CHAPTER 2

Motivators and Drivers of

Strategic Management
2.1 Why the need for strategic Management
In the era where there are only a few business organizations offering the same or
similar products in a given market and demands of prospective clients are not
sophisticated, strategic management or strategizing per se may not be that
critical or important. In those days, many of the business organizations operated
as independent business entities with each of them having their own products to
sell without much restraint and have their own turfs or markets. It was only a
matter of having a corporate plan, business plan, feasibility study to initiate
operationalize the business.

The ever-growing population primes up demand for a variety of products and

services and so is the number of business organization scampering to take
advantages of market demand. Other business organizations have to create a
demand for a product or services now that the population or market has gone
up. In parallel, a single business concern has grown so big or has multiplied in
number thats is now getting to be difficult to manage. Thi phenomenon resulting
to expansion of a single business entity into a
group of individual business organization owned or controlled by
one or group of investor has become a challenge and nightmares
for others. With technological development and innovation and
so many business organization that sprouted in 1970's up to this
date, competition has become so stiff and sometimes at
cutthroat levels resulting to the bankruptcy or closure of some
firms.

It is acknowledged that the pofit motive and the nature of

competition have been dominant factors that motivated and
driven business organization to edge out or outcompete each
other. Much more than this, however, there are many other
reasons as well as applicable theories and principles including
situations that drive business organization to plan their business
well and apply the principles of strategic management.
2.2 The Dynamic nature of the market and the Business

The business and the market are not static but dynamic in nature. Given the old
adage that "one thing constant in this world is change itself", business managers
need to live and accept that to be competitive, one has to live with a constantly
changing environment and get the best out of it. Business organization have their
own unique or creative ways of responding to this change resulting to a level of
competition that motivates and drives the business organizations to adopt strategic
management theories and principles in the hope that their respective organization
would make them competitive or survive the challenges of business competition.
Other than the theories and principles discussed in this chapter dubbed as drivers
and motivators of strategic management, the dynamic nature of the market and the
business itself, is in part due to the following circumstances and realities:

a. The ever changing market conditions.

Essentially driven by supply and demand situations, entrepreneurs and business
strategies are obligated to respond to the changing market scenario resulting to a
situation that drives and motivates the other players in the market to do the same
resulting to a much stiffer competition within and outside of its industry or sector.
d. The impact of global developments vis-a-vis the local markets
The world of business is getting smaller and borderless on a of globalized scheme
of doing business exacerbated by the increasing role of technology particularly the
Internet. This scenario has placed small or domestic business concerns under
pressure as large or multinational business concerns have undermined the
competitiveness of the local o domestic business concern ressulting a new kind of
competition that has to be lived.

e. The changes in the conduct of businesses

The increasing role of technology resulting to the popularization of e-
Commerce/e-Business has changed the conduct of the business from usual morning
and afternoon business hours during weekdays to a round-the-clock and round-the-
year as well as real time transactions beyond traditional geographical boundaries. To
be competitive, one cannot be a spectator to this phenomenon but to take the
challenge and compete with other business concerns one does not see physically
2.3 The Triggering events

"Triggering events" refers to situations or scenarios that may have caused or resulted
to the actions or intaitives of the top management of the firm to consider certain
strategic options to make the firm competitive or to achieve certain strategic
objectives. Wheelen and Hunger (2004) simply described triggering events as
something that acts as stimulus for a change in strategy.

Triggering events may come in two forms namely internal and external triggering
events. Classified as internal triggering events are those situations and scenarios
intervening or disturbing the bussiness organization on account of factors internal or
inherent to the itself and one that the company can exercise certain level of control.
On the other hand, considered as external triggering events are those factors external
to the firms or matters where the business organization itself may not or want to
happen but there is nothing much it can do- as compared to triggering events.
Some of the triggering events which the author classified as Internal triggering events
are as follows:

a. New CEO/President
New leadership in any business organization generally results to some changes.
Such a change itself may have been a reason for having a new leadership of team of
managers. Or, a new leader or set of officer may have been installed to carry on a new
direction desired by the business owners and investors or as the situation calls for it.
b. Performance gap
A performance gap exist s when performance does not meet expectations. Sales
and profit are either no longer increasing or may even be falling. Since targets and
expectation are perceived and presumed to be doable and achievalble, the gap
between expectation and performance of the entire business organization could be
traceable to the management's efforts that need to be further improved but not
necessarily effecting a change in leadership.

c. Change in ownership
A change in ownership either by way of acquisition, sellout, merger or changes in
majority of ownership of stockholding among publicly listed firms can trigger or may
result to a new set of strategy whether changes were made in the top management or
not. New owners of the business have this natural tendency to promote a new culture
or strategy with status qup not option unless extremely necessary.
d. Management team shake up
Although strategy making is largely influenced by the President or CEO of the firm,
having a new President or CEO may not trigger a net set of strategies. An imcumbent
President or CEO may opt to forms a new management team comprising of middle or
senior-level management because the President/CEO may not able to do it alone or
the situation simply requires it.

