former case whereas they would come primarily from
advertisers in the latter case. Needless to say, identifying a firm’s business model
is rarely difficult at a basic level, but can become more complex when considering intricate details. Progressive firms often devise innovative business models
that extract revenue—and ultimately profits—from sources not identified by
competitors.
B
Developing a successful strategy for the firm is not an easy task. Realistically,
E typically associated with successful strategies, including
a number of factors are
the following:
N
1. Strategic managers thoroughly understand the competitive environment in which the
N
organization competes.
2. Strategic managers understand
the organization’s resources and how they translate
E
into strengths and weaknesses.
T
3. The strategy is consistent with the mission and goals of the organization.
4. Plans for putting theTstrategy into action are designed with specificity before it is
implemented.
,
5. Possible future changes in the proposed strategy (i.e., strategic control) are evaluated
before the strategy is adopted.
Careful consideration B
of these factors reinforces the interrelatedness of the steps
in the strategic management
process. Each factor is most closely associated with
A
one of the five steps, yet they fit together like pieces of a puzzle. The details associated with the successR
factors—and others—will be discussed in greater detail in
future chapters.
B
Top managers make effective strategic decisions when they remain informed
A industries, as well as the business world in general.
of issues that affect their
Information vital to effective
R strategic decision making can be found in a variety
of publications. In addition to the business sections of most major newspapers,
A
publications such as Fortune,
Business Week, Industry Standard, Strategy+Business,
and Wall Street Journal report on a wide variety of strategic management topics
(see Table 1-1). Not only are these concepts of interest to top managers, but they
are also a concern for 2
employees, supervisors, and middle managers of all organizations. An appreciation
8 of the organization’s strategy helps all of its members
relate their work assignments more closely to the direction of the organization.
8
Strategic management is not limited to for-profit organizations. Top manag2 regardless of profit or nonprofit status, must underers of any organization,
stand the organization’s environment and its capabilities and develop strategies
T
to assist the enterprise in attaining its goals. Drexel University President
S for example, is widely considered to be a leading straConstantine Papadakis,
tegic thinker among university top executives. The innovative Greek immigrant promotes Drexel through aggressive marketing, while campaigning for
an all-digital library without books. In many respects, he manages the university in the same way that other executives manage profit-seeking enterprises.
Interestingly, his salary in 2005 was about $900,000 per year—not including
9781111219802, Strategic Management: Theory and Practice, John Parnell – © Cengage Learning
Fundamentals of Strategic Management
TA B L E
1-1
5
S e l e c t O n li ne Sou rces of Bu si n ess St rat eg y N ew s
Publication
Contact Information
Business Week
E-Commerce Times
Economist
Fast Company
Forbes
Fortune
Industry Standard
Strategy+Business
Wall Street Journal
www.businessweek.com
www.ecommercetimes.com
www.economist.com (payment required for full access)
www.fastcompany.com
www.forbes.com
www.fortune.com
www.thestandard.com(e-commerce)
www.strategy-business.com (payment required for full access)
http://wsj.com (payment required for full access)
income from outside sources—making him one of the highest paid university
B
presidents in the country.6
E
1-1a Intended and Realized Strategies
N
A critical challenge facing organizations is the reality that strategies are not always
N Mintzberg introduced two terms to
implemented as originally planned. Henry
help clarify the shift that often occurs between
E the time a strategy is formulated
and the time it is implemented. An intended strategy, that which management
T
originally planned, may be realized just as it was planned, in a modified form, or
even in an entirely different form. Occasionally,
the strategy that management
T
intends is actually realized, but the intended strategy and the realized strategy,
,
which is what management actually implements, usually differ.7 Hence, the original strategy may be realized with desirable or undesirable results, or it may be
modified as changes in the firm or the environment
become known.
B
The gap between the intended and realized strategies usually results from
A events, better information that was
unforeseen environmental or organizational
not available when the strategy was formulated,
R or an improvement in top management’s ability to assess its environment. Although it is important for managers
B a realistic and thorough assessment
to formulate responsible strategies based on
of the firm and its environment, things invariably
change along the way. Hence, it
A
is common for such a gap to exist, creating the need for constant strategic action
R
if a firm is to stay on course. Instead of resisting
modest strategic changes when
new information is discovered, managers should
search
for new information and
A
be willing to make such changes when necessary. This activity is part of strategic
control, the final step in the strategic management process.
Intended Strategy
The original strategy top
management plans and
intends to implement.
Realized Strategy
The strategy top
management actually
implements.
2
1-1b Scientific and Artistic Perspectives
8
on Strategic Management
8
Top executives should take one of two different perspectives on the approach
to strategic management. Most strategy scholars
2 have endorsed a scientific perspective,
whereby strategic managers are encouraged to systematically assess the firm’s
T
external environment and evaluate the pros and cons of myriad alternatives
before formulating strategy. The businessSenvironment is seen as largely objective, analyzable, and at least somewhat predictable. As such, strategic managers
should follow a systematic process of environmental, competitive, and internal
analysis and build the organization’s strategy on this foundation.
