Whilst a recession does adversely affect any company in a number of ways, it also provides opportunities for good strategic management in increasing business and honing methods for creating new business opportunities.
Survival in a spiraling market is all about adapting to circumstances better than the company's competitors. Other avenues for revenue and cash retention can be explored, and - with the help of strong planning - can lead to additional income.
Another proven strategy to maximise resources whilst exploring new opportunities is to form working parties to work aggressively on one aspect of the business
Economic downturn is a time when good management is of the utmost importance. High anxiety levels and low morale amongst employees calls for various management strategies to be effected in order to combat the reduced performance that this brings, as well as maintaining high workplace morale and meeting stringent company targets.
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Effective strategic management is also critical to ensure that the business is steered through the difficult economic climate with minimum damage and change and is in a strong position once the market improves
The concept of corporate strategy battles with the perennial issue of determining the overall purpose and scope of an organisation. From a contemporary perspective, it involves the specification of long-term goals and objectives that will add value to the business and cope with the uncertainty of modern times. As a practice, it consists of adopting courses of action and allocating resources in ways necessary for carrying out the overall objectives.
Widely recognised as the most principal theories for strategy development, the prescriptive and emergent approaches must be examined within the context of an increasingly dynamic, highly competitive and global business environment. Powerful external forces are driving organisations to reduce costs, enhance processes and identify new opportunities for growth.
Many businesses are compelled to make dramatic improvements not only to compete and prosper but also merely to survive. This brings to the fore the importance of determining how effectively the prescriptive and emergent approaches can meet the needs of today's businesses when formulating strategy
Strategic Management is about analyzing the situation facing the firm, and on the basis of this analysis formulating the strategy and finally implementing that strategy. The end result is for the organization to achieve competitive advantage over its rivals in the industry
Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment." (Lamb, 1984:ix)
The three core areas of strategic management are strategic analysis, strategic development and strategy implementation.
Some organisations implement a strategy without fully analyzing their current situation, because events in their industry are changing so fast that they feel they simply do not have the luxury of undertaking detailed analysis. In reality, without the use of some analysis the organization will never know if its strategy succeeds, and why it succeeds
Figure below shows that each part of strategic management process is interdependent.
A strategic management process
Strategy Analysis: This is also referred to as situational Analysis. This involves an analysis of the general environment and the competitive environment. Strategy analysis also deals with the organization's internal environment. It allows the organization to evaluate how well it is positioned to exploit the opportunities in its external environment. The organisation, its mission and objectives have to be examined and analysed. Strategic management provides value for the people involved in the organisation, means the stakeholders.
Strategy Formulation: A careful analysis of the firm's internal environment and the needs of the external environment will allow the firm to assess where it can best achieve a strategic fit between the two. Markides (1999b) argues that 'effective strategic design is a process of continuously asking questions.. correctly formulating the questions is often more important than finding a solution. To be successful, the strategy is likely to be built on the particular skills of the organisation and the special relationships that it has or can develop with -suppliers, customers, distributors, competitors and government.
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Strategy Implementation: Effective implementation of strategies requires the organization to be sufficiently flexible in its organisational structure and design. Strategies needs to be communicated understood and properly coordinated with stakeholders inside and outside the organization. (Pg 10, Anthony Henry, Understanding Strategic Management)
There may be major difficulties in terms of motivation, power relationships, government negotiations, company aqu sitions and many other matters. A strategy that cannot be implemented is not worth the paper it is written on.
Richard Lynch, 5th edition, strategic management Pg. 13
In strategic management development, there are two approaches to represent it:
Prescriptive approach: A prescriptive strategy is the one whose objective has been defined in advance and whose main elements have been developed before the strategy commences. The prescriptive approach takes the view that the three core areas-strategic analysis, strategic development and strategy implementation are linked together sequentially. It is being judged as a linear and rational process, analyzing the current situation and developing new strategies for the future.
Such an approach usually begins with an analysis of the outside environment and the resources of the company. The objectives of the organisation are then developed from this. There then follows the generation of strategic options to achieve the objectives, from which one (or more) may be chosen. The chosen option is then implemented.
This full range of activities is called the prescriptive strategy process. There are a number of strategy theories that explain elements of this process within prescriptive strategy and these are highlighted in the model above right
The prescriptive model of the strategic process is largely linear
A model of a prescriptive strategy process
Prescriptive Strategic management process working explained below:
Prescriptive strategy starts with an analysis of the competitive environment and resources of the organization.