e. Corporate reorganization/restructuring
Corporate reorganization or restructuring resulting from internal decision or driven
by external factors necessarily requires new schemes or strategies to achieve a new
vision-mission statement or desired goals triggered by the reorganization/restructing
itself.

f. New products or services

A change in products or services offered by the firm may also trigger or result to
another kind or at least an enhanced strategy given the new kind of products or
services offered by the company particularly so if they comprise a number or variation
having substantial impact upon the stature of the firm.
Triggering events considered external are mostly socioeconomic or even political and
social in nature. Though they are considered external, the extent of impact upon the
business organization could range from something low or even negligible but certain
aspects of it could be devastating. Some of these factors considered as external
triggering events include the following:
a. the overall economic environment;

b. government- its leadership, policies, and regulatory functions;

c. the sociopolitical environment;

d. the legal environment;

e. the technological environment;

f. the global/local environment;

g. market factors (demand and demand situation);

h. the religious environment; and

i. occurrence of calamities and other natural disaster;

 Strategic inflection point is a term coined by Andy Groove, Chairman of the board
of Intel Corporation and cited by Wheelen and Hunger (2004) as another factor
considered as triggering event. It a generic term that takes into account both internal
and external factors that influence business direction. It represents what happens to a
business when a major changes takes place due to introduction of new technologies, a
different regulatory, environment, a changes in customer's values, or a change of what
customers prefer.

2.4 Theory of the Firm

The concept of the Theory of the firm suggests that under ideal condition, there
are four categories of market conditions that can be either favorable or unfavorable to
the business. The market conditions is either monopoly, oligopoly, monopolistic
competition and perfect competition.
a. Monopoly
It is a market structure characterized by the existence of a single seller of a
product which dominates the market. A true monopoly offers no clear subsitute for
the product ; a buyer must purchase the good from the monopolist establish the price
of their product, a buyer must purchase the good from the monopolist or forego the
product altogether. Though monopolists establish the price of their product, not all the
buyers may demand the product. If the demand is weak, the monopolist will achieve
limited market power. Barrier to entry are usually very high in such structure.

b. Oligopoly
This type of market has more than one producer or seller of a product, which may
be either homogenous or differentiated. A market dominated by a few firms that holds
a similar share in the market is considered an oligopoly.

c. Monopolistic competition
It exist when many sellers offer similar product that are not perfect substitute for
one another. Barriers to entry are fewer than in an oligopoly. Each firm attempts to
differentiate its products to the consumer through various methods including
advertisement, promotion, location, service, and quality. In a monopolistic competitive
structure, price varies, with both the market and the individual firms impacting price
decisions. Monopolistic competitive firms often lower prices in an effort to increase
revenue.
d. Perfect competition
It is a market structure characterized by many
producers or sellers and a homogeneous product. The
market has almost similar product or services and no
single firm dominates the market. Barriers to entry do
not exist and individual companies as price takes in that
the market estanblishes the price for the product
depending on demand-supply situation.
In the world of strategic management, its relevance
lies in the fact that as the market structure moves from
a competition state to one that is considered a perfect
competition, the challenge for business managers and
strategies is much more in the situation where there is
a perfect competition.
2.5 technology Developments and innovations

As cited by Bitter and Pierson (2002),technology is an agent of change spurring the

traditional definition of time and space. These authors cited a situation in the United
States circa 1998 where for the first time in 50 years, young people's television viewing
time declined. Television viewing gave way to the Internet, video games, Palm pilots,
pagers, cellphone, and personal digital assistants. With emerging technologies rapidly
becoming a common place, the need to keep pace is a constant challenge and
opportunity for managers and strategist.
Rapid developments and innovations in technologies have given so much impact
upon the level of business competition anywhere in the world. New inventions and
innovations both in the products and the way services are handled are in fact the key
aspects that has given product substitutes a dominant role in Potter's five forces of
business competition model. New product substitutes do not only threaten the
marketability of some products or services but in many cases have forced many
business organizations to stay out of the competitive race of the business, some of
them opting to close up as their products or services have been made obsolete, less
competitive or meaningless due to the introduction of substitutes.
Other than playing a key role of producing product substitutes or better quality and
cheaper product of the same kind, the promise of efficiency in production systems,
higher productivity as well as consistency in quality or produce that new technologies
offer in the market is a major consideration among business establishments to be
technology conscious. Nowadays, technology has become a major component of what
it takes to be competitive both in product quality and market price.

