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Businesses today operate in a global marketplace. Dramatic Changes can be seen everywhere. Organizations of any nature have to survive in a complex and dynamic environment which keeps changing. Organizations try to gain a competitive advantage to achieve and maintain long-term success. For every organization, it is very important to have an effective strategy which has to be matched properly with the organization's objectives so that those objectives are achieved in the best way. The organization without having an effective strategy can not exist in today's complex business environment.
2. Understanding Strategy:
Strategy is often misunderstood as it is a plan or a tactic to achieve a certain objective. Some people consider it as strictly meant for top level management and is stable. However, strategy is about achieving a unique position or having a competitive advantage which have long-term effects. Similarly, every department and levels in the organization are responsible for implementing the strategy and it can be changed according to the changing situation around the organization. It is therefore known as a game plan to develop a future to win even in the intense competition. According to Quinn," strategy is the pattern or plan that integrates an organization's major goals, policies, and action sequences into a cohesive whole." It means a strategy is a co-coordinated and integrated actions and commitments that are designed to exploit core competencies and to gain a competitive advantage.
Strategy is concerned with positioning the business in the market, establishing a reputation with customers, employees and other stakeholders (Cole, 2004, p: 137). Company's board or top management is mainly accountable for strategic planning. Being accountable, they have to focus primarily on company's effectiveness, mission and long-term goals in order to strengthen competitive position, company values, business success in terms of growth in assets, turnover and profits, etc. those who are involved in making strategy should know they are under control of the business. A proper strategy helps to maximize the rewards and minimize the risks. So it plays a very important role in achieving organizational success. as Jotel Ross and Michael Kami say," without a strategy, the organization is like the ship without a rudder, going around circles." Strategy provides an idea about where the organization is going and where it has to go. It is the base for how an organization is going to achieve its objectives. The organization and all its efforts have no meaning unless they are supported by a good strategy. A good strategy reduces the risks and exploits the opportunities. At the same time, it helps to maintain company's strengths while avoiding the threats.
3. Strategic Planning:
Every company has to face threats in their environment where they exist. However, very few of those companies can manage the threats or risks such as new technology, new competition, change in consumer tastes, etc. the organizations who are aware of environmental change and are willing to respond to them by changing themselves internally are able to manage the risks and get succeed. For example, Nokia is known as one of the most successful company in the world. However, the company one point of time used to deal with wood, pulp and paper. It is not a long time back since the company has become very successful. Today, Nokia produces sleek cellular phones supported by very powerful software. The success of Nokia is due to its effective strategic planning.
What we understand from the above example is that strategic planning plays a very important role of enabling a company to deal and anticipate with the risks. Strategic planning provides purpose and direction to the organization as the organization wont be able to get somewhere unless it knows where it is going. Strategic planning simply refers to a process by which an organization makes decisions and takes actions that affect its long-run performance. Strategic planning provides the company with the big picture of where the company is, where it wants to reach and when and how it is going to get there. It also allows the organization to take full advantage of the opportunities by minimizing the threats. Thus strategic planning is very important for both profit or not for profit organizations. But it's not an easy task to formulate the strategy. Different aspects have to be considered while developing strategy. The strategic planning process involves following steps:
Mission and objectives: the company's mission gives an idea about where the company should go. A company's mission is the reason for its existence. Every organization has its own mission for which it is established. The company's mission describes its products, markets, technological areas of emphasis, and it does so in a way that reflects the values and priorities of the firm's strategic decision makers. Similarly, the objectives can be goals or targets that the company wants to achieve. The objectives should be achievable and measurable as well so that the company can monitor and control its activities. The first step of strategic planning is to identify the organization's mission and objectives.
Environmental scanning and analysis: it is the most important step of strategic planning process. Once the mission and objectives are identified and specified, it is important to have an environmental scanning and analysis to explore the available opportunities. The new opportunities and new ways to reach the objectives are often derived from change in the external environment (web-1). The organization also must be able to know its own capabilities and limitations so that the opportunities can be pursued which is more likely to be successful. So, the environmental scanning involves an analysis of both external and internal environment. The external environment consists of two aspects; macro environment and micro environment where macro environment affects all the firms and the micro environment affects only the firms in a particular industry.
PESTLE analysis is a tool for analyzing external macro environment. it looks into external environment factors such as political, economical, social, technological, legal and environmental forces, etc. these forces are considered to be beyond the firm's control. Since, the organizations directly get affected by the change in these forces, the organizations must be aware of these at the time of strategy planning or at the time of product development. PESTLE analysis looks at the external business environment and is an appropriate strategic tool for understanding the "big picture" of the environment in which business operates, enabling the company to take advantage of the opportunities and minimize the threats faced by their business activities (Web-4).
