Literature Review of Strategic

Management
Strategic planning, strategic planning frameworks and strategy implementation
issues are discussed both from a historical and modern perspective. Michael
Porters frameworks and generic strategy provide an excellent backdrop for
formulation of strategy but scholars argue that the current environment of business
may require new or altered frameworks. A blended strategy of differentiation plus
cost leadership may be possible within the new technology platforms afforded via
e-commerce. Mega sized corporations nearing 500 billion in revenue are redefining
the rules of strategy and using their massive scope and scale in new and unique
ways. Regulation, diversity and shared value are Important to consider In
developing strategy and can contribute to differentiation If properly managed.

Strategy Implementation Is an area where further research Is needed and special

attention needs to be focused on the Internet and mega corporations as they seem to
defy all historical strategy audience.

Keywords: Strategic management, strategy implementation, Michael Porter Porters

Theories as Applied in Current Decision Making Introduction The single most
important intellectual asset in any company outside of its employees is its strategy.
Leaders are defined by the strategies they create and hard work can disintegrate
when strategic plans are not properly implemented. Developing consistency in
strategy is very important to proper implementation of the core elements.
Ultimately the strategy must become centrally integrated and externally oriented in
order to define how the business will achieve its objectives.

One of the most common reasons for firm bankruptcy is improper implementation
of strategy (Hosiery, Chambermaids, Onerous, & Saudi, 2013).

Strategy is largely defined by adaptation to a constantly changing marketplace

which seems to get more and more complex. True strategy is about making
complex bets and following up with hard choices. Historically stable markets
allowed managers to rely on complex strategies that were built on future
predictions. But in the current fast moving marketplace and with the rise of the

millennial billionaires, opportunity seizure may require a different approach.

The review contained herein will take a shallow dive into a few of the endless
strategic management models along with the challenges and typical faults with
implementation. The e-commerce world and mega sized corporations will be
explored as they present special challenges to strategy makers. The internet seems
to defy many of the historical perspectives on business strategy. Diversity and
regulation are highlighted as these issues stand out in the literature as being an
ongoing consideration for strategy makers. A special focus is on the perspectives
of Michael Porter both historically and in the present.

Countless reviewers have dissected and applied Porter’s academic work. Many
arguments have been made both for and against Porter’s frameworks held up
against a modern business landscape. This paper will serve to challenge Porter’s
generic strategies and the applicability in today’s business world. Managers can
learn much from Porter, but to survive in the age of millennial billionaires, leaders
may need to develop new frameworks. And those who do will have a good chance
at building a firm foundation for responding to competition and reacting to market
opportunities in a fast moving global economy.

Strategic Management Overview The word strategy is often improperly used by

managers as an industry buzzword in hopes of gaining credibility for their
management priorities.

This often results in confusion and can undermine the credibility of the leader. The
word strategy is derived from the Greek strategies, which means the art of the
general. The business general must form a coherent strategy which is the sum of
the parts of the organization. If this is not accomplished then mid level managers
will focus time on their own priorities and the organization will risk fragmentation.

The origin of the subject of strategic management is heavily abated but H.

Igor Insofar is commonly noted as having significant influence in the field prior to
Michael Porter whom took center stage in the asses. Insofar bestselling book titled
Corporate Strategy was published in 1965 and started to transition the mindset
from strategic planning to strategic management. Much of the current
understanding of strategic management can be traced back to Porter’s (1985) low
cost, differentiation, focus framework.

His concepts marked a key transition point in the strategic management field by
integrating organization specific factors into a model of firm performance.
According to Porter’s producer or differentiating its products or services from
other businesses. Either of these strategies can be accomplished by focusing the
organizations efforts on a segment of the market.

Porter believes that businesses that attempt to employ both strategies

simultaneously will end up “stuck in the middle” and will not be successful. This
issue is hotly debated in the literature and especially as related to e-commerce.

