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Mission contains an answer to a very important question i.e. "what business are we in?". All Stakeholders of an organization need to have a very clear understanding of what does the organization wants to achieve? What has been a basic motive behind the formation of that particular organization?
The mission statement contains the vision of what the organization is or intends to become in future.
Johnson and Scholes identified that following three elements should be there in the mission statement of an organization.
It should clarify the main purpose of the organization
It should describe the organization's main activities
It should state the key values of the organization.
(source: ABE HRM Study Manua)
Strategic Aims & Objectives:
Objectives are operational goals expressed in quantified form and thus can be measured.
Non operational goals are qualitative in nature and are not expressed so specifically. We use the term "goals " to describe this general statement.
(source: ABE HRM Study Manua)
What is strategy and why it is important:
A strategy is a plan of action designed to achieve a particular goal.
Consists of competitive moves and business approaches used by managers to run the company
Management's "action plan" to
Grow the business
Attract and please customers
Achieve target level of organizational performance.
Strategy involves 3 key questions and the answers of these questions form the basis of an organizations strategic planning
What is the company's present situation?
Where does the company need to go from here?
How will it get there?
A planning is a process which bridges the gap between the organization' current state of affair i.e. where are we now and its future state of affairs i.e where it want to be in future.
Components of Strategic Planning:
Mission and Objectives
Strategy actions, analysis and choice
Strategy Implementation plan & implementation
Joyce & Woods, (2001)
The above mentioned 6 steps form the core of the strategic plan for any organization. As defined above that mission tells us about the general purpose of the organization and it answers the questions like what does the organization do? It also reflects the value and culture of the organization, its corporate social responsibility and other such issues.
External assessment is very important and it affects the strategy of an organization immensely. External forces are those uncontrollable factors which can directly or indirectly affect the strategic planning of an organization. These uncountable factors are social and cultural difference, Legal environment, economic differences and technological difference.
We use PEST analysis to analyze the above mentioned factors. Porter suggested five forces model and this model is very helpful in assessing the forces affecting the external environment of an organization. Both of these tools are also knows as "Strategic Analysis Tools" and will be discussed in more detail.
Internal assessment of an organization gives it an overview of its strengths and weaknesses, the opportunities and threats it may face in near future. SWOT analysis is used for this purpose and is considered very helpful in providing the internal analysis of the organization.
After having a clear understanding of both internal and external assessments, an organization can have a better strategic plan which can take it further in the future. Based on the mission statement of the organization, its aim and objectives, managers can make an effective strategic plan.
This plan can be further divided into sub - stages for the implementation process to be carried out in an effective manner. After the implementation of the plan, managers get the feedback regarding the different sections of the strategic plan in order to figure out the issues related to the performance of the organization.
So that's how organization form their strategic plan to achieve their long term goals. Each of the stages mentioned above will be now discussed in more details.
Factors affecting the strategic plan of an organization:
In this section we will highlight the external forces that affect the strategy of an organization. As mentioned earlier, in strategic planning every phase is important and it would not be possible to got through each and every stage smoothly without facing any kind of problem. There are various external factors and forces that affect the strategic plan of an organization and i am going to discuss that in details now. This would be the stage 2 of the strategic plan.
This is going to be the second step in a strategic planning process. All business managers should do a careful analysis of external forces and factors before finalizing their strategic plan. These external factors are uncontrollable and organizations can't escape them until and unless a proper analysis of these factors / forces is done. There are many tools which can help us in the analysis of external environment. PEST analysis is considered a very useful took for this purpose.
So PEST analysis consists of Political, Economic, Social and Technological Factors. I'll now discuss them one by one and analyze how these factors affect the strategic plan of an organization.
This factor is very important and it should be analyzed thoroughly before moving to the next stages strategic planning. It deals with Political conditions of that geographic region where the organization is functioning, laws of that particular geographic region. Government's policies for the businesses and overall economic policies of the government.
"Political environment directly affects the strategy of an organization and political stability has a strong influence on the policies of government in a particular geographic region".
(Kotler et al 1999, p.167)
Every Geographic region varies from the other in terms of its political environment and its rules and regulations. So a considerate attention should be given to this uncontrollable factor.
Political decisions can immensely affect the strategy of an organization. Political decisions like awarding subsidies to a particular industry sector directly or in the form of grants can directly affect the strategic plan of an organization.
