Why is it important to consider the strategic group in the course of developing business strategy?

A business without long term goals and objectives will struggle to set company direction, focus efforts and gain competitive advantage. Yet by applying strategic management, organisations can not only survive, but thrive. Here’s why strategic management can drive better performance.

What is strategic management?  

Strategic management is the management of a firm's resources to successfully achieve its goals and objectives. It’s an action plan to ensure performance targets are met, and the business continues to grow. Strategic management provides overall direction by developing plans and policies designed to achieve objectives and then allocating resources to implement the plans. Ultimately, strategic management is for organisations to gain a competitive edge over their competitors.

The concept of strategic management has its roots in 1950s economic theory based on industrial-organisational approaches. Peter Drucker, also known as the Father of Modern Management Theory, believed that setting objectives and monitoring company growth should permeate the entire organisation, top to bottom.      

Whether an organisation is small or large is irrelevant when it comes to strategic management. Even the smallest companies need to know how effective they are within their industry and take the appropriate actions to achieve their desired outcome for the future.  

Strategic management to gain a competitive edge

In a marketplace where workplaces are continually being disrupted through technological innovation, strategic management can be the key to delivering a solid bottom line. Company executives who have a strong grasp of their own organisation’s products or services and an in-depth view of what their major competitors will do next, can forecast and plan timely business decisions. It also means they can prepare for future opportunities and possible risks.  

Developing a strategic vision requires an understanding of global trends, the competitive landscape and stakeholder expectations. Once a firm knows what its mission is, the right resources can be allocated to achieve that plan. Through strategic decision-making and commitment to strategic planning, organisations can strengthen their long-term competitive position.

Apart from financial gains, strategic management can also boost workplace motivation. Setting effective goals for employees and involving them in organisational objectives can improve overall performance. Studies show a dramatic increase in both employee and business performance when goals are aligned.     

But it’s not enough to just craft and execute a strategic management plan. Firms that continuously measure and review the results of their strategic approach are more likely to achieve success and see improved financial performance. Firms that continually assess whether they are performing according to their corporate blueprint can respond to fast-changing market forces. They can move the company along the strategic course that has been charted for it.   

Why is it important to consider the strategic group in the course of developing business strategy?

Here are the 4 steps to effectively implement strategic management

There are several stages in the strategic management process. While the outcome will look different from business to business, there are simple chronological steps which organisations can follow to put strategies into practice.

Step 1: Strategic intent - Successful execution of strategic management starts with strategic intent – that’s defining the organisational objectives and using them as a benchmark to measure performance and progress. An organisation’s vision and direction should be specific, actionable and measurable, rather than broad. This is the point where companies outline their future business focus – whether that’s profitability, shareholder wealth, or market leadership.  

Step 2: Strategy formulation - The next stage involves formulating the strategy and this requires a company health check through a SWOT analysis. It’s where companies forensically examine themselves, looking at the environment they operate in, both internally and externally. This strategic analysis focuses on company strengths, weaknesses, opportunities and threats. Through this process, an organisation is able to determine what it does better than its competition, what it needs to improve on, and what advantages their competitors have. This will then help them develop ideas on how to outcompete rivals and respond to changing market conditions. This is also the stage when companies determine where they are and where they want to be. Once an assessment is made, it’s time to implement the strategy.   

Step 3: Strategy implementation – An organisational blueprint is a good start to strategic management, but it must be put into action. To ensure a company’s survival, growth and expansion, strategies must be put into practice. It’s estimated that more than 60% of the strategies are not successfully implemented. Success requires:

  • Developing structures and systems,
  • Allocating resources,
  • Overseeing change management,
  • Instigating risk management strategies,
  • Developing decision-making processes,
  • Developing project management capabilities,
  • Strengthening competitive capabilities,
  • Communicating strategy,
  • Managing human resources by aligning individual roles with performance objectives; and
  • Rewarding performance.

Execution of strategic plans allows organisations to explore new opportunities and brings into line all aspects of a company – people, strategy and operations.   

