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Benefits of Strategic Management for Competitive Advantage in the Market

3673 words (15 pages) Essay in Management

08/02/20 Management Reference this

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APPLIED MANAGEMENT

Strategic Management

The theory, conceptual framework, and practice of strategic management have developed to become an important facet in the modern literature of organisational management, especially in this era because of an obvious reason, which is the complexity, unclear, and dynamic nature of the existing business environment and corporate business. The same occurrence has developed to become an issue of concern to various professionals in the business field and scholars of the same. Therefore, the aim of this article is to present an outline of strategic management, with concentration on its theory, notions, and how it can help an organisation attain a competitive advantage over its opponents in the market. The subsequent sections will conduct an assessment of the appropriate literature and the link between this literature and strategic management and competitive advantage from recourse- based model on the firm that will be identified in the second section of this paper. The study established that resource-based framework was among the major strategic theories that can help in explaining organisational conducts, and it also forms a portion of the broader management model family, which has progressed to satisfy the administrative requirements of current corporations and the corporate environment within which the businesses function. Examining organisational competitive advantage from such perspective would give room for the business to examine and measure the importance of its internal resources and abilities in respect to achieving competitive advantage and therefore to give more support and extension to the philosophical approach.

 Hill et al (2014) stated that strategic management can be demarcated as any measures that an organisation adopts to gain competitive advantage. Meaning that the sole reason for the existence of strategic management is to gain competitive advantage. Using a chain of definitions from other scholars, it can be said that strategy is the outline of decisions in a business that regulates and assesses the organisational objectives (both short and long-term) and stipulates the plans on how these objectives would be achieved. 

Literature Review

Profit-Maximising and Competition based Theory

 This model assumes that a corporate entity’s primary goal is to maximise long term profits and establish a justifiable competitive advantage over its competitors in the market. The theory is based on industrial organisation framework as it perceives the organisational external environment as a crucial element in attaining and sustaining competitive advantage (Priem and Butler 2001, p. 32). Meaning that the Industrial viewpoint gave strategic management a platform for examining rivalry in any industry.

Contrary, the resource-based theory owes its fundamental concepts from management philosophy, that a firm’s resources on competitive advantage lay in their internal resources, as divergent to their standing in the peripheral environment. This means that instead of just analysing environmental prospects, and threats while directing business, competitive advantage relies on the inimitable resources and proficiencies that an entity has (Aguinis, Edwards, and Bradley 2017, p. 681). The resources that a business has gives a hint that some sorts of capitals owned and controlled by the business have the possibility and potential to create competitive advantage and ultimately lead to greater company performance.

The Survival Based Model

 This model is based on the notion that groups need to progressively acclimatise to their competitive environment to survive in the market. The model draws it tenets from Charles Darwin’s notion, “survival for the fittest.” The survival based model states that for an organisation to survive, it has to arrange policies that are engrossed on running effectual operation and can act as a rapid response plan for the dynamic and competitive environment that most companies experience, because an entity that can survive such dynamics is the fittest and can acclimatise to the environment.

 The application of this theory is experienced often, especially among ailing companies. The traits of failing organisations prompt them to take drastic steps that would enable them to turn around.  Such drastic measures include laying off some workers, repositioning sales and disposing of some assets (Booth 2015). The main objective of such steps is turned the company around and render it efficient to adapt to the existing situation, enhance its profitability and realise the decisive goal of surviving in the industry.

  Chrisman et al (2015, p. 567) argued that McDonald has been able to transform itself and last so long in the industry because of its high adaptability and efficiency in the market. The fact that McDonald has been successful since the 20th century is an indicator that the firm has a clear cut strategy that enables it to transcend various market dynamics. David (2011) however disputes this notion arguing that selecting a strategy would not be sensible. Instead, the author states that it has been a mix of strategies that have enabled McDonald’s to attain its current status. 

