Strategic Management Concepts and Cases

Question: Discuss about the Strategic Management for Concepts and Cases. Answer: Introduction According to Jurevicius, (2013), the term strategic management can be defined as a continuous process which involves analysis, planning, implementation and monitoring which an organization uses to achieve its objectives and goals to compete in the market. An organization has various management strategies to mobilize its resources for better performance in the market. Due to the changing nature of the economy and market trends, strategic management of an organization need not be static. This suggests that the organization has to keep on revising its management strategies from time to time so as to adapt to changes. Strategic management practices of an organization determine its success. By having strong strategic management plans, an organization gains a competitive advantage over its competitors in the same market. The study will identify three strategic management theoretical practices which will be discussed in detail. It will also focus on strategic management practices of the National Australian Bank (NAB) and the theoretical concepts of strategic management and their managerial influence on NAB. The strategic management practices in NAB will be reflected, and recommendations on how they can improve their strategic management practices will be given. Strategic management theoretical concepts According to Newton (2017), theoretical concepts of strategic management are essential in every organization as they determine the organization's culture. The management should come up with valid concepts, and they pass them over to all employees. This creates an organized working environment which is good for the performance of the organization. The theoretical concept in an organization guide the decision-making process of an organization, the behavior of the workers as well as the coordination of activities in the organization. Transaction cost economics theory argues on whether an organization should internally make or externally buy some of it inputs or services. This theory is applicable in different business levels including industries, the organization most importantly on matters related to financing such as the suitability of internal or external source of financing sources. It is also applicable in deciding market entry strategies that an organization and in employee management and compensation issues facing an organization (Leonard, 2014). The gaps in the assumption of the early economic thinking fueled the proposing of the transaction economic theory. The classical economists in the late 1930s and the early 1940s held on three assumptions; The assumed that the markets were efficient. The organization should focus on minimizing costs while maximizing profits. Perfect knowledge of the market influenced decision making in an organization. According to Leonard (2014), Ronald Coase an economist from Britain did not agree with the assumption that markets were efficient since, if they were efficient, firms would be nonexistent. According to Coase (1937) as cited by Leonard (2014) in his essay, The Nature of the Firm. he had discovered that transaction cost was high compared to the prices of goods or services. He observed that during transactions between trading partners, bargaining and while gathering information, costs were created. He argued that internal production of goods and services would be cheaper since excess transaction costs would be avoided. Coase introduced the concepts of inefficient market and transaction cost though he did not elaborate on what were the transaction costs. (Martins et al., 2010) Herbert Simon made a change in the economic theory. As a behavioral scientist, he argued that a rational man did not exist as decisions were made with the aim of satisfying the need. Later on while in Carnegie school, Simon together with Richard Cyert and James March influenced the economics department and led to the establishment of what was called the freshwater economics; a new approach that stressed on changing economic and quantitative aspects of economic decision making in an organization (Leonard, 2014). National Australia Bank established an international expansion strategy which for thirty years became a failure. The Bank had to come up with new strategies to end its woes. According to McConnel (2016), the establishment of this strategy came to haunt the success of the bank in Australia and also internationally. In February 2016, the National Australia Bank announced that it had successfully separated with Clydesdale/ Yorkshire Bank (CYBG) though the separation would result in an estimated loss of $ 4.2 billion dollars. This marked the end of an international expansion strategy of NAB. The strategy had yielded little success in business growth since expanding the organization internationally had prevented the organization from focusing on its corporate strategy. NAB had started its international strategy in 1987 when it purchased Clydesdale Bank in the Republic of North Ireland which under Midland Bank of UK. In the following years, Nab continued buying out other Banks in foreign countries. In 1990 they Purchased Yorkshire Bank in England whose headquarters were in Leeds, in 1992 it acquired the Bank of New Zealand (BNZ) and then US based Michigan National Corporation (MNC) in 1995. In 1997 during its annual report, NAB outlined its success, and a vision of becoming a leading financial service company in the world was unleashed. Following this success, the bank built its headquarter in Melbourne where other branches in Europe were served. As a leading financial services company, NAB revealed its plans to develop online banking services in Australia and New Zealand and offer telephone