Posted: September 28th, 2021

Exploring Strategic Management Theories and Their Application Across Corporate, Business, and Operational Level

Introduction
Strategic management involves the construction and implementation of major aims and objectives taken by an organisation’s managers to represent the views of the owners. This process ensures that the organisation aligns its goals with the expectations and interests of its stakeholders. It is usually based on the consideration of resources, and on an assessment of the internal and external factors affecting the organisation (Nag, et al., 2007). These factors can include market trends, technological advancements, and organisational strengths. It is an incredibly important factor for company owners to take into consideration as it is directly related to the success of an organisation. A well-executed strategic management plan can significantly enhance a firm’s long-term profitability and market position.

This report will explore the three theoretical approaches to strategic management: resource-based view, market-based view, and I/O view. These approaches provide distinct lenses through which organisational success can be evaluated and pursued. Furthermore, it will also investigate three types of strategy, which are corporate strategy, business strategy, and operational strategy. Each type operates at a different level of the organisation, contributing uniquely to its overall objectives.

Resource-Based View
The resource-based view to strategic management “provides an explanation of competitive heterogeneity based on the premise that close competitors differ in their resources and capabilities in important and durable ways” (Helfat & Peteraf, 2003, p. 997). This perspective shifts the focus from external competition to internal strengths. Furthermore, the resource-based view has become one of the most prominent and influential theories in management. Its widespread adoption stems from its practical applicability across various industries. This is because it aspires to explain the internal resources that an organisation can utilise to gain a competitive advantage (Kraaijenbrink, et al., 2009). By leveraging unique assets, firms can differentiate themselves effectively. The central theme of a resource-based view to strategic management is that for a firm to achieve sustained competitive advantage it must acquire and control a wide range of resources and capabilities (Barney, 2002). These resources must align with the firm’s long-term strategic goals to remain relevant. Although the resource-based view appears to be an incredibly appealing technique to use, it has been extensively criticised. Critics argue that its assumptions may not hold in rapidly changing environments.

The various criticisms of the resource-based view can broadly fall under six main categories. Understanding these critiques helps refine its application in practice. These are (Kraaijenbrink, et al., 2009):

No managerial implications: The resource-based view tells managers that certain resources, valuable, rare, inimitable, and non-sustainable (VRIN), should be obtained. However, it doesn’t give feedback on how managers should go about obtaining these resources (Conner, 2002). This lack of guidance can leave managers uncertain about actionable steps.
Implies infinite regress: Many theorists critique the resource-based view because it will lead firms into an infinite loop of endlessly searching for the best resources. Collis (1994, p. 148) states “a firm that has the superior capability to develop structures that better innovate products will, in due course, surpass the firm that has the best product innovation capability today…”. This cycle can divert focus from current operational needs.
Applicability is too limited: Conner (2002) believes that the resource-based view can only be adopted by large firms who have a lot of market power. This alienates many smaller firms from being able to benefit from the success that a resource-based view can hold. Smaller entities may lack the scale to leverage this approach effectively.
Sustained competitive advantage is not achievable: The resource-based view is focused on sustaining competitive advantage. However, competitive advantage cannot really be sustained because “Both the skills/resources, and the way organizations use them, must constantly change, leading to the creation of continuously changing temporary advantages” (Fiol, 2002, p. 692). This dynamism challenges the theory’s core promise of longevity.
Not a theory of the firm: Most academics agree that the resource-based view is not a theory of the firm, but with some turning it into a critique. As the resource-based view does not take into account operational boundaries, values, internal structure, or asset ownerships, it cannot be a theory of the firm (Dosi, et al., 2008). Its scope is thus seen as incomplete by some scholars.
Definition of resource is unworkable: Many definitions of resources are extremely broad, and if all were taken account then anything of substance to a company would be considered a resource. As the resource-based view does not take into account the different definitions and types of resource, it is hard to apply to specific situations (Kraaijenbrink, et al., 2009). This vagueness complicates practical implementation.
Market-Based View
This perspective focuses on factors “outside the firm on the markets in which it competes”. It contrasts with internal-focused theories by emphasizing external opportunities. Furthermore, the market-based view states that “the sources of value for the firm are embedded in the competitive situation characterizing its external product markets” (Makhija, 2003, p. 437). Firms must therefore adapt to market conditions to thrive. This basically means that a firm’s sources of market power are a contributing factor to the organisation’s performance. Positioning within the market can determine profitability levels. Most academics highlight three main sources of market power, these are (Grant, 1991):

