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In this discussion we will try to understand and explain the basic principal of strategic management and how these principles has changed over the course of time.
As Per the classical approach the strategic management provides the control of strategic management and planning to the higher or senior management, but as per the recent study and changes in the approach of the management, middle level managers have the important role to play in the emergence and implementation of strategy. We will look at the approach suggested by the Porters ad the Porters theory with it Pros and cons and the same can be implemented as per the current marketing and competitive situation.
We will study how the act of constructing and formulation of a strategy is being separated from the implementation and to identify the people responsible for making and implementing the strategies and what methods and process should be used to implement the strategies.
Have a detailed idea about the classical approach for strategic planning.
Understanding the rational ways of strategy and how important they are in building the strategies
How the rational analysis helps up in building a strategy to capture a consolidated market share.
As the market started to grow the competition among the organization have also picked up the pace, and the decisions made by the organization are in such a way that they can not be rolled back or changed once implemented.
The competition pushes the organization towards the risk adjusted rates across the industries. However the study have shown that different organization have sustained different level of profitability. To sustain this Michael Porter provides a framework that models an industry is influenced by five forces. A strategic manager or planner looking to edge over the competitors should plan the strategy as per the porters Model and should understand the industry context in which the firm is operating.
Strategic Planning has become the long term goal in modern era and with the military analogy strategy has become essential in terms of large and long term decisions. Bernard has played a major part in the development of the same he differentiated the organizational theory from both management and strategy leaving strategy as the part of the executive leadership. In modern era Bernard's contribution towards the management and strategic theory is being developed by the Christensen Andrews and Guth Andrews.
As per the Andrews they highlighted the four components of the strategy.
What a firm might do
What a Firm could do
What the firm wants to do
What the firm should do
So as per them the strategic decision should fit between the 1-4 and 2-3.
In all the strategic management theories Bernard's contribution is clearly shown as the part of the planning and decision making. The behavioural theory provided by Bernard has given a valuable input in the development of early strategic management.
Let's take a live example of BRL Hardy, who implemented the Porters five point model as per the industry requirement and that resulted in the financial growth and provided them the edge over the other competitors in the business.
While implementing the Porters model it, an organization has to do the SWOT analysis to further recommend and implement the required changes, same has been done by the BRL hardy team, and as suggested by the Porters theory a SWOT analysis is a stepping stone toward any strategic planning and change if it has to be rational in terms of the working of the organization.
The individual company's strengths have been discussed first which gives an additional advantage to BRL Hardy if they dwell on each company's core competencies and after that BRL Hardy's strengths have been discussed.
Hardy and Sons have made a remarkable stand in the Australian Wine Industry and are famous for their award winning quality wines.
In 1912, Hardy and Sons was Australia's largest wine makers and one of the most respected companies in Australia.
Hardy and Sons is acknowledged with the long history of exporting higher value added bottled products and also for its huge commitments.
Hardy and Sons know how to mitigate the risks related to retailers, distributors, etc. by acquiring lands in the countries which formed the largest part of their markets.
Berri Renmano Limited is known for its fortified, valued and bulk wines.
BRL Hardy is a merger two very different managements and strategic partners; one of the major strengths is that the company could benefit from the management ways of the individual companies.
Hardy and Sons has been in international markets for a greater period and thus BRL Hardy could definitely benefit from this.
BRL Hardy has been placed at number two in top performing Australian wineries list.
The initial acquisitions by Hardy and Sons have resulted in losses because of hasty decisions of acquisition in French markets, so their strategic thinking is a major weakness to the company.
Since the two companies have merged, most of the top management employees belong to Berri Renmano Limited, thus Hardy and Sons employees are feeling left out of the new merged organization. This is building and internal friction in the company.
The new management is acting very stubborn in lieu of the strategic decisions that have to be made.
The strategic decisions made are not based on facts and figures.
The wine industry is growing at a very fast pace.
A number of new customers are emerging in non-traditional wine markets.
If we look at the forecasts in the given case, we could see that the in coming years US will account for the majority of exports for BRL Hardy.
The company has not explored the Asian markets which account for majority of world population.
The French wines account for the best selling wine brands all over and thus the company needs to have the quality that could be weighed with French wines.
BRL Hardy is planning to mark its existence as a brand selling "Quality Wines for the World", which has not been a very successful step in past by other companies.
Also the customers' preference for wines changes, thus establishing a global brand could be a challenge for the company.
Secondly, already there are a few companies like Gallo which have established a global brand, though their market share is very less. But, since BRL Hardy stand at number two to Gallo, so it would be a strategic challenge for the company.
The Proter's Five Forces model talks about the five forces that drive competition.