Human-Based Theory

The theory emphasises the importance of human facets when developing an organisational strategy. The theory emphasises the importance of keeping a vibrant relationship with employees and other stockholders to achieve organisational success. Such vital stockholders form a dominant coalition that would help the business attain a competitive advantage. The values and attitudes projected by these members help to influence managers when making decisions (Schot and Geels  2008, p. 550). The same theory also recognises the available resources and limit to which a company can use these resources to attain competitive advantage

Besides, the agency model also stresses the significance of establishing an affiliation between the stockholders or company owners and the managers to ensure organisational success. Lastly, the contingency model discusses the notion that there is no solo best method to organisational management (Freeman 2010). Therefore, companies should establish a suitable managerial strategy that will address the current situation and condition that the business is going through. In other words, in the process of developing business strategy, execution, and analysis, these major strategic management concepts will be valid to the organisational management as a tool to help the manager in making strategic and informed verdicts. Figure 1 depicts these theories.

Figure 1- Strategic Management Theories

Due to the limitations of this paper, other theoretical models, concepts and philosophical would not be discussed. However, the paper will use the theoretical frameworks discussed above to establish a concrete argument on the case study below.

Case Study (McDonald’s)

 McDonald’s is among the few businesses in the fast food industry that has passed the trial of time and the dynamics of the market to establish itself as a leading company in its respective industry. Since its establishment in 1937 as a fast food stand in Manchester, the company has progressively developed to become a leading company in the fast food industry worldwide. This success did not come by chance but was fashioned through the company’s strategy (GALLANGHER 2003). McDonald’s main occupational strategy is to make quality fast food to clients at a pocket-friendly price and get profit by deploying low costs of production and expanding the entity to foreign markets, to have a larger market segment.

 In McDonald’s, the strategic management policies are made by the topmost administration. These approaches are then executed in all outlets of the company in a written form to avoid any misinterpretations and for future references; this means that each branch has an operational manager that supervises and executes any operational strategies. GALLANGHER (2003) writes that so far, the traits exhibited by McDonald’s has revealed that the entity’s strategy is based on three sections. First, the approach emphasises the importance of the customer to the business and customer satisfaction. Second, as the business has developed by means of information technology, it has also established new plans to improve business operations. With the introduction of database systems and stock control, the business has been able to avoid bulk ordering and keep clear records of the stock in store. Besides, it has become easier to order for more stock (GALLANGHER 2003).

Cost Reduction using Effective Equipment

 McDonald’s has a tendency of saving any cost possible, to maximise on their profits. So far, McDonald’s have adopted various technologies that have enabled them to save on some costs. For example, the business has acquired low oil fryers. These fryers use very minimal oil when cooking, it enhances the cooking process by simplifying oil filtering and provides more environmental benefits. The low oil fryers allow McDonald’s to fry the same amount of food at 40% less oil than before. Besides, it tends to last longer than average fryers. In terms of lighting, McDonald’s has adopted low consumption lighting systems in their restaurants. Sameer (2012, p. 4) revealed that McDonald’s saves 11,000 kW/h every year. This does not only save on power, but it also saves McDonald’s a huge sum of money in terms of catering for such bills.

 McDonald’s gives its employees everything that the staff needs to increase their productivity and comply with the national law of some countries; this helps McDonald’s to get more revenue and improves the overall services offered by the company. It is not a plan for McDonald’s to make its workers work resourcefully, but due to inadequate resources, the company offers the needed resources to ensure that it provides its staffs with the necessary equipment to maximise on productivity.

 For the sake of survival and maintaining a competitive business strategy, McDonald’s emphasizes reducing the operational costs. To reduce these costs, McDonald’s purchase its vegetables directly from farmers; this helps the company to cut down on various costs of production and get fresh vegetables for their clients. The strategy also shields McDonald’s from market price fluctuations (Booth 2015). Apart from offering fries in their menu, McDonald’s has embarked on a mission to give family treats and special treatments to senior citizens. It also started giving indoor play area and promotional toys for children.

 The company aims at being a market leader. For it to attain and sustain this position it keeps low cost and attains more profits through vending foodstuff at a pocket-friendly price. Food prepared by machines is also considered more hygienic; even so, the progressive enhancement of technology has ensured that the company also offers quick services. The staffs use computers and smart cashiers to avoid any further confusion, aided by an updated database system that helps them in making the right decisions (Vignali 2001, p. 101). All these operations are directed in all outlets belonging to McDonald globally to effectively execute the organisational approach.