Monopoly: If a firm has market power in the form of a monopoly then they should expect exceptional business performance. This is because they will be the only company operating within a market, and can dictate the pricing of their products at free will. Such control allows for significant profit margins.
However, they will also be susceptible to new companies penetrating the market. Emerging competitors can disrupt this dominance over time.
Barriers to entry: For a company operating as a monopoly they will want to impose strict barriers of entry to try and maintain control of the market for as long as possible. Furthermore, this approach should be taken by most companies in a dominant market position, as they do not want other companies to penetrate the market and steal market share. High barriers protect existing profits.
These barriers could include regulatory requirements or high capital costs.
Bargaining Power: The more bargaining power a company has, in regards to both consumers and suppliers, the higher the expected performance would be. This is because if the firm has a lot of power over their suppliers and consumers, then the chances are that there are not many substitutes for the suppliers or consumers to choose between. Strong bargaining power reinforces market control.
This leverage can lead to more favorable contract terms.
Furthermore, because many academics suggest that business markets evolve very slowly (Geroski & Masson, 1987; Mueller, 1986), it means that market power does not erode rapidly, and a company can maintain it for a reasonably long time. This stability provides a predictable foundation for planning. However, even if the market were to dramatically change, a company can utilise their current market power to cushion the effects of any detrimental actions that may occur. Strategic flexibility remains key in such scenarios.

Industrial/Organisation View
The organisation view on strategic management focuses on how an organisation chooses which industries to operate. This decision shapes the firm’s competitive landscape significantly. It suggests that if an industry is performing exceptionally well, then a business can enter that market and reap substantial financial benefits (Chin, et al., 2003). Industry attractiveness thus becomes a primary consideration. It is centred on Porter’s Five Forces (1980), as it analyses the different modes and restrictions of entry into a market. This framework provides a structured approach to industry analysis.

Makhija (2003) takes the view that the I/O view is about manipulating power asymmetries and trying to develop market power. It does this by attempting to minimise the impact of Porter’s Five Forces, such as industry rivals and threat of new entrants. Controlling these forces can enhance a firm’s position. Furthermore, an I/O view would view market power as a substantial defence against new entrants, and that the industry can have significant impacts on competitive advantage, not so much the market or the organisation. Industry structure is seen as a dominant influence. It is a relatively outdated view of competitive advantage, with the resource-based view and market-based view being preferred by most academics and corporations. Modern strategies often integrate multiple perspectives for better outcomes.

Corporate Strategy
Michael E. Porter (1987, p. 1) defines corporate strategy as the concern as business as on “how to create competitive advantage in each of the businesses in which a company competes”. This broad scope ensures alignment across diverse business units. In essence, corporate strategy concerns every facet of the business, to add up to more than the sum of its business unit parts. It aims to create synergy across the organisation. Furthermore, Porter (1987) outlines four generic strategies that exist at a corporate level. These strategies provide a roadmap for achieving overarching goals. These are:

