Mini Master's of Business Administration (MBA)

This book has proposed and presented intellectual capital management (ICM) as an evolutionary stage of business management for the knowledge organization. A number of business topics have been presented from the perspective of ICM, including vision, culture, organizational behavior, human resources management as management of knowledge resources, business process and operations management as part of managing the innovation process, and strategic management under the formulation of various IC strategies. As such, ICM is closely linked to the art and sci­ence of strategic management, where the organization develops the ability to adjust its overall business and competitive strategies in response to change. Of course, it is impossible to tackle all the topics and areas that an MBA covers. This appendix, however, provides the reader with essen­tial minimum knowledge of business management concepts, particularly in relation to strategic management, and touches on marketing strategy and organizational structure.

STRATEGIC MANAGEMENT

The main goal of strategic management is to develop the organization's ability to adapt and respond to change in its environment based on its internal capabilities. It involves managing the organization while having a clear vision of where the organization is and where it wants to be. Strategic management, therefore, is about organizational renewal and growth, wherein nothing is set in stone and practices and processes are constantly monitored, evaluated, benchmarked (inter­nally and externally), and adjusted (either incrementally or radically) to enhance competitive per­formance. Though the focus of strategic management is on developing a flexible organization that can effectively and quickly respond to change, it also focuses on providing a strong, clear, and continuous course of direction. This makes the role of leadership instrumental not only in leading the organization but also in creating strategic alignment among the vision, strategic objectives, and everything that the organization does at all levels. The role of leadership or top management is essential for defining the organizational identity, philosophy, culture, and overall management system.

McKinsey Consulting notes that not all organizations start with or develop a strategic man­agement system. Strategic management is rather the last phase that an organization's manage­ment system evolves to once it passes through three prior phases of simple financial planning, forecast-based planning, and, finally, externally oriented strategic planning. At the third phase, the organization starts to analyze and assess the competitive landscape, devise strategic alter­natives to respond to them, and allocate resources accordingly.1 This evolves in some organi­zations to strategic management wherein leadership formulates a clear vision of where the

organization wants to be and provides systems, practices, and analytical tools to support and monitor performance. Performance in such organizations is not merely assessed on the basis of financial performance but also by other variables, including technological ability, innovation, and social responsibility.

To be effective, managers at all levels should be involved in the process of strategic manage­ment according to their respective responsibilities. Strategic planning at each level supports and informs the process at the level below it, where the viability of the strategy and the effectiveness of communicating it is dependent on the level above it. Strategic management involves strategic planning at three levels: top, senior, and frontline management.

•   Top management - the CEO and board of directors. At this level, top management for­mulates the vision and the mission of the overall organization and decides on the appro­priate organizational structure. Top management is responsible for defining the organizational identity, image, and social standing as well as shaping the culture through policies that define how the organization deals with employees and the outside world. This involves setting the business objectives, creating the reward and compensation sys­tem, and formulating management control mechanisms. Strategic decisions at this level involve high risks and affect the future profitability and direction of the whole organiza­tion. For multibusiness organizations, this stage also involves deciding on the business portfolio investment strategy, financing options, and growth plans.

•   Senior management - the business unit level. At this level senior management tailors the overall business strategy to the needs of their respective business units or groups. More specific and multifunctional strategies (e.g., marketing and R&D strategies) are formu­lated to enable the business unit to meet its set investment goals. The implementation of multifunctional strategies involves significant decision making that affects every aspect of business operation on the medium to long term (e.g., manufacturing, plant location, product mix and innovation). This involves devising action plans and identifying the role that each department will play, with delegation of responsibilities for the attainment of strategic goals to frontline managers whenever appropriate.

•   Middle or frontline management - the Junctional heads within business units. At this level, management forges very detailed operational strategies by employing defined tac­tics and targeting specific goals. These operational strategies are developed into detailed action plans with phased milestones. Decisions at this level are made based on immedi­ate business needs and are in most cases at the departmental level, and limited to the busi­ness unit, except in cases in which the same plan is relevant to other business units or correlations exist.

Strategic management and planning involve a number of phases that are summarized as shown in Exhibit A. 1. These include phase I of formulating the vision and mission of the organization, phase II of formulating strategic objectives and action plans, and phase III of reevaluating the strategy. To move from phase I to phase II a number of strategic planning tools should be used to assess the external and internal environment of the organization. This is because, as repeatedly stressed, the purpose of strategic management is to enable the organization to respond to the changing needs of its environment, through utilizing its internal resources.

Phase I involves formulating the vision and mission of the whole organization. While the vision defines the purpose of the organization and where it wants to be in the future, the mission statement provides specific details as to the how. The vision statement sets the tone of leadership, the style of management, the culture of the organization, and its overall identity and social char­acter. The mission statement defines the value proposition that the organization intends to deliver to its customers, the distinctive competencies that will enable the organization to deliver such value, and the position the organization aims to attain and sustain in its target market. This mis­sion is translated under Phase II into marketing strategies, distribution and sales strategies, and R&D and human resources strategies. In turn, these functional strategies are implemented through a number of action plans and programs that determine the product mix, market segmen­tation, innovation portfolio, team formation and allocation, recruitment, training, and profes­sional development. Phase III involves setting the management control mechanisms and performance measures to track and monitor the implementation of strategy and progress in meet­ing the set goals. This also involves the reevaluation of strategies as changes occur in the organi­zation's environment or internal resources.

Strategic planning involves the use of a number of tools for the assessment of external and internal factors that affect the way the organization intends to respond to changes and thus for­mulate its strategy. These tools are designed to assess the external factors (competitors, cus­tomers, and market) in the organization's environment, and internal factors (competencies, weaknesses) that affect its ability to respond:

• External

•   Porter's Five Factors. To assess the attractiveness of an industry for business and the competitive situation, Michael Porter explains that management should consider five forces. These include the risk of new competitors entering the industry - potential entrants, the threat of potential substitutes, the bargaining power of suppliers, the bar­gaining power of buyers, and the degree of rivalry or nature of competition between existing competitors.2

•   PEST analysis. To assess environmental factors that are outside the control of the organization, four sources of change should be considered. These include the political, economic, social, and technological (PEST) elements of an industry or a certain market.

• Benchmarking. To assess how other organizations respond to change, benchmarking provides insight into how other players are responding. It is a form of competitive intelligence that involves comparing the organization's practices and performance with those of other players in the same industry, and with best performers in other indus­ tries.

Internal

•   SWOT analysis. To set the strategic objectives it is important to consider the strengths, weaknesses of the organization, and the opportunities and threats that they pose. SWOT analysis enables management to uncover the organization's capabilities and competencies as well as the weaknesses that affect its performance and the attainment of its goals.

•   Ansoff's method or gap analysis. To assess the organization's potential and ability to meet its strategic goals, Igor Ansoff formulated the method of gap analysis.3 The method involves assessing the difference or gap between the current state of the organ­ization (the "is") and the state envisioned in its objective (the "should"). The organiza­tion should then adopt the appropriate strategies and programs to close the gap.