This is then followed by a search for an agreed purpose, such as maximization of the return on the capital involved in a business.
One Test for prescriptive strategy is to see whether a clearly defined objective has been identified in advance of the commencement of the strategy.
Against the background of the competitive environment and an agreed purpose, various options are identified to enable the business to achieve the purpose.
One option is then selected which is best able to meet the objective.
The chosen option is then implemented by the organizations managers
Advantages of prescriptive strategy
Overview provided by the process
Comparisons with objectives
Summaries of demands made on resources
Picture of choices to be made
Ability to monitor what has been agreed
Difficulties with prescriptive strategy process
Mintzberg identified six assumptions of the prescriptive process that may be wholly or partially false:
The future can be predicted accurately enough to make rational discussion and choice realistic.
It is possible and better to forgot the short-term benefit in order to obtain the long-term good.
The strategies proposed are, in practice, logical and capable of being managed in the way proposed
The chief executive has the knowledge and power to choose between options.
Any careful analysis, strategy decisions can be clearly specified, summarised and presented.
Implementation is a separate and distinctive phase that only comes after a strategy has been agreed
Environment: (Dr Richard knight)
Assumed to be predictable
Numerous instances where this has proved to be incorrect.
Assumed that major strategic decisions are initiated by clear planning procedure
Decisions in practice are complex, multi-layered and subject to management whim
Assumed that such procedures from group HQ to individual strategic business units represent the most efficient method for allocating funds and gaining management commitment
Whereas research evidence suggests that some managers find the process demotivating and unwieldy
Assumed that organisational culture will allow the prescriptive model to operate
Whereas some cultures are in practice more suited to prescriptive approach than others
More general criticisms of the prescriptive approach include:
Need for more dialogue in the development of strategy
Innovation needs a greater flow of ideas and is ill-served by rigid reporting and information flows
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More adaptable organisation is essential where the environment is changing rapidly: emergent approaches are essential in these circumstances
Industry and environment based theories of strategies:
This theory argues that the profits are delivered by selecting the most attractive industry and then competing better than other companies in that industry. (Pg 48, Lynch)
the resource-based view is grounded in the perspective that a firm's internal environment, in terms of its resources and capabilities, is more critical to the determination of strategic action than is the external environment. "Instead of focusing on the accumulation of resources necessary to implement the strategy dictated by conditions and constraints in the external environment (I/O model), the resource-based view suggests that a firm's unique resources and capabilities provide the basis for a strategy. (100 ventures)
Game based theory: It focuses on an important part of prescriptive process - the decision making that surrounds the selection of the best strategic option. This theory tries to explore the interaction between and organization and others as the decision is made.
Cooperation and network theories of strategy: In this theory, two independent companies work together to achieve an agreed objective. In network theory, the focus rests on sharing networks of personal contacts, knowledge and influence both inside and outside the organization.
Emergent approach: An emergent strategy is one whose final objective is unclear and whose elements are developed during the course of its life, as the strategy proceeds. . It is evolving, incremental and continuous, and therefore cannot be easily summarized. In this view, strategic management emerges, adapt to human needs and continues to develop over time. The emergent approach takes the view that the three core areas are interrelated.
As human beings are not always the rational and logical creatures, as assumed by prescriptive strategy, various commentators have rejected the, long term prescriptive approach. Research of Pettigrew, Mintzberg and Johnson has developed the people areas of strategy.
Ref:Pettigrew, A (1985) The Awakening Giant: Continuity and change at ICI, Blackwell, Oxford.
Johnson, G 1986, 'Managing strategic change'- the role of strategic formulae, published in McGee, J and Thomas, H (ed) 1986.
Development of Strategic management is more complex than the prescriptive strategists imply. The people, politics and culture of the organization all need to be taken into account.
According to researchers Argyris and Senge, strategic management can best be considered as a process, whereby the organisation's strategy is derived as a result of trial, repeated experimentation and small steps forward. Thus it is emergent rather than planned. The process then proceeds as market conditions change, the economy develops , teams of people in the company change and innovations occur etc.
Thus the early stages of emergent strategy may be similar to prescriptive strategy - analysis of the environment and resources. But then the process becomes more circular, learning and experimental.