Portfolio Management: This is a corporate strategy that is in use by most organisations. It is primarily based on a diversification strategy through acquisition. This approach spreads risk across multiple sectors.
Although acquisitions can be in a completely new market, corporate managers will often limit the differences to focus their own personal expertise. Furthermore, the acquired firms should run autonomous, with teams focusing on their own work and being rewarded based on unit results. Autonomy fosters accountability within units.
This structure simplifies oversight for corporate leaders.
Restructuring: This is quite dissimilar to portfolio management, as it involves the complete restructuring of businesses. A corporate manager will usually acquire a company with “unrealised potential” and then seek to actively review and restructure the business operations. Such interventions aim to unlock hidden value.
This strategy benefits from underperforming companies that are at threat of going into liquidation. When well implemented, the restructuring strategy offers many benefits, it is a cheap mode of acquisition and still leaves a lot of freedom for development. It can turn struggling firms into profitable entities.
The turnaround can also boost investor confidence.
Transferring Skills: The previous two strategies both rely on the acquisition or restructuring of companies and leaving them to operate autonomously. However, a transferring skills strategy seeks to build interconnected relationships between each business unit of the corporation. Synergy is the goal here.
However, sometimes business units will not synergise well together and no matter how hard a corporation tries, the skills cannot be transferred. This can prove costly and timely for an organisation. Failed integration efforts can drain resources.
Careful planning is needed to avoid such pitfalls.
Sharing Activities: The final strategy developed by Porter (1987) is via a sharing activities strategy. This strategy is a blend of the three previous strategies, as it leaves business units to act autonomously, but will seek to share a portion of activities between them. Collaboration enhances efficiency.
This could be in the form of production, supply chain, or distribution. Furthermore, this strategy is becoming more and more prominent as sharing often enhances competitive advantage for a business by lowering costs. Cost savings can be reinvested strategically.
Shared activities also strengthen inter-unit relationships.
As all four strategies have a variety of benefits, a corporation must decide on what strategy is most beneficial to follow. This decision hinges on the firm’s specific goals and market context. In general, the sharing activities strategy will be very suitable, as it is a cheap strategic choice, potentially lowering costs, and maintains the autonomy between business units. It balances independence with collaboration effectively. However, if a company is looking for rapid strategic growth then they may just build up a large portfolio of acquisitions. Unfortunately, this does come with a substantial amount of risk and resource usage. Rapid expansion requires careful risk management.

Business Strategy
A business strategy is fundamentally the way in which an organisation will set out to achieve any designated aims or objectives. It provides a clear direction for mid-level management and employees. Furthermore, a business strategy will typically cover a period of around 3-5 years and encompasses three generic strategies. These strategies guide the organisation through various growth phases. These are: growth, globalisation, and retrenchment. Growth and globalisation both look at how an organisation can expand their operations, either domestically or internationally. Expanding markets can increase revenue streams significantly. On the other hand, retrenchment is a defensive strategy, and looks into ways in which an organisation can reduce their operations to focus on what they do best (BCS, 2015). This refocusing can strengthen core competencies.

As with the other strategies, business strategy is still meant to give an organisation competitive advantage. It bridges corporate goals with operational execution. There are a variety of ways in which a business strategy can achieve this, including lowering prices or product differentiation. Business strategy is significantly different to corporate strategy in this regard, as it relates to the finer details of operation and gives individual employees a say on decision making. Empowering employees can boost morale and innovation.

Functional/Operational Strategy
Strategy in an operational context is “essentially about how the organization seeks to survive and prosper within its environment over the long-term” (Barnes, 2007, p. 24). It focuses on the day-to-day execution that supports higher-level goals. Furthermore, Slack, et al., (2004) outline five key attributes that an operational strategy will try and achieve. These attributes ensure operational efficiency aligns with strategic objectives. These are:

Cost: The ability for an organisation to produce at a low cost. This can make products more competitive in price-sensitive markets.
Quality: The ability for an organisation to produce within specification and with minimal errors. High quality builds customer trust and loyalty.
Consistency in quality can also reduce waste.
Speed: The ability for an organisation to produce quickly and meet consumer needs and demands, such as offering a short lead time between when a customer orders a product and when it gets delivered. Speed enhances customer satisfaction.
Rapid response can differentiate a firm in fast-paced markets.
Dependability: The ability for an organisation to deliver their products in accordance with any promises made to the consumer. Reliability fosters long-term relationships.
Keeping promises strengthens brand reputation.
Flexibility: The ability for an organisation to be able to change their operations at any given time. This can include changing volume of production or the time taken to produce. Adaptability allows firms to pivot as needed.
Flexibility can mitigate risks from market shifts.
If a company can perform exceptionally well in one or more of these factors, then it allows them to pursue a strategy that uses the factor as a competitive advantage. Barnes (2007) provides a table highlighting the different competitive strategies that a company can pursue dependent on where they are exercising efficient operations. Focusing on strengths sharpens competitive edges.

