Strategy outlines how management plans to achieve its objectives. Strategy is the product of the strategic management process.
Strategy is like the blueprint of decisions an organisation takes in order to achieve its objectives and goals, and plans for achieving these goals, and defines the business the company is likely to pursue, the type of economic and human organisation it wants to be, and the contribution it plans to make to its shareholders, customers and society at large.
In the narrow sense, Strategy means “the art of the general”. The term first gained currency at the end of the 18th century and had to do with stratagems by which a general sought to deceive an enemy.
With plans the general made for a campaign, and the way the general moved and disposed his forces in war. According to Clausewitz, Strategy means “the art of the employment of battles as a means to gain the object of war”.
The term Strategy has expanded far beyond its original military meaning. Strategy is now used in all areas where the horizon is long term, there is a competition for the use of resources and the objective is to realize your goals.
With the evolving importance of strategy as a theoretical discipline, scholars have tried to identify the principles of strategy that have traditionally guided military strategists in war.
A strategy is a set of key decisions made to meet objectives. It refers to a complex web thoughts, ideas, insights, experiences, goals, expertise, memories, perceptions and expectations that provide general guidance for specific actions in pursuit of particular ends.
Learn about: 1. What is Strategy 2. Meaning of Strategy 3. Definition 4. Concept 5. ‘Schools’ of Strategy Research 6. Nature or Characteristics 7. Objectives 8. Why Strategy is Relevant? 9. Features 10. Elements
11. Significance 12. Types 13. Mintzberg’s 5 Ps 14. Attributes 15. Levels 16. Modes 17. Activation 18. Who Formulates Strategies in a Large Organisation? 19. Process of Strategy Formulation
20. Strategies Prohibited while Formulation of Strategies 21. Steps Taken for Implementation of Strategies 22. Roles 23. Relationship between Strategy and Organisational Structure
24. Yardstick Employed for Evaluating the Success or Failure of Strategies 25. Strategic Issues 26. Criteria 27. How a Strategy Contributes to the Success of an Organization?
Strategy: What is Strategy, Meaning, Definition, Implementation, Levels, Formulation, Types, Issues, Significance and a lot More…
What is Strategy?
The word “strategy” derive from the Greek word “strateogos”; which means generalship (stratus meaning army) and “ago” (meaning leading/moving). Actually, this word was used in military, here strategy refers to the management of troops. Once the enemy has been engaged, attention shifts to schemes and tactics.
From here gradually the concept of strategy and the word strategy itself paved its way to the business and management world. In business parlance, there is no definite meaning assigned to it. It is often used to describe the number of things.
Strategy can be seen from different angles be it a perspective, competition, innovation, position, plan, and pattern. Strategy is described as a link between guidelines or goals of higher management on the one hand and plan or actions on the other. A strategy is integrating organisational activities and allocating the scarce resources within the organisational environment so as to meet the present objectives.
It should be kept in mind that strategic decisions are not taken in vacuum and that any action undertaken by a firm, will have a reaction from those affected—competitors, customers, employees or suppliers.
Strategy is like the blueprint of decisions an organisation takes in order to achieve its objectives and goals, and plans for achieving these goals, and defines the business the company is likely to pursue, the type of economic and human organisation it wants to be, and the contribution it plans to make to its shareholders, customers and society at large.
Understanding strategy is one of the most significant concepts to emerge in the subject of management studies in the recent past. It has come out as a critical input to organisational success and has come in handy as a tool to deal with uncertainties that organisation faces.
Strategy has been used as a tool to reduce the ambiguity and provide a solid foundation or theory to conduct a business. Strategy is a convenient way to structure many variables that operate in organisational context and to understand their interrelationship. It has aided the thinkers and practitioners to formulate their thoughts in an orderly manner and to apply them in practice.
Strategy is a well-defined roadmap of an organisation. It defines the overall mission, vision and direction of an organisation. The objective of a strategy is to maximize an organisation’s strengths and to minimize the strengths of the competitors. Strategy, in short, bridges the gap between “where we are” and “where we want to be”.
Strategy, a word of military origin, refers to a plan of action designed to achieve a particular goal. In military usage strategy is distinct from tactics, which are concerned with the conduct of an engagement, while strategy is concerned with how different engagements are linked.
How a battle is fought is a matter of tactics- the terms and conditions that it is fought on and whether it should be fought at all is a matter of strategy, which is part of the four levels of warfare- political goals or grand strategy, operations, and tactics. Strategy has been extended beyond its traditional fields, military, business, economics, game theory and other fields.
Different scholars, practitioners and consultants have proposed different models and frameworks for analysing strategic choice. It is also important that the organisation has a clear sense of its distinctiveness.
According to Michael Porter leading strategy guru, “strategy is about achieving competitive advantage through being different delivering a unique value added to the customer, having a clear and enactable view of how to position yourself uniquely in your industry”, for example, in the ways in which Southwest Airlines positions itself in the airline industry and IKEA in furniture retailing, in the way that Marks & Spencer used it.
A successful strategy requires that there is fit among a company’s activities, that they complement each other, and that they deliver value to the firm and its customers. Strategy is concerned with the match between a company’s capabilities and its external environment.
Analysts disagree on how this may be done. John Kay argues that strategy is no longer about planning or ‘visioning’ it is about using careful analysis to understand and influence a company’s position in the marketplace. Another leading strategy guru, Gary Hamel, argues that the best strategy is geared towards radical change and creating a new vision of the future in which you are a leader rather than a follower of trends set by others.
Strategy – Meaning
Strategy outlines how management plans to achieve its objectives. Strategy is the product of the strategic management process. Generally, when we talk of organizational strategy, it refers to organization’s top level strategy. However, strategies exist at other levels also.
A strategy is a route to the destination namely the “Objectives of the firm”. Picking a destination means choosing an objective. Objectives and strategies are identified, resolved and exploited.
The interlocking of objectives and strategies characterize the effective management of an organization. The process binds, coordinates and integrates the parts into a whole. Effective organizations are tied by means-ends chains into a purposeful whole. The strategies to achieve corporate goals at higher levels often provide strategies for managers at lower levels.
In the narrow sense, Strategy means “the art of the general”. The term first gained currency at the end of the 18th century and had to do with stratagems by which a general sought to deceive an enemy. With plans the general made for a campaign, and the way the general moved and disposed his forces in war. According to Clausewitz, Strategy means “the art of the employment of battles as a means to gain the object of war”.
The term Strategy has expanded far beyond its original military meaning. Strategy is now used in all areas where the horizon is long term, there is a competition for the use of resources and the objective is to realize your goals. With the evolving importance of strategy as a theoretical discipline, scholars have tried to identify the principles of strategy that have traditionally guided military strategists in war.
A strategy is a set of key decisions made to meet objectives. It refers to a complex web thoughts, ideas, insights, experiences, goals, expertise, memories, perceptions and expectations that provide general guidance for specific actions in pursuit of particular ends.
Countries have, in the management of their national policies, found it necessary to evolve strategies that adjust and correlate political, economic, technological and psychological factors, along with military elements. Be it management of national policies, international relations, or even of a game on the playfield, strategy provides us with the preferred path that we should take for the journey that we actually make.
Every firm competing in an industry has a strategy, because strategy refers to how a given objective will be achieved. ‘Strategy’ defines what it is we want to achieve and charts your course in the marketplace; it is the basis for the establishment of a business firm; and it is a basic requirement for a firm to survive and to sustain itself in today’s changing environment.
An organization cannot operate effectively without a strategy. The strategy may have been developed explicitly through a planning process or it may have evolved through the operations of the various functional departments.
Strategy of a business firm consists of what management decides about the future direction and scope of the business. It entails managerial choice among alternative action programmes, commitment to specific product markets, competitive moves and business approaches to achieve enterprise objectives. In short, it may be called the game plan of management.
Strategy – Definition
The word ‘strategy’ is derived from the Greek word ‘strategos’ meaning a general. Strategy is defined as “where the organization wants to go to fulfill its purpose and achieve its mission, it provides the framework for guiding choices which determine the organization’s nature and direction and these chokes relate to the organizations products or services, markets, key capabilities, growth, return on capital and allocation of resources”.
“Strategy is a unified, comprehensive and integrated plan relating the strategic advantages of the firm to the challenges of the environment. It is designed to ensure that the basic objectives of the enterprise are achieved.” – William F. Glueck
“Strategy is the pattern of objectives, purpose, goals and major policies and plans for achieving these goals stated in such a way so as to define what the company is in or is to be and the kind of company it is or is to be.” – Kenneth Andrews
“Strategy is the common thread among the organization’s activities and product markets…….. that defines the essential nature of business that the organization was or planned to be in future.” – Igor Ansoff
“Strategy is apian or course of action which is of vital pervasive or continuing importance to the organization as a whole.” – Arthur Sharplin
“Strategy is a coherent set of actions aimed at gaining a sustainable advantage over competition, improving position vis-a-vis customers or allocating resources.” – Robert H. Waterman
“Strategy is a course of action including the specification of resources required to achieve a specific objective.” – CIMA
Strategy encompasses the objectives and sub-plans of the organization and a plan of action for the achievement of those objectives and sub-plans in competitive environment. It considers not only ends, but also means. A strategy is, therefore, a declaration of intent. It defines what the organization wants to become in the longer term. The overall aim of strategy at corporate level will be to match or fit the organization to its environment in the most advantageous way possible.
Strategies form the basis for strategic management and the formulation of strategic plans. Emphasis is occasionally placed on determining strategy according to a particular situation and in other cases the environment is picked out for analysis to arrive at the strategy. Some specify a review of market scope and a few mention competitive positions.