. (Porter 1980, P.248)
Economic factor highlights the overall economic conditions of that particular geographic region and other uncontrollable factors such as Interest rates, GDP, general buying patterns of the people of that particular geographic region, and GNP of that country.
A major impact of economy may be there in the availability and then the price of products. Cost of labour, exchange rates, prices, wage rates all of these factors vary from one geographic region to another and hence have a severe effects on the overall strategy of any organization.
During the strategy formation process, companies have to consider the social and cultural environment of that particular region. A thorough study of social and cultural issues is very important during the strategy formation process.
Consumer buying pattern varies from one geographic region to another immensely. Study of social and cultural environment helps the managers to analyze these varying buying behaviours of the consumers and thus help in the strategy formation process.
Social Environment can be analyzed keeping in view the following 2 sub-categories
Demography is a study of the population dynamics which has implications for both the nature of workforce and the markets for goods and services. The size of population does not change rapidly but it fluctuates relatively over short period of time.
The demographic factors which an organization needs to consider are as under:
Change in the growth rate of population
Change in the density of people in a particular region
Change in the ethnic structure of an area
Change in the household of family structure
Change in the employment patterns.
Every geographic region has got its own culture and set of values which makes it unique in one way or the other. Organizations should pay a considerable attention towards the culture of a particular geographic region during the strategy formation process.
In 1980, Prof Geert Hofstede attempted to identify the common culture in different countries; those common four main dimensions are as under:
Individualism / Collectivism
Masculinity / Feminity
Technological environment plays a vital role these days and can affect the strategy formation process. Technological environment consists of three aspects
Method to use that Equipment
Organizations requirement to use that equipment
(Jain 1999, p.136)
As we know that technology has developed immensely and with every single day new technology is being developed and introduced, so the managers should give attention to this issue during the strategy formation process. This will give them an overview of the needs of the organization in terms of using the technological factors and what type of technology would be better for the organization to use and achieve.
There are some external factors that can effect the strategy of an organization
The above diagram clearly depicts these external factors.
Michael E Porter suggested a 5 forces model in which market factors can be analyzed to make a strategic assessment of a given supplier in a given market.
Porter's five forces
Existing competitive rivalry between suppliers
Threat of new market entrants
Bargaining power of buyers
Power of suppliers
Threat of substitute products (including technology change
Let's see if we draw a diagram of the above five forces model, how it would look like.
New Market Entrants, eg:
new entrant strategy
routes to market
Product and Technology Development, eg:
market distribution changes
fashion and trends
Supplier Power, eg:
product/service level quality
relationships with customers
Competitive Rivalry, eg:
number and size of firms
industry size and trends
fixed v variable cost bases
Buyer Power, eg:
volumes, JIT scheduling
Michael E Porter gave this theory that in order to get a competitive advantage, an organization should be competitive in five above mentioned factors
The above presented five factors are very important and managers need to consider them during the strategy formation process. It not only helps the management to have a better strategic plan but at the same time it helps them to stay competitive in the market to get competitive advantage.
It is very important that we understand the strategic aims and importance of strategic components, to better implement our strategic plans.
The above mentioned tools are also known as "Strategic Analysis Tools" and give
the overview of the external environmental forces and factors that affect an organization's strategy.
Next phase in Strategic Planning process is "Internal Assessment". As we have seen that for an effective Strategic Planning, external factors should be analysed properly, at the same time its very important for the organizations to do a thorough analysis of their weaknesses and strengths, opportunities and threats they might get in the future.
In order to get competitive advantage, these analyses are very important. I am going to explain SWOT analysis in detail now
SWOT stands for Strengths, Weaknesses, Opportunities & Threats. In order to stay competitive and meet the strategic objectives of the organization, managers need to keep an eye on these 4 most important issues.
Strengths - shows the areas where organization is extremely good at and these areas can be used to get competitive advantage over the other organizations.
Weaknesses - Show the internal weaknesses of the organization, certain areas where the management need to pay a bit more attention to stay competitive.
Opportunities- refer to any future business opportunities that may arise. So the management of the organization should be vigilant enough to grab those opportunities.
Threats - refers to those threats that may arise in future in terms of new organizations entering in the market, new products or services. So the management should be attentive enough to see these issues and get competitive advantage in order to meet the strategic aim / objectives of the organization.
