Theoretical Concepts to Strategic Management

Theoretical Concepts to Strategic Management

With the diversity in today’s markets, organizations have to maintain a strategic management approach to remain competitive. Strategic management involves processes such as formulation and implementation of strategies. There are different strategies that an organization can apply in strategic management. These include business, organizational, corporate, growth, and restructuring strategies (David, 2005). Theoretically, there are several concepts to strategic management. The most significant theoretical concepts to strategic management include competitive advantage approach, classical management approach, and the contingency approach.

Having started with a small store in Germany, Aldi Supermarket Company is now an international organization with divisions in different countries. This became possible by the use of strategic management. The company has more than 4000 stores worldwide with existence in 1300 U.S locations (ALDI US). The company has applied several organizational strategies including Global strategies, cooperative strategies, competitive advantage, and diversification.

Competitive advantage is the conditions, which puts an organization in a superior position. This concept is mostly based on the attributes of resources and capabilities of an organization, which are costly to copy. Barney (1991) examined the link between sustained competitive advantage and organizational resources. He based his argument on the assumption that resources are distributed to all organizations heterogeneously. He revealed that the potential of organizations resources to generate competitive advantage could be indicated by value, inimitability, rareness, and non-substitutability.

Porter through the Porter’s five forces explains why organizations in different industries can maintain different profitability levels (Roy, 2009). One of the five forces is the threat of substitutes. For an organization to remain competitive, it must eradicate the threat of substitution. Substitution is the availability of a product that consumers can purchase in the place of another product (Volberda, 1998). This is in line with the non-substitutability indicator proposed by Barney. An organization is said to have a competitive advantage when it implements a value-creating strategy that ensures that the organization is ahead of competitors. Competition is a great threat to all industries in the market. The higher the number of competing companies in an industry, the lower the power of each company (Burden & Proctor, 2000). Competitors present substitutes goods, which introduce the threat of substitutes. With substitutes in the market, an organization has no unique strategy to stay ahead of the competition.

Barney (1991) in his analysis is trying to generate the link between the competitive advantage of an organization and its resources. He is analyzing competitive advantage generated by resources. To generate a competitive advantage, the resources must have value meaning they must exploit opportunities and neutralize threats in the organization. In addition, there can also not be a strategic substitute for this product. It is agreeable that in the ever-changing market, it is hard for an organization to maintain a non-substitutable product or resource. The substitution effect is real in the real world. With strategic management, counter strategies such as product differentiation can be used against substitution.

For Aldi Supermarket Company, it sells products from other manufacturers meaning that the substitution effect comes in the sense that consumers can also get the products from other stores. There are substitute’s stores all over, and the company has to maintain its competitive advantage. The use of non-substitutable resources such as low prices, courtesy, and efficiency, Aldi Supermarket Company has managed to maintain its competitive edge. In a study done in 2013 by Market Force Information in America, Aldi received the top ranking in low prices as well as an inviting atmosphere and efficiency (Tuttle, 2013). Resources such as efficiency can be substituted by any other resource.

Ma (2000) observes about the conceptual relationship between competitive advantage and organizational performance. He argues that competitive advantage does not lead to superior performance, competitive advantage is relational, and that competitive advantage is unique to the context. In his view, Ma (2000) claims that competitive edge is as a result of differences between firms which allow some companies to create more customer value that does others.  The underlying sources of the competitive advantage to companies are the access to distribution channels, assets owned, proficiency, and capability. To be able to exploit the competitive advantage, an organization needs to consider these sources of competitive advantage. Organizations need to apply situational specific strategies to be able to compete based on the available resources.

Fahy (2000) however argues that the resource based competitive advantage does not consider the creation of the resources. The creation of resources in the firm is characterized by other factors such as time and diseconomies. For Aldi Supermarket Company to be named the best in low prices, it must have accumulated resources through time to be able to maintain the low prices. The competition forces create the equilibrium prices in the industries, but when an organization invests in resources such as efficiency and diseconomies, it has a competitive advantage and can manage to sell at lower prices than the equilibrium price. The competitive advantage concept based on resources fails to recognize the development of the resources, and more efforts are needed to expand the reasoning to more the extent of other relationships with other factors.

A major strategic management concept is the relationship between the employer and the employee. The Classical management approach emphasizes on the prosperity for both the employee and the employer. It assumes that people are rational and will most likely make rational decisions (Falshaw et al., 2006). This approach combines the scientific management, administrative principles, and the bureaucratic organization.

