Strategic Management: Approaches and Their Implications Report

This report provides an overview of strategic management and its three key approaches: the stakeholder approach, the industrial organization (IO) approach, and the dynamic capabilities approach. The stakeholder approach emphasizes the importance of considering all stakeholders' need...Read More

Strategic management
Approaches to strategic management

Executive Summary
With the advent of increasing competition in every leading industry, various organizations are
adopting strategic marketing strategies in order to gain a competitive advantage in the industry of
operation. This style of management has changed the shape of management across various
organizations and has led to improved growth and maximized revenue for different firms. There
are various approaches to strategic management and different companies have adopted different
approaches depending upon the nature of their business, available expertise and existing
competition. This report has provided a brief introduction to strategic management as well as its
three leading approaches.

Table of Contents
Executive Summary.........................................................................................................................1
Introduction......................................................................................................................................1
Approaches to Strategic Management.............................................................................................2
Stakeholder approach...................................................................................................................2
Viability of the approach..........................................................................................................3
Suggested benefits....................................................................................................................3
Implementation issues..............................................................................................................3
Limitations................................................................................................................................4
Industrial organizational approach...............................................................................................4
Viability of the approach..........................................................................................................4
Suggested benefits....................................................................................................................5
Implementation issues..............................................................................................................5
Limitations:..............................................................................................................................5
Dynamic Capabilities approach...................................................................................................5
Viability of the approach:.........................................................................................................6

Suggested benefits....................................................................................................................6
Implementation issues..............................................................................................................7
Limitations................................................................................................................................7
Conclusion.......................................................................................................................................7
References........................................................................................................................................8

Introduction
Strategic management refers to efficient management of organization’s resources in order to
fulfill the strategic objectives of the business. Strategic management involves setting objectives,
allocating resources to these objectives, devising an action plan and ensuring that the
management rolls out strategies across the organization (Wheelen & Hunger, 2017). Strategic
management differs from traditional approaches to management owing to its tactical nature.
Decision makers of leading organizations consider external as well as internal environment while
strategizing the plan for the firm.
The essential purpose of strategic management is to ensure that companies are competitive and
stand out in the industry of operation (Rothaermel, 2015). This also involves internal and
external communications of the business so as to ensure transparent flow of information. The
advent of strategic management is seen in various aspects of different businesses. With the
increasing globalization, digitization and changing scenarios, it is important the organizations
also adapt themselves to the environment. Therefore the change in the strategic decisions of the
firm was imperative and largely recommended.
This discipline was originated in 1950s and among various contributors to the same, Peter
Drucker, Alfred Chandler and Igor Ansoff have played important roles (Grant, 2016). Over a
period of time, strategic management has grown and developed into a separate field of study.
Managers today are conducting various processes and adopting various strategies in order to
enhance their performance and market power. Businesses conduct SWOT analysis to analyze
their internal and external environment, PESTLE analysis is conducted to gain a deeper insight
about the operating industry of the business and similarly Michel Porter’s five force model

enables companies to gauge the competitiveness of the market. All these tools which are widely
used today are all gifts of strategic management. This has changed the face of organizational
management and has led to various organizations growing leaps and bounds and making a
significant mark on the industry of operation.
This report throws light on the importance of strategic management as well as three approaches
of the same. The approaches covered in this report are stakeholder approach, industry
organization approach as well as dynamic capabilities approach to strategic management. The
benefits, limitations, viability as well as implementation issues for all of them are discussed for
deeper understanding. Examples have been provided as and when required.
Approaches to Strategic Management
There are various approaches to strategic management and different companies adopt different
approaches. This is due to the different nature of businesses in different industries. No single
approach can be used for all the organizations due to the difference of resources, leadership and
culture of the business. The three important approaches to strategic management are as below:
Stakeholder approach
Freeman (1984) has been largely credited behind this theory and its inception. Stakeholder
management approach was also given by Ian Mitroff in his book ‘Stakeholders of the
organizational mind’ published in 1983. As the name denotes, this particular approach to
strategic management keeps all the stakeholders of the business in the center. Stakeholders of
any business includes all the people who are directly or indirectly related to the business. These
include customers, employees, investors, media personnel, government bodies as well as unions.