From the above all we can easily say that External and Internal Assessments are extremely important during the strategic planning process. This analysis gives a good overview of the organization's internal position and the forces and factors that can affect its strategy or strategy formation process.
Understanding the Organization's Strategic Positioning:
As mentioned earlier it is very important for the organizations to keep an eye on its business operation to see where it is going and how far it has developed to achieve the strategic aims
A Position Audit or Situational Audit is used to describe the internal environmental analysis of an organization. This exercise consists of variety of techniques which are brought together in order to give a clear picture of organization and its capabilities.
The nature of Position audit can vary from organization to organization but in general terms if will contain the following things.
Resources ( tangible or intangible, including finances)
Products, brands and markets
The internal organization structure and culture
Results - Feedback.
The first factor is resources, these can be financial resources or Human resources or physical resources. So we can now explain how this position audit can be effective in seeing the position of the organization's Strategy.
In terms of human resource audit it can consider the following
Size of workforce
Cost of labor
Staff training / development
An audit of physical resources can contain the following questions
Where does the material come from?
Cost of material
Who is the main supplier?
What sort of technology is being used?
In terms of financial resources, position audit can contain the following questions
How much working capital is being used?
What is the credit policy of the organization?
The amount of foreign exchange transaction being dealt with
Credit taken from suppliers
So all above questions will provide an answer about the current position of the company / organization on the issue of resources, whether those are financial resources, human resources or physical resources.
(Source: ABE study manual 2010)
According to Stinnett, (2004) that, customer feedback is a free of cost business consulting. This is very important issue, as knowing the customers mean you can improve your services in a better way as an organization. In order to develop good relationship with the customers, organizations are great amount of attention towards getting a constant feedback from them. On the basis of this feedback, organizations can reform their business strategy to provide better services in order to compete in the market and get competitive advantage.
Stake Holders Needs:
There are many different stake holders in every single business but the most important ones are suppliers, share holders, customers and trade parties involved with in the business
Mintzberg et al, (2005)
It is extremely important to identify the needs to the stake holder and develop the strategies to satisfy their needs. So this whole process can be divided into the following stages.
Identify the organization`s business stake holders
Choose the potential key stake holders and identify their needs
Identify the strategic factors to satisfy their needs
Develop strategies to satisfy their needs
Explanation, Evaluation & Influence of Stake Holders:
As mentioned above, the identification of stake holders is very important. Once the stake holders are identified, as i identified them as suppliers, customers, share holders of the business. It is extremely important to see the needs and desires of these stake holders. As a manager, it would be a prime responsibility to look after the needs of every stake holder to make the strategic plan a success.
For example the concern of share holder will always be to get good dividend and ROI. So the organization should transform its strategies to achieve this purpose.
Customers as stake holders will always be interested in getting better products / services, so as a strategic manager, it should be the top priority to provide better services to the customers.
According to Svendsen, (1998) that customers are the life blood of an organization and an organization must keep great care of its customers in order to achieve long term benefits and fruitful results
So in order to meet the needs of all stake holders, the organization needs to develop a strategy which could satisfy the needs of every stake holder and every stake holder can agree on that. In terms of customers and suppliers, a pricing strategy needs to be developed, which will not only cater for customers and suppliers but at the same time will provide enough dividend to share holders.
Contingency plans are an alternative of way of strategic planning in the event of some mishap. Contingency plans are always good as they provide an alternative way in case the main strategy fails due to internal and external environment.
This process is also known as Alternative Strategy Planning Process. These alternative strategies vary from one organization to another depending upon the structure of every single organization.
Formulation of alternative strategies is very important as they form the back up for the main strategies
In this assignment i tried to present the basic concept of Strategic planning and then various stages of Strategic planning process. I would say that in order to get success as an organization, managers should have to be very clear about the mission statement and overall objectives of the organization. Keeping in view the mission statement, managers need to formulate a strategic plan by analyzing the external and internal environments.
PEST analysis and Porter's fives forces model is very helpful for assessing the external environment and SWOT analysis can be used to do a thorough analysis of the strengths, weaknesses, opportunities and threats.
During the strategy formulation process, needs of all stake holder should be kept in view and strategy should be developed in order to meet those needs and requirements of the stake holders.
Contingency planning is extremely important in order to avoid the risk of plan failure.