banking services in the UK and USA. NAB continued implementing its international expansion strategy, and in 1998, they acquired HomeSide Inc, which by then was among the largest mortgage service companies in the US. By purchasing the MNC Life Limited in 2000, they awakened the large banks in Australia who started acquiring the local insurance and investment companies to offer universal services to their customers. In the early 2000s, crisis challenges started to appear in what NAB had thought would be a good expansion strategy. The complexity of the US mortgage market forced NAB to sell HomesSide operation in 2002 making a loss of over US$ 2billion. NAB had only acquired banks that were operating in the peripheral in North Ireland, Scotland and Michigan. The problem in managing the other branches from Melbourne continued, and in 2004, NAB had to exit the Irish banking operations by selling the Northern Bank and National Irish Bank. By 2009, a new CEO called Cameron Clyne announced a change in strategy that would see NAB focus more on the Australian market. The acquisition of Banks in other countries by NAB was opportunistic rather than strategic since they contributed little to the success of NAB in the Australian businesses. From this failure of strategy by NAB, we see the need for applying transaction cost economic theory. This would have helped NAB to identify a better strategy based on strategy and not opportunity. By acquiring peripheral banks rather than a major financial corporation, contributed greatly to the failure of its international expansion strategy. Resource based view According to Jurevicius (2013), the proponents of this view argued that an organization should internally find sources of competitive advantage rather than seek a competitive environment for it. Resource based view urges the organizations to innovate new ways of using resources that they have in exploiting external opportunities. This model of strategic management is important in helping companies experience better performance through effective utilization of resources. An organizations resources can be in two forms; tangible and intangible. According to Jurevicius (2013), tangible resources refers to physical assets such as vehicles, machinery, land among others. These type of resources can be purchased from the market and therefore accessible to every organization. By Acquiring them, the organization offers a little advantage over its competitors for a short period since they can also purchase them. Intangible resources refer to non-physical assets that an organization can own. They include trademarks, intellectual property, patent right among others. Intangible assets cannot be bought from the market like tangible assets, so they cannot be accessed by the competitor organization. Therefore, intangible assets determine the competitive advantage of an organization that can be sustained for a long time. Assumptions of Resource based view According to Rothaermel (2012,) resource-based view has two major assumptions that resources must be heterogeneous and immobile. Rothaermel argues that the resources of an organization must be heterogeneous, that is, the resources that an organization owns must be different from those of another company. By having similar resources in the organizations, competitive advantage would not exist simply because, when one company implements a change in its operation, other companies would do the same. Resource based view assumes that the utilization of different resources by organization creates competition. Resource based view assumes that the resources of an organization should be immobile, this means that resources should not move from one organization to another. Immobility of an organizations resources prevents other organizations from copying its resources and implement their strategy. Intangible resources of an organization are usually immobile. Since intangible resources give the organization competitive advantage over its rivals by being immobile, this helps the organization in sustaining its competitive advantage for a long time. By understanding the resource based view, we can now analyze how this concept influenced managerial practices of NAB. NAB focused on the competitive environment in its quest to utilize the financial service opportunities at the international markets. They did not strategize to utilize their internal resources, but they opted to use external resources to seize the opportunities available. They did so by acquiring banks from their target niches, a strategy that failed to work. Had they tried out to market their services in those countries , they could have gained a better position in the market. Purchasing an existing business organization may have adverse effects because if they have a negative reputation from the consumers, it would be difficult to amend it. Knowledge-based view (KBV) Robert Grant (1996) Robert Grant is the proponent of knowledge-based view. KBV focuses on the importance of knowledge as a resource. KBV asserts that, individuals and not the organization hold and maintains knowledge. He categorized knowledge into two forms; tacit and explicit knowledge. Tacit knowledge refers to knowledge that individual gain through experience or action. Tacit knowledge is implicit and therefore functions at a subconscious level. The implicit nature of tacit knowledge makes it difficult to articulate and share it within the organization. Explicit knowledge refers to information that can be articulated, documented and can be shared within the organization. KBV recognizes tacit knowledge as the source of organizational knowledge. Since it is highly immobile and cannot be imitated, it is therefore considered to be the most important strategic resource of any organization (Leonard, 2014) Organizations