Strategy-specific Decision Making: A Guide for Executing Competitive Strategy

A Guide for Executing Competitive Strategy

William G. Forgang

• Publisher: Routledge
• Year: 2015
• eBook ISBN: 9781317459224
• Topic: Business
• Subtopic: Business General
• Index: Business

Providing a novel approach to business policy and strategic management, this book focuses on the implementation of a firm's competitive strategy throughout all levels of the organization.

1

Managing by Competitive Strategy

This book is directed toward individuals and organizations that seek to become superior performers, and the route to that success involves strategy-specific decision making. For the individual, success results from their applying a strategic lens to make consistently correct decisions, to explain effectively those decisions to others, to guide colleagues along a similarly directed decision-making path, and to contribute to their firm’s exceptional performance. For the organization, success is a result of the careful design and execution¹ of their competitive strategy.

Getting Started

The management literature is filled with excellent theoretical and practical books about the design of a firm’s strategy, sources of competitive strength, and the processes of strategic planning. But there are wide gaps in the literature. One gap occurs because strategists do their work and leave the details of implementation to functional area specialists in, for example, finance, marketing, and human resources.² But those professionals do not begin their work from the perspective of strategic management. Rather, functional area specialists pursue discipline-specific topics, thereby creating a gap between the design and the execution of a firm’s strategy.

A second gap results from the rapidly growing use of computer-based business-strategy simulations in the classroom and in management development workshops. The transition from textbook and case study analysis to complex simulations offers many instructional benefits. Students and developing managers learn how to design and implement a competitive strategy; they acquire a holistic view of a company by experiencing the dependencies between functional area decisions; they sharpen decision-making and communication skills; and the immediate feedback from the results of their decisions adds excitement and accountability to the classroom. However, text materials to support the simulations have not advanced as rapidly as the technology.

A third gap is the difference between aspiration and achievement. A performance gap can be attributable to a poorly designed or a poorly executed strategy. A strategy can be poorly designed for several reasons. For example, a firm incurs the costs to differentiate its product from rivals, but what they thought was the unique feature of its product is not important to potential buyers. Or a strategy is poorly designed if the product or service is unusually vulnerable to existing or new competitors, technological change, political instability, or changing social norms. Also, a strategy can be poorly designed for a particular firm. Consider a business that has a creative idea that meets buyer expectations. However, their equipment is old and improperly configured for the new product. The firm is financially unable to replace their equipment. There is a mismatch between the company’s abilities and strategy. For this firm, the competitive strategy is poorly designed.

A strategy is poorly executed if managers make inconsistent and incomplete decisions, and if their firm does not offer the product features, service, or price as intended. For example, consider a manufacturer whose competitive strategy emphasizes the durability of its product. The product is engineered for a long and useful life, but the procurement manager purchases material inputs on the basis of price. Procurement decisions are inconsistent with the engineering design, and the firm’s products are not as durable as intended. Similarly, a price-conscious producer properly designs its products, and its procurement practices are appropriate given the strategy. The firm wisely invests in training to improve productivity and lower unit labor costs. But it fails to automate its manufacturing facility and does not capture this opportunity to reduce labor costs. Their cost strategy is poorly executed because decisions are not complete.

This book seeks to fill the three gaps. First, tools are developed to define and assess the design of a firm’s strategy. Next, functional area decisions are examined from the perspective of implementing the firm’s competitive strategy, which is the lens to evaluate options and guide decisions that execute the firm’s strategy. Finally, the use of a strategy lens improves decision-making skills, closes the gap between aspirations and achievement, and yields individual and organizational success.

Strategic Management: Design and Execution

The goal of strategic management is superior and sustained financial performance, and the strategic management process is comprised of two stages. The design stage determines the way in which a firm intends to differentiate its good or service from rivals. In this stage a firm makes choices to gain a competitive advantage over rivals. In the execution stage decisions in the functional areas of operations implement the company’s strategy.

Figure 1.1 maps these stages.

Design Stage

The design stage of the strategic management process shapes a firm’s competitive strategy. For a single product or narrow group of products, a firm’s competitive strategy refers to the weighted mix of price, product qualities and features, and service that differentiates its product from those of rivals. In most industries several different weighted mixes of these issues are possible. For example, rival manufacturers of an intermediate-stage product differently emphasize technical features, reliability, access, delivery time, after-sale service, age, and price. Within this industry, different strategies are successful. Buyers’ needs, expectations, and abilities to pay are not homogeneous, allowing different sellers to concentrate on specific market segments by pursuing different competitive strategies.

