In the field of business and economics, there has been much deliberation in the approach literature as to whether managerial capabilities and/or market competition are more imperative in shaping strategic leaders’ actions. However, this argument has generated little agreement. From a business point of view, it is generally assumed that merely comparing organizational; resources and the market influences will go on to attest fruitless for long without sustainable solutions being found. First and foremost, both organization and competition are unmistakably vital in determining stratagem and performance (Donald, p50, 2009).
Notably, interactions involving policy and performance shape both managerial capabilities and competitive atmospheres. Moreover, researchers engrossed in exemplifying the environment have characteristically been contented with very undemanding models of the organization while researchers concerned with the inner dynamics of organizations have typically been contented with very undemanding forms of the environment (Donald, p50, 2009). This paper will discuss Michael Porter and Gary Hamel’s approaches to the paradox of markets and resources. To arrive at the conclusions statistical analysis was carried out.
Michael Porter delineates a methodical framework for comprehending the effects of business structure on the revenue prospective of organizations within an industry. Porter’s framework puts up on the structure-conduct-performance model from business organization economics. The fundamental nature of this model is that the firm’s performance in the marketplace depends decisively on the distinctiveness of the industry in which it competes. In a limited move away from the conventional structure-conduct-performance model, Michael Porter concedes the responsibility of businesses in formulating suitable competitive strategy to accomplish better-quality economic performance, competitive strategy that may revolutionize the industry rules in the firm’s errand. This extends to firms that can prefer strategies that influence or daunt entry into their industries (Daniel, p45, 2011).
Nevertheless, in his work, the basis of profits is not to be established in the organization but relatively in the structure of the industry. This is particularly the natural world and balance of its competitive forces. The economist goes ahead to recommend an investigative framework to assess the charisma of an industry. He categorizes five indispensable competitive forces seen as pressure to the firm profits. They include; threat of substitution, negotiating supremacy of suppliers, bargaining power of buyers, threat of entry and enmity among existing competitors (Daniel, p51, 2011).. The combined contact of these five forces, the causal configuration of a business, determines the power of industry rivalry and the aptitude of organizations in the industry to make profits. Porter illustrates competitive strategy as captivating self-protective and offensive measures to survive lucratively with the five competitive forces.
The absurdity of markets and resources has been by far a dilemma to many strategic leaders pin many organization. It should be distinguished that the two are very fundamental aspects of business performance and greatly influence the business’ capability to succeed in its operations. Porter presents an approach that translates the market place as the major environment of competitiveness. The adoption of Michael Porter’s model/approach in strategic management has raised two significant criticisms. On the other hand, experiential studies have established considerably advanced organization-effects than industry-effects on performance.
The second criticism which is linked to the first one concerns the administrative implications of the structure-conduct-performance logic. According to Porter’s five forces outline, businesses should penetrate and work only in attractive industries On the converse Porter’s framework centers on what makes some positions within industries more eye-catching (this presents the cross-sectional predicament) and not on why some organizations are capable of getting into profitable positions (presents the longitudinal quandary) (Daniel, p56, 2011).. While the intensity of opportunity and threat in an industry manipulates organizational performance. As a matter of fact, the advantages from ingoing and working in an industry cannot be assessed autonomously of the organization’s resources and competence.
Above all, Porters approach to the paradox of markets and resources has a major weakness. This is the fact that it overemphasizes competition to the disadvantage of teamwork. Undeniably, the five forces framework fabricates on Porter’s certainty that the resource of profits is principally to be established in the nature and stability of competition. In corollary, relationships with customers, competitors, and suppliers are condensed to divergences for profits.
In essence, Porter’s approach is about situating a business in a given industry composition, while the authenticity of business since long time ago is that business structures are far from steady and are going through key transitions. Additionally, the most important center of Porter’s strategic scrutiny is the business entity. This element of analysis is sufficient if commercial strategy is seen as set strategy but less suitable if when the business is viewed as a bunch of resources (Daniel, p11, 2011)..
Notably, Michael Porter presents a list of five forces that are influential when it comes to marketing strategies and resource allocation. This list replicates Porter’s espousal of a market authority perception and is ill-suited to description for the effect of the competitive atmosphere on unremitting competitive benefits and performance as this research defines them For instance, while consumers negotiate for the charge created by the organization (market power perspective), they also establish the cost of the merchandise through their compliance to pay (effectiveness perspective). Despite its market power perspective, it is generally attributed that Porter’s framework can be productively used to scrutinize the competitive milieu. Therefore, to some extend, Porters approach is the ideal policy to adopt for strategic management.