Strategy in a management context refers to an available course of action that an organization needs to identify and evaluate with a view to pursuing it. Strategy is not synonymous with long-term plan, but rather consists of an organization’s attempt to reach some preferred future state by adopting its competitive position as circumstances change.
To sum up, the strategy may be defined as “an integrated set of actions aimed at securing a sustainable competitive advantage”. The notion of ‘competitive advantage’ requires that a given business be viewed relative to its competitors and continuing success requires that competitive advantage be sought and maintained. Competitive advantage may be in the sense superior product quality, lower costs, more efficient distribution, more profits, larger share of market etc.
The following definitions give us an insight into the diversity of thinking and changing perceptions on the nature of strategy:
“Corporate Strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it intends to be, and the nature of economic and non-economic contribution it intends to make to its shareholders, customers and communities.” – Andrews
“Strategy is the overall plan for deploying resources to establish a favourable position; it is less a predetermined program of investment plans and more a positioning of the firm to permit it to take advantage of opportunities as they arise.” – Grant
Strategy – Concept
Igor Ansoff known as the “father of strategic management”, established the concept of strategy in 1960s. A strategy cap be defined as a plan of actions to achieve a set of pre-determined and specific goals. The word strategy originated from the Greek word Strategia, meaning a military general.
A strategy furnishes a platform for an organization to perform in a better manner and achieve competitive edge.
The concept of strategy can be made clear by looking at its objectives, which are as follows:
1. Providing direction and stability to the organization.
2. Determining long-term goals of the organization.
3. Helping the organization to prioritize the targets on the basis of organizational resources.
4. Facilitating the planning and execution of long-term, medium-term, short-term, and day-to-day plans.
5. Facilitating the decision-making process.
6. Allocating the resources to various departments, such as marketing, human resource, finance, and operations, of the organization.
7. Increasing the organizational effectiveness by making judicious use of organizational resources, such as – funds, human resources, technology, and infrastructure.
8. Defining the code of conduct that lays down various rules and policies for an organization
Blending of Traditional and Modern Concept of Strategy:
The traditional bent strategy advocates the formulation of plans and strategies in great detail as against the modern approach that favours taking actions spontaneously. What is common in case of traditional and modern context is that there is strategy—the former being in the form of intended plans and policies as against the form of actions taken in the latter case. It pays to blend both traditional and modern concepts.
In its synthesized or blended form, “Strategy refers to either the plans made or the actions taken in an effort to help an organisation fulfil its intended purposes… When we speak of strategy as plans for future, we are refusing to what is called as intended strategy; and when we speak of strategy as actions taken, we are referring to a realised strategy. In either case, we are considering the efforts directed towards fulfilling the organisation’s purpose” as very rightly put by none other than Mr. Alex Miller and Gregory Dess.
Be it intended or realised strategy, there is a passion and purpose for gaining competitive advantage and getting ahead of competitors. From the above description it is quite evident that term ‘strategy’ is closely allied to military science implies unified and comprehensive action plans or actions designed to overtake the competitor.
It makes sense to consider strategy as a cycle of decisions where each set of decisions has a ‘knock-on’ effect on subsequent decisions, as well, of course, as having consequences for all those affected by them—customers, suppliers, employees, stake holders and so on.
The cycle incorporates a review element which enables decisions to be questioned and charged if called for. In the simplest possible terms, ‘strategy’ signifies either the plans made or the actions taken, in an effort to help an organisation to fulfil its intended purposes.
Strategy – Schools of Strategy Research
Mintzberg identified ten ‘schools’ of strategy research, which was developed in 1960s, when strategic management emerged as a field of study.
Different schools have different views about the strategy:
(i) The Design School:
In the design school strategy is perceived as a process of conception through a choice of alternatives. All contextual and contingent factors are taken into account in arriving at choice.
(ii) The Learning School:
The learning school believes that strategy is conceived as an evolving concept. As it growing and developing through impart of internal and external forces and factors.
(iii) The Power School:
The power school opines that strategy as a process of negotiation, which is created in a least common denominator (L.C.M) through interplay of relevant forces and factors.
(iv) The Planning School:
The planning school views strategy is constructed a formal process and a deliberate planned construct.
(v) The Environment School:
It speaks strategy as a “relative product”. Here environment is the independent variable and strategy as the dependent variable.
(vi) The Positioning School:
The positioning school views strategy is perceived as an analytical process. In forming strategies, contingency of situation is taking into account.
(vii) The Cognitive School:
It believes that strategy is a mental process. It is conceived that success is depends on the level or quality of cognition of the individual strategist.
(viii) The Configuration School:
It views that strategy is perceived as a process of transformation from the actual to the desired state of affairs. It is a reference to organisational architecture or organisational design involving segmentation.
(ix) The Entrepreneurial School:
The entrepreneurial school looks upon strategy as a visionary process. It is a perception of the future.
(x) The Cultural School:
In the opinion of the cultural school, strategy is perceived as a reflection of organisational culture. It is a made of functioning. An enterprise determines, what kind of strategy is adopted in a given circumstances. Strategy is a dependent variable.
Strategy – Nature or Characteristics
10 Important Objectives of Strategy
Strategic thinking is crucial for managers. Profitability is the supreme goal of any business firm. Strategy or strategic thinking is the means to achieve it. Strategy formulation has become particularly relevant in today’s high-risk, uncertain, turbulent and entrepreneurial business environment. Strategy is now a part of modern business management. A strategy furnishes a platform for a business firm to perform in an efficient and effective way and achieve edge.
Some important objectives of strategy are as follows:
1. Creating value for the firm and its stakeholders.
2. Providing direction to the organisation.
3. Determining long-term goals of the organisation.
4. Helping the organisation to prioritize the targets.
5. Facilitating the planning and execution of plans.
6. Facilitating the decision making process.
7. Allocating the resources to various departments.
8. Allowing companies to mobilize themselves.
9. Coordinating all strategic initiatives into a single cohesive pattern.
10. Aligning their own strengths — their core competencies — with customer needs — thereby staying ahead of the competition.
Why Strategy is Relevant? (With Internal Factors)
Earlier, long-range planning commonly referred to the company’s strategic initiatives. Terms such as business policy, corporate policy, and corporate planning were also commonly used to refer to strategy.
In an era of technological explosion, process rigour, and knowledge-centric work cultures, strategic initiatives alone can catapult a firm to market leadership. With increasing globalization and removal of trade barriers, companies are under constant pressure to cope with large markets and competitive moves from unexpected quarters.
For example, the emergence of China, India, and other developing countries as manufacturing and services hubs has moved jobs away from traditional white-collar economies. In the last few years, fast-growing companies in new segments have challenged traditional segments of the economy (such as blogging vs. traditional print media). Hence, strategic management as a structured initiative is all the more important in the current scenario.
Apart from external factors, the following internal factors also show why strategy is relevant:
1. A formal strategic management process allows a firm to anticipate, initiate, and influence actions ahead of the market, in order for it to be proactive instead of reactive. Hence structured strategic sessions become relevant.
2. Managers from all functional areas discuss their views in strategic meetings and prioritize corporate objectives and resources. This interaction yields learning, appreciation, and understanding among managers. It is very critical to have shared vision and get buy-in from different stakeholders.
3. A formal approach to strategy brings enhanced commitment as the system takes care of setting objectives, initiatives, targets, action plans, and review. When this process is open and transparent, it ensures commitment from all stakeholders.
4. Similarly, a formal approach ensures greater productivity across functions. Managers, besides giving their attention to strategy, also focus on implementation. Thus, effective strategies and better implementation make the formal strategic management process relevant.
20+ Important Features of Strategy
Some important features of strategy are discussed below:
Strategy is the core, essence and heart of strategic management. It makes and clarifies the relationships among the firm’s internal and external contexts, its actions and performance. It presents the mental map of these relationships.
Strategies are ways of pursuing the vision and purpose, anticipating and responding to threats and identifying and exploiting opportunities. Effective leadership entails not only responding positively to the need for change but also creating innovative, beneficial change. Michael Porter endorses this view, saying that advantage comes only from innovation and upgrading in the context of a vision. Indeed opportunities that are not identified and seized may become threats.
Strategy is focused on achieving certain goals. It is made of critical actions to achieve enduring goals. Through satisfying the needs of customers, strategy aims to fulfil the economic goals of stakeholders. It helps to meet the financial expectations of founders and investors. It targets to gain results for the firm.
Strategy defines a framework for guiding the choice of actions. It is the starting point for developing a detailed action plan. Strategy can frame a firm’s actions. Actions plans can be prepared on die basis of strategy.
Michael Porter has emphasized that strategy is not about doing things better— this is the concern of operational effectiveness. In fact, strategy is about doing things differently. Being “different” of course confers competitive advantage or assures business success. Strategy is a plan that aims to give the enterprise a competitive advantage over rivals through differentiation.
In an environment of uncertainty and change, a clear sense of direction is essential to the pursuit of objectives. Hence the essence of strategy is making choices. Strategic choices can be distilled to two basic questions – (a) Where to compete? and (b) How to compete?
Peter Fitzroy and James Herbert writes “Strategy is not just a good idea; it is making that idea happen. So strategy also implies that the organisation should possess the capabilities appropriate for implementing the chosen strategy as well as a strong performance culture, with clear accountability and incentives linked to performance.”
All business firms exist in an open system. They affect and are affected by external conditions that are largely beyond their control. Therefore, to successfully position a firm in competitive situations, its strategic managers must look beyond its operations. They must consider what relevant others (e.g., competitors, customers, suppliers, creditors, government, and labour) are likely to do.