Step 4: Strategy evaluation – The final stage of strategic management is to analyse and assess the results achieved through the strategic process. By measuring the performance of an organisational strategy, companies can decide whether to stay on course or make adjustments to correct actions to adapt to changing market conditions. This is an ongoing process which gives organisations the opportunity to review performance metrics and put interventions in place if necessary. Evaluation of the strategic plan gives a snapshot of possible failures and whether a change in direction is required in the overall company vision. It’s important for companies to periodically review their strategy and determine what’s working and what isn’t.    

What are the skills required for successful strategic management?  

Strategic management requires convincing leadership skills – after all, it’s about making key decisions, overcoming obstacles and leveraging opportunities. Company executives not only require sharp analytical skills, but they also need the ability to engage with stakeholders and motivate employees to embrace their outlined strategies. By developing skills in strategic management executives can create value for their company.

Victoria University’s Master of Business Administration (MBA) explores the impact that decisions, actions and processes have on business success.

Learn more about our online postgraduate courses. Get in touch with our Enrolment team on 1300 043 531.

  1. Understand what strategic groups are.
  2. Learn three ways that analyzing strategic groups is useful to organizations.

The analysis of the strategic groups in an industry can offer important insights to executives. Strategic groups are sets of firms that follow similar strategies (Hunt, 1972; Short et al., 2007). More specifically, a strategic group consists of a set of industry competitors that have similar characteristics to one another but differ in important ways from the members of other groups (Figure 3.25 “Strategic Groups”).

Why is it important to consider the strategic group in the course of developing business strategy?
Figure 3.25 Strategic Groups

Understanding the nature of strategic groups within an industry is important for at least three reasons. First, emphasizing the members of a firm’s group is helpful because these firms are usually its closest rivals. When assessing their firms’ performance and considering strategic moves, the other members of a group are often the best referents for executives to consider. In some cases, one or more strategic groups in the industry are irrelevant. Subway, for example, does not need to worry about competing for customers with the likes of The Keg and Earls. This is partly because firms confront mobility barriers: factors that make it unlikely or illogical for a firm to change strategic groups over time. Because Subway is unlikely to offer a gourmet steak as well as the experience offered by fine-dining outlets, they can largely ignore the actions taken by firms in that restaurant industry strategic group.

Second, the strategies pursued by firms within other strategic groups highlight alternative paths to success. A firm may be able to borrow an idea from another strategic group and use this idea to improve its situation. During the recession of the late 2000s, mid-quality restaurant chains such as Mr. Mikes and Swiss Chalet used a variety of promotions such as coupons and meal combinations to try to attract budget-conscious consumers. Firms such as Subway and Quiznos that already offered low-priced meals still had an inherent price advantage over Mr. Mike’s and Swiss Chalet;  however, there is no tipping expected at the former restaurants, but there is at the latter. It must have been tempting to executives at Mr. Mike’s and Swiss Chalet to try to expand their appeal to budget-conscious consumers by experimenting with operating formats that do not involve tipping.

Third, the analysis of strategic groups can reveal gaps in the industry that represent untapped opportunities. Within the restaurant business, for example, it appears that no national chain offers both very high-quality meals and a very diverse menu. Perhaps the firm that comes the closest to filling this niche is the Cheesecake Factory, a chain of approximately 150 outlets in the United States and one location in Canada (Toronto), whose menu includes more than 200 lunch, dinner, and dessert items. The Keg already offers very high quality food; its executives could consider moving the firm toward offering a very diverse menu as well. This would involve considerable risk, however. Perhaps no national chain offers both very high quality meals and a very diverse menu because doing so is extremely difficult. Nevertheless, examining the strategic groups in an industry with an eye toward untapped opportunities offers executives a chance to consider novel ideas.

  • Examination of the strategic groups in an industry provides a firm’s executives with a better understanding of their closest rivals, reveals alternative paths to success, and highlights untapped opportunities.

References

Hunt, M. S. (1972). Competition in the major home appliance industry 1960–1970. (Unpublished doctoral dissertation). Harvard University, Cambridge, MA

Short, J. C., Ketchen, D. J., Palmer, T., & Hult, G. T. (2007). Firm, strategic group, and industry influences on performance. Strategic Management Journal, 28, 147–167.