can retain their knowledge for a long time, and hence they can use it as a competitive advantage. An organization can best utilize their knowledge resources by ensuring that specialized knowledge possessed by their employees is well coordinated through rules, directives, ensuring everyone participates in solving problems in the organization and also by involving the employees in decision making. The knowledge sharing in an organization should be formalized by ensuring expert knowledge and procedures are kept in written form where every member of the organization can access. Developing a good system of communication is vital in ensuring effective sharing of knowledge among the members of the organization. KBV recommends that an organization should have a common base of knowledge. This makes it easy to share knowledge in an organization. This also creates coordination and individuals with specialized knowledge can disseminate it to others since knowledge within an organization should be mobile. To enhance information sharing, NAB signed contracts with leading financial institutions, Israels Bank Leumi and Canadian Imperial Bank of Commerce (CIBC) where they formed and international banking innovation alliance. According to NAB Executive General Manager Jonathan Davey, the alliance would allow NAB to access vital international innovations and in sights that would help their partners to develop products and services together to improve their service delivery to customers (National Australia Bank, 2016) According to Davey, joining hand with like-minded international organizations would help NAB gain world-class insights that would help them satisfy their customers even better. NAB has already partnered with CIBC in using the Ripples blockchain technology which they use to complete international payments transfers between the two organizations and also between their branches. NAB is now forming collaborations with leading financial institutions this will encourage innovation in the bank which will help them reach their visions. This will increase their competitive advantage and therefore help them regain their status. Recommendations NAB should apply business continuity management plan. According to Andrew (2010), business continuity management plan is formulated in advance in preparation of a future occurrence. This is an important approach to managing risks like the ones that faced NAB in its International Expansion strategy which failed. A business continuity management plan is important for all organization across all sectors regardless of their size. This is because it would help the organization thrive even after unexpected occurrences that dent their vision takes place. Elliot et al. (2010), suggests that a business continuity plan in any organizations requires two elements; The organization must create conditions that make it easy to implement business continuity plan. For example efficient communication system, reward systems, and skill enhancement programs for the staff and good leadership systems (Andrew, 2010). The organization must also have a defined organizational structure. This will make it easy for the organization to implement the business continuity plan after the occurrence of unexpected drawback (Elliot et al.(2010). Before embarking on the international expansion strategy, NAB should do a thorough research on the markets that it wants to venture. This will prevent future disappointments and losses like the one experienced after selling HomeSide Mortgage Company in the US. Before acquiring another institution is good to research on it performance and reputation NAB ended up losing all its branches that they had acquired in Europe because they were not competitive enough in their local markets which resulted in their failure. A common headquarter is important for any organizations, but on international levels, the organization should try as much as possible to develop strategies based on the location of it branches this is because the different business environment will require different approaches. A single strategy cannot be implemented universally and get similar results. This is because markets are different and each market has its competitors, therefore, the need for a unique strategy of operation and marketing of the organization in different countries. Conclusion The concept of strategic management is important in every organization. For an organization to have a competitive advantage in the market, it must observe and apply the theoretical concepts of strategic management. An organization potential to grow and develop mainly relies on its strategic plans. Before venturing into a project, an organization should have a well-documented management strategy which can be used for a successful implementation of the project. References Andrew, C., (2010). Revising Basel 2: The Impact of the Financial Crisis and Implications for the Developing Countries. New York and Geneva: United Nations (G-24 Discussion Paper series June 2010 UNCTAD). Elliott, D., Swartz, E. Herbane,(2010). 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Available from: https://theconversation.com/columns/pat-mcconnell-13137 NAB, (2016). NAB forms International Bank Innovation Network. NAB Articles Nemati, R., (2010). Impact of Resource-Based View and Resource Dependence Theory on Strategic Decision Making. Research Gate Articles. Available from: https://www.researchgate.net/publication/49586561_Impact_of_Resource_Based_View_and_Resource_Dependence_Theory_on_Strategic_Decision_Making Newton, C., (2017), What are five theoretical concepts in the workplace. Available at: https://smallbusiness.chron.com/five-theoretical-concepts-workplace-14115.html Rothaermel, F., (2012). Strategic Management: Concepts and cases. McGraw-Hill/Irwin. P.5