The first force talks about the Supplier Power that is the power that any supplier enjoys in the industry. In the given case study BRL Hardy has its supplier network which is much diversified and thus the company need not be afraid of the supplier power. Also the company has before merger acquired a few plants in France in order to keep a check on the raw materials and the quality of those.
The second force is Threat of Substitutes. Since wine industry is a very large industry and there are not many substitutes available to wine. So the industry is still capable of enjoying a benefit.
The third driver is the Threat of New Entrants. This definitely is a challenge for the company BRL Hardy. Already this company is at number 2 to Gallo and is trying to become a global brand, which a few other companies have tried out of which a few have succeeded and few did not. Also the Australian wine industry has increased within a few years, which definitely calls for new investments in the same industry.
The next force is Buying Power of Customers. It is very clear from the fact that Australian wine is preferred in Europe, thus buyers are very much interested in BRL Hardy because Europe accounts for most of its exports. Secondly, the European buyers are very famous for their aristocratic style of living, which means they would call for wines which are branded and expensive.
The last but not the least comes the degree of rivalry that exists in the industry. In order to tackle to this force the main characteristic of any company is its brand value and brand name. Since BRL Hardy is a well established brand for past so many years, thus the company has made its stand in the industry. The company if works on its brand value could easily escape any consequences due to degree of rivalry.
To implement the Rational strategy suggested by the Porters 5 point formula a company need to have the strategic objective with the clear understanding of the goal and targets and the same will be applied by the Person responsible for the
The Strategic Objective of Strategic Manager
In an organization a professional manager should be able to fulfil the strategic roles with in the company and to achieve this strategic role a manager cannot neglect the need of the successful operational management strategy. Operation management is the heart of every organization which controls the system of operation. Operation management has to work on the systems like design, operations and change in the process that produces and deliver the company's primary services. Like the other part of the organization as Marketing and Finance, operation management is a functional field with the responsibilities of the management.
The role of the effective operation management is to successfully transform the company's raw in to the finished service that is required for the delivery to the customer. The effective operation management includes the inputs from manpower like workforce and managers, facilities and process like the proper place to work and equipment, materials and technology.
A proper operation management is the aspect for transforming the inputs and the output and to implement it in a more successful way, to get the best output the customer feedback plays a major role in the operation management. The good and planned operation management has led many companies to the success and achieving targeted result for their customers. For example in the 1994 the Dell Inc. is recognized as the second tier computer manufacturer like the other computer manufacturer in the industry. To make their image changed, Dell implemented a new operational management process a new and innovative way for their business model that completely changed their brand value. Dell introduces the innovative way of managing their operations functions that is now become of the major practices of companies these days. This new operation process makes Dell to provide quick and effective delivery of customized product to their customer and that too on the lower cost other than their market competitors.
With the operation management a company has to sort out many strategic objectives within the organization which relates to the growth of the organization, customer satisfaction and the objectives and target achieved with in the organization.
The strategic objectives which relates to the performance of the organization are corporate, business and functional objectives which depends upon the Customers, suppliers, shareholders, employee and society.
Customers are the first person, who is affected by the performance of the business, and the performance relates to the quality of the work a company or an organization is delivering. With the presence of supplier in the operation process, they effect the operation process in both ways like how the supplier is working and how effective and good they are in supplying to the operation process so the suppliers plays a major role in reaching the objective of the organization and there are strategies which are made especially for the suppliers in the operation Management to achieve their objectives.
When the strategic objective for the operation management are made the shareholders of the organization has to be considered on priority, the strategies are made in such a way that the as how better the better the operation process is at providing the service to the customer for their services, the more the complete business will grow and in the end the shareholders are the major beneficiaries of this and shareholders play a major role in the growth and support in nay organization. So while considering the strategic objective for the operational management process the organization has to think about its shareholders.
Employees play a major role in any organization and are integral part of the operation management process of any organization. There are organizations where the whole of the strategic objectives in operation management of the organization revolve around the employee. If the company is doing well then the employee the employee has the chances of working and giving their best. But operation responsibilities and strategy for the employee like the working condition and how the employees are treated in the organization. Employees are the integral part of any organization and an organization should be strategically active to have the operational management placed in such a way that it creates a working environment for their employee that satisfies all their needs and motivate them to perform and deliver according to the need of the business.
The one other strategic objective of the operation management is the society, although the society is not directly connected to the company and the society don't even have the direct impact on the economy of the company, but the individual and groups in the society are well affected by the operational managers of the company behaves. While making the strategy for the operational management the responsibility for the environmental aspect for the society should be taken care of. These are the various aspects of the strategic objectives of the operational management which plays a major role while making the strategies and process of operation management in an organization weather a small organization of the big organization like Dell Inc.
