Henry Mintzberg describes strategy as "a pattern in a stream of decisions."(Henry, M, 2004) It means that the strategy decision has two important implications. Firstly, strategy is not necessarily apparent from the analysis of just one decision, because it must be viewed in the context of several decisions. Secondly, the organization must be aware of decision alternatives in all of its decisions. A strategy decision must contain the long- term goals and resources used to accomplish them. There are important to organizations to face the competitive environment. It is also important to recognize that new strategies may emerge as the environment changes in ways that could not be expected. It is impossible to predict the future accurately every time based on the past in the current global economy. So organizations need to prepare for a range of alternative strategies.
Michael Porter, Harvard says that "sound strategy stars with having the right goals."(Michael, P, 2001). He argues that the ultimate goal for any business should be superior profitability. This creates values for investors in the form of above-average-returns, returns that exceed what investors could earn by investing in alternative opportunities of equivalent risk. For example, at Pepsi, the goal is stated as "to increase the value of our shareholders' investments." But, the high competition in the organizations' environment largely determines whether above-average returns are achievable. So an understanding of the organizations' markets is critical for setting organization strategy.
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When the organization achieves sustainable competitive advantage and earns above-average returns, it means that the strategic management is successful. Successful strategies are created from clear understanding of the competitive environment as well as the internal of the organization. And the strategies are implemented accurately. The strategic management is the process of formulating and implementing strategies to accomplish long-term goals and sustain competitive advantage. The important part of strategic management is looking ahead, understanding the environment the environment and the organization, and effectively positioning the organization for competitive advantage in changing times. So they must think strategically in deciding how to use new technologies to maximize advantage, and the same time to take advantage of the competitive economy.
The first strategic management responsibility is strategy formulation, which is the process of creating strategy. It involves assessing existing strategies, the organization and the environment to develop new strategies and strategy plans capable of delivering future competitive advantage. Peter Drucker associates this process with a series with a set of five strategic questions: what is the business mission? Who are the customers? What do the customers consider value? What have been the results? What is the plan? (Peter,f, 2004). So the strategic management process begins with a careful assessment and clarification of organization mission, values and objectives. (Laura, N, 2008). A clear sense of mission and objectives set the strategy for critically assessing the organization's resources and capabilities as well as competitive opportunities and threats in the external environment. A good mission statement identifies the domain in which the organization intends to operate, which includes the customers it intends to serve, the products and services it intends to provide, and the location in which it intends to operate. Organization culture is the system of shared beliefs and values that develops within an organization and guide and the behavior of its members. Whereas a mission statement sets a forth official purpose for the organization and the core values describe appropriate standards of behavior for its accomplishment, operating objectives direct activities toward key and specific performance results. These objectives are short-term against which actual performance results can be measured as indicators of progress and continuous improvement. Any and all operating objectives should have clear means linked to the mission and purpose. Any and all strategies should have clear opportunities to accomplish operating objectives.
When we analysis the organizational resources and capabilities, the SWOT analysis is critical. The SWOT analysis examines organizational strength and weakness and environmental opportunities and threats. A SWOT analysis begins with a systematic evaluation of the organization's resources and capabilities. A major goal is to identify core competencies in the form of special strengths that the organization has. Core competency may be found in special knowledge or expertise, superior technologies, different manufacturing technologies or unique product distribution system, among many other possibilities. But always, they must be viewed relative to the competition. The organizational weakness can be found in the same areas and must be identified if you are to gain a realistic perspective on the formulation of strategies. The goal in strategy formulation is to create strategies that leverage core competencies for competitive advantage by building upon organizational strengths and minimizing the impacts of weaknesses. At this point, the strategy is the firm-strategy interface.