Strategic decision commit the firm for a long time. The impact of such decisions often lasts much longer. John A. Pearce states, “Once a firm has committed itself to a particular strategy, its image and competitive advantages usually are tied to that strategy. Firms become known in certain markets, for certain products, with certain technologies. They would jeopardize their previous gains if they shifted from these markets, products, or technologies by adopting a radically different strategy. Thus, strategic decisions have enduring effects on firms —for better or worse.”
Strategic decisions have complex implications for most of the firm. Decisions about such matters as customer mix, competitive emphasis, or organisational structure necessarily involve a number of the firm’s strategic business units (SBUs), divisions, or programme units. All of these areas will be affected by allocations or reallocations of responsibilities and resources that result from these decisions.
Despite its emphasis on conceptual framework that enables the strategist to think clearly about the firm’s goals and purposes, strategy is fundamentally creative. Once one understands the firm’s current situation and has the view of the future, improving the firm’s performance requires thinking up new opportunities for creating and capturing value by leveraging its strategic assets. Too many strategy processes generate ideas.
Roger Gill says, “It is perhaps not the leader per se who creates followers but the leader’s vision and strategies.” Strategy requires intellectual process, brainstorming, imagination, analysis, provocation of thoughts in the minds of people. It converts ideas into results. It is a type of creativity.
Strategic decisions relate to several areas of a firm’s operations. Hence, they require top management’s involvements. Generally, only the top management has the perspective needed to understand the broad implications of such decisions and the power to authorize the necessary resource allocations. Strategy creation is about doing the right things and is a primary concern of senior executives and business owners.
Regarding the task of strategy, a new concept has been emerged and followed in many modern organisations. Any manager who has to make choices whose outcomes depend on the firm’s strategic assets and its environment can make better decisions by thinking strategically. Moreover, if strategy is to help coordinate the activities of disparate parts of the firm, all managers must understand the firm’s strategy and their role in it.
Strategy is not a single decision. It involves a stream of decisions, each significant in its own right. A strategy can be successful only when these decisions are aligned and integrated, and strategy therefore requires the commitment of the entire firm.
Strategy is not always easily reversible. The effort and resources required to reverse a strategic decision are usually large. Thus, strategy involves substantial capital costs. A difficult process to develop strategy is followed. Typically, a three-dimensional analysis of a current scenario into a future projection is used which involves a lot of time and effort.
Strategy is not a detailed plan or programme of instructions; it is a unifying theme that gives coherence and direction to the actions and decisions of an individual or an organisation.
Strategy is forward looking. It is concerned not only with how the firm will compete now but also with what the firm will become in the future. A key purpose of a forward-looking strategy is not only to establish a direction of the firm’s development but also to set aspirations that can motivate and inspire members of the organisation.
It is future-oriented. Strategic decisions are based on what managers forecast, rather than on what they know. In such decisions, emphasis is placed on the development of projections that will enable the firm to select the most promising strategic options. In the turbulent and competitive free enterprise environment, a firm will succeed only if it takes a proactive (anticipatory) stance towards change.
Leonard Goodstein regards strategy as “the most important function of any leader”. He places strategy as the central theme and practice in leadership. He says, “My view is that strategy is part of leadership; leadership is not part of strategy—unless of course it is a strategy itself.”
Every viable organisation is built on a sound business model, but a business model isn’t a strategy, even though many people use the terms interchangeably. Business models describe, as a system, how the pieces of a business fit together to produce a profit. But they don’t factor in a critical dimension of performance – competition. That’s the job of strategy.
A company’s business model is, consequently, more narrowly focused than the company’s business strategy. Strategy relates to a company’s competitive initiatives and business approaches, while the term business model deals with whether the revenues and costs flowing from the strategy demonstrate business viability.
Strategy is a continual process through linking it to budgets, strategic learning and information systems. As the environment changes, with new technologies emerging, customer tastes evolving and new competitive threats appearing, strategies must change as well. In a changing world, any strategy is likely to quickly become obsolete, so strategic management must be ongoing, continually developing new and different strategies.
i. Strategy is about winning.
ii. It sets direction.
iii. Planning is the end result of strategy design.
iv. Strategy is translated into operational plans.
v. It is a synthesis of the long-term and the short-term.
vi. It also has to achieve a synthesis between the analytical and the creative.
vii. Strategy also involves a synthesis between commitment and flexibility.
viii. By its very nature, strategy is cross-functional.
ix. Strategy is also an evolutionary process.
x. Strategy is the common theme underlying a set of strategic decisions.
xi. It can be both deceptively simple and extremely complex.
xii. It is partly planned and partly reactive.
xiii. It involves a significant commitment of resources.
xiv. Strategy is only as good as the results it produces.
xv. All strategy starts with strategic thinking.
xvi. Strategy is a synthesis of an “outside in” and an “inside out” approach.
xvii. Strategy is about change, both reacting to change and creating change.
xviii. It operates at both corporate and operating unit levels.
xix. Strategy is a set of actions arrived at by accident or design.
xx. Strategy is everyone’s job, using strategic assessments and personal ‘scorecards’.
xxi. Strategy is an abstraction, a construct. It has not concrete form or substance.
Elements of Strategy – Goals, Scope, Competitive Advantage and Logic
Any coherent strategy should have four important elements:
Element # 1. Goals:
A strategy invariably indicates the long-term goals toward which all efforts are directed. For example long-term goals might to be ‘dominate the market, to be the technology leader or to be the premium quality firm’. Such enduring goals help employees give their best in a unified manner and enable the firm to specify its competitive position very clearly to its rivals.
An advertisement from Maruti Suzuki for example, claims- “we don’t just sell more cars than No.2. We sell more cars than the entire competition put together”. Maruti’s commitment to being number one (sales, distribution network, lower cost producer, highest resale value, one stop solution provider etc.) or two in the markets it serves sends clear signals to its rivals in more than one way. But at present, the entire automobile world is shaking due to introduce the ‘NANO’ car by the TATA Group of Industries at least cost throughout the world.
Element # 2. Scope:
A strategy defines the scope of the firm that is, the kind of products the firm will offer, the markets (geographies, technologies, processes) it will pursue and the broad areas of activity it will undertakes. It will, at the same time, throw light on the activities the firm will not undertake.
Element # 3. Competitive Advantage:
A strategy also contains a clear statement of what competitive advantages the firm will pursue and sustain. Competitive advantage arises when a firm is able to perform an activity that is distinct or different from that of its rivals. Firms build competitive advantage when they take steps that help them gain an edge over their rivals in attracting buyers.
These steps vary, for example, making the highest quality product, offering the best customer service, producing at the lowest cost or focusing resources on a specific segment or niche of the industry.
Element # 4. Logic:
This is the most important element of strategy. For, a firm’s strategy is to dominate the market for inexpensive detergents by being the low-cost, mass-market producer. Here the goal is to dominate the detergent market. The scope is to produce low-cost detergent power for the Indian mass market. The competitive advantage is the firm’s low cost.
Yet this example does not explain why this strategy will work. Why the firm will get ahead of others by limiting its scope and by being the low cost producer in the detergent industry. The ‘why’ is the logic of the strategy?
To see how logic is the core of a strategy, consider the following expanded version of a strategy, “our strategy is to dominate the Indian market for inexpensive detergent power by being the low cost producer selling through mass-market channels. Our low price will generate high volumes. This, in turn, will make us high volume, low- cost producer. The economies of scale would help us improve our bottom-line even with a low price”.
Significance of Strategy
One can hardly over emphasize the real need for strategies in business world.
Following points highlight the significance of strategy:
1. It Provides Right Direction:
The companies would be groping in the dark in absence of a specific strategy in attaining vision, mission, objectives, purposes and goals at which they are targeted that take them to final destination.
2. They Provide Perfect Managerial Behaviour:
The employees at the various levels of the organisation, they are set in a perfect groove mending their managerial behaviour that is required to achieve the goals. Resources would go waste in absence of effective managerial strategies.
3. They Help in Taking Strategic Position:
The organisation can invest their valuable resources, train their manpower, build up production capacity that ensure taking a strategic position in their environment by setting objectives and outlining a strategy to attain these.
4. They Bring about Perfect Coordination in All the Strategic Initiatives:
A sound strategic plan brings in the benefit of coordinating all strategic initiatives within a company into a single coherent pattern. A companywide master strategy ensures that the differences of opinion are perfectly ironed out and a single consistent course of action is followed throughout the entire company, wiping out overlapping, conflicting and contradictory behaviour.
5. They Enable Best Use of Resources:
A wisely planned strategy facilitates optimum resource allocation. While drawing up a strategy disciplines, the strategists consider explicitly all the available information and consciously evaluate all possible options before committing of any course of action.
6. They Permit Comparison of Course of Actions Proposed:
Well documented strategies also permit corporate level strategists to compare the courses of action proposed by the different SUBs and to allocate valuable resources to the most promising initiatives suggested.
7. They Act as means of Future Programming:
All clearly defined strategies are the means for programming all the organisational activities in advance. A company that has detailed and meticulous strategies permits the organisations to work with time-keeping precision studded with reliability and efficiency of mechanized device.
8. They Keep Everyone on Toes:
Any strategic position taken in any business situation does not allow the employees in charge to be laced and careless. Strategies are the counter actions or plan to coin over the situation being faced. It makes everyone alert and agile to do one’s duty or duties assigned so that team efforts bring some shining success.
Types of Strategies Generally Adopted in an Organisation
The strategies generally adopted in an organisation are as follows:
1. Stability Strategy:
When an enterprise is satisfied by its present position, it will not like to change from here and it will be a stability strategy. Stability strategy will be successful when the environment is stable. This strategy is exercised most often and is less risky as a course of action. A stability strategy of a concern, for example, will be followed when the organisation is satisfied with the same product, serving the same consumer groups and maintaining the same market share.
