Given the many challenges and opportunities in the global marketplace, today’s managers must do more than set long-term strategies and hope for the best.12 They must go beyond what some have called “incremental management,” whereby they view their job as making a series of small, minor changes to improve the efficiency of their firm’s operations.13 Rather than seeing their role as merely custodians of the status quo, today’s leaders must be proactive, anticipate change, and continually refine and, when necessary, make dramatic changes to their strategies. The strategic management of the organization must become both a process and a way of thinking throughout the organization.
Defining Strategic Management
Strategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. This definition captures two main elements that go to the heart of the field of strategic management. First, the strategic management of an organization entails three ongoing processes: analyses, decisions, and actions. Strategic management is concerned with the analysis of strategic goals (vision, mission, and strategic objectives) along with the analysis of the internal and external environments of the organization. Next, leaders must make strategic decisions. These decisions, broadly speaking, address two basic questions: What industries should we compete in? How should we compete in those industries? These questions also often involve an organization’s domestic and international operations. And last are the actions that must be taken. Decisions are of little use, of course, unless they are acted on. Firms must take the necessary actions to implement their strategies. This requires leaders to allocate the necessary resources and to design the organization to bring the intended strategies to reality. Second, the essence of strategic management is the study of why some firms outperform others.14 Thus, managers need to determine how a firm is to compete so that it can obtain advantages that are sustainable over a lengthy period of time. That means focusing on two fundamental questions:
• How should we compete in order to create competitive advantages in the marketplace?
Managers need to determine if the firm should position itself as the low-cost
producer or develop products and services that are unique and will enable the firm
to charge premium prices. Or should they do some combination of both?
• How can we create competitive advantages in the marketplace that are unique,
valuable, and difficult for rivals to copy or substitute? That is, managers need to make
such advantages sustainable, instead of temporary.
Sustainable competitive advantage cannot be achieved through operational effectiveness alone.15 The popular management innovations of the last two decades—total quality, just-in-time, benchmarking, business process reengineering, outsourcing—are all about operational effectiveness. Operational effectiveness means performing similar activities better than rivals. Each of these innovations is important, but none lead to sustainable competitive advantage because everyone is doing them. Strategy is all about being different. Sustainable competitive advantage is possible only by performing different activities from rivals or performing similar activities in different ways. Companies such as Walmart, Southwest Airlines, and IKEA have developed unique, internally consistent, and difficultto-imitate activity systems that have provided them with sustained competitive advantages. A company with a good strategy must make clear choices about what it wants to accomplish. Trying to do everything that your rivals do eventually leads to mutually destructive price competition, not long-term advantage.