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Traditional techniques of planning were an extended budgeting process of the organisation, and using the annual budget, projected it a couple of years ahead. As a result, the system paid no heed to the issues of strategic planning going by the presumption that the trends of the future would be similar to the present. However, the advent of greater competition, turbulence in the business environment, higher interest in mergers and acquisitions, and diversification processes, warranted serious consideration for strategic planning. The need arose for a systematic process, for analysing the environmental aspects, assessing the strengths along with the weaknesses of the company, and identifying areas whereby the company could get distinct competitive advantage. The value of, and need for strategic planning became the order of the day.
Management academics began serious and contemplative exercises on the concept of strategy and procedures by which it could be utilised to improve the organisation (Wit & Meyer, 2004). A plethora of management tools now exists which help in the taking of strategic decisions. Strategic imperatives today require that organisations demonstrate the potential to be flexible to the rapidly changing market situation as well as to competition. They also include operation and best practices benchmarking, outsourcing for achieving organisational success, concentrating on, and development of, a few core competencies and the relentless pursuit of competitive advantage (Wit & Meyer, 2004).
Strategy is, therefore, a "Game Plan" of an organisation that provides a framework for critical managerial decisions. It is reflective of the company's awareness of the existence of competition, the time, the rationale and techniques required to respond to competition.
"Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations."
Johnson. G, Scholes. K and Whittington. R. (2008). Exploring Corporate Strategy. 8th ed. London: Prentice Hall. Pg7.
Strategy essentially reveals how an organization plans to survive and thrive within its environment, in the long term. The critical operational actions influence the performance of these plans. The techniques employed in securing, deploying and utilising the resources, determine the extent of implementation of performance objectives. Strategy is indeed a powerful weapon in the arsenal of an organisation for managing the conditions of environmental change that continually confront it. Strategy is complex by nature and is often costly in its introduction and use. Formulation of a strategy is a graded process begins with the defining of the company mission, analysis of the company profile, assessment of the external environment, a thorough industry analysis, evaluation of the multinational scenario, stringent environmental forecasting, and the formulation of long terms goals and objectives.
Characteristics of a Strategy
Chamberlain (2010) opines that, in order to discuss and categorise strategies, it is imperative to understand the characteristics of a strategy. A distinct and coherent theory details a strategy construct, which has seven points of consideration.
Strategy functions in an area that is distinct from policy, operational and tactical domains. A strategy possesses a single, logical, coherent focus, together with an essential direction and an extensive course. It is possible to deconstruct a strategy into elements. A strategy's broad approach essentially comprises of different components, which coherently and collectively seek the realization of the organisational objectives. A strategy's critical thrusts singularly require a precise channel of influence. Its essential elements are the creation of intentional or emergent factors.
Performance objectives of a Strategy
Slack et al. (2004) argue that, a successful strategy should embrace and achieve the five operational performance objectives, detailed below, effectively.
a) Production should be cost effective with the application of the strategy. b) The product manufactured as per specifications, should be of high quality. c) The processes employed should reflect rapid implementation capability, thereby reducing the lead-time between the order for a product or service and delivery to the customer. d) The delivery of products or services should be in consonance with the assurances given to customers, through quotations or published information, thus ensuring dependability. e) The organisations through the use of the strategy should demonstrate flexibility to change operations which may be required in terms of the volume of production, production time, changing the mix of multiple products or services already in production, and in the event of innovation, result in new products.
The success of a business strategy does not rely solely on the capability of outstanding operations achieved by implementing performance objectives, but is equally dependent on the value a customer places on the chosen competitive factors that form the basis of the organisations strategy. Creation of a successful match between the customers' requirements and excellent operational performance should be at the core of an operation-based strategy. It is also necessary to understand that excelling simultaneously in all of the five operations performance objectives is quite unlikely.
(Adapted from a case by Jochen Wirtz in 'Business Strategy in Asia',
Singh, Pangarkar, and Heracleous (Thomson Learning Asia)
Levels of Strategy
Strategy exists at three levels in an organisation.
Corporate level strategy, expressed as a corporate vision statement is the corporate mission. This is the highest level of strategy since it puts in place the scope and long-term course for the entire organization. It deals with the nature of the business of the units in organisations that comprise of more than one business type. The allocation of resources such as cash, to each of the units and defines the process of relationship essential between each other and the corporate centre.
Business level strategy: expressed in terms of the strategic aims and objectives a business unit, details the requirements for achieving competitive advantage within its industry. This stage is identical with the corporate level strategy for a single business organisation. However, with a multi pronged organisation, this level of strategy has constraints imposed by the centre or due to a lack of resources. This level of strategy is highly dependent on the organisation's corporate strategy. The success of its implementation is proportionate to the level of relationship between the business unit and the corporate centre.
Functional level strategy: is one of individual function, existing in different spheres as operations, marketing, financials, and the like. It deals with the input of each domain to the business strategy, and thereby with the formulation of objectives together with resource management to achieve the desired goals.
Analysis of Important Theories
Mintzberg viewed strategy as "a pattern in a stream of actions" (Mintzberg and Waters, 1985) that comes to fruition when deliberate and emergent actions perform in unison.(See Figure below).
Whilst organisations may possess numerous intended strategies, these can be realised only through deliberate strategies. It is crucial strategies take into account the operational feasibility; else, they are prone to remain on a wish list. Strategy formulation occurs from consistent patterns that evolve from actions taken over a long term in the organisation. Mintzberg also cautions against the detachment of the strategy planner in an organisation from the daily operations of the organisation as 'the big issues are rooted in little details' (Mintzberg and Quinn 1991) as it could result in the 'don't bore me with the operating details; I'm here to tackle the big issues' syndrome.