Again, there are a number of strategy theories that fall under the general heading of emergent strategy. Some of these are highlighted in the emergent strategy process model shown above right
A model of an emergent strategic process
Advantages of emergent corporate strategy
Consistent with actual practice in organisations
Considers people issues such as motivation
Takes account of leadership, culture and politics of an organization.
Allows experimentation about the strategy to take place
Delivers Flexibility to respond to market changes
Difficulties with emergent strategy process
Unrealistic to expect board members to allow business to function without objectives.
Group resources need to be allocated between demands of competing operating companies.
Abdicates responsibilities for final decisions by involving political groups and individuals
Experimentation may not be effective for lengthy projects.
Removes aspects of rational thinking from decision making.
Management control becomes unclear as actions to be undertaken are not planned in advance
Survival based theories of strategy
This theory regard the survival of the fittest company in the market place as being determinant of strategic management.
Uncertainty based theories of strategy
These theories use mathematical probability concepts to show that strategic management development is complex, unstable and subject to major fluctuations, thus making it impossible to undertake any useful prediction in advance.
Human resource based theories of strategy
This theory emphasizes the people element in strategy development and highlights the motivation, the politics and cultures of organizations and the desires of individuals.
Innovation and knowledge based theories of strategy
This theory privilege, the generation of new ideas and sharing of these ideas through knowledge as being the most important aspects of strategy development.
Surviving and Thriving in Economic Turbulence
As the impact of the financial crisis spreads, no organization will remain untouched.
Most of the risks inherent in the crisis are easy to recognize. In tough times, there is a natural tendency to retrench, cut costs, and wait things out. Organizations often overlook or shy away from the growth side of the equation. Companies that first manage the risks and then exploit the opportunities of this crisis in a strategic, deliberate, and speedy manner will emerge as the winners
Senior managers need to be perceived as committed to clearly defined goals, and a 'clear vision' of the future of the company;
A clear concern for staff welfare;
A history of effective change management;
A good market knowledge and ability to use staff to their most effective potential;
Effective planning systems had been implemented to review the future strategic options available to the firm
Good management is being able to recognise and react to the knowledge, experience and feelings of the workforce affected by change. Reductions in staff numbers means those that remain are subject to longer hours, a higher workload, and increased job insecurity.
It could be perceived that those who have retained their jobs during a round of redundancies should be grateful that they have been spared, but many may feel abandoned, threatened and stressed. This in turn results in decreased morale, so another challenge facing management during uncertain times is that of increasing and maintaining morale within the workplace.
Recession alone will not necessarily put a company into a crisis or turnaround situation, however, it highlights existing weaknesses either created in boom conditions. The organizations that are best prepared to cope with a recession are those with relatively low borrowings.
Clifford (1977) has suggested that companies that survive a recession most successfully are characterized by superior management which emphasizes the protection of margins, the efficient use of capital and a concentration on markets or segments where distinctive competitive advantage is possible. Such competitive advantage will result from more effective cost control, innovative differentiation, a focus on service and quality & speedy reaction and change in dynamic environment. Cost savings must then be controlled to ensure that they do not creep up again. Training and R&D should not be compromised as new ideas and service quality are important for adding value, helping customers to find new competitive opportunities and persuading customers to buy when their spending power is limited. While looking at the short term conditional changes, the long term needs should not be ignored. The development of new products and services should be speeded up.
Tools to measure external environment:
Study of the environment will provide information on the nature of competition as a step to develop sustainable competitive advantage.
Some prescriptive strategists take the view that in spite of uncertainties, the environment can usefully be predicted for many markets. Some emergent strategists believe that the environment is so turbulent and chaotic that prediction is likely to be inaccurate and serve no useful purpose.
PESTEL: To the prescriptive strategists, although the items in a PESTEL analysis rely on past events and experience, the analysis can be used as a forecast of the future. Prescriptive strategists would suggest that it is worth attempting the task because major new investments make this hidden assumption anyway.
The emergent corporate strategists may well comment that the future is so uncertain that the prediction is useless. If this view is held, a PESTEL analysis will fulfil a different role in interpreting past events and their interrelationships. Some emergent strategists may give words of caution but still be tempted to predict the future.
Role of government:
Strategic management is not concerned with forming of policies, but does need to understand the implications of the decisions taken. Governments can stimulate national economies, encourage new research projects, impose new taxes and introduce many other initiatives that affect the organisation and its ability to develop corporate strategy.
