1.

Explain what is strategy and describe its main characteristics, as well as

what is strategic management, and the importance and limitations of
strategic planning for organizations;

Strategy is a set of goal-directed actions a firm takes to gain and sustain superior performance
relative to competitors. In any competitive situation a good strategy enables a firm to achieve
superior performance and when the firm is able to outperform its competitors or the industry
average over a prolonged period of time, it has a sustainable competitive advantage. For me,
strategy is an Art of creating Value.
Strategy has 3 main characteristics:
1) The competitive challenge – A good strategy need to start with a clear and critical
diagnosis of the competitive challenge. This element is accomplished through
analysis of the firm’s external and internal environments. (part 1 of AFI
framework)
2) A guiding policy – next strategist needs to formulate an effective guiding policy
in response. This element is accomplished through strategy formulation,
resulting in the firm’s corporate, business and functional strategies. The
formulated strategy needs to be consistent, often backed up with strategic
commitments as a sizeable or changes to an organizations incentive system.
3) Coherent actions – a clear guiding policy needs to be implemented with a set of
coherent actions, which is accomplished through strategy implementation.
Strategic Management is the integrative management field that combines analysis, formulation
and implementation in the quest of competitive advantage. It enables the managers to view a
firm entirely and position the firm for superior performance.
Strategic planning is important in the organization because of following reasons:
 it gives a sense of direction to the entire team of the organization
 It makes the organization proactive, rather than reactive in nature
 Elevates productivity and operational efficiency, which leads to higher sales and profit.
 Keeps the employees motivated
 Attracts financial investors
There are several limitation to strategic planning
 Lack of knowledge
 Financial considerations - Strategic planning requires huge amount of time, money and
energy. Managers may be constrained by these considerations in making effective
strategic plans
 Strategic Planning will not identify all critical issues related to the organization. Strategic
Planning attempts to identify the most significant issues that will confront the
organization. By focusing on major issues, strategic plans minimize the detail and thereby
improve the chances for successful implementation.
 2. Describe the process of strategic management and its benefits;

Effectively managing the strategy process is the result of three broad tasks: Analyze, Formulate and
Implement. Those tasks are highly independent and frequently happen simultaneously. This approach is
known as AFI strategy framework. In each of the tasks managers focus on following questions:

1) Analyze
 Strategic leadership and the strategy process- What roles do strategic leaders play? What are the
firms vision, mission and values? What is the firm’s process to creating strategy?
 External Analysis - What effects do forces in the external environment have on the firm’s potential
to gain and sustain competitive advantage?
 Inernal Analysis – what effects do internal resources, capabilities and core competencies have on
the firm’s potential to gain and sustain competitive advantage?
 Competitive advantage, firm performance and business model – how does a firm make money?
How can one assess and measure competitive advantage? What is the relationship between
competitive advantage and firm performance?
2) Formulate
 Business Strategy – how should the firm compete: cost leadership, differentiation or value
innovation?
 Corporate Strategy – Where should the firm compete: industry, markets and geography?
 Global Strategy – how and where should the firm compete: local, regional national or
international?
3) Implement
 Organization design – how should a firm organize to turn formulated strategy into action?
 Corporate governance and business ethics – what type of corporate governance is most effective?

3. Explain why strategies should evolve and not be static;

Strategic Planning is not a way of making future decisions. There is no way anyone can predict it.
Strategic Planning provides overall guidance and direction based on what we think will happen.
Strategists are making decisions under conditions of uncertainty and complexity, because there
are too many changes taking place - marketplace is changing, customer preferences are changing,
new competition, new technologies, new opportunities, declining financial condition, etc.
Strategic Planning is a dynamic process, which is receptive to change and actually, Companies
don’t fail because of changes in the environment, they fail because their leaders are either
unwilling or incapable of dealing with said change.
However, sometimes there's a misconception about adaptability and evolving your strategy.
Some people think in order to adapt, the company must alter who it is at its core, which I think
isn't true. It’s important to be faithful to the company’s original values, mission and vision while
adapting to changed environment.
Strategy is to create a fit between the environment and the organization’s actions. As
environment itself is subject to fast change, the strategy too has to be dynamic to move in
accordance to the environment. Adapting is what keeps the company relevant, valuable and at
the forefront of the competitive edge.