The development and introduction of personal computers in a massive scale along

with meteoric rise of the Internet technology has changed the course of doing
business worldwide. From an 8 hours day conduct of business in the brick and mortar
era, the global introduction of e-Commerce/e-Business resulted to the so called click
ad-mortar era whose made of doing business transcends beyond traditional business
hours with business transaction happening round the world and round the clock or on
a borderless scenario and on a real time basis. This phenomenon puts inward looking
and technology shy business organizations in a difficult situation as many business
transactions nowadays are just a mouse click away on 24x7x365 basis (the jargon for
round the clock and round the year basis). Many business transactions are now doable
without necessarily leaving the place of work or some business transactions are even
in the confines of residences or bedrooms or any other places where clients have
access to computers , the Internet and automated teller machines.
An example of how technology has changed the condcut of business of some known
business establishments is the emergence of new technologies as shown in table 1.
The emergence of new technologies has resulted to changoes of production systems
and reengineering of many firms to stay in the business and to do it competitively . A
case in a point is Eastman Kodak company which is among the pioneers in the era of
photography in film industry. As shown I. Figure 6,the film industry has gone a long
way from the era of 35 mm film that once dominated the photography and film
industry that is now considered obsolete and extinct on account of the revitalization of
many products and services once served by films marketed Eastman Kodak. While it is
true that for many years the photography and film industry appeared to be sole
domain of the American companies among its allied countries and not much mao g
Japanese products, the technological changes in this sector have opened New
opportunities for the Japanese and other countries to be engaged in this business to
compete with Eastman Kodak not only in the United States of America but in other
countries as well. Well it not for the company's timely effort and strategic initiatives in
taking advantage of digital technologies, Eastman Kodak might have been out of the
business Orinda least competitive advantage by now.
 INDUSTRY OLD TECHNOLOGY NEW TECHNOLOGY

Electronics Transistors Integrated circuits

Shoe materials Leather Engineered polymer
Appliances Discrete controls Fuzzy logic
Airframes Steel, metal Composite materials
Automobile engines Aluminum Ceramics
Automobile body Welded pieces Unibody, single piece
framed contruction

Computers Mainframe Personal computers,

netework systems

Medical equipment Stand alone X-ray CT scans, MRI

Tv manufacturing Handcrafted Automated insertion
tools
Cameras Silver halide-film Flass memory cards

TABLE 1. Emergence of new technologies

(Source:Pitts and Lei (2000),p.140)

2.6 The Product Life Cycle
Every product or service in any industry or sector has its own life cycle as typified
by the diagram show in Figure 7. The same product or service lidr cycle translate to
what is also known as the market or industry life cycle. What diagram suggests is that
there is no such product,servicea,industry or market that continuous to grow for life or
over infinite period and will never come to its maturity,peak and decline stage.
 Fundamentals of Strategic management
Previous era Current era Evolving digital use
Image
35 mm film 35 mm film Transfer to Digital camera/CCD
definition
compact disk Analog/Digital
Conversion
Chemical Chemical Flash memory card or
Image
exposure and exposure and Check memory Floppy disk
translation
development development storage Image
Transfer
Image Personal computer
Printing Printing
compression Consumer or Data storage
industrial use
Software
Negatives Negatives Image Interpolation
storage
Retain or
manipulate Reproduction

Hard copy image

Hard copy Image
(paper) (paper) encoding Transmissi Storage/Print
on (E-mail) Hard copy
Figure 6. Transformation of Imaging at Eastman kodak
 Introduction Growth Maturity Decline




Sale
(Units)

Figure7. Product Life Cycle

As it rises to the top, the signal is to develop a new product or
services so that by the time maturity level is reached, there is
new a product or service to be launched or one that the
business organization can handle as the old product reaches a
decline stage and is eventually retired or become a museum
specie.

The life cycle model of the product or service is one important

theory that should always warm company strategies to be
always on their toes knowing that there are ups and downs or
extinction of the product.
Stay much longer in the business or the industry, the business
organization accumulates a body of knowledge and
experience that enable the firm to do its business better.
The Market DEVELOPING GROWING MATURING DECLINING
is Years

The buyers Number of Increasing Multiple Number of

buyers are number are repeat buyers is
few trying out purchases declining
product or by buyers
services
The Few Entry of Competitors Exit of some
competitors competitors more fighting to competitors
competitor maintain
s market
share
The Steep learning Fighting for Emphasis on Selective
condition curve share efficiency targeting
market and low cost
The market DEVELOPING GROWING MATURING DECLINING
is
The theory of the experience curve is also referred to as the
learning curve. The curve is based on the constant decline in
the deflated marginal cost of production with increasing
cumulative volume of production. The learning curve slope
refers to the percentage of learning . This is the percentage
level to which marginal costs fall each time cumulative output
doubles.
 Stage Introductory Growth Mature Decline

