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Strategic management and organisational success (Book Report Sample)

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A literature review on the key underlying theories on strategic management.

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Strategic management and organisational success: A literature review of key underlying theories
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Date of Submission: Strategic management and organisational success: A review of key underlying theories
Introduction
The pressure resulting from the forces of competition and globalization has been prompting firms to invest heavily in the attainment of competitive advantage and an improved performance against their competitors. The drive to attain a competitive position is based on strategic management. Strategic management defines a management approach through which firms seek to compete and be sustainable both locally and globally as well being able to persevere in the long term. Recardo (2011) defines strategic management as an approach in which the objectives of the firm are specified, policies and plans developed for accomplishment of these objectives, and resources allocated for implementation of these plans. In short, it is a carefully selected means of establishing a fit between the external environment (competition) and internal capabilities and resources (Ainuddin, Beamish, Hulland, & Rouse, 2007). It is therefore indisputable that achieving a sustainable competitive position is a challenge and demands an appropriate strategy to address. Strategic management has been credited for the growth of various firms including multinationals such as Toyota, Sony, Intel, Apple, Samsung and Microsoft among others. The strategy or road map towards the attainment of competitive advantage is better expounded by a variety of theoretical underpinnings. Strategic management theories seem to derive majorly from the contingency model, systems approach and information technology perspectives. Hence, the objective of this paper is to identify and discuss the key theories underlying the concept of strategic management.
The Dynamic Capability Theory
This theory is founded on the resource dependency theory. Dynamic capability theory emphasizes the manner in which resources are developed, integrated within the firm and how resources are realized (David, Michael, Jean-Luc, Joanna, 2010). Therefore, this theory addresses organizational abilities in terms of incorporation, building and reconfiguration of the internal and external competencies as a way of responding to the increasing complexity and uncertainty characterizing the ever-changing business environment. For managers therefore, it is important to note that firms ought to be able to constantly reconfigure their asset structures and invest in both internal and external transformation. The dynamic capability theory is thus a central component of strategic management. This is because the theory focuses on the ability of an organisation to survive the hostility characterizing modern business environment. In view of this theory, managers emphasize on environmental scans, market evaluation and fast reconfigurations and transformations in the wake of competition and build on the role of innovations.
The aspect of dynamics entails the ability to renew competences to remain relevant in an evolving business environment. Capabilities on the other hand stress on the major role played by strategic management in efforts to appropriately position, adapt, integrate and reconfigure both external and internal skills of the firm, resources as well as functional competences that position a firm to match the demands of the evolving environment (Teece, 2011). The theory therefore seeks to build on the potential of a firm to renew its resources in the context of increasing competition. It encompasses changing ordinary capabilities. Like the Management by Objective (MBO) approach, Dynamic Capabilities Theory emphasizes on the fit of an organisation to the challenges presenting in the business environment, basing on evolving portfolio of capabilities and activities. Unlike other theories though, dynamic capabilities theory is not just an inward-looking perspective of the firm and its strategy. MBO considers the internal resources, the Resource-Based Theory focuses on the external environment, but the Dynamic Capabilities Theory considers both internal resources and external environment and resources of a firm (David, Michael, Jean-Luc, Joanna, 2010).
The concept of dynamic capabilities entails both structures and processes that promote new combinations and the alignment of the behaviors of teams within the organization; these are vital in enhancing innovativeness and therefore productivity. Dynamic capabilities are vital for the evolving organisation and in the context of change. According to the dynamic capability theorists, organizational competencies constitute a certain type of organizational resources underpinned by processes or routines within the organization and these are built and not bought (Teece, 2011).
Dynamic Capability Theory builds on the ability of a firm to compete based on functional and strategic efficiency and not solely on price. Therefore, firm managers achieve dynamic capabilities functionally through improvements in labor relations, product(s), purchasing and marketing. Strategically, firms enhance their dynamic capabilities by rapidly investing in growing markets while also divesting from declining markets effectively and faster than competitors. According to Arend (2003), the hostility of the market place and the drive for profits builds an organisation’s functional and strategic abilities. It is these organizational capabilities then that offer an internal dynamic significant for the continued growth of the firm. Organizational capabilities stimulate managers to invest in distant markets as well as international markets. Organisational capabilities also facilitate diversification as seen in the innovation of products aimed at thriving in competitive markets other than the markets originally serve by the enterprise. A dynamic capability represents firms’ potential to maintain a position of dominance following changes in markets and technology (Teece, 2011). This is because both opening of new markets and technological advancement is associated with economies of scale as well as reduction in transaction costs. Dynamic capabilities explain the development and expansion of successful multi-enterprises. Economies of scale are based on the physical aspects of the production function. Therefore, based on throughput, the actual economies of scale and scope are derived from organisational capabilities.
Management by Objectives
Peter Drucker put the theory forward in 1954 (Adner & Helfat, 2003). MBO stipulates that all managers need to establish specific objectives that are to be accomplished in the future. Further, the theory challenges managers to continually review what can be done better for the purpose of organisational creativity and vitality. The theory has been continually developed since its inception. MBO is a system that allows the management in consultation with subordinates to do reviews of the processes and set specific objectives that are to be achieved in a given time scale jointly. The theory is based on a “SMART” approach; where specific, measurable, achievable, relevant and time-based (SMART) objectives are set (Ma, 2000). SMART thus represents strategy in management. Subordinates are held responsible for the accomplishment of these objectives. On the contrary, the absence of MBO in an organisation implies that all the objective setting and planning activities are passed downwards from one management level to another. Subordinates only receive directives of what to do and what is expected of them. MBO emphasizes on the contribution of both subordinates and managers towards specific objectives, measures of achieving the objectives and time allocations for every task. Everyone is therefore committed to the process. Appraisals are conducted at the end of the specified time and rewards or punishments follow. Unlike, other theories of strategic management, MBO allows for the contribution of the subordinates towards the common goals of the firm (Raduan et al., 2009). This theory of strategic management is also quite structured in its approach. Further, compared to other theories, MBO can be a very formal management approach in some organizations in which it encompasses precise review schedules, predetermined evaluation techniques.
While MBO theory leads to strategic growth like other theories, it particularly supports strategic management by focusing the management’s attention towards the achievement of greater results, emphasizing on commitment from all organisational members and enhancing a systems thinking (Flint & Van Fleet, 2005). MBO has had great implications for the strategic growth at Hewlet-Packard (HP). As early as 1957, HP was able to set specific objectives and has since been improving on its MBO approaches, with increasing involvement of all organisational members. As of 2010, the company was ranked ninth in the Fortune five-hundred ranking (Recardo, 2011).
Chaos Theory
Chaos theory is based on the study of complex, dynamic and non-linear systems (Raduan et al. 2009). Unlike other theories of strategic management, chaos theory has been developed and applied in other fields including social sciences, mathematics and fluid dynamics. Most recently, the theory has found relevant and growing application in strategic management.
Under Chaos Theory, an industry is conceptualized as a complex, dynamic and non-linear system. Interaction occurs across firms as well as between firms and other actors in the environment such as financial institutions and labor. According to Yu and Cannella (2007), these interactions are strategic in nature since any activity by an actor puts into perspective the possible reactions of the other actors; this signifies interdependence. The growing interest in the application of this theory in strategic man...
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