Explicitly choosing a strategy is necessary because components of value often conflict with one another, imposing trade-offs. A trade-off occurs when a decision to improve one component of value limits another. A firm’s decision to produce the most technically proficient product incurs high R & D and materials costs and thus is unable to be the lowest-priced seller. There is a trade-off between technical sophistication and price as ways to attract and retain buyers. Similarly, a vehicle manufacturer whose products are designed for safety is unable to be the industry leader in fuel efficiency. Technology limitations and production costs prevent even the most aggressive and idealistic firms from being the industry leader in all aspects of value at the same time.

Figure 1.1
Strategy Design Execution

Choosing a strategy prioritizes the elements of value and guides decision makers. Consider a hotel that decides to emphasize luxury service and accommodations. The hotel’s management recognizes it cannot be the luxury service leader and the lowest-priced seller. The strategy based on luxury services dictate choices in staff size, training, furniture selection, food service, communications technologies, and marketing. The strategy guides decisions and limits the range of debate by clearly establishing priorities and the criteria to assess options.

Exercise 1.1

1. For your firm, one with which you are familiar, or the firm in your simulation, list the alternative ways in which one product can be differentiated from rivals.

2. Indicate the relative importance of the differentiators to a particular group of buyers.

3. What trade-offs exist between the differentiators?

A similar exercise is provided in the Instructor’s and Student’s Simulation Guide, question 1.

Mission Statement

The design stage of the strategic management process begins with a mission statement (see Figure 1.1). Mission statements are examined more carefully in chapter 3, but this stage of the discussion requires two considerations. A firm’s mission statement: (a) identifies the products or services offered and (b) reflects the price, product features and qualities, and service that are intended to capture a competitive advantage.

Identifying a firm’s good or service is not as simple as it sounds. For example, consider a neighborhood diner. Is it just a place that serves inexpensive meals? Or is it a place where friends, civic leaders, and business people meet while also having a meal? Different visions of the diner lead to different operating decisions. For example, a low-cost diner limits beverage refills to save money and to turn over their tables to new customers. In contrast, the diner that is a place for people to meet, willingly refills beverages and makes other decisions that encourage patrons to linger.

In every organization decision makers must know how their firm intends to compete against rivals. One set of decisions is made in a manufacturing firm that wants to be the industry’s technical leader, whereas different decisions are made by a business that competes on ease of use of the product, and other decisions are made by a low-price seller. Decision makers who consistently make and explain their choices in terms of the firm’s strategy earn the trust and confidence of their colleagues, while those who explain one decision on ease of use and another on costs create confusion and invite second-guessing.

The challenges of drafting a mission statement are most easily understood when considering the start-up phase of a business. An individual who plans to open a restaurant must have a vision that includes interior design, food preparation, and service. The business concept is expressed in the mission statement and guides the firm’s choice of product features, service, menu items, ingredients, location, decor, hiring, and level of service. However, before the owner assumes the risk of opening, for example, an elegant French restaurant, internal and external analyses provide reality checks to prevent an unwise investment.

Internal Analysis

Internal analysis (see Figure 1.1) evaluates the firm’s ability to implement the strategy. It identifies strengths and weaknesses that affect its ability to carry out the mission. Internal analysis assesses the prospective French restaurant owner’s ability to finance the start-up costs, attract and retain appropriate personnel, manage operations, prepare and serve meals, and sustain the effective execution of the strategy over time.

A firm’s strengths and weakness are assessed three ways: (a) relative to its strategy, (b) relative to its rivals, and (c) reassessed periodically. First, because different competitive strategies require different tools, equipment, financial capabilities, and skills, the assessment of a company’s capabilities is completed relative to the needs to execute their particular...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Figures and Tables
• Preface
• Acknowledgments
• A Note to Instructors, Students, and Managers
• Cohesion Case: Gelle’s Building Products
• 1. Managing by Competitive Strategy
• 2. Competitive Strategy
• 3. Strategy-Specific Decision Making
• 4. Performance-Based Measurement Systems
• 5. Implementing the Strategy: Downstream and Upstream Analysis
• 6. Strategy-Specific Decisions and Management Control Systems
• 7. From Value Proposition to Outcomes
• 8. Performance Measurements and the Multiple Products Firm
• 9. Leadership and Strategy-Specific Decision Making
• Appendixes
• Cases
• Bibliography
• Index