One of the mostly used techniques for environmental scanning is SWOT Analysis. SWOT analysis is a strategic planning tool for doing external market analysis by looking at opportunities and threats to help a business see its own strengths and weaknesses
(Web-3). SWOT stands for strengths, weaknesses, opportunities and threats. Generally, strengths and weaknesses exist within the organization where as opportunities and threats are supposed to be originated from outside the organization. The findings of the SWOT analysis is used for strategic planning for achieving organization's goals. The organizations try to seek opportunities by exploring their threats and weaknesses. Once the SWOT analysis is performed, the company will be able to know that how to power its strengths, how to progress the weaknesses, how to make the most of its opportunities and how to reduce the threats.
Michael Porter's Five Forces Model:
The micro environment analysis mainly focuses on the industry analysis. Professor Michael Porter has suggested five forces that shape strategy. The five forces model consists of the following;
Threat of substitute products
Threat of new entrants
Rivalry among existing competitors
Power of supplier
Bargaining power of buyer
Figure: Porter's Five Forces Model.
Threat of new entrants:
There is always a chance for the new firms to enter into the industry. When it is easy for companies to enter into the industry, there is going to be high competition. If the demand for the industries products does not rise as compared to the increased capacity caused by the entry of new firms into the industry, then price and the profits are likely to fall (Bowman, 1990, p: 29). So threat of new entry limits the industry's profitability. Some of the factors that can limit the threat of new entrants can be government legislation, high fixed costs, scarcity of resources, brand equity, etc.
threat of substitute products:
There is always a technical threat of somebody coming into the industry with substitute products. The substitute products are those products that provide almost the same satisfaction, same outcome for the customers although it does in a different way, may be using different technology. The factors affecting the threat of substitutes can be technology change & product innovation, fad & fashion, buyer propensity to substitute, perceived level of product differentiation, etc.
bargaining power of buyers:
If there are a limited number of buyers chasing a large number of suppliers, then those buyers have the power to influence the industry. So the industry needs to understand the level of bargaining power that the buyers have. On the other hand, if there is monopoly industry, then those buyers have limited power to influence the industry.
bargaining power of suppliers:
The level of competition is affected by how much their suppliers have bargaining power. It depends on how many firms are there compared to how many suppliers actually are there. If there is very limited number of suppliers and lots of people are wanting to buy that product or service, then those suppliers have a lot of bargaining power and that increases the competitiveness within that industry.
rivalry among existing competitors:
The core of any competition that any organization may face is the industry competitors. There are lots of different firms that are already supplying similar product or services and these firms face competition from each other. Highly competitive industries normally earn low profit margin because of the high cost of competition (web-2). A highly competitive market is the result of;
Many players of about the same size
Similarity between competitors, products and services
A mature industry with a very little grow.
Strategy formulation is the development of long range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses. It includes defining the corporate mission, specifying achievable objectives, developing strategies and setting policy guidelines (web-4).
Once the best and suitable strategy for the organization is selected out of different alternatives, it has to be implemented properly so that to produce a great business performance. Strategy implementation is a process of putting the strategies and policies into action by developing different programs. The implementation process may require even the changes in overall culture, management system, and structure of the organization. The strategies are implemented through a set of programs, procedures and budgets. However, implementing strategy is not an easy task. Many organizations often fail to really motivate their employees to work with enthusiasm, all together, towards the organizational goals (web-5). The effective strategy implementation is not possible if there is no motivational leadership, performance management and transformation of strategies into action within the organization.
Evaluation and Control:
After successful implementation of strategy, it is important to see whether the chosen strategy is achieving the organization's objectives. The organization has to review both internal and external factors that are bases for current strategies measure the performance and take corrective actions if required (web-6). Monitoring progress of the strategic plan implementation and measuring against the organization's objective is an ongoing process. The results achieved while implementing the strategy should align with the objectives set by organization.
4. Why is strategic planning and implementation important?
We all know that strategic planning and implementation is very important for the organizations. Few years back, only the big companies who lead change were doing strategic planning. However, it has now become an essential requirement just to survive. The business leaders must be looking ahead, anticipating change, and developing a strategy to proactively and successfully find the way through disorder caused by change (web-7). Strategic planning simply helps the organization to know about the current situation. This will make easy for management to plan for future. The importance of strategic planning has been increasing over the past few years due to rapid change inside and outside the organization. it has forced the organizations to thinks strategically. Many organizations focus too much on the short-term and are inward thinking. Strategic planning helps them to focus on the long-term performance and growth. Strategic planning and implementation also helps the organization to communicate with its stakeholders. It provides information to shareholders, employees and others about intentions of management. The stakeholders know what organization is going to do to achieve its long-term objectives.
Similarly, more and more non-profit organizations are also doing strategic planning as they know that it is very important in current business environment that keeps changing rapidly. The non-profit organizations see number of benefits such as:
Strategic planning determines a clear sense of future direction and focus.
It improves the programs and service delivery.
It enhances marketing efforts.
It helps to increase the rate of volunteering and involvement of members.
It helps to maintain more effective fundraising.