The organisation may not be adventurous to try new strategies to change the status quo. This strategy may be possible in a mature industry with static technology. Stability strategy may create complacency among managers. The managers of such an organisation may find it difficult to cope with the changes when they come.
2. Growth Strategy:
Growth may mean expansion and diversification of operations of the enterprise. The management is not satisfied with their present status, the environment is changing, favourable opportunities are available, and in such cases growth strategy will be helpful in expansion as well as diversification.
The growth strategy may be implemented through product development, market development, diversification, vertical integration or merger. In product development, new products are added to the existing ones or new products replace the old ones when they are obsolete.
In market development strategy, new customers are approached or those markets are explored which were not covered earlier. In diversification both new products and new markets are added. The enterprise may also enter entirely new lines. In vertical integration, the backward or forward lines may also be taken up.
A company may start producing its own raw materials or it may start processing its own output before marketing. For example, a weaving unit may start making thread and ginning of cotton (backward integration) or it may start producing ready-made garments (forward integration). In merger, two or more concerns may join their resources to take advantage of financial or marketing factors.
Growth should be properly planned and controlled otherwise it may bring adverse results. Since growth is an indication of effective management it is not only essential but desirable too.
3. Retrenchment or Retreat Strategy:
An enterprise may retreat or retrench from its present position in order to survive or improve its performance. Such a strategy may be adopted during a period of recession, tough competition, and scarcity of resources and re-organisation of company in order to reduce waste. This strategy, though reflecting failure of the company to some degree becomes highly necessary for the survival of the company.
4. Combination Strategy:
A large firm, active in a number of industries may adopt a combined strategy. It represents mix of the three strategies mentioned above. A large concern may adopt growth strategy on one side and retreat strategy in the other area. In order to make this strategy effective there should be right people who can take objective and intelligent decisions by considering various factors.
Mintzberg’s 5 Ps for Strategy
Henry Mintzberg, in his 1994 book, The Rise and Fall of Strategic Planning , points out that people use; Strategy in several different ways, the most common being these five –
1) Strategy is a Plan – a means of getting from here to there.
2) A strategy can be a Ploy too; really just a specific manoeuvre intended to outwit an opponent or competitor.
3) Strategy is a Pattern in actions over time; for example, a company that regularly markets very expensive products is using a "high end" strategy.
4) Strategy is Position; that is, it reflects decisions to offer particular products or services in particular markets.
5) Strategy is Perspective, that is, vision and direction.
Mintzberg argues that strategy emerges over time as intentions collide with and accommodate a changing reality. Thus, one might start with a perspective and conclude that it calls for a certain position, which is to be achieved by way of a carefully crafted plan, with the eventual outcome and strategy reflected in a pattern evident in decisions and actions over time. This pattern in decisions and actions defines what Mintzberg called emergent strategy.
1. Strategy is a Plan:
Some sort of consciously intended course of action, a guideline (or set of guidelines) to deal with a situation, strategies have two essential characteristics- they are developed consciously and purposefully.
2. Strategy as a Ploy:
Strategy can be a ploy. Mintzberg says that getting the better of competitors, by plotting to disrupt, dissuade, discourage, or otherwise influence them, can be part of a strategy. This is where strategy can be a ploy, as well as a plan. For example, a grocery chain might threaten to expand a store, so that a competitor doesn’t move into the same area; or a telecommunications company might buy up patents that a competitor could potentially use to launch a rival product.
3. Strategy is a Pattern:
Strategy (whether as general plans or specific ploys) is pointless if it cannot be realized. In other words, defining strategy as a plan or ploy is not sufficient; we also need a definition that encompasses the resulting behaviour. Thus, strategy is also a pattern – specifically, a pattern in a stream of actions.
By this definition, strategy is consistent in behaviour, whether or not intended. The outcome of strategy does not derive from the design, or plan, but from the action that is taken as a result. Strategic plans and ploys are both deliberate exercises. Sometimes, however, strategy emerges from past organizational behavior. Rather than being an intentional choice, a consistent and successful way of doing business can develop into a strategy.
For instance, imagine a manager who makes decisions that further enhance an already highly responsive customer support process. Despite not deliberately choosing to build a strategic advantage, his pattern of actions nevertheless creates one.
Plans are intended strategy, whereas patterns are realised strategy; from this we can distinguish deliberate strategies, where intentions that existed previously were realised, and emergent strategies where patterns developed in the absence of intentions, or despite them.
4. Strategy is a Position:
Strategy is also a position; specifically a means of locating a firm in its environment. Position is often defined competitively.
5. Strategy is a Perspective:
While position is outwardly focused, perspective looks inward into the firm; even into the heads of the strategists themselves. Strategy in terms of this definition becomes an ingrained way of perceiving the world. Some firms are aggressive pacesetters; others build protective shells around themselves. Almost every profession has about it unique perspectives, that indelibly flavour the strategies that firms practicing those professions craft for themselves.
Using Mintzberg’s 5 Ps at these points will highlight problems that would otherwise undermine the implementation of the strategy.
Attributes of a Sound Strategy
Strategy is the course of action through which an organisation relates itself with the environment so as to achieve preset goals.
Attributes of a Sound Strategy are:
1. Strategy Links Firm to its Environment:
Strategy relates the organisation to its environment particularly the external in all actions whether it is a set of objectives or a bunch of actions or scarce resources which are a must for achieving the goals.
It means it is a system’s approach to the management as it treats a firm as only a sub-system of supra-system namely, environment. That is, the environment and the firm are influencing each other by their changing behaviour. Any change in one is bound to bring in change in another.
2. Strategy Combines Factors:
Strategy is the means to combine factors both internal and external. As a strategy is instrumental in relating the organisation to its environment, the management of the organisation has to take into account internal factors also because each firm has its own strengths and weaknesses.
Whatever the firm wants to achieve it will have to do so looking to its own strengths and weaknesses. It has to look before it leaps. To capitalise on the opportunities, it must weigh first the threats associated with it and then its strengths and weaknesses. It has to be very keen observer in each course of action it takes.
3. Strategy is Relative Combination of Actions:
Strategy is a blend of actions which is relative but not absolute. A combination reached to meet a particular condition or a particular situation, to solve certain problems or to attain a desirable goal.
The combination of treasure, time, and talent will differ in case because each situation varies calling for a different approach. In that sense it is very flexible, taking any form or shape to attain the end results.
Strategy is dealing with environmental variables both external and internal. One cannot expect a stability in strategy. As long as environmental forces go on changing, the strategy changes as it is to relate the organisation with its environment for successful survival.
A manager—strategic—may take a course of action today and may reverse it totally tomorrow because today is not tomorrow or tomorrow is not today. It identifies past, present and future and gives stress on future which is certainly uncertain.
A sound strategy cares most for what future holds for the organisation. Business situations are changing in all their dimensions making present situation obsolete warranting new and creative approach to solve the problems that crop up.
Past is gone, present is like a setting Sun but tomorrow is the day of Sunrise that needs matching or strategic action to make things to happen your way or in favour of the firm. That is why someone has rightly said, what you were, what you are—are not important—what is most important is what you are tomorrow?
Any strategy worth calling so is very complex plan impounding in its compound other plans or firms of plans which area must to achieve the organisational goals. Strategy is a compendium or a complex of plans within plan to out beat the strength and vitality others in the line and allied activities.
It shows the way for the allocation and deployment of resources for the attainment of goals in the face of change— environmental pressure, stress and strains and constraints and restraints.
Levels of Strategy in an Organisation – Corporate Level, Business Level and Functional Level Strategy
A strategy is practiced at different levels in an organization.
1. Corporate-Level Strategy:
It includes strategies designed by the top management consisting of board of directors and the chief executive officer. A corporate-level strategy helps in achieving objectives by analyzing all business opportunities available to an organization. Corporate level strategies help you to develop the objectives, allocate the resources, and coordinate with SBUs.
A corporate-level strategy is futuristic, innovative, and pervasive in nature, and includes major decisions, such as – mergers, takeovers, liquidations, and diversification. It relates with what aspect of business.
Following are some of the critical questions which are addressed by a corporate-level strategy:
i. In what all businesses should the organization enter?
ii. How should the available resources be allocated to the different business units of an organization?
iii. What should be the diversification strategy of an organization?
iv. Should an organization have strategic alliance with other organizations? If yes, then what type of strategic alliance?
v. What should the organizational structure be like?
vi. What should be the roles, responsibilities, and objectives of each business unit of an organization?
2. Business-Level Strategy:
It involves the strategies designed by the business heads of each SBU. A business-level strategy allocates resources among the functional areas of business. In addition, it is more specific and action-oriented as compared to corporate-level strategy. It relates with the how aspect of business.
Business level strategies help in:
i. Establishing coordination among different business units; for creating synergy and implementing the corporate-level strategies of an organization.
ii. Evaluating the needs of the market, and delivering products and services accordingly.
iii. Creating sustainable competitive advantage for each business unit.
Therefore, business-level strategies contribute to accomplish the corporate-level strategies.
3. Functional-Level Strategy:
It involves the strategies designed by functional managers to carry out day-to-day activities of an organization. In this strategy, resources are allocated to each operation of the business. A functional-level strategy ensures development and coordination of resources in an organisation. It can be further divided into operational level strategies. For example, a marketing strategy is divided into sales, distribution, and promotional strategies.
The main objectives of a functional level-strategy are:
i. Facilitating coordination among the different functional areas such as, marketing, finance, human resource, and production.
ii. Aligning each functional area with the respective business-level strategies. Consequently, this helps in attaining the corporate-level strategies of an organization.
iii. Coordinating the different activities in each functional area. For example, different marketing activities such as – promotion, advertising, and marketing research need to be integrated for implementing an effective marketing strategy.
