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Strategy is the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within challenging environment, to meet the needs of markets and to fulfill stakeholder expectation
"Strategy is thedirectionandscopeof an organisation over thelong-term:which achievesadvantagefor the organisation through its configuration ofresourceswithin a challengingenvironment, to meet the needs ofmarketsand to fulfilstakeholderexpectations".
In other words, strategy is about:
* Where is the business trying to get to in the long-term (direction)
* Which markets should a business compete in and what kind of activities are involved in such markets? (markets;scope)
* How can the business perform better than the competition in those markets? (advantage)?
* What resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete? (resources)?
* What external, environmental factors affect the businesses' ability to compete? (environment)?
* What are the values and expectations of those who have power in and around the business? (stakeholders)
Strategy at Different Levels of a Business
Strategies exist at several levels in any organisation - ranging from the overall business (or group of businesses) through to individuals working in it.
Corporate Strategy- is concerned with the overall purpose and scope of the business to meet stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business. Corporate strategy is often stated explicitly in a "mission statement".
Business Unit Strategy- is concerned more with how a business competes successfully in a particular market. It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc.
Operational Strategy- is concerned with how each part of the business is organised to deliver the corporate and business-unit level strategic direction. Operational strategy therefore focuses on issues of resources, processes, people etc.
How Strategy is Managed - Strategic Management
In its broadest sense, strategic management is about taking "strategic decisions" - decisions that answer the questions above.
In practice, a thorough strategic management process has three main components, shown in the figure below:
This is all about the analysing the strength of businesses' position and understanding the important external factors that may influence that position. The process of Strategic Analysis can be assisted by a number of tools, including:
PEST Analysis- a technique for understanding the "environment" in which a business operates
Scenario Planning- a technique that builds various plausible views of possible futures for a business
Five Forces Analysis- a technique for identifying the forces which affect the level of competition in an industry
Market Segmentation- a technique which seeks to identify similarities and differences between groups of customers or users
Directional Policy Matrix- a technique which summarises the competitive strength of a businesses operations in specific markets
Competitor Analysis- a wide range of techniques and analysis that seeks to summarise a businesses' overall competitive position
Critical Success Factor Analysis- a technique to identify those areas in which a business must outperform the competition in order to succeed
SWOT Analysis- a useful summary technique for summarising the key issues arising from an assessment of a businesses "internal" position and "external" environmental influences.
This process involves understanding the nature of stakeholder expectations (the "ground rules"), identifying strategic options, and then evaluating and selecting strategic options.
Often the hardest part. When a strategy has been analysed and selected, the task is then to translate it into organisational action.
Organizational strategy is concerned with envisioning a future for your family business, creating value in the eyes of your customers, and building and sustaining a strong position in the marketplace.
Organizational Strategy - Vision, Mission, Competitive Advantage
The first critical strategy element is Vision, Mission and Competitive Advantage, which describe the business a company is in, it's current and long term market objectives and the manner in which it differentiates itself from the competition.
- Clearly defining short-term purpose
- Ensuring mission is realistic
- Serving the best interests of all stakeholders
- Defining a point of differentiation
- Clearly defining long-term outlook
- Appealing to the long-term interests of the company's stakeholders
- Providing a foundation for decision-making
- Competitive advantage is a key driver to forming an organizational strategy
- Competitive advantage is clearly understood by all stakeholders
- Employees clearly understand how their role supports the company's organizational strategy
Organizational Strategy - External Assessment
A second key strategy element is External Assessment, which reflects an organization's approach to gathering and analyzing essential market data. Included in this data are developing competitive profiles, studying macro and micro economic information, identifying industry opportunities and threats, and understanding what it takes to be successful in a given market.