Internet firms seem to be employing strategies that exhibit one of more firms of
differentiation in unison. Despite all the debate, Porter is widely cited in the iterate
and is highly respected by both supporters and critics alike whom all consider him
to be a significant contributor to the field of strategic management. Nag,
Humpback, and Chin (2007) contended that the field of strategic management is
lacking an identity.

The researchers conducted an exhaustive large scale survey of academics in the

field and came up with the following definition for strategic management. The
field of strategic management deals with the major intended and emergent
initiatives taken by general managers on behalf of owners, involving utilization of
resources, to enhance the performance of firms in their external environments.”.
The interface with the external environment, also known as the customer and the
community, is a central dogma of the strategic planning process and we will see
this theme emerge throughout the literature review. Strategic Planning Strategic
planning is normally the first step in the strategic management process and is
critical to the success of an organization.

Strategic plans normally have three parts.

The first is the mission or mission statement that sets the long term goals. The
second is a listing of the initiatives that the organization will carry out as art of its
fulfillment of the goal. And third is the financial impact of the initiatives. Martin
(2014) recommends three rules for strategic planning to prevent from falling into
the trap of focusing on internal metrics and not the external customer. Rule one is
to keep the strategy simple by focusing on what will attract customers.

Eisenhower and Soul (2001) contend that to survive in a complicated high velocity
market space, managers should choose simple rules over complicated plans.

The simple rules will allow the managers to move quickly in order to capture
opportunities more quickly. Customers will spend their money with the company
that has the superior value proposition. Martin (2014) rule two is strategies do not
have to be perfect. There should be some risk in the strategy and boards should not
prevent management from taking risks in setting strategy. This actually weakens
the strategy.

And the final rule is to test the logic of your thinking.

Write down the desired outcome when setting strategy. The logic should be
compared to real life events in order to identify areas of improvement along the
way. Despite the criticality of strategic management o an organization’s success, a
McKinney survey found that most executives are not happy with their strategic
planning process. And companies that have formal strategic planning processes
have the highest level of satisfaction with corporate strategy development.
Selene (2009) broke strategic management into four different schools including the
contemporary school.

The classical school is based on the research contributions of the mid twentieth
century and is centered on the fit between internal and external factors. Classical
management assumes that internal and external factors have an equal fit. The
SOOT analysis is a common model used to assess the classical business
environment. The environmental school contends that the external environment
plays the most important role in strategy development.

And firms that do not respond well to the external environment will eventually die
out. The competitive school of strategy is distinguished by competition being the
driving force in differentiation.

Porter (1980) noted that the firm must acknowledge and respond to the external
opportunities and threats to survive. The contemporary school focuses on
understanding the internal firm. Collaboration and differentiation are important to
winning with a contemporary strategy.

Multicast (2009) provides an interesting perspective on strategic management and

its relationship to time. Strategic planning is most often thought of in terms of
planning for the long term future of the firm. The author encourages management
to also consider history, the present, and the near future in making strategic
planning decisions.

When new management enters a firm, history is often seen as a negative since
historical perspectives are sometimes viewed as a hindrance to instituting change.
But in reality, history can be an asset to strategic planners. For example, if he
company has a culture of continuous improvement, good employee loyalty and
commitment, and good learning ability, then this is a sustainable competitive
advantage that should be retained.

If new management is not aware of the firm’s culture then they may make
decisions like terminating senior employees therefore damaging the firms culture
and competitiveness.

Passage of time can also be a weakness if management has become complacent

and they are not questioning the way their firm operates or making suggestions for
efficiency gains. Improving the learning capabilities of the firm can help prevent
previous strengths from turning onto weaknesses. Generic Strategies According to
Porter (1980), differentiation, cost leadership, focus, or a combination of
differentiation and cost leadership are the keys to maintaining a competitive
advantage. These are known as Porter’s generic strategies and are still relevant in
business today.

The below sections will explore some of the applications of Porter’s generic
strategies.

This section also addresses a blended cost leadership/ differentiation strategy

model which has emerged in the literature largely as a result of the success of
companies that have seen success using the internet as the primary customer
interface. Differentiation. Differentiation or value is defined by having a product or
service that is differentiated from the competitor on some stand alone merit.