Taylor Frederick developed the idea of scientific management through conducting workplace studies. Taylor developed four principles that guide scientific management. The first principle was that rule of thumb should be replaced by the scientific method of analyzing and determining the most efficient method of performing specific tasks. The use of strict rules does not lead to productivity rather when there is efficiency, productivity increases. Managers, as well as employees, should work together in developing efficiency in organizations rather than managers maintaining strict rules, which lead to inefficiencies (Bernstein, 2003). Organization should invest in building talent and maintaining talent.

The other principle was that job assigning should be based on capability and motivation. When employees are assigned in areas when they are capable and motivated, their motivation levels increases and so does productivity. As stated earlier, workers are rational and when not motivated will move on to other organizations (Lavie, 2006). When an organization fails to maintain talent, then it becomes hard to match the existing talent with task capabilities. This will eventually lower the motivation level of employees translating to lower productivity. The other principle was that work should be assigned to managers and staff to enable the managers to train and plan for the employees, and the employees will remain efficient.

Max Weber developed the Bureaucratic organization’s concept, which focuses on the precise definition of responsibility, authority and the process involved. This addresses the inefficiencies created by the lack of a clear definition of one’s responsibilities, which commonly lead to role duplication. Henri Fayol, on the other hand, developed the administrative principles concept by analyzing the practices of managers who are successful (Raduan et al., 2009). He concluded that managers should have a plan for the future, implement the plan, evaluate workers, coordinate activities, and take control of the plan.

In recent years, Aldi Supermarket Company has been expanding its operations rapidly. This success is attributed to proper planning and the use of scientific methods of studying the markets to determine the most efficient actions (Ruddick, 2013). The company expands strategically by locating strip centers near larger retailers and then developing their stand-alone boxes with additional services. This kind of a strategy requires market research, which is the modern way of business development.

The other concept of strategic management is the contingency approach. The approach insists that managers behave based on the prevailing condition and not on universal principles. While the classical and the management science schools of thought emphasized on applying the same technique to all organizations, contingency approach holds that what management does depends on given set of circumstances (Kreitner, 2009). The effectiveness of managerial styles and practices varies widely based on situations and circumstances. There cannot be universal principles that can be applied to all situations in organizations. Every situation has its remedy, and every organization has its way of running things.

A contingent manager typically pays attention to the prevailing conditions and the organizational style of management. Through this approach, organizations can learn from specific situations, and this influences the future management of a similar situation (Chesbrough & Appleyard, 2007). The concept of c contingency approach is that an organization should have its principles of management developed through time.

As with Aldi Supermarket Company, the company is not large as compared to other players in the industry. However, the company has been seen to be influential in terms of prices and efficiency. In most industries, the powers of demand and supply determine the equilibrium prices (Wang et al., 2008). This idea tends to be a universal principle and companies always settle for this price. However, Aldi Supermarket Company is known for its discounted prices (Dziemianowicz, 2016). With the rapid expansion the company has made in recent years, it is clear that it is productive enough. The use of situation-specific strategies is the key to this success. The company first establishes itself near a big retailer, studies the market together with the competitors, and then establishes itself with additional services. This gives the organization a competitive advantage based on innovation and not on resources.

If the company emphasizes on the maintaining a competitive advantage based on non-substitutable resources such as efficiency and customer relations, it can expand more. It is common for organizations to develop inefficiencies as they became larger. Aldi Supermarket Company should work to maintain the efficiency. In addition, maintaining good relations with the employees is also a good recommendation (Lutz, 2015). Employees are major stakeholders in the organization and their motivation is very vital in the productivity of the Aldi Supermarket Company.

The competitive advantage approach, classical management approach, and the contingency approach all have different views on strategic management. While the competitive advantage emphasizes on maintaining an advantage over the other players, the classical approach emphasizes on scientific methods and employee motivation. The contingency approach, on the other hand, emphasizes on specific principles for specific situations (Freeman, 2010). These concepts are applied individually or together in strategic management by the organization such as in competitive advantage approach, classical management approach and the contingency approach. Today’s markets are so diverse regarding competition and organizations need to apply different concepts in strategic management. There are other many theoretical concepts in strategic management that are applied by organization in the real business world.



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