The Challenges in the Form of Competition

STRATEGIC
MANAGEMENT

1
Executive Summary
Business models have changed and the challenges in the form of competition have increased
for every firm. This report will discuss the three strategic management approaches that allow
an organisation to do strategic management in a better manner. Dynamic capabilities
approach is one of the best approaches that allow an organisation to make changes in the
capabilities of the organisation on the basis of the need of the organisation evaluating both
current and future need of the organisation. This report also illustrates about the Resource
based view approach where it was found that in this approach organisation needs to evaluate
the resources of the firm according to the requirements they have and the challenges that they
may encounter in achieving their future objectives. In the last section of the report there will
be description about the Agency theory where it can be said that company will look at the
making the strategies related to different business aspects.

2
Contents
Executive Summary...............................................................................................................................1
Introduction...........................................................................................................................................2
Three approaches to strategic management...........................................................................................2
Dynamic capabilities.........................................................................................................................2
History...........................................................................................................................................3
Benefits..........................................................................................................................................3
Implementation issues...................................................................................................................3
Limitations.....................................................................................................................................4
Example of the firms.....................................................................................................................4
Resource based view approach..........................................................................................................4
History...........................................................................................................................................5
Benefits..........................................................................................................................................5
Implementation issues...................................................................................................................5
Limitations.....................................................................................................................................5
Companies utilising this approach.................................................................................................6
The Agency Theory...........................................................................................................................6
History...........................................................................................................................................6
Benefits..........................................................................................................................................7
Implementation issues...................................................................................................................7
Limitations.....................................................................................................................................7
Organisation utilising Agency theory............................................................................................7
Conclusion.............................................................................................................................................8
References.............................................................................................................................................9

3
Introduction
Strategic management plays an essential role in the development of the organisation hence
the companies that selects the best approach to strategic management are able to deal with the
challenges confronting them in a better manner. The leaderships and the worker’s skills are
playing a greater role in this. Every company has certain objectives to achieve and
accordingly they must make their strategic approach in accordance to it (Eden and
Ackermann, 2013). Different companies are using different approaches as per their need. It is
the relationship between different stakeholders and the ability of the organisation to
accumulate strategic resources that helps an organisation in successful implementation of
these approaches. This is necessary as many kinds of challenges are faced by the
organisations at the time of implementation of approach. In this regards three major
approaches can be used in the organisation for using strategic management.
Three approaches to strategic management
Different approaches which can be utilised by different companies on the basis of their
requirements. Three approaches that will be used here are Dynamic capabilities, Agency
theory and Resource Based View.
Dynamic capabilities
This approach is considered to be one of the most effective approaches in the modern day
business. This approach has impact on the stakeholders and helps the company in managing
these people in a proper manner. In the time when the business environment is changing at
faster rate, it has become critical for the organisations to adopt this approach so that their
capabilities remain on the better side. It is an approach that is significant in terms of
innovation based rivalry, price/performance rivalry and inventive destruction of the current
strengths of the organisation and the enhancing returns (Vogel and Güttel, 2013). It is an
approach that is understood as the organisation’s ability to intentionally adjust the firm’s
resource base. The major assumptions of this approach is that basic strengths of the
organisation is used for bringing short-term competitive positions which can be altered in the
gains that can be long term.

4
History
Paper named Dynamic Capabilities and Strategic management published in the year 1997
first stated this approach. Amy Shuen, Gary Pisano and David Teece were the creators of this
approach. It was an approach that was generated as strategy and has the capability to
integrate, shape and redesign internal and external abilities of the firm so that transformation
in the business environment can be handled in a better manner (Hodgkinson and Healey,
2011). Winter and Nelson in their published book An Evolutionary Theory of Economic
Change linked the development of the dynamic capabilities approach to resource-based view
of the firm.
Benefits
Multiple purposes can be achieved through the utilisation of this approach especially due to
the benefits that this approach gives to an organisation. The first major benefit comes from
the fact that this approach pushes firms to regularly improve their capabilities. It permits the
firms to look at the current strength of theirs and resources that will be needed in future in
order to manage future of the business in a better manner. For example if the company needs
to increase their marketing visibility they will have to work on the digital technology
implementation which will ensure that in future the smoothness remains in the business
processes (Kindström, Kowalkowski and Sandberg, 2013). This has benefit that it allows an
organisation to improve its position in the market with the help of capabilities they have and
making them ready for any kinds of challenges that can come in the future.
Implementation issues
The implementation issues that will be faced under this approach are related to the fact that
this approach calls for changes at regular intervals which will require change management to
be implemented in a better manner. Issues such as regular cash flow are ensured so as to
arrange new resources for improving the capability of the organisation (Barreto, 2010).
Companies must make sure that they are taking use of advanced technology in their
operations as technology provides flexibility to the work process but the challenge is that
implementation of these technologies charges a lot. In the manufacturing industry since the
processes cannot be changed on the regular intervals because of many kinds of complexities
hence they face challenges in implementation.