Firms that employ differentiation typically can charge a premium for their product
or service. The consumer typically sees a superior value in the product or service,
whether perceived or real, and is willing to pay a premium. Akin, Allen, Helms,
and Sprawls (2006) discovered three tactics that were most commonly employed in
differentiation strategy.

These included innovative marketing technology or tactics, a culture of creativity

and innovation, and an emphasis on avian a significant market share. Marketing
research had found that it is eight to. Organizations must have insight into the
future in order to manage and drive profitability and this should be a key
component of the strategic planning process. This can only be accomplished by
developing a culture of innovation. Unfortunately the tactics needed to create a
culture of innovation are not well understood and documented in the literature.

Many firms seem to be out of touch with the external environment in which they
operate. Kim, Name, and Stripers (2004) evaluated differentiation within the
context of e-commerce.

Due to the low costs on switching sources via the internet, it is more important that
internet companies learn how to differentiate. Differentiation based on distribution
is a key area of focus for internet firms. Speed of delivery, online interface,
security, and order tracking are all ways that internet firms are differentiating
themselves.

There are numerous studies that show that internet shoppers are less sensitive to
price when the product or service is coupled with information or services. Olio and
Fay (2012) noted that innovation is only possible with a good strategy.

Firms should avoid copying other company’s ideas. And instead develop
innovation that is relevant to the needs you are trying to serve. Jumping on trends
is not always a bad idea as long as it is tailored to your strategy. The firm’s core
value proposition should have stability.

Successful companies rarely have to go through major changes since they are
constantly updating their processes, offerings, and methods. Industry structure is
dynamic and structural change is very slow. Having a good understanding of
industry stricture will help to identify new strategic opportunities.

Multicast (2009) discussed differentiation as a crucial component of understanding

competitiveness. Differential value is an important component of competitiveness
and can be created in a number of ways including reliability, product features,
quality attributes, and aesthetics.

In addition to having differentiating factors, the product will also need to overcome
the “hurdle factors. ” These are the characteristics that the customer expects the
products to have and are a limiting factor in the initial product selection.
Differentiating factors without “hurdle factors” will not position the product or
service competitively.

Perception is important since it is important to understanding the customer

perspective since it may be different than the firms perspective. If the customer
does not have a need for a differentiating characteristic of the products than those
characteristics will potentially add manufacturing cost without adding value to the
customer.

Cost Leadership. Cost leadership requires a accompanied mindset to operate at the

lowest cost possible. The company must be willing to walk away from
opportunities where they cannot be a cost leader and must choose outsourcing
partners whom will provide cost leadership.

All company operations and marketing must be centered on cost leadership.

Tactics employed include mass production and distribution, vertical integration,
lower input cost from raw materials, and technology. The tactic that has proven to
be most beneficial to cost reduction strategy is to lower distribution costs.

One way that retailers have accomplished this is through cross docking or shipping
direct from manufacturer to retailer without storing in warehouses.

Wall-Mart is largely credited with developing cross-docking strategy and this has
been widely adopted and refined by retailers since the asses. The internet has been
a hotbed for his issue and reported that most online shoppers are using price as
their most important buying criteria. The internet provides a format for retailers to
quickly access a large volume of customers through a price leadership strategy.
Porter (2001) argued that the internet is a very difficult environment in which to
differentiate one’s firm since they lack many of the physical attributes of brick and
mortar firms like sales people.

In general, most online only brands have not been very successful at brand
building and have developed only modest customer loyalty recommend that
companies avoid cost leadership for internet firms.

And instead they recommend using a blended strategy that includes elements of
cost leadership as well as differentiation. Porter’s cost leadership framework is
often misinterpreted by managers. Competitive advantage for example has come to
mean anything that the organization deems as noteworthy. Porter was very specific
in defining competitive advantage as price advantage versus rivals.

The price may be low or high depending on the choices made in the value chain.

