Key Concepts & Tools for Strategic Management
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Importance of Strategic Management: Strategic planning is crucial for reducing
business failures.
Theory of Competitive Advantage (TCA):
o Coined by Professor Michael Porter, it states that a company must be
different to compete.
o Differences can be achieved through cost advantages (lower cost than
competitors) or differentiation (unique value allowing higher prices).
o Theories help in understanding phenomena and making predictions. For
example, the Resource-Based View (RBV) suggests larger companies sustain
better due to more resources and capabilities.
o While theories are generally applicable, their effectiveness can vary by context
(e.g., developing countries) and may face criticism, but their core principles
are still relevant for understanding market positioning and branding.
Corporate Strategy (FIE Model):
o It is the overall plan and directions adopted by an organization, not just
individual activities.
o Vision, Mission, Beliefs, and Tagline (VMBBT) are fundamental elements
for establishing a firm, with the Board of Directors or owners setting the
vision/mission, and the CEO/management team implementing it.
o Formulating good strategy involves assessing external opportunities and
threats (OT) and internal strengths and weaknesses (SW).
o It requires choosing a market position (cost advantages, differentiation, or
focus strategy).
o Implementation involves aligning objectives, policies, culture, structure,
resources with KPIs, and performance-based rewards.
o Review involves collecting data, measuring performance, taking corrective
actions, and revising strategy as needed (vision/mission usually remain
constant, tagline may change).
Strategic Analysis Tools (for Internal & External Factors):
o General Analysis Tools: SWOT, General Analysis, Competitor Analysis.
These are impactful and easy to use.
o Quantified Analysis (for deeper planning): External Factor Evaluation
(EFE) Matrix and Internal Factor Evaluation (IFE) Matrix are
encouraged.
o Differentiating Internal vs. External Factors: Crucial for IFE/EFE.
Internal factors are organizational resources and capabilities (within the
firm's control). External factors are beyond the organization's control (e.g.,
neighborhood development, new competitors, customer demands,
unemployment rates). External factors can be opportunities (positive) or
threats (negative). Practice differentiating them.
o Applying EFE/IFE (Formulating Strategy with Limited Resources):
 To improve company performance with limited resources, prioritize
factors with high weight (high importance) and low rating (poor
current performance).
 A rating of 1 (very poor) indicates significant room for improvement
with minimal effort, leading to a substantial impact on the total
weighted score.
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Be practical in your arguments: consider the cost incurred when
suggesting improvements (e.g., relocating a store might be effective
but costly, making it a secondary option).
Porter's Five Forces:
o Remember the five forces: Rivalry among existing competitors, threat of
new entrants, threat of substitute products, bargaining power of buyers,
bargaining power of suppliers.
o The best-case scenario for a company is when all five forces are at a low
level, indicating an attractive market.
o You must be able to rate each force (e.g., low, moderate, high) and justify
your rating with logical arguments and evidence.
VRIO Analysis (for Competitive Advantage):
o Not all resources and capabilities generate positive impact.
o Resources only create sustainable competitive advantage (CA) if they are
Valuable, Rare, Inimitable, and Organized (VRIO).
o Understand that VRIO applies to specific resources (e.g., resources A, B, C,
D, E), not entire companies. Most successful companies have a majority of
"E" (sustainable CA) resources.
Porter's Generic Strategies (PGS) - Market Positioning:
o These strategies (Cost Leadership, Differentiation, Focus) describe the
overall position of the entire organization or brand, not just individual
products.
o Cost Leadership: Aims to project "good value" or "value for money" through
affordable pricing (e.g., Walmart, McDonald's).
o Differentiation: Focuses on unique value, higher price, and premium services
or products (e.g., Ferrari, luxury brands).
o Focus Strategy: Targets a specific niche market, often geographically or
government-linked.
o Crucial Exam Point: When asked to describe a company's strategy using
PGS, choose only ONE and provide strong evidence and justification. Do not
say a company adopts both cost leadership and differentiation, as this suggests
a lack of understanding of generic strategy principles.
Value Chain Analysis (VCA):
o Illustrates how a company achieves its chosen PGS.
o Distinguish between Primary Activities (essential like logistics, operations,
marketing, sales) and Secondary Activities (additional, like infrastructure,
technology, human capital, which can often be outsourced).
o VCA shows how cost leadership companies (e.g., Walmart) focus on cost
reduction through scale and efficiency, while differentiation companies focus
on activities that create perceived value and allow for higher pricing.
Implementation & Organizational Frameworks:
o Many strategies fail due to poor implementation (90% failure rate mentioned).
o Factors like culture, strategic roadmap, and flexibility (adjusting to market
cycles) are key.
o The McKinsey 7S Model (Strategy, Structure, Systems, Leadership Style,
Staffing, Skill, Shared Value) highlights that all these elements are equally
important for successful implementation.
o Understand the differences and shared skills between leadership and
management, and the context-dependency of leadership styles (e.g.,
autocratic in crisis).
Tuckman's Team Development Model for building effective teams.
Business Ethics & Sustainability:
o The GSP slogan is "Nurturing business sustainability," which goes beyond
profit to include community and environmental aspects.
o Business Ethics: Know how to establish an ethical culture, understand Code
of Conduct (content, examples), whistleblowing policy, how to avoid
bribery, and how to address ethical issues.
o Environmental, Social, and Governance (ESG):
 Compulsory for listed companies (PLCs) in Malaysia since this
year.
 Three key reasons for its importance (based on Bursa Malaysia
data):
1. Financial Outperformance: Companies in the FBM40 for
Good index often outperform the KLCI (e.g., by 3%),
attracting investors and increasing share prices.
2. Long-Term Resilience: Good ESG practices improve a
company's financial performance in the long run, making them
more resilient during crises due to effective governance and
resource management.
3. Positive Societal Impact: Builds a good reputation, generates
employment, improves community quality of life, and increases
transparency.
 Companies are selected and given "stars" based on their ESG rating,
which influences their image and share price.
Performance Evaluation Tools:
o Sustainable Business Performance (SBP): Also known as Triple Bottom
Line or Shared Value, encourages going beyond economic performance to
include social and environmental metrics.
o Balanced Scorecard: Emphasizes that financial performance is a lead
indicator; companies should also focus on customer satisfaction, internal
processes, and talent management for improvement. It helps align small
strategies with the overall generic strategy.
o BE Framework (for established companies): Proposed by the Asian
Productivity Organization (APO), a detailed framework for evaluating
company performance, useful for consultants.
o SCORE Model (for smaller companies): Offered by Malaysia Productivity
Center, provides evaluation services and performance spider maps.
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This comprehensive overview should help you prepare for your final exam by focusing on the
key concepts, tools, and advice provided during the revision session.