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Business excellence in organizations is only possible when business understand the interdependencies between their organization and the external environment. (Global strategy, 2004). So they really focus on the environment trends that require adjustments in the ways their organizations operate and that offer opportunities to achieve competitive advantage. A competitive advantage allows an organization to deal with market and environmental forces better than its competitors. The external environment consists of economic condition; sociocultural conditions, legal-political conditions, technological conditions and natural environment conditions. A SWOT analysis also includes the opportunities and threats in the external environment. At this stage, the strategy is the environment-strategy interface. They can be founded among macroenviroment factors such as technology, government, social structure and population demographics, the global economy and the natural environment. They can also include development in the industry environment of resource suppliers, competitors and customers. Opportunities may exist as possible new market or a strong economy. Weakness may be identified in such as the emergence of new competitors or technologies, resource shortage, changing customer tastes and new regulations. In respect to the external environment, the more stable and predictable it is, the more likely that a good strategy can be implemented with a successful for a longer period. But because the environment is composed of many dynamic elements that create uncertainties, more flexible strategies that change with time are needed. Because of the competitive environment, strategic management must be considered an ongoing process in which strategies are formulated, implemented, revised and implemented again in continue. Michael porter offers the five forces model to support the analysis of the environment. His framework for competitive industry analysis directs attention toward understanding the five forces, industry competitors, which are intensity of rivalry among firms in the industry; new entrants, which are the threats of new competitors entering the markets; suppliers, which have the bargaining power of suppliers; customers, which have the bargaining power of buyers; substitutes, which are the threats of substitute products or services. From Porter's perspective, the foundation for any successful strategy is with a clear understanding of these competitive environmental forces. So the successful strategies can be chosen to give the organization a competitive advantage relative to its rivals.
Strategies are formulated and implemented at the organizational or corporate level, business level, and functional level. The level of strategy directs the organization as a whole towards sustainable competitive advantage. The purpose of strategy is to set direction and guide resource allocations for the entire enterprise. (Richard, G, 2006). In large complex organizations like General Electric, strategy identifies the different areas of business in which a company intend to compete. The organization presently pursues business interests in aircraft engines, appliances, capital services, lighting, medical systems, broadcasting, plastics and power systems. Typical strategic decisions at the corporate relate to the allocation of resources for acquisitions, new business development, divestitures and the like across the business portfolio. (General Electric Report, 2010). Business strategy is the strategy for a single business unit or product line. It describes strategic intent to compete within a specific industry or market. In GE, typical strategic decisions include choices about product mix, facilities locations, new technologies.(General Electric Report, 2010). Functional strategy guides the use of organizational resources to implement business strategy. This level of strategy focuses on activities within a specific functional area of operations. In GE, the typical strategic decisions involve the choice of progressive management and organizational practices that improve operating efficiency, product or service quality, customer service or innovativeness. (General Electric Report, 2010)
Within an industry, the initial strategic challenge is positioning the organization and products relative to competitors. (Michael, P, 2001). So according to Porter, business-level strategic decisions are driven by two basic factors: market scope, which means how broad or narrow is the market target: and the second one is source of competitive advantage, which means how you can compete for competitive advantage, it can be achieved by low price or product uniqueness. So these factors combine to create the four generic strategies organizations can pursue. Organizations pursuing a differentiation strategy seek competitive advantage through uniqueness. The objective is to attract customers who become loyal to the organization's products. It is highly dependent for its success on continuing customer perceptions of product quality and uniqueness. An example in the apparel industry is Polo Ralph Lauren, retailer of upscale classical fashions and accessories. In Ralph Lauren's words, Polo redefined how American style and quality is perceived. Polo has always been about selling quality products by creating worlds and inviting our customer to be part of our dream. (Information from www.polo.com). Organizations pursing a cost leadership strategy try to continuously improve the operating efficiencies of production, distribution and other organizational systems. The objective is to have lower costs than competitor and therefore achieve higher profits. For example, in fast food, McDonald's remains the most cost-effective operation of its type through preferential bulk-purchasing agreements with suppliers, de-skilled and often automated in-house operations, and large customer volume providing economies of scale. (Information from www.mcdonald's.com ). Organizations pursuing a focused differentiation strategy or a focused cost leadership strategy concentrate attention on a specific market segment with the objective of serving its needs better than anyone else.
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In conclusion, when the organization achieves sustainable competitive advantage and earns above-average returns, it means that the strategic management is successful. Successful strategies are created from clear understanding of the competitive environment as well as the internal of the organization. The strategic management is the process of formulating and implementing strategies to accomplish long-term goals and sustain competitive advantage. The important part of strategic management is looking ahead, understanding the environment the environment and the organization, and effectively positioning the organization for competitive advantage in changing times. A clear sense of mission and objectives set the strategy for critically assessing the organization's resources and capabilities as well as competitive opportunities and threats in the external environment. Business excellence in organizations is only possible when business understand the interdependencies between their organization and the external environment. When the strategy is successful, it must be implemented effectively. It means that the strategy links the organization and the competitive environment very well. So, strategy may be seen as the interface between the organization and the competitive landscape