In the global market, competition has forced firms to be strategic in their thinking, planning and making decisions. In this case, it is necessary for firms to perform a series of practices like environmental analysis, implementation, strategy formulation, control and evaluation of strategic plans within their firms as applied through strategic management (STM). Strategic management is defined as those actions providing a firm with long-term development framework that enables it achieve its objectives. It is this management practice that has seen many businesses across the globe carry out systematic planning and decision making. According to Hitt et al. 2009, the full set of actions contained in strategic management requires a firm to analyze their environments (external and internal); formulate its competitive, corporate and functional strategies; earn above-average returns; and achieve strategic competitiveness.
Theoretically, the first strand of strategic management concerns the external environment of the firm that is known to set the scene for strategic decision-making process. The second theory gives focus to the internal environment of the firm, which encompasses the intangible, tangible, capabilities, and human resources (Hitt et al., 2009). In this paper, we distinguish strategic management systems of Kaplan and Norton’s notion as it applies to the internal environment of an organization with Porter’s approach that assesses the ‘five forces’ that apply to a firm’s external environment. These two strategic planning models have a connection that we shall try to portray in this discussion and hence, their similarities and differences will be of particular focus.
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Stacey talks about success by mentioning that it all depends on the individual carrying out the planning in the firm (2011). Moreover, it also looks at the proper assessment of the firm’s resources and external conditions. Michael Porter’s approach looks at a firm’s external environment by assessing the ‘Five Forces Model’ and how environments affect companies. In this model, executives of given organizations need to be strategic in their planning process by examining the following: a) Threat of New Entrants, b) Bargaining Power of Suppliers, c) Bargaining Power of Buyers, d) Threat of Substitute Products or Services and e) Rivalry among Competing Firms ( Porter, 2008 ).
Michael’s model is helpful to firms as it enables them determine the attractiveness of the industry plus its potential in terms of earning above-average returns ( Porter, 2008 ). Arguments raised by Porter with regard to companies generating competitive advantage are either through cost advantage or differentiation. Cost advantage is viewed in the context of producing goods and services that have lower cost to competitors and thus, gain superior profits. On the other hand, differentiation is where consumers are provided with superior and special value in form of producing goods and services that have quality and special features. Value chain is the other concept invented by Michael Porter that has enabled organization explores their close different functions plus their mutual interactions. It is through this value chain tool that organizations are strategically divided into primary activities (sales and marketing, outbound and inbound logistics) and supporting/secondary activities (human resources, procurement, firm infrastructure among others) that go a long way in helping companies achieve their competitive advantages.
Robert Kaplan and David Norton developed an approach called the balanced scorecard which is a strategy map that helps organizations develop a series of measurable performance indicators. These indicators are linked with the objectives and mission of organizations and thus, the measurement aspect of the balanced scorecard helps in the development of benchmark practices. A strategy map is a powerful communication tool as it provides leaders and their organizations with a visual representation of their firms’ strategy. In essence, organizations are able to use other frameworks that help in filling the blanks when it comes to attaining a holistic view of their intended strategic plan. For Kaplan and Norton, company failures were brought about by issues within the management system, which looks at the integrated set of tools and processes of a company ( Kaplan & Norton , 2004 ). Later, these tools and processes are used in the development of strategy that will be translated into the company’s operational actions and in the end, monitor and improve their effectiveness.
From the above description, it is evident that Kaplan and Norton’s model will force one to look at both internal and external assets. As such, this resulted in Kaplan and Norton designing a system that had five stages and was close-looped. The five stages in questions are the following: a) Develop the Strategy, b) Translate the Strategy, c) Plan Operation, d) Monitor and Learn and e) Test and Adapt the Strategy ( Kaplan & Norton, 2004 ). However, successful execution of the strategy as stated by Kaplan and Norton will require the identification of intangible assets (human capital, information capital and organization capital). After identification, it is now time for a company’s leadership team to connect them with the company’s goals through the use of Kaplan and Norton’s ‘strategy map’. It is through this map that the processes are influenced to show how the intangible assets are able to create value for both its company’s stakeholders and customers.
The above description of both Porter and Kaplan and Norton’s models explicitly show that leaders of any given organization need to work with both models in order to succeed in their long-term strategic plan. Research indicates that Michael Porter’s model has helped manages to formulate their strategies while Kaplan and Norton’s model provides them with the discipline to move forward and implement the strategies. The aspect of discipline is essential as it creates a link with objectives in perspectives that engage the executive team of any given organization and thus, is known to promote clarity and commitment to the strategy formulated. It is from this that success is attained for instance, the strategy map employed by employees of the Royal Canadian Mounted Police (RCMP) has helped the, do their jobs despite their cold weather. Lack of discipline is a factor that has made many businesses to fail because they are not disciplined enough to stick to their formulated strategies without straying from their initial strategy. Furthermore, it is with the aid of Kaplan and Norton’s model that leaders are able to move forward from their internal environment and structure their meetings in a way that helps them in identifying those areas they are failing. By only giving focus to their internal environment. Organizational leaders fail to capture the bigger picture of the global economy and thus, will fail to realize their potential because they have opted to restrict their imagination, creation, and reach to only their internal environment. Thus, by adopting other strategic models like the Porter’s approach, they will be leaning towards the creation of a management system toolkit that is effective and competitive. Hence, the use of Porter’s five forces model means that focus is given to the organizations’ external environment.
After talking about the existing relationship between Kaplan and Norton’s strategic management system with Porter’s five forces, we look at their similarities. The similarity between the two models touches on the success of an organizations strategic plan. Therefore, they start by first looking at the organization, mission, vision, and objectives or values. The differences that are exhibited from the above description is the fact that Michael Porter’s model gives focus to the external environment of the organization and how it can make a profit by being different from its competitors. The whole picture brought about by Porter’s model is that of obtaining competitive advantage and thus, the source of competition needs to be identified by looking at the different potential sources. In addition, how the external environment influences the operations is also important to consider. As for Kaplan and Norton, it is evident that their main focus is on an organizations intangible assets and how they can be translated to be of value when it comes to making strategic decisions ( Mintzberg, 2011 ).
In summary, it is evident that there exists a relationship between Kaplan and Norton’s model with Porter’s five forces model with regard to strategic management. The differences of these strategic models are also clearly stated to show that they both work together in bringing success to organizations both small and large-scale businesses. It is also evident that similarities have been mentioned to relay to the reader that the strategic models work together to give organizations a competitive advantage.
References
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Harvard Business Review , March–April, vol. 20 (2), p. 40-45.
Mintzberg, H. (2011). Managing . Harlow: Pearson, Prentice hall.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review ,
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Stacey, R. D. (2011). Strategic management and organizational dynamics: The challenge of
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