Mintzberg classifies strategy as a) A Plan: where it is a road map for future course of action. However, considering the vagaries of the future, it remains as an expression of intent, more of a proposal that charts a course between the present state and the future statues desired by the organisation. b) A Pattern: is where the focus shifts from the ideal (the original intention) to the real (operational ground realities). A retrospect analysis of patterns, revealed through past actions, aid in the modification of strategies. c) A Position: is where it reflects a decision to market its products or services in scrupulously chosen markets. The determinants of strategy are the external factors such as suppliers, customers, and competitors, thereby calling for adaptability to the competitive environment. d) A Perspective: where it is a system of beliefs and values, created and perpetuated by the strategy creators whose ideas shape the direction of the organisation. The assumptions enshrined in it are the cornerstone for the organisation and are to be valued as relevant and meaningful. e) A Ploy: Strategy is more behavioural than perceptual and exists more as a manoeuvre to confuse or discourage a competitor.
With the publication of 'Corporate Strategy', Ansoff addressed the dilemmas faced by managers regarding strategic planning for their organisation. It clarifies that strategy is a systematic anticipation of environmental challenges an organisation would encounter in the future, for which it was necessary to chart strategic plans to respond to these challenges. Ansoff categorised organisational decisions as related to strategy, programmes, policy, and standard operating procedures. Strategy decisions differed from the rest, as they required renewal each time a new situation confronted the organisation. The components of strategy elucidated are a) Product-market scope: there should be a clear idea regarding the business and products for which the organisation is responsible. b) Growth-vector: also known as, Ansoff Matrix calls for market penetration strategy that increases existing product market share in prevailing markets. The market expansion strategy requires identifying new customers for existing products. The product expansion strategy requires the development of new products for existing clients. The diversification strategy requires new products be developed for new markets. c) Competitive advantage: that considers the strengths and opportunities organisations possess over its competitors. d) Synergy: often described as "2X2=5", where the whole is greater than the parts. This entails a thorough examination of the opportunities matching with the core capabilities of the company.
Peter Drucker defined strategy as,
"Analytical thinking and commitment of resources to action and innovation. Making decisions today about an uncertain future. Taking the right risks while exploring opportunities."
This is a broadly defined objective for organisations to implement in order to have a successful strategy. Drucker propounded eight classifications of strategic objectives, which are:
Market Standing is the accounting of the percentage of total sales of a product in a market by a business organisation. The strategy should determine the desired share in the present and new markets. Innovation: accounts for the developing of new goods or services and skills required to supply them. Human resources: caters to the selection and development of the workforce. Financial resources: identifies the sources of capital and determines the usage. Physical resources: identifies the equipment and facilities together with the optimal deployment and usage. Productivity: reveals the efficient use of resources relative to the output. Social responsibility: is the responsiveness and awareness about the requirements of the wider community of stakeholders. Profit requirements: identifies the achievement of growth and financial well-being.
Boston Consulting Group (BCG)
The Boston Consulting Group developed a portfolio analysis tool enabling managers to develop the organisational strategy, which takes into consideration the market share the organisation enjoys as also the growth potential of the relevant market. Primarily, it consists in the identification of the organisation's strategic business unit (SBU). The analysis of a SBU is essential for developing organisational strategy that generates revenue and future business. The composition of the SBU differs according to the nature of the organisation and the product line.
The SBU essentially is a single business or group of related businesses, having a manager who is responsible for the operations. It has competitors, exists within an area of the organisation, and has the capability of independent planning.
After the identification of the SBU, categorisation occurs according to the appropriate matrix quadrant. The quantified Matrix Quadrants are Stars: The Star SBU requires enormous amounts of cash for their rapid and significant growth. They enjoy a significant share of the high growth market and amass vast funds for the organisation. The Cash Cows: have a large share of a mild growth market and generates plenty of cash. The organisation re-allocates the cash to other areas as deemed necessary. The Question Marks SBUs have a small share of a rapid growth market, and due to the uncertainty that prevails regarding their existence, elevation to the level of a Star SBU or elimination takes place. The Dogs SBUs are usually unable to support themselves and are a drain on cash resources generated by other SBUs. This happens due to the small share retained by them in a low growth market. This categorisation is a valuable aid in the formulation of the relevant strategy for an organisation.
Michael Porter contends that intensity of the basic competitive forces in operation establishes competitive strategy. These forces enumerated as Threat of New Entrants: where the new entrants bring in new capacity with substantial resources in order to gain market share. The factors that deter them are Economies of Scale, Product differentiation, Capital requirement, Switching costs, Access to distribution channels, Cost disadvantages and Adverse Government Policy. Rivalry amongst Existing Organisations is a significant factor as a competitive move of one organisation can have an impact on the others triggering retaliatory and counter moves. Rivalry depends on factors such as the number of competitors, the rate of industry growth, the product or service characteristics, amount of the fixed costs, the capacity of the organisation and the height of the exit barriers. The Threat of Substitute Products or Services occurs when different products appear in the market but satisfy the same need of a consumer. The extent and level of switching costs as high or low considerably affect the industry. The Bargaining power of buyers comes into play when the buyers are forceful enough to drive down prices. They can bargain for high quality and may demand more services. This usually leads to the pitting of one competitor against the other. The Bargaining Power of suppliers is evident when suppliers have the ability to reduce the quality of the goods supplied or raise their prices.
The analysis of the concept of strategy and the various theories put forth by management academicians reveal that strategy is highly imperative in modern day context. Numerous issues confront organisations engaged in the process of expansion and globalisation, either on a daily basis or in the long term, because of which there is a need for a sound strategy and business culture. The Managers and strategy planners endowed with a plethora of management tools can make strategy formulation successful with the proper use of them.