- Clearly defining reasons why customers buy products or services
- Clearly defining benefits that customers seek
- Clearly defining reasons why customers would not buy products or services
- Assessing customer bargaining power
- Knowing customer preferred choice of distribution channel
Industry and Competitive Analysis Is Essential Component of Organizational Strategy
- Identifying primary competitors
- Identifying potential and indirect competitors
- Clearly defining strengths, weaknesses and strategies of competitors
- Assessing the threat of substitute products or services or new entrants into the marketplace
- Understanding what it takes to be successful in a given market
- Comparing customer growth rate with industry standards
- Ongoing market evaluation process
- Defining and clarifying regulatory requirements
- Assessing vulnerability to adverse business cycles
Summarizing opportunities and threats due to:
§ Economic conditions
§ New technology
§ Demographic structure
§ Legal or political events
§ The natural environment
§ Socio-cultural norms
Key Success Factors Are Identified With a Critical Thinking Process
- Implementing a critical thinking process
- Clearly measuring competitive intensity
- Clearly defining product or service demand within your market
- Clearly defining drivers to success within your industry
- Consistently monitoring key influences within your industry
Organizational Strategy - Internal Assessment
Internal Assessment is the key strategy element that reflects the company's ability to objectively evaluate its own strengths and weaknesses. This would include evaluating the company's management processes and how effectively it utilizes a "value chain" analysis approach. (Value Chain components are Research & Development, Production, Marketing, Sales and Customer Service)
- Adequate funding of key initiatives
- Utilizing a comprehensive pricing model
- Consistently performing within a range of financial goals
- Having a targeted long-range financial plan
- Employing a "Cost / Benefit" approach to resource allocation
- Financial plan allowing for economic or environmental disruption
- Financial plan allows for flexibility
- Employing the "If / Then" model when forming organizational strategy
Research and Development
- Fully integrating all appropriate departments with R&D
- Maintaining a creative and innovative process
- Ensuring R&D has all required resources to successfully fulfill its function
- Fully integrating all departments to support production
- Strategic partners consistently fulfill production commitments
- Production process is cost-effective
- Production process is flexible, fast and responsive
- Coordinating all departments to support marketing
- Having a clearly defined marketing plan
- Branding plays a critical role
- Utilizing a marketing system or database to track customer and market information
- Employing an effective product / service management process
- "Competitive advantage" is a key driver for all marketing decisions
- Employees take pride in the ability to promote products and services
- Monitoring the ROI of all marketing campaigns
Sales / Distribution
- Consistently achieving sales goals
- Ensuring that sales teams / channels possess required skills to achieve plan
- Ensuring that sales teams / channels are provided with the necessary information to achieve their goals
- Employing a well-defined sales management process
- Coordinating all departments to support our sales process
- Tracking sales activity from lead generation through close
Does Your Organizational Strategy Emphasize Customer Service?
- Clearly defining customer service standards
- Meeting or exceeding customer expectations
- Measuring customer satisfaction
- Managers and employees share a high commitment to achieving customer loyalty
- Maintaining a customer relationship management system that provides critical service information to make the best decision
- Maintaining a high rate of repeat business, customer loyalty and referrals
Organizational Strategy - Objectives, Initiatives and Goals
Objectives, Initiatives and Goals are the final element of organizational strategy and illustrate a company's ability to articulate what it wants to accomplish, how it will do it, and when it will be achieved. Included in this process are defining direction, aligning financial and human resources, instilling accountability and determining critical measurements.
Organization Strategy Needs Vital Direction
- Identifying key strategic objectives
- Prioritizing action items by their importance to strategic intent
- Ensuring objectives are quantifiable and measurable
- Those responsible for implementation participate in the strategic planning process
- Plans must specify how each area will contribute to achieving strategic plan
- Allocating sufficient resources to achieve strategic intent
- Clearly defining resources necessary for each objective
- Evaluatiing individual or group capacity prior to assigning workload
- Ensuring that employees understand how their roles and responsibilities relate to strategic objectives
- Holding individuals accountable for their work
- Employee goals reflect accountabilities and timeliness
- Employing an internal system to routinely review the status of key objectives
- Measuring key financial indicators
- Utilizing a uniform format to measure and report performance
To understand the significance of strategy formulation we should take an example of ITC. ITC Limitedwhich previously stood forImperial Tobacco Company of India Limitedis anIndianconglomeratewith aturnoverof US $ 4.75 billion. It ranks third inpre-tax profitamong India's private sector corporations. The company has its registered office in Kolkata. It employs over 20,000 people at more than 60 locations across India and is listed onForbes 2000. The Training Centre of the company is in Munger, Bihar. ITC is also known as "Chatkal" (especially in Munger)
ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.
ITC'sAgri-Businessis India's second largest exporter of agricultural products. ITC is one of the India's biggest foreign exchange earners (US $ 2 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study atHarvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach.
ITC (Agri Business Division)
ITC's pre-eminent position as one of India's leading corporates in the agricultural sector is based on strong and enduring farmer partnerships, that has revolutionized and transformed the rural agricultural sector. A unique rural digital infrastructure network, coupled with deep understanding of agricultural practices and intensive research, has built a competitive and efficient supply chain that creates and delivers immense value across the agricultural value chain. One of the largest exporters of agri products from the country, ITC sources the finest of Indian Feed Ingredients, Food Grains, Edible Nuts, Marine Products, Processed Fruits, Coffee & Spices.
ITC's Agri Business Division, one of India's largest exporters of agricultural commodities, has conceived e-Choupal as a more efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis.
The e-Choupal model has been specifically designed to tackle the challenges posed by the unique features of Indian agriculture, characterised by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others.
WHAT MAKES RURAL INDIA ATTRACTIVE?