Gary Hamel defines a business structure and/or strategy as a marketing concept that has been to use by the business stakeholders in the business world. He goes ahead to propose a business paradigm framework consisting of four fundamental elements (Breen, p27, 2007). Hamel asserts that the four elements which include; core strategy, strategic resources, customer interface and value network are essential to all strategic leaders when it comes to formulating informed decisions regarding the market, competitors and the consumers. It is vital to note that according to Hamel, the four must interact in a business environment for success. However, contrary to Porters five forces, Hamel takes into consideration the fact that strategic resources are vital in determining the best business model (Breen, p27, 2007).
First and foremost, there is the core strategy. This entails the business mission and vision, the product market and consumer scope (Hamel, p19 2002). Finally, it includes the basis for differentiation. The core strategy primarily consists of the overall business strategy which is the prospective position of the organization in the long run and/or the period the organization will be in the business field. The finer details of the core strategy according to Hamel include the marketing strategy, which according to him, involves the kind consumers, the competitors and the product it self in respect to the market atmosphere.
The strategic resources which are the businesses core skills, competences, assets and the overall procedures which deliver the core strategy are generally attributed to the proper strategic management. Put together, strategic resources form the basis on which the organization can formulate its long term business strategy and come up with ideal decisions regarding the market atmosphere. Hamel introduces resources as the major determinants of how competitive businesses will be in the long run. Strategic resources, therefore, according to Hamel are significant elements when it comes to strategic leadership. In other words they assist strategic leaders in decision making and implementing of policies to see the business succeeding (Breen, p36, 2007).
The third element in Hamel’s model is customer interface. This is how well consumers border with and/or experiences the business entity. Apart from that, it also entails the accomplishment, support, insight, information, pricing and the overall relationship to the organization. Knowing the consumers well and identifying their characteristics is a vital step when it comes to strategic leadership. Hamel proposes that the consumers should come before anything else when it comes to decision making since they form the basis on which the organization exists. Together with strategic resources, consumer interface are two elements that run together to come up with the general business stratagem.
The last element in Hamel’s approach is value network. This includes coalitions, external suppliers and partners linked to the organization. The four form part of he external environment of a business. Suppliers are concerned with the provision of raw materials and but not limited to finished products. Acknowledging value network is vital to all strategic managers according to Hamel. For instance, Hamel asserts that businesses in coalitions should sit at table and come up with decisions that are common and accepted by the stakeholders. Moreover, when it comes to partnerships strategic management become a big challenge to managers.
According to Hamel, the four elements are linked in three major ways. These are; strategic resources are constituted to convey the core strategy. In turn, the core strategy endows with benefits which are realized through the customer interface. That shows how the elements work together for the best decision making and formulation of strategies. However, Hamel’s approach tends not to give much emphasis on the market structure which is also vital when it comes to making decisions (Morrill, p15, 2010).. If one could consider all the forces at glance, then it will be established that they act mutually and interdependently to bring organizations in their success front.
The procedure of strategic leadership and decision making starts with an appraisal of the atmosphere within which it occurs. Strategy can be compared to a preparation, apart from it is broader in extent, long term in character, and bordered by more uncertainties. The strategic preferences of organizations-and nations-also may be restricted by restrictions imposed by their environments. For instance, the condition of famine in North Korea is a situation where decision making is vulnerable. Both North and South Korea wish for incorporation of the isthmus.
However, the two perceptions of how this would come about, and which opinionated system would become governing, are fundamentally different. Thus, ecological factors are influencing competences for strategic preferences that may not be entirely played out for many years. Perchance earlier strategic choices by each one of these countries, dating back three or four decades, may well have formed the limits and opportunities in the current milieu (Donald, p133, 2009). This is a clean show of how a strategic leader may be unable to identify which type of approach will suit his ability to make decisions in such a situation. Between Porter and Hamel’s approaches, it is very much challenging to determine the best policy to influence the capability to make informed decisions in challenging situations.
There is significance of unpredictability to strategic management and decision making stems from the aggressive nature of the world. Countries, states, associations, societies- systems and organizations all search for better wealth or power, or both. On the converse power and wealth are limited merchandise, so the arena is set for competition. Even when large strategic coalitions such as NATO are created, it is with a scrutiny en route for attaining a competitive benefit relative to another premeditated alliance. For instance, a competitor can be impaired by speedy obsolescence of its capital-intensive bludgeon scheme, so it may make sense to trail new maturity with just that endeavor in mind-not the demolition of that coordination on the combat zone, but rather by lead on the balance sheet (Morrill, p23, 2010).
This shows how circumstances in the business world can create a predicament in strategic leadership. Moreover, it would turn out to be ineffective when it comes to decision making. Even though Michael Porter and Gary Hamel have tried their best to come up with two different approaches regarding markets and resources, it is skeptical that they might help when it comes to strategic leadership and decision making. This is given that the world id on a brink and it is changing so fast crippling any efforts to make perfect decisions. Moreover, circumstances in the business environment have proved to be challenging especially when it comes to the best approach to use. Should it be Porters or Hamel’s? The answer to that question rests on the shoulders of strategic managers who are left with the task of making informed decisions.