McDonald’s Layout

 The strategy generally affects the general working environment provided by the company. It comprises of a personal level, product layout, exterior, and interior designs. The company’s policy is to serve its clients using the minimum time possible, to serve as many clients as possible and earn as more income as possible. The most essential thing that McDonald’s operational departments are keen on is to concentrate on the client’s satisfaction. Usually, customer satisfaction can be attained by serving quality products at a pocket-friendly price. To undertake these activities, McDonald has a precise layout for their outlets. The layout enables the stuff to serve clients quickly; this is possible by the fact that the staff has everything within their reach that could be required by the client. Besides, the company retains the maximum number of check-outs open to attend to clients and all staffs averagely use a minute to serve a client (Sanchez and Heene 1997, p. 303). Additionally, the restaurant arranges its chairs in such a way that it gives smallest disruptions to those clients standing in a queue. For easy management and supervision, each operations managers are encouraged to learn the abilities and expertise of their staffs; this would allow them to assign tasks according to the ability of the staff, which improves efficiency and productivity.

 To maintain the same food quality, the company prepares everything from its headquarters; this does not only decrease the cost of production due to economies of scale but has also helped the company to maintain the same quality of food in all its stores. In the outlets, staffs have the mandate of cooking and serving the food. This strategy also aids the company to save a lot in terms of storage costs (Deng 2009, p. 37). To ensure that the cycle runs smoothly, the company keeps good relations with its suppliers. On the other hand, the suppliers are also obligated to deliver their merchandises to the organisation in the minimum span possible.

The Importance of Layout

 The layout strategy used by McDonald helps the company to utilise the available space, make efficient use of the available equipment and helps to improve staff productivity.  Besides, the layout enhances the movement of information, people, and material. Since the layout is oriented in solving increasing efficacy and productivity, it also boosts the morale of employees and helps them to work in a safe environment (Hoskisson et al. 1999, p. 437). The layout also enables faster customer service, which generally improves the company’s relationship with its clients. Lastly, through their layout, McDonald’s has been able to achieve some sense of flexibility.

Strategies

Exterior

 McDonald has established its buildings in a way to handle a huge number of clients effortlessly. McDonald’s buildings are built in a standard way globally but could vary in dimensions or external outlook according to the site of the building. It helps the company to save time, please their clients, offer a relaxed atmosphere for both staffs and clients.  McDonald’s outlook, signs, and layout are also similar in every part of the world; these similarities directly improve the brand of the company, since the exterior is attractive and eye-catching.

Interior

 The company’s interior is customised to fit the needs of the modern client. The restaurant uses new technologies in restaurant light, menu boards, graphics, and artwork will offer a choice when it arises to décor assortment. Technological benefits provided comprise of automated video, music, and Wi-fi. 

McDonald’s Application of Technologies

 The company has invested a lot of capital on establishing a technology board, which has enabled the organisation to develop other technologies for its procedures with time. The primary mandate of this board is to give recommendations to adopt new apparatus and technology, which are efficient and help in saving energy. In 2010 the company embarked on a strategy of enhancing the ordering points and systems and at the same time connecting the point to sale scheme with the back office processer in the world (SWEARINGEN 2000). These systems have helped the management to project what will happen and what is happening in the business, the preferences of the clients and their dislikes.

 McDonald has invested a lot in improving their electronic payment systems, which makes it easier to process the transaction in a fewer span than 4 seconds. The company uses world-class equipment to conduct their daily operations in every outlet. To establish the viability of these strategies, this paper will use porters five forces analysis of the value chain.

Porter’s Five Forces Analysis of Value Chain

 The primary objective of these types of actions are aimed at giving clients a level of value that is more than the expenses on actions.  All these undertakings have helped the company to attain returns. The primary value chain include;

Inbound Logistics

 These are the fresh materials received in the company’s warehouse and are then distributed to various branches as per the requirements of the company policies. McDonald’s has an effectual warehousing and transporting scheme that ensures that the goods reach all its outlets. All foodstuffs are made or processed in the storeroom and goods are dispersed according to the prerequisite of every outlet.