These choices shift relative cost or relative price to the advantage. This ultimately
leads to sustainable reference. Price competition is more about developing a value
chain than it is about low prices. This value chain should be differentiated and not
easily reproduced by competition. When companies imitate each other’s products
and value chain then price becomes the only dimension that customers utilize.

This results in a very destructive environment.

Competition should be thought of more in terms of profits rather than competing to

win. Competitors are competing to capture the value an industry creates. The value
is being captured by customers, suppliers, rivals, potential new rivals, and
producers of replacements. Creating economic value results in sustained
profitability by using resources effectively to meet customer needs.

Focus Strategy. Focus strategy is when firms decide to focus on a specific segment
of the market. The company may focus on specific customer demographic, product
range, or service line.

Often the focus strategy is used to grab market share that may have been
overlooked or is not large enough for larger competitors. The segment must have
good growth potential but be small enough to not be of great importance to
competitors. Firms may utilize focus strategy as a standalone or they may bundle
low cost with focus strategy.

Common tactics that are employed in low cost/focus strategy include providing
outstanding customer service, improving operational efficiency, quality control of
products, and extensive training of front line sales and technical personnel.
The key to success with low cost/focus strategy is to reduce cost by creating a
happy customer. Customer complaints and a failure to meet customer expectations
result in higher costs through corrective actions. Low cost/focus firms must be
masters of preventative action and create quality procedures that drive customer
satisfaction through consistently meeting customer expectations. Customer service
is typically the first point of a customer engagement and can be an important
component in standardizing procedures and preventing problems.

If services are done right the first time the firm will save a significant amount of
costly managerial time in solving problems in the future.

Men’s Warehouse is an example of where price and focus strategy and successfully
employed. The store offers a with a high level of customer service and on site
services such as tailoring. Kim et al. (2004) note that focus strategy can be very
effective with online commerce. The internet allows companies to customize their
products and offerings to meet the specific wants and needs of a select group of
customers.

Customers see value in being directed to the specialty retailer on the internet and
will pay a premium for the products or services. The internet has the ability to
service both broad markets and very niche markets. Consumers have instant access
to price information and product information. Internet retailers would be wise to
consider focus or focus/ differentiation strategy as their primary strategic
development platform. Focus/ Differentiation Strategy. Firms may also employ a
focus/differentiation strategy when the firm has a unique quality focused product
aimed toward a specific market segment.

Common tactics employed by these firms include the production of specialty

products and producing products for higher priced market segments. Specialty
retailers like Pier 1 accomplished the first tactic by focusing on unique high quality
specialty products. These are often times imported goods that have a unique
differentiator. The second tactic is employed by luxury car companies like Cadillac
that can only afforded by the highest income segment of the population. Blended
Strategy.

An integrated strategy of price leadership and differentiation was strongly opposed

by Porter (1980).

He argued that these two generic strategies are fundamentally contradictory and
that any firm attempting to fluctuate between the two would fail to realize the full
potential of their performance. On one extreme, cost leadership requires
standardization and building low cost in the value chain. One the other extreme is
differentiation which almost always drives up marketing and production costs. But
there is a large proportion of the literature which challenges Porter on this issue.
Most scholars agree that Porter’s incompatibility argument will hold up in a stable
business environment, but in the rapidly changing competitive environment that
reflects the modern business world, a flexible combination of multiple strategies
may be required.

The internet is especially challenging in that it can disassemble traditional value

chains. For example, several online companies are successfully employing a
diversified business strategy such as Amazon and Backbone. This issue will be
discussed in more detail later in this literature review.
Strategic Management Frameworks The multitude and complexity of issues facing
organizations has resulted in a wide variety of strategic management frameworks
that are referenced in the literature.

Each model attempts to organize issues in a way that makes management decision
making more comprehensible. With each framework comes a myriad of academic
scholars that have created, critiqued, or built the frameworks in positive ways. This
literature review will cover two well known strategic management frameworks,
SOOT and Porter’s five forces.