5
Limitations
Four dimensions are attached with any firm and hence implementation of this approach can
be understood as a multi-dimensional construct. Every dimension needs an equal analysis.
Companies need to have resource based changes that could help a firm in taking decision
related to enhancing the capability of the firm and making strategies that will help in
improving the flexibility in the organisation (Teece, 2012). This approach does not tells about
the actual decisions that a firm needs to make changes but it does not explain that what kinds
of changes are required in the organisation and at what time as well as the things that a firm
should do to improve on this situation. It is also the fact that firm might be working as per the
expectation and the objectives they aim to meet but still it is necessary that there is a need of
developing capabilities in order to ensure the firm’s growth in the long term.
Example of the firms
Several approaches are utilised by different organisations as per their needs. This approach is
highly tilted towards the abundance of the resources and with ease with which they can avail
their resources. This is an effective approach as it is done after environmental audit of the
organisation. Apple and Microsoft are the two major companies that are working on this
approach and the major tool that they have selected for the dynamic capability approach is
innovation. This is because innovation in different aspects of the business improves the
capabilities of the firm at regular intervals (Katkalo, Pitelis and Teece, 2010).
Resource based view approach
This approach concentrates on the power of resources in terms of increasing the strategic
competencies of the organisation. It is used for the purpose improving the resource quality so
that maximum benefits can be availed through it (Kraaijenbrink, Spender and Groen, 2010).
In the sustainable management of the operations and improvement in the resource quality the
use of RBV can be very much beneficial. It is an approach which can be used in multiple
disciplines that includes supply chain management, marketing, ethics, law and general
business. This approach suggests thinking about the resources that they have and evaluate the
fact that all the resources are not equal and neither all of them has capability to give
sustainable competitive advantage to the firm. In the time when the competition has gone cut-
throat this type of approach can be effective. It is the resource capability of the firm that
decides whether the firm will be able to have competencies that cannot be easily substituted
or imitated. This approach is supported by the learning strategies as it will help an
organisation in developing, fostering as well as safeguarding the primary competencies of the

6
firm. This approach can give competitive advantage to the firm and allows them to explore
the resources so that they can avail the external opportunities that are available to them.
History
This approach’s development started from the year 1930s. Barney in his article “Firm
resources and sustained competitive advantage” was the major contributor in the
development of this approach. In the initiatives related to the strategic planning, this can be
an effective approach that can be used by the firm. With the help of isolation mechanism the
resources needs to be protected (Locket and Wild, 2014).
Benefits
There are different kinds of benefits of utilising this approach in all operational areas. In this
approach there is creation of the resource portfolio that concentrates on transforming their
weaknesses into their strength with the help of development of new product market. Strategic
tactics can be used in this approach where resources will be converted into the primary
sources of returns (Barney, Ketchen Jr and Wright, 2011). This approach eyes skill related to
the management as well as development of capabilities associated with information and
administrative processes as a feature that is unique and the way in which it assists in
attainment of monetary rents. It also assists about the fact that whether the resources are rare,
valuable, imitable or substitutable or not. The areas in which it has a direct impact are
service, price, and innovation as well as tailored positioning (Jiang, et al. 2012).
Implementation issues
The implementation issues that will be faced by the company that is using this approach is the
fact that company needs to regularly improve their resource base on the basis of the external
and internal audits done by the company. If the research is not so good then there is higher
chance that resource will get wasted and hence higher cost will be associated with utilisation
of this approach. In the implementation of this approach there are challenges such as regular
audit of the resources has to be done which is again not easy (Kozlenkova, Samaha and
Palmatier, 2014).
Limitations
There are several limitations as well that are associated with this approach. It is not always
applicable and is heterogeneous in nature and it is based on the preferences of the economists.
The role of workforce is also evaluated under this approach (Nonaka and Toyama, 2015).
However it is an intangible asset hence it is not easier for the accountants to find the overall