4. Know what are a business mission, values and vision, as well as its
importance for strategic planning;

The first step in the process of strategic management is defining firm’s vision, mission and values.

A vision captures organization’s aspiration and spells out what it ultimately wants to accomplish. An
effective vision provides the organization with a sense of winning and motivates employees at all levels
to aim for the same target, while leaving room for individual and team contributions. Employees in
visionary companies tend to eel part of something bigger than themselves. It helps the employees find
meaning in their work. They believe they are making world a better place. This greater individual purpose
can in turn lead to higher organizational performance.

Building on vision, organizations establish a mission, which describes what an organization actually does
– the products and services it plans to provide, and the market in which it will compete.

An organization values should also carefully be formed in strategic planning. A core values statement
matter because it provides touchstones for the employees to understand the company culture. It offers
the principles that employees at all levels can use. Such principles can help provide the organization’s
employees with a moral compass and sometimes it’s ground for solving conflicts.

5. Describe the impact of the external environment in the strategy;

Every manager should consider the impact of the external environment in the strategy. Strategic planning
most often rests on the assumption that we can predict the future from the past. The approach works
when the environment doesn’t change much, but one shortcoming of strategic planning approach is that
the formulation of the strategy is different from implementation. We simply cannot know the future.
There is no data. Unforeseen events in the environment can make even most scientifically developed and
formalized plans obsolete.

For example, if the customer preferences change, lower level managers may take autonomous actions on
their own volition and this come out to be successful strategy.

Moreover, there is serendipity, random events, pleasant surprises and accidents that may have a
profound impact on a firm’s strategic initiatives.

Also, firms RAP (resource allocation process – how it allocates resources) may be the reason for changing
the strategy. Even small changes in the environment lead to changing the company’s RAP system, which
might derive the need for new, adapted strategy.
 6. Explain the importance of creating alternative scenarios of evolution for strategy;

Because of rapidly changing environment and low probability of guessing the future always correctly,
managers started to use alternative scenarios for strategic planning.

Scenario planning asks the question “what if”. According to it, top management envisions different
scenarios, to anticipate plausible futures in order to derivate strategic responses. Scenario planning takes
place at both corporate and business levels of strategy. Managers think about optimistic and pessimistic
scenarios and the formulate the plan which they can activate and implement if the scenario becomes
reality.

This allows the process of strategic planning to be more flexible and effective, than the more static
strategic planning approach with one master plan. And if a new scenario should emerge, the company
won’t lose any time coming up with a new strategic plan. It can be activated quickly based on careful
scenario analysis done before.

7. Describe the importance of the life cycle of industry structure and the
formulation of strategies;

There are four major industry structures, which differ from each other by following aspects: number and
size of competitors, firm’s degree of pricing power, type of product and service and height of entry
barriers.

Industry structures are not stable over time. Rather they are dynamic. Since a consolidated industries tend
to be more profitable than a fragmented ones, firms have a tendency to change the industry structure in
their favor, making it more consolidated through horizontal mergers and acquisitions. Having fewer
competitors generally equates to higher industry profitability. Industry incumbents therefore have an
incentive to reduce the number of competitors in the industry. With fewer but larger competitors,
incumbent firms mitigate the threat of strong competitive forces such as supplier or buyer power more
effectively.

In contrast, consolidated industry structures may also break up and become more fragmented. This
generally happens when there are external shocks to an industry such as deregulation, new legislation,
technological innovation, or globalization.

Another dynamic to consider is industry convergence, a process whereby formerly unrelated industries
begin to satisfy the same customer need. This is often brought on by technological advances.
 8. Explain what strategic groups are and how companies compete;

Strategic group is a set of companies that pursue a similar strategy within specific industry in their quest
for competitive advantage. They differ from one another along important dimensions such as
expenditures on R&D, technology, product differentiation, pricing, market segments and others.