It is an upcoming market and the following facts substantiate this-
800 million people
Estimated annual size of the rural market
- FMCG Rs 65,000 Crore
- Durables Rs 5,000 Crore
- Agri-inputs (incl. tractors) Rs 45,000 Crore
- 2 / 4 wheeler vehicles Rs 8,000 Crore
In 2001-02, LIC sold 55 % of its policies in rural India.
Of two million BSNL mobile connections, 50% are in small towns/villages.
Of the six lakh villages, 5.22 lakh have a Village Public Telephone (VPT)
41 million Kisan Credit Cards issued (against 22 million credit-plus-debit cards in urban) with cumulative credit of Rs 977 billion resulting in tremendous liquidity.
42 million rural households are availing banking services in comparison to 27 million urban households.
Investment in formal savings instruments: 6.6 million households in rural and 6.7 million in urban India.
Nano-Marketing or sachets worked well in rural India and there is ample scope for the products to be accepted by consumers if the price is competitive.
Why into Rural Marketing?
ITC entered into rural marketing because it understood the problems faced by the farmers and also realized the vast opportunity it can capitalize using its mammoth reserves and surplus. The problems faced by farmers can be best explained with -
Thus it clearly explains that farmers basically suffered from 2 D'S
Deep Sea Institutional support
- Information of farming best practices
- Information on weather
- Quality and Information on inputs
Devil - Middle man
- Price Discovery
- Quality and Weightment
- Handling Loss
The root cause and implications can be sumarised as -
Root Causes Implications Fragmentation Weak Bargaining Power Dispersion No access to real time information Heterogeneity Need for customized knowledge
The e-choupal initiative of ITC helped farmers of rural India in following ways -
“e” helps overcome 2 D's in following ways -
Price discovery before deciding to sell.
Freedom of choice for transaction.
Payment - cash on spot.
Knowledge on farming best practices.
Information on weather.
High quality products and solutions - usage.
It provided power of scale to farmers.
It led to overall improvement in productivity.
Sanchalaks has built tremendous trust and credibility in villages
RURAL MARKETING STRATEGY - 4 A'S
Availability: It emphasizes on the availability of the goods and services to the end consumers. In the case of e-choupal the products are available continuously because sanchalaks maintains continuous inventory and maintains aggregate demnand.
Affordability: It focuses on product pricing. ITC buys from farmers directly in the last days closing price and even pays them for transportation. Goods are weighted electronically and hence farmers are no more cheated as they used to be previously. Hence it is a win-win situation both for farmers and the company.
Acceptability: It focuses on convincing the customer to buy the product. ITC's e-choupal initiative is proving the farmers with real time updated information on weather. It is providing them customized knowledge in the form of farm management and risk management. It is also providing them lower transaction cost. It is also providing them financial services in the form of life, general, health and crop insurance.
Awareness: It focuses on making people aware of the product. It is providing active servicing up to rural outlets. It is providing them with wide range of product categories. Moreover it has made entrepreneurs out of farmers as they are managing most of the work, it instills in them the sense of ownership.
This enthusiastic response from farmers has encouraged ITC to plan for the extension of the ‘e-Choupal' initiative to altogether 15 states across India over the next few years. On the anvil are plans to channelise other services related to micro-credit, health and education through the same 'e-Choupal' infrastructure.
ITC e-Choupal, an innovative strategy which is elaborative and extensive in rural markets so far. Critical factors in the apparent success of the venture are ITCs extensive knowledge of agriculture, the eort ITC has made to retain many aspects of the existing production system, including retaining the integral importance of local partners, the companies commitment to transparency, and the respect and fairness with which both farmers and local partners are treated.
The concepts, which are becoming more important in every market, include color, product attractiveness visibility, and display quality. In addition, availability (meeting local demand by increasing production locally), acceptability (building brand equity), and affordability (pricing higher than local brands, but adapting to local conditions) are the key factors.
This is how we can understand ITC became successful by creating this strategy which is beneficial for all stakeholders. Company is getting huge market penetration and rural people who did not have that much of choices they could easily interact with the latest brands possible. This strategy was useful for all people concerned around.
Review of the Strategic Management Plan
Efficientstrategic thinkingand a strategic management plan will always have controls and periodic reviews incorporated into the process. Each stage should be elaborated and then the changes should be made accordingly. The management team needs to keep a detailed record of the allotted deadlines, and the required particulars should be presented to the clients or stakeholders. The strategic planning team is required to review the integral strategic management process annually. Business situations, market projections, and technological furtherances demand present and regularly updatedstrategic planningto enable an organization to be successful in today's highly competitive environment.
The periodic incorporation of the strategic management process is crucial for the smooth running of the company. As a result, companies are giving more importance to the strategic management process implementation.
This is the whole thing about strategy formulation and its objectives , its successful implementation and benefits to whole society and all stakeholders concerned to the initiative.
ITC has proved itself to be a pioneer in Indian rural market through a long term planned strategy for the certain goals.