Top 3 Modes of Strategy: Entrepreneurial, Adaptive and Planning Mode
Strategy making involves linking together of a number of important decisions to form strategies. It is very difficult to describe a precise mode of strategy making. Executives may have to take decisions under different circumstances, it may not be possible to follow the same modalities everything.
These modes are discussed as follows:
1. Entrepreneurial Mode:
An entrepreneur is a person who perceives an idea of setting up a new business, plans for resources and undertakes risks arising out of that venture. He is motivated for a need for achievement and independence.
Following are the characteristics of entrepreneurial mode:
(i) The focus is on opportunity rather than problem solving.
(ii) In entrepreneurial mode, the power rests with one person only. The chief executive, who is in change of everything, should be capable to taking bold decisions on the basis of personal power. The power is centralized and .strategic decisions are taken at this level.
(iii) The bold decisions making under uncertain situations, strategy in the entrepreneurial organizations makes forward by unusual leaps and thrives with corresponding gains.
(iv) The most important goals in this mode consist of growth and expansion in terms of assets, market share and turnover.
2. Adaptive Mode:
This is a remedial type of mode in nature. The main concern of this mode is the solving of immediate problems rather than developing long-range strategies. This may involve bargaining with suppliers, compromising with competitors or reducing conflicts among coalitions of interest group within the organizations.
This approach has the following features:
(i) It is a ‘reactive approach’ instead of ‘proactive approach’. The thrust is in solving problems rather than exploring new opportunities. This may be due to the absence of executive orientation or problems all-absorbing or there is no clarity of goals to be sought.
(ii) There are coalitions of members constituting power-groups which does not permit unified goals to be established. The decision making power is divided among coalition parties e.g. trade unions, owners, managers, government agencies etc. The conflicting groups do not allow unified goals.
(iii) The fear of unknown prevents bold decisions. The focus is on convenient decisions which are not far removed from the status quo. The decision maker is not sure of the results and waits in the results of the first decision before taking the next one. Strategy making in the adaptive mode is typically a newer- ending process of successive steps.
(iv) The decisions in this mode is fragmented and disjoined with little attention to integration and co-ordination. The thrust is to maintain flexibility and freedom to adapt the decisions to the more pressing needs.
The adaptive mode consists of piecemeal, remedial decisions resulting from the interactions among power-groups in the organization. The policy makers are unable to decide what they want to achieve.
3. Planning Mode:
Planning mode involves decision-making in anticipation of future state in which the wants to be in. According to George A. Steiner strategy making in planning mode is ideally based on the study of the-
(i) Fundamental socio-economic purposes of the organization,
(ii) Values of top management
(iii) Evaluation of the external and internal opportunities and problems, and
(iv) Evaluation of the company’s strengths and weaknesses.
The characteristics of this mode are:
(i) The strategy making depends on the role of analysts and planners as aids to executives. This ensures application of scientific techniques in the planning process.
(ii) The problems are solved by applying systematic and structured approach. The analysis of cost and benefit of alternative proposals is undertaken before reaching a conclusion.
(iii) This process produces a set of integrated decisions and strategies and ensures the development of a strategic direction.
The use of particular mode is strategy making upon the nature,-v situation and environment of a business. Even the sense of a business may also influence the selection of a particular mode for strategy making.
Activation of a Strategy – 4 Activities (With Examples)
Activation is the process of stimulating an activity so that it is undertaken effectively. Activation of strategy is required because only a very small group of people is involved in strategy formulation while its implementation involves a large number of people in the organization. So long as a strategy is not activated, it remains in the mind of strategists.
Activation of a strategy or set of strategies requires the performance of following activities:
1. Institutionalisation of strategy.
2. Formulation of derivative plans.
3. Translation of general objectives into specific objectives.
4. Resource mobilisation and allocation.
1. Institutionalisation of Strategy:
The first basic role of a strategist in strategy implementation is the institutionalisation of the strategy. Since strategy does not become either acceptable or effective by virtue of being well designed and clearly announced, the successful implementation of strategy requires that the leader acts as its promoter and defender. Often, what happens is that leader’s role is quite prominent in strategy formulation and his personality variables become influential factors in strategy formulation.
Thus, in practice, it becomes almost personal strategy of the top man in the organization. Therefore, there is an urgent need for the institutionalisation of the strategy because without it, the strategy is subject to being undermined. Institutionalisation of strategy involves two elements – communication of strategy to organizational members, and getting acceptance of strategy by these members.
i. Strategy Communication:
The role of a strategist is not only to make the fundamental analytical and entrepreneurial decisions, but also to present these to the members of the organization in a way that appeals to them and brings their support. Thus, in order to get the strategy accepted and, consequently, implemented requires its communication.
The form of communication may be oral through the interaction among strategist and other persons, particularly at higher level, in meetings or in other ways of personal interaction. However, for a large organization with multi-locational units, such a form of communication may not be adequate, and well-documented written form may be required.
Such a document may contain – (a) The context in which the particular strategy has been formulated like organizational mission and objectives, environmental variables, and organizational variables; and (b) contents of the strategy such as the contribution of the strategy to the achievement of organizational objectives, changes required in existing organizational processes, and what is expected from personnel at different levels in the organization.
ii. Strategy Acceptance:
It is not just sufficient to communicate the context and content of a strategy but to get the willing acceptance of those who are responsible for its implementation. This will make organizational members to develop a positive attitude towards the strategy. This helps them to make commitment to strategy by treating it their own strategy than imposed by others. Creation of such a feeling is essential for the effective implementation of the strategy.
A major problem in strategy acceptance is that people often resist a strategy, particularly when it makes significant departure from the old-established practices. The basic reason of resistance emerges from the feeling that the new way of doing things will put them in some adverse situation. For example, many of the modernisation strategies have been opposed by trade unions because of their perception that these would put additional work load on their members or there may be job cuts.
Many of the disinvestment and divestment strategies have also been opposed by employees of all sorts and these strategies could not be implemented in many cases. Here, it may be emphasised that strategy acceptance is a pre-requisite for its effective implementation.
2. Formulation of Action Plans:
Once the strategy is institutionalised through its communication and acceptance, the organization may proceed to formulate action plans. Action plans specify the actions to be undertaken which are relevant for putting the strategic plan in operation so that organizational resources are utilised effectively to achieve specified objectives.
In formulating action plans, the following questions are put:
i. How do particular action plans contribute to the achievement of objectives of the strategy under implementation?
ii. When will the activities devised under action plans be undertaken?
iii. Who will perform these activities?
iv. What support will be required to perform the activities?
Action plans are derived from the strategic plan. This is why action plans are known as derivative plans.
Action plans specify two types of actions—one-shot actions and standing actions. One- shot actions are time-bound, that is, they are relevant for the time specified. These actions are in the form of programmes, projects, and budgets. Though operationally, programmes and projects are used interchangeable, there is a difference between the two. A programme is a much wider term which includes objectives, policies, procedures, rules, and steps to be undertaken in putting a plan into action, for example, R&D programme for developing a new product.
A project is a highly specific programme for which time schedule and costs are predetermined. For executing a project, resources are required which are allocated by budgets.
Standing actions have their relevance over a long period of time. Therefore, once these actions are specified, these become relevant on perpetual basis unless these are changed in the light of new requirements. Standing actions provide guidelines for undertaking one-shot action. Standing actions are in the form of policies, procedures, and rules.
Therefore, let us discuss procedures and rules:
Procedures prescribe the chronological sequence of performing various tasks that are required to complete an activity. Contents of a procedure include how each task in the organization will take place, when it will take place, and by whom it is to be performed. Normally, time limit is also placed on each step of a procedure to ensure that the end result is achieved when desired.
Normally, procedures are established for all those activities which are of recurring nature like procurement of raw materials, execution of customers’ orders, etc. A procedure may be limited to a single department like procedure for taking disciplinary action or it may cut across functional lines like ordering for raw material supply which may involve production and finance departments. Before we proceed to discuss how procedures can be developed, let us make a comparison between policy and procedure as both of them have common purpose.
Policy and Procedure – A Comparison:
Often, confusion arises between policy and procedure because of the common purpose to which these are directed, that is, guiding for managerial actions for future period. But this guiding aspect is different for policy and procedure.
The major difference between policy and procedure can be identified as follows:
i. Policy provides guidance for managerial thinking as well as action. As a result, it does not tell a manager how to do the things- it merely channels his decision making along a particular line by eliminating his span of consideration. On the other hand, a procedure simply provides guidelines to the action by prescribing how an action can be performed step-by-step.
ii. A policy is more flexible as compared to a procedure. Policy is more flexible because it prescribes the areas of discretion to managers, while procedure prescribes the exact sequence of the activities without scope of any variation.
iii. Policy is more pronounced at higher levels while procedures are more prevalent at lower levels. At higher levels, managers are more concerned with looking into the totality of the organizational functioning and, therefore, they need policies so that uniformity is maintained for a particular action. People at lower levels are engaged mostly in routine work which can be better accomplished if the set procedures are prescribed without leaving any scope of discretion.
Since procedures are used frequently, these should be developed very carefully so that they contribute positively in performing various activities but at the same time, they do not delay any process.
Good procedures may be developed by adopting the following guidelines:
i. Based on Facts:
A procedure should be based on adequate facts of the particular situation and not on guesses or personal whims. For each case, due consideration must be given to the objectives, the physical facilities, the personnel, and the type of work. Moreover, a procedure should not be copied from another organization because a procedure that is best for a given organization may not be best for another simply because significant differences among the factors affecting the operation of the procedure may be present.