In SOOT analysis, internal strengths and weaknesses as well as external

opportunities and threats are considered. Some of the most widely preferred
frameworks in the literature are credited to Michael Porter.

The framework that will be reviewed in this section is Porter’s five forces. SOOT
The originator of SOOT is somewhat unclear from the literature but it was first
first tool of choice for decision makers assessing alternatives and complex
decisions. The use of SOOT to group external and internal business issues is a
logical starting point for most management decisions.

Helms and Nixon (2010) provide a more recent analysis of SOOT as a strategic
planning tool and some of the limitations. SOOT is commonly used in academia
and business largely due the simplicity of SOOT as well as its catchy well known
name. The literature reveals that SOOT is most commonly used for business
strategic planning both for individual organizations as well as for comparing two
or more companies.

SOOT analysis consists of examination of internal strengths and weaknesses as

well as external opportunities and threats.

The analysis can be quickly constructed and multiple viewpoints can be combined
to perform a brainstorming exercise (Helms et al, 2010). Internal strengths and
weaknesses may include branding, organization structure, access to raw materials
or natural resources, production capacity, or capital for investment. External
opportunities and threats could include customers, rivals, market trends,
contractors, vendors, or technology. Various environmental, political, and
regulatory issues are often examined as well.

The literature revealed that SOOT was the most commonly utilized strategic
management tool well into the late nineties.

After the year 2000, the literature is conflicted as to the value of SOOT although
there are multiple researchers both for and against. Sherman, Rowley, and
Armband (2007) added steps to SOOT and came up with a seven step strategic
management process to assist firms n the pre planning stages. Many researchers
have coupled SOOT with various mathematical models to give it a quantitative
basis versus qualitative. Most supporters of SOOT admit that it should be
combined with other strategic management tools like Porter’s five forces and not
used in isolation.

But as with any strategic management tool, SOOT is only as good as the experts
whom use it. Its greatest weakness is probably that it is a snapshot of time. The
business environment is constantly changing and firms will need to constantly scan
the environment and update their SOOT analysis. In the next section e will explore
another widely used strategic management model developed by Michael Porter.
Porter’s Five Forces Porter is most well known for the association of competition
with the firm and its external environment.

Porter felt that corporate strategy should meet the threats and opportunities in the
external environment.

Porter identified five competitive forces that he claims are the key to shaping every
industry and every market. By studying and understanding these forces, a firm
should be able to determine the level of competition and therefore the
attractiveness and potential profitability of a market. Porter’s five forces analysis
framework is primarily used for industry level analysis. Five forces were first
discussed by Porter in his publication titled Competitive Strategy.

The five forces are threats from competitors, buyer power, supplier power, threat
of new entrants, and alternative products.

The strength of these collective forces decides the amount of profit potential
available to rivals in an industry. Unfortunately the literature reveals that the
application of the five forces may not be straight forward and even Porter only be
used to determine if an industry is attractive or not, but it should be a remarry tool
to unravel the complexity of competition and improve performance.
Dobbs (2014) discusses some of the challenges that are faced by managers when
they attempt to apply the five forces. These include a lack of depth, lack of
structured analysis, lack of strategic insight, and millennial generation preferences.
Many people use the five forces analysis in a superficial way and this leads to
inaccurate and incomplete analysis.

This may largely be due the lack of in depth study given to MBA students. The
lack of quantitative measures in the five forces framework may be a limiting factor
in many cases.

Most applications of five forces consist of lists which make poor substitutes for in
depth analysis. Olio and Fay noted that five forces analysis should not only be used
to determine if an industry is attractive or not, but it should be a primary tool to
unravel the complexity of competition and improve performance. With the rise of
the millennial generation in 2010, Dobbs (2014) noted that the five forces
framework must be modified in order to accommodate the technology vigor and
analysis preferred by this generation.

Akin, Allen, Helms, and Sprawls (2006) contend that the literature is missing
information on the tactics that are needed in order to implement Porter’s strategies.
Several researchers have proposed models to be used to better apply the five
forces. In Akin et al. ‘s (2006) study, the authors researched over 200 companies to
develop a set of key tactics that could be used to implement Porter’s generic
strategies and drive organization performance. Dobbs (2014) provides a practical
template that provides good comprehension and ease of use.