Firms in the same strategic group seem to follow similar strategies. So they are direct competitors. The
rivalry within the same strategic group is generally more intense than the rivalry among strategic groups.
In many instances, two strategic groups are in an industry based on two different business strategies: one
that pursue a low cost strategy and a second that pursue a differentiation strategy.

We also need to take into consideration the fact that external environment affects strategic groups
differently. For example, during economic downturns cost strategy pursuers tend to take the biggest
market share and have a powerful competitive edge.

Also five competitive forces (porters 5 forces) affect different groups differently. The threat of supplier
power tends to be stronger for low-cost strategy pursuer.

In addition, some strategic groups are more profitable than other. It is because their revenues and cost
structure are different and they make different spread between values acquired from customers and costs
need to create this value.

9. Highlight the importance of a sustainable competitive advantage;

10. Learn to prepare a SWOT analysis;

11. Describe the composition and importance of analyzing the value chain;

The value chain describes the internal activities a firm engages in when transforming inputs into outputs.
Each activity the firm performs adds incremental value – raw materials and other inputs are transformed
into components that are assembled into finished goods and services for the customers. A careful analysis
of value chain helps the amanger to obtain a more detailed and fine-grained understanding how the firms
economic value creation (V-C) breaks down into a distinct set of activities that help determine the
perceived value and the costs to create it.

The value chain is divided into primary and support activities. The primary activities add value directly as
the firm transforms inputs into putputs – from raw materials through production phases to sales and
marketing finally customer service, specifically,
  Supply chain management
 Operations
 Distribution
 Marketing and sales
 After –sales service

Other activities called support activities, add value indirectly. These activities include

 R&D
 Information systems
 Humman resources
 Accounting and finance
 Firm infrastructure including processes, policies and procedures.

to help a firm achieve a competitive advantage, each activity performed needs to either add incremental
value to the product or service or lower its relative cost. The value chain analysis helps managers to see
how how competitive advantage flows from the first distinct set of activities.

12. Explain what are generic business strategies and the importance of functional
strategies;

There are two fundamentally different generic business strategies – differentiation and cost leadership. A
differentiation strategy seeks to create higher value for the customers than the value that competitors
create, by delivering products and services with unique features while keeping costs at the same or similar
levels, allowing the firm to charge higher prices to its customers. A cost leadership strategy, in contrast,
seeks to create the same or similar value to the customers by delivering products or services at a lower
cost than competitors, enabling the firm to charge lower prices to its customers.

These two strategies are called generic strategies because they can be used by any origination-
manufacturing or service, large or small, profit and non-profit – independent of industry. These two
strategies require distinct strategic positions.

Functional strategies in strategic management are usually a part of overall corporate strategy prepared
for various functional areas of its organizational structure (i.e. production, marketing, sales). It helps
managers in focusing company's activities to its major functional areas of activity (so called: key success
factors). A company can outperform competitors only if it can establish a difference at each level, or in
each activity of the business. Therefore, a functional strategy is necessary to help leaders and individual
contributors within each function understand, align with, and deliver upon the over-arching
organizational strategy of the company.
 13. Learn to identify corporate strategies and how to evaluate the strategy of
diversified companies;

Corporate strategy comprises the decisions that senior managers make and the goal-directed actions it
takes in the quest for competitive advantage in several industries and markets simultaneously. It provides
an answer to the key question of where to compete. Corporate strategy determines the boundaries of the
firm in three main dimensions:

Vertical integration – in what stages of the industry value chain the company should participate. The
industry value chain describes the transformation of raw materials into finished goods and services along
distinct vertical stages.

Diversification – what range of products and services should the company offer

Geographic scope – where should the company compete geographically in terms of regional, national or
international markets.

