There are fi ve key elements of strategic decisions that are related primarily to the organisation’s
ability to add value and compete for customers in the market place. To illustrate these elements,
examples are given from the highly competitive market for video computer games, which was worth
around $35 billion globally in 2010:
1. Existing and new customers. Customers are crucial to strategic management because they make the buying decision, not competitors. This may seem obvious, but much of the literature on strategic management has focused more heavily on competitors than on customers. Even in the public sector and the non-profi t sector, customers matter. For example, there would be little point in Microsoft launching its new Xbox games console if it was unable to attract substantial sales. Up to 2011, Microsoft had sold over 50 million units since its launch in 2001.
Implementation processes to deliver the strategy . Strategy is at least partly about how to develop organisations or allow them to evolve towards their chosen purpose. For example, Microsoft began by launching Xbox into the US market in Autumn 2001, followed by Japan in early Spring 2002 and Europe about one month later. It then launched its next generation product – the Xbox 360 in 2006 and the Kinect controller in 2010. Importantly, the whole strategic decision of Microsoft to compete in this market was taken in the 1990s and then major investments were undertaken to achieve this purpose.
3 Off er sustainable competitive advantage . For the long-term survival of the organisation, it is important that the strategy is sustainable. There would be little point in Microsoft launching its new Xbox games console if the market disappeared after six months. Up to year 2007, the company had spent millions of dollars developing the product and this would take some years to recover. 19 In addition to being sustainable, a strategy is more likely to be eff ective if it delivers competitive advantages over actual or potential competitors. Microsoft was much later in entering the global computer games market than its main rivals, Sony and Nintendo. Microsoft therefore needed some special competitive advantages in its new machine to persuade customers of rival products to change. Initially, it was off ering what it claimed to be the best video graphics and the ability to play its games online. Subsequently, it has claimed to off er superior games and more computing power than its competitors. Its main rival – Sony PlayStation – then announced a totally new computer chip in 2005 that would beat this advantage. One way of developing competitive advantage is through innovation – a constant theme of this book. As some readers will be aware, Sony had technical problems with its computer chip and related laser technology so that PlayStation 3 was launched late and had to play catch-up. This is often the risk associated with innovative technology.
4.Exploit linkages between the organisation and its environment – links that cannot easily be duplicated and
will contribute to superior performance. The strategy has to exploit the many linkages that exist
between the organisation and its environment: suppliers, customers, competitors and often the
government itself. Such linkages may be contractual and formal, or they may be vague and
informal (just because they are not legally binding does not mean they have little importance). In
the case of video games machines, Microsoft was able to off er compatibility and connections with
its other dominant computer software products – Explorer and Windows XP/Vista/7/8 – not
that this link appears to have proved particularly benefi cial.
5 Vision and purpose – the ability to move the organisation forward in a signifi cant way beyond the current environment. This is likely to involve innovative strategies. In the highly competitive video games market, it is vital to have a vision of the future and also a clear sense of purpose. This may involve the environment but is mainly for the organisation itself: a picture of how video games might look in fi ve years’ time will challenge and direct strategic decisions over the intervening period. For Microsoft, its vision of the Xbox would move it from its current involvement primarily with offi ce activities like report writing and presentations to new, home entertainment applications like video games – thus providing a completely new source of revenue. It is highly likely to involve innovative solutions to the strategic issues facing the company such as the Microsoft Kinect controller launched in 2010. The vision then needs to be turned into a specifi c purpose for the company over time. Nintendo had a rival vision and purpose with the launch of its revolutionary Wii games machine in 2006: this is explained and explored in Case 4.3 later in this text. The outcome of strategic management is concerned with delivering long-term added value to the organisation. Microsoft was reported in 2006 as still not making any signifi cant profi ts on Xbox , but this had changed by 2014.
To summarise with regard to the topic of strategic management, it deals with the major intended
and emergent initiatives taken by general managers on behalf of owners and other stakeholders,
involving the utilisation of resources, to enhance the performance of organisations in their external
environments and thereby add value to the organisation.
KEY STRATEGIC PRINCIPLES
- The field of strategic management deals with the major intended and emergent initiatives taken by general managers on behalf of owners and other stakeholders, involving the utilisation of resources, to enhance the performance of organisations in their external environments and thereby add value to the organisation.
- Strategic management can be considered at two levels in the organisation: the corporate level and the business level.
- At the corporate level, strategic management is the pattern of major objectives, purposes or goals and the essential policies or plans for achieving those goals. It involves a consideration of what business the company is in or should be in
- At the business level, strategic management is concerned with the match between the internal capabilities of the organisation and its external relationships with customers, competitors and others outside the organisation
- A modern consensus view of strategy adds another dimension: prescriptive and emergent processes, to the existing processes
- Strategy is developed by a consideration of the resources of the organisation in relation to its environment, the prime purpose being to add value. The added value is then distributed among the stakeholders.
- There are five key elements to strategy. They are principally related to the need to add value and to offer advantages over competitors: customers; implementation process; sustainable competitive advantage; the exploitation of linkages between the organisation and its environment; vision and purpose. Several of these elements may well involve innovative solutions to strategic issues.
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