The models have proved very beneficial in the classroom setting in terms of
driving higher levels of strategic insight and industry analysis. Diversity and
Shared Value Building market share can also be influenced by diversification in
the workforce and acknowledgement of a preference for products that are made
and sold by companies with similar cultural heritage. This is largely due to the
diversification of the customer base which crosses many borders, cultures, and
ethnic groups. Hiring a diverse workforce and drawing in a culturally diverse
customer base is critical to success.

This group of consumers is growing at a much faster rate than the rest of the US
population. The US welcomes nearly one million new immigrants into the country
every year.

These people come from different backgrounds, nationalities and ethnicities and
they are learning how to work in an unfamiliar culture. Ramifies (2010) reported
that the challenges are immense for immigrants as they try and maintain a nation
connection to their home country as well as try and adapt to their host country. The
pressure that results drives individuals to be more inventive and productive.

The force is very powerful and one of the reasons why immigrants do so well in
start up businesses in the US. They develop a comfort level with uncertainty and
risk that allows them to drive performance.

Despite the advantages of diversity most companies fall short on diversity thought
and leadership. In fact, half of companies operating in 25 countries or more,
reported only having one or two foreign nationals on their boards. Yet they cited
global experience as one of the most important factors in terms of selecting board
members.

Managers that understand and take advantage of diversity into their strategy will
have a distinct competitive extremely important in developing strategy. In work
done by Watson and Wright (2000), the authors looked into the country of origin
effect.

This “made in” concept as to do with the attitudes and buying behaviors of
consumers for foreign made goods. This is also known as ethnocentrism. Research
has proved that the “made in” concept has as a very strong influence on buying
behaviors. These behaviors can override other more practical factors such as brand
name, quality, or price.

A tactic that is commonly employed is to market the country of origin information

with the product. For example, a Chinese American may have a preference for
Chinese manufactured products over US manufacturing products.

Shared Value Porter and Kramer (2011) discuss the concept of the shared value
which focuses n improving the connections between society, the economy as well
as corporate growth and profitability. The economic collapse of the last decade
contributed to frustration with corporations as companies in the banking sector
were largely blamed for causing the failed economy though risky lending practices.

Firms have begun to realize that social harms and weaknesses frequently create
internal costs for the firm in wasted energy costs and costly accidents. As a result
many large firms have begun to embrace the concept of shared value and have
started to see some rewards in terms of public opinion and profitability. Companies
and their immunities are intertwined since companies need the consumers and the
raw materials from their communities, while the people in the communities need
the wages and opportunity offered by the firm.
This interdependence or shared value has the potential to unlock the next wave of
growth and innovation for companies if incorporated into their strategic plans.

Regulation and the Porter Hypothesis No review of strategic management would

be complete without a discussion on the impact of regulation on business.
Regulation has become an increasing concern for business leaders as they develop
strategy and decide on how best to allocate resources. There are also political
implications since government regulators have the power to influence market
dynamics between rivals as well as between countries.

Generally economists, politicians, and business leaders see increasing regulation as

an economic challenge which erodes global competitiveness. But Porter (1991)
argued that well designed regulation could be a competitive advantage if properly
managed. This concept is frequently referenced in the literature as the Porter
Hypothesis.

Researchers frequently use the Porter Hypothesis to help understand the links
between regulation, competitiveness, and innovation. Porter (1991) and Class van
deer Lined argued that pollution was an example of wasted resources and that by
reducing pollution, productivity could be improved. They felt that properly
designed environmental regulation would help drive innovation and would more
than offset the additional cost of implementing regulation. Porter brought these
concepts to mainstream businesses and policy and has revolutionized how strategic
management deals with the impact of environmental or other regulation. Porter et
al (AAA) explained five reasons why they thought innovation offsets any negatives
created by regulation.