7
value of the firm by adding the value of the workforce that exist within the firm. The
accountants are not usually comfortable with the controls that resist the resource
misappropriation which is more of a property of the stakeholders. In this approach there is no
mentioning of the idea that suggests about the role of the resource market.
Companies utilising this approach
Among the several firms, BMW and Honda are the two firms that utilises this approach for
gaining the competitive advantage in the market. BMW utilises it for redesigning their value
chain while Honda uses it for the enhancement in the quality. Both the companies are using it
for the purpose of improving their core competencies especially in the areas like
improvement in the skills of the individuals on the regular basis and improvement in the
sustainable development features that improves the capability of the organisation (Trkman,
2010).
The Agency Theory
This is a strategic management approach in which one person also known as an agent acts on
the behalf of other person known as principle in order to achieve the desired goals of the
company. Agents act as an advance that works for both their own as well as organisational
interest. There must be balance between the interests of both which could help in achieving
the desired objectives. This makes the role of agents in the strategic development more
critical (Wheelen, et al 2010). This approach suggests that an organisation is often
characterised through a network of both implicit and explicit contracts associating both
stakeholders and the management. This approach also concentrates on improving the synergy
between the stakeholders and the management for achieving the common goals of the
company. It is a central approach to managerial behaviour of the organisation.
History
Agency Theory was first developed back in the year 1976 by the researchers named Jensen
and Meckling. In this they stated that theory of how the governance of firm is based on the
conflicts of interests among the firm’s owners, major providers of debt finance and their
managers. This theory was later-on utilised by many researchers in different areas of
economics and finance. For example Stephen Ross is responsible for the generation of the
economic theory of agency. Parallel to this Barry Mitnick constructed institutional theory of
agency however the basics of the approach in all the field areas remained the same (Lan and
Heracleous, 2010).

8
Benefits
The major benefit of using this approach is the fact that this approach explains the behaviour
of both management and its stakeholders which is necessary for making interrelationship
between the two which is necessary for improving the performance. It also makes the
strategic implementation process simpler. This approach also underlines the accountability by
setting up the correlation between opportunistic behaviour (Van Puyvelde, et al 2012). It also
helps in retaining the employees and managers even in the time of their difficulties. Due to
this they are easily able to make the plans for different operations within the firm. Ethical
issues also do not arise due to the implementation of this approach.
Implementation issues
There are several types of implementation issues that can be faced by the organisations at the
time of implementing these issues. The most basic issue in this regards is the fact that most of
the companies have multi-cultural employee base hence it becomes difficult for the
organisation to manage effective relationship between manager and the stakeholders
especially when the manager is an expatriate manager (Nyberg, et al 2010). There is also
implementation issues related to over dependency on each other. It is due to this that taking
this approach might enhance the time of strategic management or strategy development in the
organisation. It also creates conflicts between the stockholders and creditors over the power
distribution issues.
Limitations
There are several limitation associated with this agency theory. First is the fact that agents are
not always able to think about interest of other stakeholders or the company rather their more
focus is on their own interests. This is dangerous for the organisation in the long run. The
external strategies are developed accordingly however in the development of the internal
strategies this can be a bigger problem as some stakeholders can get affected by these
limitations. For the public sector organisations this approach is not very efficient to large size
of the management or board of directors (Puffer and McCarthy, 2011).
Organisation utilising Agency theory
Hollinger International a media company from Canada is using this approach as a base for the
development of the strategies within the organisation. In this Conrad Black takes final
decisions on their strategy formulation. This is the major reason why they have been able to
manage a close relationship with all their stakeholders due to which this company at such a