Excellent Operations Performance in… Gives the Ability to Compete on…

Cost: Low Price
Quality: High Quality
This focus can attract premium market segments.
Speed: Fast Delivery
Dependability: Reliable Delivery
Dependability ensures repeat business.
Flexibility:
Frequent new products/services
Wide range of products/services
Changing the volume of product/service deliveries
Changing the timing of product/service deliveries
A flexible approach can meet diverse customer needs.
Furthermore, it is highly unlikely that an organisation will be able to act proficiently at every one of the five factors mentioned above, so choosing one to excel in is a preferred method. Specialisation avoids spreading resources too thin. If a company were to try and focus on all five factors they will likely cause confusion and actually lose their competitive edge. This concept was proposed by Skinner (1969) and is referred to as the ‘trade-off’ strategy. It basically means that a company can ‘trade-off’ performance in one facet of their operations to perform exceptionally well in another. Strategic clarity is essential for success. Operations can play a fundamental role in strategic decision making, and a company must be clear on where they are performing well in order to market this as a competitive advantage. Effective marketing amplifies operational strengths.

Conclusion
There is not really an optimum strategy to pursue for an organisation, as it is dependent on a variety of external factors that could be specific to the organisation. Each firm must tailor its approach to its unique circumstances. Careful planning and preparation must be conducted before any organisation commits to following a certain strategy, otherwise they may risk losing substantial resources. A misstep could undermine long-term viability.

Furthermore, the resource-based view and market-based view both have their merits, with a combination of the two probably being the most optimum method. Blending these approaches leverages both internal strengths and external opportunities. An organisation should order their resources to establish a strong market power within an industry. Once this market power has been attained, corporate level members can begin filtering down aims and objectives that can be accomplished by business and operational strategies. This cascading effect ensures alignment across levels. Strategic choice involves heavy integration throughout all levels of the business, as strategies can be implemented by a number of different departments, all of which offer their own benefits to the overall aims and objectives of the organisation. Collaborative execution maximises overall impact.

Bibliography
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Barney, J. B., 2002. Gaining and Sustaining Competitive Advantage. s.l.: Prentice Hall.

BCS, 2015. Business strategy. [Online] Available at: http://businesscasestudies.co.uk/business-theory/strategy/business-strategy.html#axzz3bWvHhfHY

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Makhija, M., 2003. Comparing resource-based and market-based views of the firm: Empirical evidence from Czech Privatisation. Strategic Management Journal, 24(5), pp. 433-451.

Mueller, D. C., 1986. Profits in the Long Run. Cambridge: Cambridge University Press.

Nag, R., Hambrick, D. C. & Chen, M.-J., 2007. What is strategic management, really? Inductive derivation of a consensus definition of the field. Strategic Management Journal, 28(9), pp. 935-955.

Porter, M. E., 1987. From Competitive Advantage to Corporate Strategy, s.l.: Harvard Business Review.

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Topics Example:
“Exploring Strategic Management Theories and Their Application Across Corporate, Business, and Operational Levels”

References
Rumelt, R. P., 2011. Good Strategy/Bad Strategy: The Difference and Why It Matters. New York: Crown Business.

Teece, D. J., Pisano, G., & Shuen, A., 1997. Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), pp. 509-533.

Hill, C. W. L., Jones, G. R., & Schilling, M. A., 2014. Strategic Management: Theory: An Integrated Approach. 10th ed. Boston: Cengage Learning.