Nature of Limited focus on Firms stake out Firms try to Remaining firm
competitive rivalry competitors, key position on survive shakeout; seek to reduce
product is center market many exit or fail intensity of
of attention competition
Nature of entry` Pioneering firm Large scale entry Growth slows and Few, if any
define industry of firms seeking entry is less entrants
profits attractive
Product Emerging untried Competing design Dominant design No real product
technology technology; no hopes to set for industry, few changes
dominant design is standards modification
set in most cases
Process General purpose Growing Emphasis on Processes d0 n0t
technology equipment and investment in efficiency and change; ma
tools for flexibility specialized tools/ volume become exit if
assets production high rigid or capital
automation intensive
Marketing Focus on Build growing Promote to as Marketing
emphasis innovations; product and brand many segment as emphasis changes
volatile prices that awareness ; prices possible; prices to preserving
have no set level beginning to are more stable. existing share
decline position. Prices
steady or declining
Investment Very high needed Massive De-emphasis on Begin gradual exit
intensity to build business expenditures to adding new and even divest
reinforce position capacity activities
Profitability levels Generally Moving to high Peak profits; cash Profits decline
unprofitable, loads profits; cash flow is high cash flow declining
of cash needed negative or rapidly
uneven
 yesterday
today
tomorrow

A popular theory in economics, the theory of economies or

diseconomies of scale appears similar to the experience curve as shown in
figure 11. economies of scale postulates that there is a decline per unit cost
of production(or activity) as the volume of production(or services rendered)
is increased. A large organization can produce so much that it enjoys the
economies of scale and can produce high volumes of goods at successively
lower coats than a smaller rival (Pitts and Lei, 2000)
 MOTIVATORS AND DRIVERS OF STRATEGIC MANAGEMENT

120
110
100
90
80
70

60
50
40
30

0 10 20 30 40 50 60 70 80 90 100
 Economies of scale and the experience
Curve working

Average
unit cost 100-unit
of output plant 400-unit
200-unit plant
plant 300-unit
plant

Diseconomies of scale start working

Average unit
cost of output
Underutilization Overutilization

Best Operating level

Figure 12. Best Operating Level

The motivation and drive to produce produce the good or service to

lowest possible level (without sacrificing quality objectives) is to be able
to offer the produce or service at lower market price in the hope that the
firm becomes competitive vis--vis the other players in the market.

Buildup period Benefit period Erosion period





Strategic Size of
moves competitive Moves by
rivals erode
produce advantage
competitive achieved competitive
advantages
advantage

Time
Figure 13. The Building and eroding of competitive advantage

Because no business organization has a monopoly of what it takes to be highly

competitive in the long term and because other players in the industry are like
wise doing strategic initiative to outdo each other, erosion period will eventually
sink in. Again, like the theory of the product life cycle, this reality has to be
accepted and something must be done about if only for the business to survive
and be profitable to the point of sacrificing competitive position at certain point in
time
 2.11 OTHER RELEVANT
THEORIES INFLUENCING
STRATEGIC MANAGEMENT
A .Evolution revolution theories This theory suggested that environmental
change force each species into incremental, but continuous, mutation of
transformation. Through such a change, living entity can adapt to its
environment and survive. Species that cannot conform to its environment
requirement is doomed, and eventually becoming extinct.
B. Industrial organization theory Considered a branch of microeconomics, this
theory emphasized the influence of industry environment upon the firm.
There are certain factors and culture common or unique to the industry
that parties forming part of the industry or sector have to live with. A firm
must adapt to its particular industrys force to survive and prosper.
C. Chamberlins Economic theories Theories of economies Edward Chamberlin
are anchored on the context of the evolutionary environmental change
and he specially spouse a single firm could clearly distinguish itself from its
competitors.
D. Contingency theory The basic premise of the this theory is that higher
financial returns are associated with those firms that most closely develop
a beneficial fit with their environment. Unlike evolutionary and industrial
organization theories others fin as having a high level abstraction,
contingency theorists view organizational performance as the joint
outcome of environmental forces and the firms, strategic actions.
E. Resource-based theory Somehow related or similar to contingency theory,
resource-based theory accords more weight to the firms choice to be
proactive capitalizing on the firms unique resources to comprise the key
variables the allow it to develop and sustain a competitive strategic
advantage. This theory infers that the focus is primarily on the individual
firms rather than on the competitive environment.
F. Institution theory This theory holds that organizations can adapt to
changing conditions by imitating other successful organizations.
G. Organization learning theory It holds that organizations adjust defensively
to a changing environment and use knowledge offensively to improve the
fit between the organization and its environment.
H. Transaction Cost economics it proposes that vertical integration is more
efficient than contraction goods and services in the marketplace when the
transaction cost of buying goods in the open market becomes too great.
When highly vertically integrated firms become excessively large and
bureaucratic, however, the costs of managing internal transactions may
become greater than simply purchasing the needed goods externally, thus
justifying outsourcing over vertical integration.