14 Elements Affecting Master Strategy of a Firm | Strategic Management

The following fourteen key elements that vitally affect the master strategy of a firm need redefinition and/or redesign:- 1. New Markets or Services 2. Predicting Future Demand 3. Supply Related to Demand 4. Climate of Industry 5. Crucial Factors 6. Position in Market 7. Service Abilities 8. Finance and Management 9. Combination of Services 10. Adding to Capabilities 11. Vertical Integration and a few others.

Element # 1. New Markets or Services:

This requires identification of, and focus on: industry-growth prospects, competition, key factors for success, and matching of a firm’s strengths and weaknesses against these key success factors.

Element # 2. Predicting Future Demand:

This necessitates identification of elements like desire for use or consumption, substitutes, ability to pay, and structure of markets. A local variation in demand sometimes provide opportunity for a particular firm.

Element # 3. Supply Related to Demand:

This requires consideration of the probable supply of services and the conditions thereto, e.g., capacity configuration, costs and taxes, and technology changes. For an individual producer, anticipating these shifts in the industry supply situation may be a matter of prosperity or death.

Element # 4. Climate of Industry:

This involves assessment of competitive conditions in the industry; size, strength and attitude of other competing firms; role of trade associations; and governmental regulations. Future government action is a significant factor in the outlook of many industries and so affects a firm’s strategy.

Element # 5. Crucial Factors:

This suggests review of business environment dynamics and identification of those factors that will be crucial for future success, e.g., leadership in R & D, cost leadership, product on service differentiation, customer differentiation, adaptability to markets, distinctive customer service, creative advertising, etc. All these call for a candid appraisal of a firm itself.

Element # 6. Position in Market:

This involves measurement of marketing strengths of a firm. The aspects of market position—such as, a relative market share, comparative quality of product, reputation with customers, and ties with a distribution system—help define and redefine the strengths and limitations of a firm.

Element # 7. Service Abilities:

This requires appraisal of a firm’s relative strength in creating products and rendering services fitted to consumer needs. Redesign, if not restructuring, of distribution outlets plays a great part in this area. A firm, on this score, should identify its own strengths and see how these compare with strengths of other firms.

Element # 8. Finance and Management:

Any successful venture of a firm depends on its financial strength and the character of its management.

Some strategies require large capital. A refinery and petro-chemicals company, for instance, must be prepared to invest capital in millions. Few firms could maintain cash reserves of this size and so they have to resort financial engineering instruments like bond or debentures with warrants, entitlement of shares after a certain period or lock- in-periods, etc., from existing operations that can be allocated to new venture.

On the other hand, perhaps a strategy can be devised that calls for relatively small cash advances, and in these fields a firm that has low financial strength will still be able to compete with the affluent firms.

A more subtle factor in a firm is its management. The suitability of any proposed strategy is affected by the age and vitality of key executives, their ability to risk profit and capital, their urge to gain personal prestige through company growth and others.

Related to the capabilities of the key executives is the organisation structure of a firm. A decentralised structure, for instance, facilitates movement into new fields of business, whereas a functional structure with fine specialisation is better suited to expansion in closely related lines.

Element # 9. Combination of Services:

This emphasises on the total service to a customer. A customer rarely buys merely a product. Other attributes of the transaction include delivery, credit terms, repair service, operating instructions, conspicuous consumption, and the like. What combination of attributes will have high synergistic value for the customers, a firm serves, becomes the crucial element.

Element # 10. Adding to Capabilities:

This implies fuller use of existing resources. For example, the manufacture and sales of watches by a machine tools company can have synergistic effects in its sales efforts.

Element # 11. Vertical Integration:

This involves expansion to obtain a resource. For example: a machine producing company, being dissatisfied with the quality and tardy delivery of its castings by a foundry firm, was looking for a new supplier. In its search, it located a nearby foundry that was breaking even. The machine producer purchased the foundry and gave a steady backlog of work plus technical know-how.

This consolidated set-up that could bring in synergistic effect for betterment is a case of vertical integration. Control of a critical- resource, provided that the problems of balance, flexibility, and managerial capacity are resolved, through vertical integration is often a significant part of company strategy.

Element # 12. Strategy of Sequence:

Since an essential aspect of master strategy is deciding what activities to be performed first and how fast, it is necessary to make a choice of sequence. Especially in technical areas, sequences of actions may be dictated by technology. Thus, process research must precede equipment designs, product specifications must precede cost estimation and so forth. PERT analysis or normal programming may be usefully employed.

Careful thought about the sequence is of great importance in the formulation of master strategy.

Element # 13. Resource Limitations:

Every firm has limits on its resources, be it human, physical or financial. The tricky issue is how to optimise the use of these limited resources to the best advantage. A master strategy needs to be devised, which is feasible within the inherent restraints.

To overcome scarce resources particularly in the supply activities, a cooperative agreement in the form of ‘coalitions’ or even ‘mergers’ or as ‘supply partners’ as a part of strategic alliances can be resorted to.

Element # 14. The Right Time to Act:

Conditions in a firm’s environment affect the ‘right time’ to act and to make a change. Managerial acumen and its keen sense of timing are the basic needs to incorporate environmental opportunities in a master strategy.

The preceding discussions of key elements and of sequence and timing provide no simple rules; yet they are needed to be seriously considered as the critical aspects of master strategy of a firm.