9
fast speed become the third-largest media empire all across the globe (Block, 2012). However
in the long term due to ineffective use of this approach the company failed to avail the
success which they could have easily done.
Conclusion
From the above based report it can be concluded that different organisations utilises different
kinds of strategic management approaches in order to achieve the desired benefits. In this
regards the role of the leadership and other stakeholders is highly important. The resource
based view, agency theory and dynamic capabilities are three major approaches that are
highly effective. Dynamic capabilities approach is a beneficial approach in the time when the
business environment is changing at much faster rate. On the other hand Agency theory
approach is critical for the relationship management between stakeholders and the managers.
While the resource based view approach concentrates on development and evaluation of the
resource of the organisation that will help in their strategic management in the long term and
will also help in reducing the challenges that are faced by the companies. In the viability
analysis it can be said that in the modern times when the business environment is changing at
higher pace the dynamic capabilities approach that is best suited for the organisations
however it depends on the objectives that firm aims to achieve.

10
References
Barney, J.B., Ketchen Jr, D.J. and Wright, M., 2011. The future of resource-based theory:
revitalization or decline?. Journal of management, 37(5), pp.1299-1315.
Barreto, I., 2010. Dynamic capabilities: A review of past research and an agenda for the
future. Journal of management, 36(1), pp.256-280.
Block, J.H., 2012. R&D investments in family and founder firms: An agency
perspective. Journal of Business Venturing, 27(2), pp.248-265.
Eden, C. and Ackermann, F., 2013. Making strategy: The journey of strategic management.
Sage.
Hodgkinson, G.P. and Healey, M.P., 2011. Psychological foundations of dynamic
capabilities: Reflexion and reflection in strategic management. Strategic management
journal, 32(13), pp.1500-1516.
Jiang, K., Lepak, D.P., Hu, J. and Baer, J.C., 2012. How does human resource management
influence organizational outcomes? A meta-analytic investigation of mediating
mechanisms. Academy of management Journal, 55(6), pp.1264-1294.
Katkalo, V.S., Pitelis, C.N. and Teece, D.J., 2010. Introduction: On the nature and scope of
dynamic capabilities. Industrial and corporate change, 19(4), pp.1175-1186.
Kindström, D., Kowalkowski, C. and Sandberg, E., 2013. Enabling service innovation: A
dynamic capabilities approach. Journal of business research, 66(8), pp.1063-1073.
Kozlenkova, I.V., Samaha, S.A. and Palmatier, R.W., 2014. Resource-based theory in
marketing. Journal of the Academy of Marketing Science, 42(1), pp.1-21.
Kraaijenbrink, J., Spender, J.C. and Groen, A.J., 2010. The resource-based view: A review
and assessment of its critiques. Journal of management, 36(1), pp.349-372.
Lan, L.L. and Heracleous, L., 2010. Rethinking agency theory: The view from law. Academy
of management review, 35(2), pp.294-314.

11
Lockett, A. and Wild, A., 2014. Bringing history (back) into the resource-based
view. Business History, 56(3), pp.372-390.
Nonaka, I. and Toyama, R., 2015. The knowledge-creating theory revisited: knowledge
creation as a synthesizing process. In The essentials of knowledge management (pp. 95-110).
Palgrave Macmillan, London.
Nyberg, A.J., Fulmer, I.S., Gerhart, B. and Carpenter, M.A., 2010. Agency theory revisited:
CEO return and shareholder interest alignment. Academy of Management Journal, 53(5),
pp.1029-1049.
Puffer, S.M. and McCarthy, D.J., 2011. Two decades of Russian business and management
research: An institutional theory perspective. Academy of Management Perspectives, 25(2),
pp.21-36.
Teece, D.J., 2012. Dynamic capabilities: Routines versus entrepreneurial action. Journal of
management studies, 49(8), pp.1395-1401.
Trkman, P., 2010. The critical success factors of business process management. International
journal of information management, 30(2), pp.125-134.
Van Puyvelde, S., Caers, R., Du Bois, C. and Jegers, M., 2012. The governance of nonprofit
organizations: Integrating agency theory with stakeholder and stewardship theories. Nonprofit
and voluntary sector quarterly, 41(3), pp.431-451.
Vogel, R. and Güttel, W.H., 2013. The dynamic capability view in strategic management: A
bibliometric review. International Journal of Management Reviews, 15(4), pp.426-446.
Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2010. Strategic
management and business policy. Upper Saddle River, NJ: Prentice Hall.