This approach ensures that the strategy development as well as performance assessment of any
business revolve around its’ stakeholder expectations (Tantalo & Priem, 2016). There are various
businesses who follow this approach and they believe that the success of any organization
depends on their stakeholders. If all the stakeholders of the business are truly satisfied and their
needs are appropriately fulfilled, then the growth and development of the business is inevitable.
The first step in this approach is to identify the exact needs of all the stakeholders, followed by
analyzing and strategizing how the business can work towards fulfilling those expectations
(Johnson, 2017).
Viability of the approach: The approach is currently adopted by various businesses and has
proved to be successful. However, it is difficult for the approach to be viable for every business
especially those with clashing stakeholder interests.
Suggested benefits: This approach has proved to be largely beneficial and effective for various
leading organizations today. Such an approach by any business enhances the goodwill and the
brand positioning of the firm. When the organization values its stakeholders then it builds a

relationship of mutual respect and the stakeholders in turn work for the benefit of the
organization.
Secondly, in the process of identifying the needs of the stakeholders and defining objectives of
the firm, communication among stakeholders improves and leads to transparency, effective flow
of information as well as trust (Weiss, 2014).
Lastly, a stakeholder approach to strategic management keeps the firm well aware in a 360
degree perspective and hence prevents the possibility of an unwanted or unforeseen risk to the
firm.
Implementation issues: Implementing any strategic management approach is largely difficult.
Stakeholder approach may be faced with the following issues:
 Stakeholders may have conflicting interests. Then it will be difficult for the firm to
formulate objectives and strategies which align all stakeholder expectations appropriately
(Minoja, 2012).
 Difficulty in communication is a major issue associated with stakeholder theory as it is
not always easy to be able to communicate with all the stakeholders and gauge their exact
expectations from the firm.
Limitations: The limitations associated with stakeholder theory are as below:
 First of all it is difficult to legitimately identify and list down all the stakeholders of the
company.
 According to analysts, competitors are also stakeholders of the firm. Yet, practically it is
difficult to focus on competitor expectations while formulating strategies of the business.

 No matter which strategies are applied, some stakeholders will always be benefitted more
than other stakeholders. This may often lead to conflicts (Verbeke & Tung, 2013).
 It is difficult for the firm to prioritize stakeholders in case of a conflict.
Industrial organizational approach
The industrial organizational approach of strategic management is based on economic theory.
This theory asserts that the external environment and factors affecting the firm are more
important than internal ones (Waldmen & Jensen, 2016). This is specifically true with the
objective of gaining competitive advantage in the industry. This approach asserts that the
organizational performance largely depends on the industry variables and those should be kept in
mind while devising organizational strategies. This approach helps firms in gaining a 360 degree
status of their external environment and strategies their future actions by keeping that in mind.
Such an approach is expected to help organizations maximize their revenues by gaining a deeper
insight on the industrial environment (Gupta, 2013). This approach is largely adopted by
pharmaceutical companies. For example, Glaxo Welcome produces a drug Zantac which is used
for treating ulcers and heartburn. The drug is sold at a significantly higher price as compared to
its manufacturing cost. This has been possible because Glaxo owns a large number of patents
that exhibits other pharmaceutical companies from manufacturing a similar drug. This approach
adopted by the company by taking advantage of the available information of its external
environment has helped the business increase generated revenues as well as earn a market
leadership.
Viability of the approach: This approach however is not entirely viable in the longer run. In the
above example also, it must be noted that Novopharma has won the permission from the US