The procedure should be such that it does not hinder the efficiency. The end result governs the steps taken and is of prime consideration. The steps should be complementary and lead cumulatively to the accomplishment of the desired goal. Each step should be justified, fulfill a definite need, and be in proper relationship to the remaining steps of the procedure.
A procedure should possess stability in that it provides a steadfastness of the established course, with changes made only when fundamental modifications in the factors affecting the operation of the procedure occur. Stable procedure provides continuity in the action and people get well-versed with the system. This helps in efficient execution of actions.
Stability of procedure does not mean that there is no scope for change when needed. Flexibility of procedure is desirable in order to cope with a crisis or emergency, special demands, or adjustment to a temporary condition; however, emergencies may become too commonplace, and the benefits from the use of stable procedures are lost. Therefore, a balance should be maintained between stability and flexibility of the procedure.
iv. Updated Procedures:
There should be a continuous review of the procedures so that their utility is ascertained. In many cases, it happens that a new procedure is added without deleting or modifying the existing ones. Thus, after a certain time, the organization has too many procedures without taking full advantage of these. The periodical reviews specify the type of changes that are needed in the procedures to make them more workable; new procedures are to be added, and redundant ones to be eliminated.
v. Minimum Procedures:
A basic principle of procedures is that they should be kept to the minimum possible. It is to be noted that every procedure costs something to the organization in terms of manager’s time, paper handling, delay, and lack of responsiveness to change. Moreover, they curtail flexibility of work, sometimes quite essential for efficient working. Thus, more the number of procedures more is the cost on the part of the organization. Therefore, their number should be kept to the minimum possible, otherwise procedures become more important than results themselves.
vi. Procedures as a System:
Procedures, to be more effective, must be recognised as a system of interrelated activities of a network. Procedures cannot bring efficiency unless their complex systematic structure is analysed and support system is provided. The designing of a procedure should be linked with the organizational relationships and all factors should be taken into account which affects these relationships. This is possible only when a comprehensive view of procedures and their working are taken into account and suitable modifications are made therein.
3. Translating General Objectives into Specific Objectives:
Organizational objectives are of general and broad nature. They provide direction for action on continuous basis. However, these objectives are too general and, sometimes, intangible to be transformed into action. In order to make these operative, managers determine specific objectives within the framework of general objectives, which the organization and its various units will seek to achieve within a specific period.
For example, growth is one of the vital objectives of every organization. This provides direction for undertaking various activities through which growth can be achieved. However, this is very general and does not provide clue about how much growth in what period of time. In order to overcome this problem, organizations set specific objectives to be achieved in a specified time.
Most of the specific objectives tend to be of short range in character and have definite time limits within which the organization has to achieve these.
Translation of general objectives into specific and operative objectives must fulfill two criteria:
i. Translation of general objectives into specific objectives should be tangible and meaningful. As far as possible, these objectives should be easily measurable as organizational performance is measured against these objectives.
ii. Specific objectives should contribute to the achievement of general objectives. In fact, time-bound objectives are set to make the achievement of general objectives more feasible. For example, long-term objectives involving plans for the distant future may fail to make individual objectives tangible and meaningful standards for control. This can be overcome by setting specific objectives at different stages of general long- term objectives.
4. Resource Mobilisation and Allocation:
For implementing a strategy, an organization should have commensurate resources and these resources should be committed and allocated to various units and functions where these have optimum use. There are different types of organizational resources and each of these has specific nature and characteristics. These resources are broadly classified into two broad categories- financial and human. Financial resources are used to procure various physical resources such as land, building, plant, machinery, raw materials, etc.
These resources are the means by which an organization produces goods and services of value through conversion process. The success of the organization depends on the quality of its resources and their utilisation. Therefore, the organization should feel concerned about how to mobilise resources and allocate these to various units and subunits.
Resource mobilisation involves procurement of resources that may be required to implement a strategy, and depending on the nature of the strategy, type and volume of resources will be determined. For example, a strategy involving substantial expansion of business will require huge resources of different types as compared to a strategy involving market development. An organization’s capacity to mobilise resources has reciprocal relationship with strategy.
On the one hand, a strategy determines what type of resources will be required; on the other hand, resource mobilisation capacity determines what type of strategy will be selected. For example, high competence of Reliance Industries to mobilise financial and human resources has enabled it to go for highly investment-oriented strategies.
Resources can be owned, leased, or rented. What emphasis will be put on different sources depends on the nature of resources and resource procurement strategy of the organization. Traditionally, companies owned and controlled most of the resources that entered their business. But this situation is changing. Companies are finding that some resources are not performing as well as those that they could obtain from outside. Many companies have decided to outsource less critical resources if these can be obtained at better utility or lower cost from outside the company.
After resource mobilisation, resource allocation activity is undertaken. This involves allocation of different resources—financial and human—among various organizational units and subunits. In order to understand the rationality of resource allocation, it is essential to understand commitment principle because resource allocation is a kind of commitment.
Commitment involves adhering to a thing for which a person is committed. In the context of planning, commitment principle implies planning for the future impact of today’s decisions. Since the futurity of different decisions varies, risk involved in respective decisions also varies. Applying the concept of commitment principle in resource allocation implies that when resources are committed to a unit or a project, the organization takes a risk. The risk involved depends on the time taken to recover resource cost.
Since a unit requires resources for varying periods—long-term for creation of physical assets; short-term for inventory, debtors, etc. cost recovery period also varies. Therefore, while allocating resources, commitment principle should be taken into consideration.
Basis for Resource Allocation:
While allocating the resources, an organization may take two alternative steps – (i) resources should be allocated at a place where these have their maximum contributions, or (ii) resources should be put according to the needs of various organizational units/subunits. Both these alternatives may become complementary to each other if there is an objective evaluation of the resource requirement of various units.
Budgeting is the means through which resources are allocated to various organizational units. However, the traditional budgeting which focuses just on the past resource allocation as the basis is not useful for resource allocation in any way because the conditions, both external as well internal, change making the past practices of resource allocation meaningless.
Therefore, when budgeting is used as a tool for resource allocation, it has to be oriented to the objectives of the organization and the way each unit of the organization will contribute to the achievement of these objectives.
Problems in Resource Allocation:
Another issue which must receive the attention of the strategists in resource allocation is the problem involved in its process whatever the basis of resource allocation is adopted. The problems emerge because – (i) resources are limited, (ii) there are competing organizational units with each trying to have major share of the cake, and (iii) organization’s past commitment.
These factors taken together make resource allocation a rational-political process which we have seen at the level of choice of strategy. In such a case, there is a possibility that resource utilisation becomes sub-optimal.
Specifically, following problems in resource allocation in an organization may emerge:
i. Every unit in the organization tries to get maximum possible resources because allocation of more resources to a unit is considered as more power vis-a-vis other units. Further, every unit wants to have flexibility in its operation and tries to hide its inefficiency. To some extent, this may be done by grabbing more resources. Power-play by various organizational units may be due to lack of clear objective priority ordering. This problem may be overcome by clearly defining the expected contributions of a unit and the resources required for those contributions.
ii. Organization’s past commitment of resources works as hindrance in resource allocation if the problem is not addressed to properly. Though some techniques like zero-base budgeting or strategic budgeting tries to overcome this problem by transferring the resources from the units where these are under-utilised to the units where there may be better utilised, the process is not simple.
The managers of those units from where the resources are taken may show lot of resistance as they feel neglected. To overcome this problem, the strategists’ role of persuasion and motivation to accept the reality of the situation is the most important.
iii. Sometimes, the organization itself may become resistant to change even if it is a loser. It has been found that in many cases, the organization puts its best managers to manage a declining product because it has been a pride of the organization in the past but presently it may not be of any strategic importance. Similarly, the organizational units that can boast the past glories may obtain major share of available resources, even though other business areas may offer more potential. This problem may be solved to a great extent by inculcating the habit of change in the light of new emerging business situations.
Who Formulates Strategies in a Large Organisation?
The term strategist refers to those who are involved in strategy formulation. In other words, this answers the question who formulates strategies?
In large organisations, board of directors, general managers, and corporate planning staff (if there is such a division/cell) and, in some cases, external consultants may play a role in strategic planning.
The board of directors play an important role in corporate strategy making. “The ultimate legal authority in business is that of the board of directors. Boards are held responsible to the stockholders for the following duties – ensuring the continuity of management (replacing or retiring managers), protecting the use of stockholders’ resources, ensuring that managers take prudent actions regarding corporate objectives, approving major financial and operational decisions of the managers, representing the company with other organisations and bodies in society, maintaining, revising and enforcing the corporate charter and bye-laws.”
The Board does not directly formulate the strategy, but it can and should play an important role in strategic management by causing the formulation of the corporate plan, evaluating it, reviewing it, evaluating its implementation and by its power to appoint or remove the chief executive officer (CEO). Kenneth Andrews observes – “A responsible and effective board should require of its management a unique and durable corporate strategy, review it periodically for its validity, use it as a reference point for all other board decisions, and share with management the risks associated with its adoption.”
When the board of directors is an inside board (i.e., majority of the members consists of persons holding management positions in the company), inside members may directly involve in strategy formulation by the virtue of the management positions they hold. When the board is an outside one (i.e., majority of the members do not hold management positions in the company) and the outsiders are capable persons, the evaluations, reviews and directions could be more independent, objective and meaningful. However, outside board could sometimes cause conflicts also.