Operations

 These are the actions aimed at transforming the input into finished foodstuffs and services. The company has fashioned its operating system to be efficient such that these systems help in training their staffs in every department, including those in the kitchen. Most of the products offered by the company are already in a ready to serve form, and therefore, those in the kitchen only have to cook them, which takes a span of about 1-5 minutes due to the improved cooking technology used by the company.

Outbound Logistics

 These are the logistic activities that are meant to keep the finished products in warehouses and help in the distribution of the same in different branches. The company has an established transporting system (Han 2008, p. 3).  Since most of its foodstuffs are produced at the storeroom, to expand the delivery process, McDonald’s has used technology, which helps in informing the storeroom staff, when branch is running out of supplies, therefore before the supplies are depleted the outlet is supplied with other rations. The process helps in saving storage costs on every outlet.

Sales and Marketing

 The company uses digital platforms and social media to market its products and make extra revenues.

Service

 These are the additional events that are provided to clients after the sales of foodstuffs. These actions are braced by technology, which assistances the company to access the actions done in the firm. The same technology also helps the company to monitor the cost of business and minimize the value-adding deeds.

 As per the stipulations of Porter’s five forces examination, McDonald contends with the forces that are in the internal environment of the business to attain competitive advantage and increase its profitability. Besides, there are subordinate sustenance activities that support the operational activities of the business. The Human Resource Management department makes it possible for the company to get the energetic employees to conduct the company’s activities. The Human Resource manager helps in motivating and increasing the morale of the staff to increase their productivity.  The top management helps the company in making vital decisions such as selecting the right technology that is cost-effective and will improve the company’s efficacy.

Conclusion

 It is clear that any company that actively pursues strategic management aims at gaining a competitive advantage over its competitors. However, what differentiates organisations in terms of their success in the market is the execution of these policies. Some entities are willing to invest more on certain strategies while others do not have the same zeal. For example, McDonald’s has embarked on a strategy to invest in technology to gain a competitive advantage and maximise its profits.

References

  • Aguinis, H., Edwards, J.R., and Bradley, K.J., 2017. Improving our understanding of moderation and mediation in strategic management research. Organizational Research Methods20(4), pp.665-685.
  • Booth, S.A., 2015. Crisis management strategy: Competition and change in modern enterprises. Routledge.
  • Chrisman, J.J., Chua, J.H. and Sharma, P., 2005. Trends and directions in the development of strategic management theory of the family firm. Entrepreneurship theory and practice29(5), pp.555-575.
  • David, F.R., 2011. Strategic management: Concepts and cases. Peaeson/Prentice Hall.
  • Deng, T., 2009. McDonald’s New Communication Strategy on Changing Attitudes and Lifestyle. International Journal of Marketing Studies1(1), p.37.
  • Freeman, R.E., 2010. Strategic management: A stakeholder approach. Cambridge university press.
  • GALLANGHER, S., 2003. McDonald’s technology trials.[online].[Accessed on 10 December 2009]. Available from World Wide Web: http://www. baselinemag. com/c/a/Projects-Management/McDonalds-Technology-Trials.
  • Han, J., 2008. The business strategy of Mcdonald’s. International Journal of Business and Management3(11), p.3.
  • Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: Theory & cases: An integrated approach. Cengage Learning.
  • Hoskisson, R.E., Wan, W.P., Yiu, D. and Hitt, M.A., 1999. Theory and research in strategic management: Swings of a pendulum. Journal of management25(3), pp.417-456.
  • Priem, R.L. and Butler, J.E., 2001. Is the resource-based “view” a useful perspective for strategic management research?. Academy of management review26(1), pp.22-40.
  • Sameer, S.K., 2012. Strategy and Repositioning Brand McDonald’s in India. International Journal of Scientific and Research Publications2(9), pp.1-5.
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