Operational objectives are placed at the lowest level of the organization management and it normally applied to some specific employee and subdivision in that organization. It focuses on the individual responsibilities of the worker in the organization.
There is various aspects to determine the success of the operational objective in meeting the organizational objectives.
Implementation: - Each organization has its own strategy but it is the operational process which is applied in the organization. We cannot change or touch the strategy, what only can be checked and applied is how the operation works in that process. The implications on the operation process are very useful in the implementation of different organizational objectives of any organization.
Support: - The operational objective is developed in such a way that the resources are capable to achieve the goal of the organizations which are need. For example: companies like dell is known for their innovation in marketing and bringing new product to the market that makes them one step ahead of their competitors, then to be able to perform the same way and bringing new products and marketing strategies their operational process has to be capable of delivering according to the constant changes which are implemented be the new innovations. They have developed a process which is flexible enough to support the different part of the organization.
Driving: - The third part of the operational process of the business is the driving strategy which gives the business a long term competitive edge. Either its long term success or the short term success of the business it comes from successful operational process. The operation function which is the base behind the both long term and short term business advantage is the business strategy which is the driving strategy behind the every successful business and it is the major factor for the competitiveness.
Effective Operations Management: Operation plays an important role within the organization and it can be measured by the target which the organization aims for. The operational management model is the central strategy of the organization for any operational process and it is the part of the competitive strategy of the organizations operational objectives. The competitive strategy of the operation management can be derived in 4 steps.
Internal Neutrality: - This is the lowest level that contributes to the operations function. The other functions of the operation management regard the internal neutrality as the process that holds them back from competing effectively. Even the high performing organization can be bring down by their operation functions.
External neutrality: - After coming out of the stage 1, the best thing an operation function can do is start comparing itself with the organization in the similar area of interest or working environment. In the external neutrality the organization takes the ideas from their competitors when they compare it-self form the other organizations. This is the practice that always results in the favour of the organization as it brings the organization to give their best and innovative result.
Internally Supportive: - These are the operation processes which have achieved their first stage in their market. In this operation strategy the organization may not always perform better than their competitors but they are not much far behind them, this operation process put organization with the best organizations.
Externally Supportive: - After the 3rd stage which is taken as the limit of operation function contributes to the better functioning of the externally supportive organization, which perform better than their competitors and always put the organization on the top.
There are always the positives and negatives of implementing any process in the organization, and as per the current market situation and they ways of doing the business the porters five rules does not give the as effective result as they used to give a decade ago.
So as an organization and as a strategy planner one has to take care of the pros and cons of the strategy implemented and with the change in time and methods of doing business some old methods do not work as efficiently as they used to work few years back. Same thing has happened with the BLR hardy when the strategy is changed and applied.
As a strategically change, company decided to roll of some models of their product and launch the new one as per the demand of the market and this strategy has shown some positive and some negative feedback and results which has a direct impact on the sale of the product plus on the reputation of the company.
Pros of the Strategy Implementation:
The company was struggling with brands like Mapocho and in view of this introduction of a better brand like D'istinto was a good idea. This is because if a company is struggling with one brand, in spite of drawing a sorry figure in front of the customers, the company introduced something that was worthy of appreciation.
The company changed the mind set of people who started loosing their interest in BRL Hardy.
Also, since the rates of Stamp and Nottage Hill were increased there was a huge price differential between the low cost and high cost brands. So the customers who considered low cost brands low to their status quo and were not even able to afford the high cost brand were switching to other brands. Thus that price differential was to be matched.
Cons of the Strategy Implementation:
The company had booked losses due to the failure of their new brands and that would have resulted into high commitment and inventory costs. In such a scenario taking a risky decision of introducing a new brand was foolish.
The company was sure that the new brand D'istinto was produced with a touch of Mediterranean style of living, which was a very sure success in Australia. But its success in Europe was a big question.
Porters five Force model is still an integral part of the Strategic implementation within an organization though with the change in time and change in the business process and marketing techniques the Porters model looks out of the time and quite old but it has the root of all the strategic planning.
Still the old entrepreneurs and businessmen who started their venture 30 - 40 years back, believe on the porter's formula of strategic planning.
SWOT analysis has played a major role in any strategic decision as it provides them the required information about the organization and make them understand what changes are exactly required keeping in mind the customer demands.
We have taken the Example of BLR hardy a Wine company how they have changed their strategy to change their product and review their strategic approach to compete with the new comers in the market and the old horses of the Wine business.
The implementation of the rational approach of the strategic planning an organization should have the people who can take responsibilities on their shoulders and act as a leader during the transition phase.