According to Dr. A. S. Ganguly, Chairman, ICI India Ltd., “the Board, as a whole, has the responsibility to initiate discussion, agree and underwrite the corporation’s strategic plans. The Board has the collective responsibility to ensure its implementation through agreed operational plans. Individual Executive Directors are responsible and accountable to meet the targets for specific businesses under their control.”
2. General Manager:
The role of general managers (GMs) in strategic management is clear from the fact that strategic management is a general management function.
The general managers are the top executives of the enterprise and SBUs who are responsible for the survival and success of the enterprise.
As Jauch and Guleck succinctly and lucidly put it, “the traditional impression is that the GM is a reflective thinker who maps out strategy, designs an organisation to implement the plan and guides troops through the necessary manoeuvers to accomplish objectives using vast experience and insight. The GM is the entrepreneur (sets goals), strategist (plans), organisation builder (organises), leader (directs), and chief implementer (controls). The task is to lead the firm or SBU through uncharted territory in less-than-certain circumstances.”
The most important GM, obviously, is the CEO. As George Steiner rightly points out, “there can and will be no effective formal strategic planning in an organisation in which the chief executive does not give it firm support and make sure that others in the organisation understand his depth of commitment.”
According to Mintzberg, “great strategies are either creative or generous. We have too few of either type. We call the creative ones visionaries – they see a world that others have been blind to. The generous ones, in contrast, bring strategy out in other people. They build organisations that foster thoughtful inquiry and creative action. The creative strategists reach out from the centre of that circular organisation to touch the edges, while the generous ones strengthen the whole circle by turning strategic thinking into a collective learning process.”
Large organisations may establish a corporate planning division or cell. It is a staff function and these staff personnel are known as corporate planners.
Functions and responsibilities of the corporate planning staff include:
i. Keeping track of the latest developments in the field of strategic management and disseminating such information to the strategists.
ii. Supplying data inputs and analytical support needed for strategic management.
iii. Environmental analysis.
iv. Identifying new business opportunities.
v. Helping to establish a planning system.
vi. Formulating guidelines for preparing plans.
vii. Coordinating divisional plans.
viii. Assisting to evaluate and control strategies.
Some organisations, particularly those which do not have a corporate planning staff, make use of the services of strategic management consultant. Several Indian companies have sought the services of such consultants like McKinsey, Anderson Consulting, Arthur D Little, Arthreya, Tata Consultancy, etc.
Process of Strategy Formulation – 5 Steps Involved
The following process is followed in strategy formulation:
1. Clarifying Business Objectives and Values:
Business strategies are linked to the mission and values followed by a company. A mission is the expressed purpose for which the business has been set up. It should be clearly defined and communicated to the members. All managerial decisions will be taken with reference to the objectives of the organisation and strategies will be formulated to achieve them.
The objectives provide guidelines for making strategies at various levels in the organisation. The values used in the company also help in which way the strategies will be framed. The understanding about the likely customers and the type of their needs the company will satisfy should be kept in mind at the time of making strategies.
2. Appraisal of External Environment:
The external environment consists of economic, technological, marketing, political and social factors prevailing at that time. All those factors have a direct bearing on the business and all business plans and strategies will be framed in order to benefit maximum from the existing environment. There is a need of continuous monitoring of external environment and its likely impact on the business.
For example, a business may reduce cost of production by using improved technology; there may be new threat from competitors at the same time. There should be a constant thinking on how to deal with likely external factors. Management should establish a system of forecasting, monitoring and evaluating external environment so that timely strategies may be formed for converting threats into opportunities.
3. Appraisal of Internal Environment:
An appraisal of internal environment will help in knowing the strengths and weaknesses of the organisation. Unless otherwise a detailed review of various activities is undertaken it will not be possible to frame proper strategies. For example, the company may have a good marketing network but production activity may not be able to cope with it. When these things are clear to the decision-makers, they will certainly try to adjust these imbalances and take advantage of favourable factors and improve those which are lacking behind.
The internal environment which needs appraisal includes marketing, production, financial, human resources. A proper assessment of these areas should be undertaken so that corrective measures are taken where necessary.
4. Examining Alternative Strategies:
There should be a proper matching between external and internal factors. The organisational strengths and weaknesses should be kept in mind while studying the impact of external environment. There may be a gap between the desired results and actual performance. In order to fill this gap some alternative strategies are required. The pros and cons of alternative strategies should be assessed so that these may be employed in case of need.
For example, a company wants to expand its business; a strategy may be to increase production by extra utilisation of existing production facilities or by adding more machines. An alternative strategy may be to acquire a unit producing same type of product. It will be necessary to evaluate carefully the alternative strategy against predetermined criteria.
5. Choice of Strategy:
The choice of a suitable strategy is an important step in strategy formation. Various alternative strategies are analysed and their strengths in achieving organisational goals are assessed.
While making choice of a strategy, the factors such as degree of risk acceptable to the management, results achieved from past strategy, response of owners, values and preferences of top management and timing of the strategy should be taken into account. Any selection of a wrong strategy can create problems for the company. The final choice of a strategy should be a well thought decision.
Strategies Prohibited while Formulation of Strategies
There are some strategies which are strongly prohibited while the formulation of strategies as they may block the way of the organization in achieving the corporate, business and functional objectives.
Some preventable strategies are as follows:
1. Investing a Fortune in Unverified Product:
Investing a large amount in a business, which is not well defined, is not a recommendable step. It is always better to go for a proper R&D work before stepping in any business because that provides a better overview of the ability required for the particular business. The R&D must be focused on target market share, competitor’s products and strategies, selling techniques, promotional strategies, price war and manufacturing cost.
2. Believing in Easy Marketing Plan:
If the product is in market, it will be sold on its own, is a very dangerous kind of thinking. While marketing a specific product, the marketer is supposed to define its niche market and unique selling proposition (USP) that creates differentiation and presents a product as brand in front of the customers. The strategies and the marketing plan must be of such type that maximizes the unique traits of the products.
3. Improper Planning:
Going for the action plans without getting all the bases covered may be hazardous to the business. The marketer must have cover the entire aspects related to the business. It includes going through the master plan and assuring that all the support activities of the main action are in place and well defined.
4. Not Going for Cost-Benefit Analysis:
Determining the cost and measuring the payback is the prerequisite of any business. Avoiding the cost benefit analysis is not recommended. Any action in the business must be studied properly because the benefits or the outcome is supposed to outweigh its cost.
5. Not Targeting a Specific Market:
Knowing the target market is the first step of any marketing plan. Without knowing whom to serve, where to go and how to attend, one cannot go for selling of products or services. Delivering right product to the right place at right time is the basic rule of marketing. Sometimes good ideas fail just because they fail in targeting the appropriate target market.
6. Not Taking Realistic View:
Maximizing the output is the goal of any organization. Every organization has limited resources thus it is very necessary to identify a niche market segment, which the organization can afford targeting. There is no need of widening the circle if one cannot reach it. It might end up with nothing. Over estimation of resources, staff, equipment and processes may bring hurdles in the way of achieving the corporate goals.
7. Focusing on Acquiring New Customers, Instead of Current or Previous Ones:
Understanding that once the sales get finished there begins a new cycle of relationship with the customer. This relationship takes form from the after sales services provided by the organization. It is not always possible to find new customers every time for selling the product. The organization needs to deal with the current or previous customers too.
It is easier to start business with them as they already have the experience with the organization. Thus, it is recommended to make good relationship with the current and older customers as they could bring a profitable business to the organization repeatedly.
8. Focusing on Quantity, Instead of Quality:
Sacrificing the quality for the quantity is not a. right strategy for any organization. Focusing on quantity presents the view of some organizations that are under impression that “more is better”, but such kind of organization find it very difficult to sustain in the market for longer period.
9. Not Focusing upon the Customers:
The customer is very important. A good strategic idea might fail just because of the poor knowledge of customer’s taste and preferences. It is very essential to comprehend the things from the customer’s point of view as why do they purchase? On the other hand, do they have real need for the product? Inadequate marketing research also leads to failure in understanding the customers.
10. Inability to Predict the Environment:
Predicting environmental reaction is very necessary as it gives a fair idea of competitors and their strategies, the competitive brands, price wars, Government rules and policies, social and cultural changes etc., failing in analyzing these factors may lead to dangerous results.
11. Poor Communication:
Sharing insufficient information might end up with lots of misconceptions and problems within and outside the organization. Thus, communication gap-should be avoided as much as possible.
12. Resistance for Change:
Understanding that change is the law of nature and an organization is also supposed to bring changes according to the need and demand of the changing environment. Lack of vision may create resistance for change which must be avoided.
13. Focusing on Several Projects at Same Time:
Working on several projects at same time is not recommendable. It may consume enough resource, money, time and energy and tend to get exhausted very soon, thus may create problem in finishing even a single one.
14. Following the Market Leader:
Copying the strategies of the market leader is not a good strategy. It may give success for a short time period but in long run, the organization cannot sustain in the market by merely following the leader. Every organization is supposed to do its SWOT analysis to find gap and accordingly develop a prominent market for its products.
15. Not Emphasizing upon the Human Capital:
Managing and monitoring the human capital like any other asset is very important as they not only replicate the investment of money but also of the time devoted in developing and executing programs.
8 Important Steps taken for the Implementation of Strategies
The following steps are taken for implementation of strategies:
1. Communication of Strategies:
After making strategic plans, they arc communicated to organisational members so that they understand them and take desired decisions.
2. Communication of Planning Premises:
Planning premises are the forecasts of environment which affect the plans. These premises, therefore, form the basis of strategic plans because unless the plans are based on future assumptions, decision-making would be unreliable. Planning premises are communicated to managers so that they make programmes and schedules according to plans.