According to this perspective, strategic managers should be trained, highly
skilled analytical thinkers capable of digesting a myriad of objective data and
9781111219802, Strategic Management: Theory and Practice, John Parnell – © Cengage Learning
6
Chapter 1
translating it into a desired direction for the firm. “Strategy scientists” tend to
minimize or reject altogether the role of imagination and creativity in the strategy process, and are not generally receptive to alternatives that emerge from any
process other than a comprehensive, analytical approach.
Others, however, have a different view. According to the artistic perspective on
strategy, the lack of environmental predictability and the fast pace of change
render elaborate strategy planning as suspect at best. Instead, strategists should
incorporate large doses of creativity and intuition in order to design a comprehensive strategy for the firm.8 Mintzberg’s notion of a craftsman—encompassing
individual skill, dedication, and perfection through mastery of detail—embodies
the artistic model. The strategy artist senses the state of the organization, interprets its subtleties, and seeks to mold its strategy like a potter molds clay. The
artist visualizes the outcomes associated with various alternatives and ultimately
charts a course based on holistic thinking, intuition, and imagination.9 “Strategy
artists” may even view strategic planning exercises as time poorly spent and may
B
not be as likely as those in the science school to make the effort necessary to
maximize the value of E
a formal planning process.10
This text acknowledges
N the validity of the artistic perspective but emphasizes
the scientific view. Creativity and innovation are important and encouraged, but
N into organizational success when they occur as part
are most likely to translate
of a comprehensive approach
to strategic management. Nonetheless, the type of
E
formal, systematic strategic planning proposed in this text is not without its critics. Some charge that T
such models are too complex to apply, or that they apply
only to businesses in highly
T certain environments.11 Others emphasize that the
stages in the process are so closely interrelated and that considering them as
, be counterproductive. Still others, such as Mintzberg,
independent steps may
argue that planning models stifle the creativity and imagination that is central to
formulating an effective strategy.12 Although these views have merit, the compreB proposed herein is presented as a proper foundation
hensive, systematic model
for understanding theA
strategic management process. It does not, however, preclude the application of other approaches.
R
B on Strategic Management
1-2 Influence
A management field can be traced to the 1950s when the
The roots of the strategic
discipline was originally
Rcalled “business policy.” Today, strategic management is
an eclectic field, drawing upon a variety of theoretical frameworks. Three promiA
nent perspectives are summarized in Table 1-2 and discussed in this section.
TA B L E
1-2
Th eoret
2 i cal Persp ect i ves on Fi rm Perf orman ce
8
Primary Influence
8 on
Firm Performance
Industrial organization 2 Structure of the industry
(IO) theory
T
Resource-based theory Firm’s unique combination
S of strategic resources
Theoretical
Perspective
Contingency theory
Fit between the firm and
its external environment
How Perspective Is Applied
to the Case Analysis
Industry analysis portion of the
external environment
Analysis of internal strengths
and weaknesses
Strengths, weaknesses,
opportunities, and threats
(SWOT) analysis and
SW/OT matrix
9781111219802, Strategic Management: Theory and Practice, John Parnell – © Cengage Learning
Fundamentals of Strategic Management
Industrial organization (IO), a branch of microeconomics, emphasizes the
influence of the industry environment upon the firm. The central tenet of industrial organization theory is the notion that a firm must adapt to influences in its
industry to survive and prosper; thus, its financial performance is primarily determined by the success of the industry in which it competes. Industries with favorable structures offer the greatest opportunity for firm profitability.13 Following
this perspective, it is more important for a firm to choose the correct industry
within which to compete than to determine how to compete within a given industry. Recent research has supported the notion that industry factors tend to play
a dominant role in the performance of most firms, except for those that are the
notable industry leaders or losers.14
IO assumes that an organization’s performance and ultimate survival depend
on its ability to adapt to industry forces over which it has little or no control.
According to IO, strategic managers should seek to understand the nature of
the industry and formulate strategies that feed off the industry’s characteristics.15
B
Because IO focuses on industry forces alone, strategies, resources, and competencies are assumed to be fairly similar amongEcompetitors within a given industry. If
one firm deviates from the industry norm N
and implements a new, successful strategy, then other firms will rapidly mimic the higher performing firm by purchasing
N talent that have made the leading
the resources, competencies, or management
firm so profitable. Hence, although the IOEperspective emphasizes the industry’s
influence on individual firms, it is also possible for firms to influence the strategy
T structure of the industry.16
of rivals, and in some cases even modify the
Perhaps the opposite of the IO perspective,
T resource-based theory views performance primarily as a function of a firm’s ability to utilize its resources.17 Although
, important, a firm’s unique resources
environmental opportunities and threats are
comprise the key variables that allow it to develop a distinctive competence, enabling
the firm to distinguish itself from its rivals and create competitive advantage.
B and intangible assets, such as capi“Resources” include all of a firm’s tangible
tal, equipment, employees, knowledge, A
and information.18 An organization’s
resources are directly linked to its capabilities, which can create value and ultiR
mately lead to profitability for the firm. Hence, resource-based theory focuses
B the competitive environment.
primarily on individual firms rather than on
If resources are to be used for sustained competitive advantage—a firm’s abilA
ity to enjoy strategic benefits over an extended time—those resources must be
R and without strategically relevant
valuable, rare, not subject to perfect imitation,
substitutes.19 Valuable resources are those
A that contribute significantly to the
firm’s effectiveness and efficiency. Rare resources are possessed by o…
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