federal court to manufacture a generic version of the drug. Therefore, it is important that
organizations weigh the benefits of the approach as well as its long term viability while
industrially approaching strategic decision making.
Suggested benefits: There are various benefits that are associated with the adoption of this
approach to strategic management.
 Increased awareness of external environment helps the firm analyze its strengths and
weaknesses and hence leads to improved growth (Shabanova & Ismagilova, 2015).
 Industrial environment approach allows the company to remain prepared for unforeseen
risks arising due to external environment.
 This approach assists firms in gaining a competitive advantage in the industry which
eventually leads to improved performance and enhanced brand value (Campbell, Coff &
Kryscynski, 2012).
 Such an approach assists businesses in enhancing their market power.
Implementation issues: In the process of adopting industrial organization approach to strategic
management, there are various issues that may be faced by the company. Firstly, it will be
difficult for the company to gather all the required information in order to be so deeply aware of
the industry and secondly it may not always be possible for businesses to possess all the
necessary resources to gain the competitive advantage after having all the information.
Limitations: This approach as well has a few limitations as given below:
 Lack of importance given to the internal stakeholders of the business may affect
performance of the firm.

 Increasingly available industry information and the quest to become market leaders may
lure businesses into unethical practices.
Dynamic Capabilities approach
Dynamic capabilities approach of any business is based on the idea that the firm is capable to
build, integrate and reconfigure its external as well as internal competencies in order to address
its changing environment (Teece, 2012). This approach underlines that a firm must be adaptive
to the ever changing business, economic, social or political environment that the business
operates in. The strategies adopted by the firm change with the change in the environment and
hence the organization becomes better prepared for unforeseen circumstances.
In the vividly changing scenario of the world, it is important that businesses can also become
flexible with their approaches. Hence such a strategy will enable the company to be prepared at
all times. No doubt, in order to accomplish the same, the business needs additional resources and
improved competencies. However, such an approach is largely adopted and recommended by
leading businesses. The two big examples of companies demonstrating dynamic capabilities are
Apple and IBM. They are both technological innovators and have consistently worked upon
improving their offering to suit the changing consumer needs.

Viability of the approach: The dynamic capability approach is largely viable and highly effective
in the changing business scenarios that exist today. The approach in fact is sure to lead the
organization to success in the future.
Suggested benefits: Given the speed with which the business environment changes, it is largely
beneficial to adopt and implement an approach which provides the firm with the needed
flexibility to suit the changing environment (Beske, 2012). The benefits of this approach are as
below:
 Such an approach provides the business a competitive advantage and hence leads to
improved performance.
 Dynamic capabilities approach leads to continuous innovation and hence improved
offerings (Peteraf, Stefano & Verona, 2013).
 Dynamic capabilities approach enhances firm’s goodwill and brand positioning.

Implementation issues: The biggest issue faced by the organization while implementing this
approach is the lack of resources. It is not always possible for the firm to obtain, sustain or
possess enough financial, technological or human resources so as to be able to consistently adapt
to the changing environment. The second issue faced is the inability or the inefficiency of the
firm to predict all the changes in the environment that is expected to impact the firm.
Limitations: the limitations associated with dynamic capabilities approach of strategic
management are as below:
 Inability of all the stakeholders of the organization to adapt to the changing strategies of
the business.
 Lack of availability of resources – technological, human, financial or knowledge.
Conclusion
Strategic management is the most empowering as well as disrupting change brought about in the
business world. It refers to the idea of tactically defining the company strategies in order to
accomplish well thought of objectives. Leading businesses today are adopting strategic
management approaches to improve performance, maximize revenues, enhance brand value and
ensure effective stakeholder returns (Hill, Jones & Schilling, 2014). Strategies are being adopted
in different functional segments of the business. These include human resource management,
operations management, financial management, risk management and stakeholder management.
The strategic nature of the policies and objectives adopted by the company are giving them an
advantage in the face of increasing competition in all leading industries. Every company adopts a

different strategy as it may deem useful. This report has explained the three leading approaches
to strategic management, their benefits, limitations as well as implementation issues.

References
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