There are four main types of diversification

There are four options of diversification strategies that managers can follow

1. Leverage existing core competencies to improve current market position

2. Build new core competencies to protect and extend current market position
3. Recombine existing core competencies to compete in markets of the future
4. Build new core competencies to create and compete in markets of the future.
 14. Explain the advantages and disadvantages of strategic alliances;

Advantages of strategic alliances are:

 Strengthened competitive position

 Entering new markets
 Hedging against uncertainty
 Accessing critical complementary assets
 Learning new capabilities
 Economies of scale

disadvantages of strategic alliances are:

 Cultural and language barriers

 Uneven alliances
 Lack of trust
 Difference in management styles
 Potential for conflicts

15. Identify the benefits that can be obtained and the risks that can arise
when a company chooses a strategy of internationalization;

Advantages of internalization strategy are:

 Gaining access to larger market

 Gaining access to low-cost input factors
 Developing new competencies

Disadvantages of internalization strategy are:

 Liability of foreignness – additional costs of doing business in an unfamiliar cultural and

economic environment and of coordinating across geographical distances.
 Loss of reputation – because of gaining access low-cost input factors (low wages
 Loss of intellectual property – the software, movie, and music industries have long lamented
large-scale copyright infringements in many foreign markets. In addition, when required to
partner with foreign host firms, companies may find their intellectual property reverse-
engineered.

16. Analyze the various stages of internationalization of companies and

explain the ways that companies choose for this purpose;

At first it is domestic, then it becomes:

Global company either produces in home country and focuses on marketing these products globally, or
produces the products globally and focuses on marketing these products domestically.

17. Highlight the role of networks of enterprises in internationalization

strategies;

18. Explain the importance of the structure, leadership and organizational

culture in the process of strategic management;

The structure determines how the work efforts of individual and teams are orchestrated and how
resources are distributed. It defines how jobs and tasks are divided and integrated, defines reporting
relationship up and down hierarchy. Key building blocks of organizational structure are:

 Specialization
 Formalization
 Centralization
 Hierarchy
Leadership has significant impact on strategic management process. Especially it helps to determine the
vision and mission of the organization. Further, it facilitates the organization to execute effective
strategies to achieve that vision. Leadership serves as a link between the soul and the body of an
organization. Leadership has to have the evaluation and control process/systems to ensure the
effectiveness of the whole process, and this aspect will facilitate to identify the drawbacks and to make
fresh the strategies in line with the change as well. Moreover, this evaluation process is able to help and
sustain the constant growth of the institution.

‘Culture of an organization refers to the unique configuration of norms, beliefs, ways of behaving and so
on that characterize the manner in which groups and individuals combine to get things done’.
Organizational culture is very impacting. It can affect the success or failure of a company. One strong
organizational culture can become one of the most sustainable competitive advantages of a company or
organization, and this is difficult to copy. The culture is strong, because there is consistency in what people
see, hear and feel about it, and employees are clear how things are done and are willing to help the
company achieve its goals. Therefore, the strong organizational culture of company leads to stretching
and addresses short-term and long-term goals for the company which are part of strategic management.

19. Describe the process of evaluation and control of a strategy, analyze the
different phases and submit the evaluation criteria of a strategy;

There are input and output control systems in strategic management. Input systems define and direct
employee behavior through a set of explicit, codified rules and standard procedures.

Firms use input controls when the goal is to define the ways and means to reach a strategic goal and
ensure a predictable outcome. Theo are considered before employees make any business decisions. For
example use of budget, also standard operation procedures, policies and rules, which aim to specify the
conversion process from beginning to end in great detailed to guarantee standardization and minimize
deviation.

Output controls seek to guide employee behavior by defining expected results, but leave the means to
those results open to individual employees and teams. For example sales target.

20. Explain the importance of ethics, social responsibility, sustainability and

corporate governance for suck6cessful business strategy.

Business ethics are generally agreed codes of conducting a business, based on social norms. Building in a
strong sense of ethics, and an alignment with the well-being of all existing stakeholders (and society at
large) is an integral aspect of the strategic planning process. The concept of aligning with the needs, ethics,
and well-being of all stakeholders is referred to as Stakeholder Theory. Strategy lays the foundation for
how an organization carries out its operations. Building ethics into strategic planning is important to
ensure that every facet of the organization is aligned with the ethos and values of the broader
organization.
Corporate governance concerns the mechanism to direct and control an enterprise in order to ensure that
it pursues its strategic goals successfully and legally.