Other areas of government interest, such as public expenditure, competition policy and taxation issues, also needs to be analysed, as organization is a government customer and is heavily dependant on some aspect of favorable government treatment such as tax. Finally, macroeconomic conditions needs to be explored as assessed.
Porters 5 forces model.
It provides a very useful point in the analysis of environment. It raises issues in a logical and structured framework. It is recommended as Ist step in strategic development.
Main Aspects of Porter's Five Forces Analysis
The original competitive forces model, as proposed by Porter, identified five forces which would impact on an organization's behaviour in a competitive market. These include the following:
â€¢ The rivalry between existing sellers in the market.
â€¢ The power exerted by the customers in the market.
â€¢ The impact of the suppliers on the sellers.
â€¢ The potential threat of new sellers entering the market.
â€¢ The threat of substitute products becoming available in the market
Resource Analysis: Analysing the resources and capabilities off an organization has a dual purpose, ie to identify where value is added in the organization and to explore and enhance the competitive advantages of the organisation's resources.
Both prescriptive and emergent approaches to strategy development regard resources as important, however their perspectives are different.
Prescriptive strategists takes the view that it is important to use resources efficiently and build on resource strength. Resources are regarded as objects to be manipulated. Hence, it is possible for strategy to mould resources in order to provide a more efficient organisation. Prescriptive strategists argue that the company will be stronger as a result.
Emergent strategists lay more stress on the contrariness of human resources than their prescriptive counterparts. According to them, the environment is changing so fast as a result of forces beyond the control of the organization that resources needs to be flexible and aimed at survival.
In the prescriptive model, resources deliver a definite result to the organisation and its future strategies. In emergent model, the resources and subsequent strategies are much more fluid and interrelated.
Mission and objectives of the organisation:
Strategic purpose is delivered by identifying and defining the mission and the objectives of the organisation. The purpose of the organisation is more than just delivering profitability.There are three additional areas that will help shape the purpose of the organisation and deserve early examination in its sevelipment. i.e shareholders, , the way the directors govern the organisation and ethics and corporate social responsibilities policies.
Under prescriptive throries of strategy, the organisation will set its mission and objectives for the next few years. It then develops strategies consistent with the mission and aimed at achieving the objectives.
The analysis of environment and resources is used to develop the mission and objectives of the organisation.
According to emergent strategists, purposes do not emerge. Some rejects the parts of mission and objectives, as they think that they are introduced only to make it difficult. They think so because the future is so uncertain. Some emergent strategists, accept the need of mission and objectives, However they want the stakeholders-managers and employees, in the business to become the part of purpose.
Using SWOT Analysis as a tool to formulate Strategy is one of the most effective tool in Strategic Planning. It is a factual analysis due to its extensive data collection and analysis of the data collected. It is effective because the analysis covers a wide spectrum of business environment during data collection. Its takes into consideration external business environment as well as internal capabilities.
By examining the company's internal capabilities-its strengths and weaknesses and its external environment-opportunities and threats, it helps to create strategies that can proactively contend with organizational challenges
This is perhaps the most powerful usage of SWOT Analysis in the Strategic Planning Process.
Step 1 - Evaluate the surrounding
Step 2 - Identify the Strengths, Weaknesses, Opportunities and Threats
Step 3 - Pair the SWOT factors to formulate strategies
Step 4 - Evaluate the strategic options
Step 5 - Selecting Strategic Options
Dr. LM Foong, PhD, Article Source: http://EzineArticles.com/?expert=Dr._LM_FoongHYPERLINK "http://ezinearticles.com/?expert=Dr._LM_Foong"
Value Chain analysis
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings:
(1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and
(2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities.
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others.
Within the framework of an environment which is by and large unpredictable, many organisations are forced to become more flexible and adaptive to change. This supports the adoption of an emergent approach to strategy development which invokes a more intelligent capacity to respond to new opportunities.
Nonetheless, such a strategy can preclude control over actions and may risk a lack of direction. A greater use of strategic planning tools for internal and external analysis would certainly facilitate improved organisational learning and enhance strategic thinking even while following an emergent approach.
This recognition that the prescriptive and emergent processes, rather than being mutually exclusive, can be complementary approaches that reinforce each other is being highlighted in more recent theories such as the Logical Incremental approach proposed by Quinn.
All in all, most viable strategies in today's business world should have customized elements of prescriptive and emergent characteristics in order to manage the complexities of their business and still triumph over changing circumstances.