3. Reflection of Overall Objectives:
Strategic plans aim to achieve overall organisational goals. This is possible if those concerned with their implementation mutually agree to the plans. It is essential that superiors take sub-ordinates into confidence, take their suggestions, solve their doubts and offer suggestions to their superiors so that everyone collectively works towards the organisational goals.
Strategies once framed, cannot continue forever. They being future-oriented and future being uncertain, they may fail to react to the environment. It is, thus, essential that strategies are periodically reviewed so that changes not predicted earlier do not fail their effective implementation.
5. Develop Contingency Strategies:
If changes in the environment are other than those predicted and organisations frame fresh plans, they will take long time to respond to the changes and most of the organisations would lose the opportunities offered by the environment. It is, therefore, required that organisations prepare ‘contingency strategic plans’ to face the unpredicted situation.
6. Development of Organisation Structure:
The structure of organisation, with its system of delegation of authority, authority-responsibility relationships, esprit de corps and other principles of organisations must facilitate effective implementation of strategic plans.
7. Need to Spread the Importance of Strategies:
Managers continuously interact with the sub-ordinates and emphasise the need for strategic planning so that there is no resistance to their implementation.
The organisational climate should encourage the members to recognise the need for strategic plans for fulfilment of organisational goals.
Top 15 Roles of Strategy
The transition from corporate planning to strategic management has involved ‘strategy’ which has become important part of corporate management. Strategy occupies multiple roles within an organisation.
Its roles are discussed under the following headings:
Strategy gives coherence to the decisions of an individual or organisation. Robert M. Grant writes, “A strategy offers guidelines and decision criteria that assist positioning and help create opportunities.”
Strategy improves decision making in several ways:
i. It simplifies decision making by constraining the range of decision alternatives and by acting as a heuristic — a rule of thumb that reduces the search required to find an acceptable solution to a decision problem.
ii. It permits the knowledge of different individuals to be pooled and integrated.
iii. It facilitates the use of analytical tools and techniques.
Strategy helps in coordinating the actions of different organisational members. Strategy is a communication device. Statements of strategy are a powerful means through which the CEO can communicate the identity, goals and positioning of the company to all organisational members.
Strategy is forward looking. It sees future ahead of the competitors. It sets the direction of the firm’s development. It also sets aspirations that can motivate and inspire members of the organisation. It helps to create desired leadership position. Robert Grant says, “Strategy is more about stretch and resource leverage.” It creates a “success-against-the-odds” culture.
There is agreement that the role of strategy is to achieve competitive advantage for an organisation. Competitive advantage allows an organisation to meet consumer’s needs better than its rivals. An effective strategy allows managers to use their organisation’s resources and capabilities to exploit opportunities and limit threats in the external environment.
Joel Ross says, “Without a strategy the organisation is like a ship without a rudder, going around in circles. It’s like a tramp; it has no place to go.” A sound strategy, skillfully implemented, identifies the goals and direction that managers and employees at every level need in order to define their work and make their organisation successful.
An organisation without a clear strategy, in contrast, is rudderless. It flails about, dashing off in one direction after another as opportunities present themselves, but never achieving a great deal.
Thompson and Strickland have astutely said, “The tasks of crafting, implementing, and executing company strategies are the heart and soul of managing a business enterprise.”
Thompson and Strickland have stated, “A company’s strategy is the game plan management is using to stake out a market position, conduct its operations, attract and please customers, compete successfully, and achieve organisational objectives.”
John A. Pearce II opines that a strategy is a company’s game plan. Although that plan does not precisely detail all future deployments (of people, finances, and material), it does provide a framework for managerial decisions. A strategy reflects a company’s awareness of how, when, and where it should compete; against whom it should compete; and for what purposes it should compete.
Strategy serves as a road map for doing business.
Thompson and Strickland have astutely said, “There is a compelling need for managers to proactively shape how the company’s business will be conducted. It is management’s responsibility to exert strategic leadership and commit the enterprise to going about its business in one fashion rather than another. Without a strategy, managers have no prescription for doing business, no road map to competitive advantage, no game plan for pleasing customers or achieving good performance. Lack of a consciously shaped strategy is a surefire ticket for organisational drift, competitive mediocrity, internal wheel-spinning, and lackluster results.”
Crafting, implementing, and executing a strategy are top-priority managerial tasks. Strategy can mold the efforts and decisions of different divisions, departments, managers, and groups into a coordinated, compatible whole. All the actions being taken in different parts of the business — R&D, design and engineering, production, marketing, customer service, human resources, information technology, and finance—need to be mutually supportive.
Thompson and Strickland have made it clear, “Absent a purposeful strategy for the entire enterprise, managers have no overarching business rationale for molding the actions and decisions initiated across the Role organisation into a cohesive whole, no underlying business basis for uniting cross-department operations into a team effort, no conscious business model for generating profits.”
In crafting a strategy, management is saying that “among all the paths and actions we could have chosen, we have decided to move in this direction, focus on these markets and customer needs, compete in this fashion, allocate our resources and energies in these ways, and rely on these particular approaches to doing business.” (Thompson)
A company’s strategy consists of the combination of competitive moves and business approaches that managers employ to please customers, compete successfully, and achieve organisational objectives.
Most successful strategies give an organisation:
i. Some property that is unique, or at least distinctive;
ii. The means for renewing its competitive advantage as the environment changes.
The task of business strategy is to determine how the firm will deploy its resources within its environment and so satisfy its long-term goals, and how to organise itself to implement that strategy.
Leopold Vansina says, “The difference between ‘what we are’ and ‘what we want to be’ creates ‘psychic tension’, which requires both our will and coordinated action for its resolution in the form of strategy.”
Strategy converts vision into practical reality. John Kotter states, “Strategy without vision can only go so far and vision without strategy translates into hope without a practical reality.” In the words of the Chinese proverb – “It is not the call of the duck, but its flight, that makes the flock to follow.”
Strategies almost always play an influential role in most fields of human endeavour. Robert M. Grant states, “Whether we look at warfare, chess, politics, sport, or business, the success of individuals and organisations is seldom the outcome of a purely random process. Nor is superiority in initial endowments of skills and resources typically the determining factor.”
Relationship between Strategy and Organisational Structure
Alfred Chandler who has investigated the relationship between strategy and structure defines structure as the design of the organisation through which strategy is administered. Some authors have elaborated structure as – “the division of tasks for efficiency and clarity of purpose, and coordination between the interdependent parts of the organisation to ensure organisational effectiveness. Structure balances the need for specialisation with the need for integration. It provides a formal means of decentralising and centralising consistent with the organisational and control needs of the strategy.”
Chandler’s landmark study revealed that new organisational forms are no more than a derivative of strategy.
Chandler’s Structure Follows Strategy thesis was based on case studies of large American conglomerates that dominated their industry from the 1920s onward. It was a time when businesses were developing from single-unit, centrally managed operations into umbrella-type structures where a number of comparatively autonomous units shared certain overheads, in particular the strategic planning function.
He found that companies shifted their designs from a simple centralised pattern to a more elaborate divisionalised pattern following changes in population, national income, technological innovations, expanding product lines, etc.
Chandler described how the chemical company DuPont, the automobile manufacturer General Motors, the energy company Standard Oil of New Jersey and the retailer Sears Roebuck managed a growth and diversification strategy by adopting the revolutionary multi-division form. The M-Form is a corporate federation of semi-independent product or geographic groups plus a headquarters that oversees the corporate strategy and coordinates interdependencies.
Besides the characteristics of the strategy, structure depends on a number of factors like the size of business, nature of business like the diversity, characteristics of the market, future plans, etc. The strategy chosen is the primary explanatory variable for organisational structure.
The influence of strategy on structure may be expressed as follows:
i. Strategy determines organisational tasks.
ii. Strategy influences the choice of technology and people responsible for accomplishment of those tasks and these, in turn, influence the appropriate structure.
iii. Strategy determines the specific environment within which the organisation will operate.
Organisational structure may undergo changes as the size of the business changes, as the business diversifies, as the company expands its business into new markets like foreign markets, as the business is restructured, as the business environment changes, etc. For example – when a company, which hitherto was confined to the domestic market, takes up exports seriously, it may establish an export department and as the business grows, it may establish an export marketing subsidiary. As the company becomes multinational and global, the organisational structure will undergo further changes.
Ranbaxy, which was a major Indian pharmaceutical firm, repositioned itself as a research-based international pharmaceutical corporation, transcending the traditional dichotomy between home and overseas markets, abolished its international marketing division and divided the world into four regions, each under a Regional Director with plants, marketing set-ups and joint ventures. India is just one of the countries falling under one of these regions.
Organisational structures need to be flexible. It is said that organisation chart and job descriptions create the graveyard of an organisation.
The rigidity of rules and procedures and lack of discretion and the consequent red tapism and the grievous delays in action often degenerate Government departments and organisations into inhuman, inefficient and irresponsible systems. What are needed in many situations are organisational flexibility and not procedural rigidity, responsibility and authority for accomplishing tasks and not mere job descriptions.
A long hierarchy or many layers in the administrative system delays decision. Such a hierarchical and rigid system is a serious handicap in a fiercely competitive environment where the company has to be close to the customer and where the decisions and actions have to be quick. One of the major handicaps of IBM was the too much delay in decision-making and responding to the market needs.
It is argued that an organisation should be like an amoeba capable of quickly changing its shape as and when required.
With a view to enabling the organisation to quickly and effectively respond to the demand of the market, the organisational structure of many companies has been made flexible. Task groups are formed for specific tasks and once the task is accomplished, the particular group may dissolve and new groups may be formed for new tasks. David Nadler has recommended organisational architectures in which the corporate structure revolves around autonomous work teams.
Evaluating the Success or Failure of Strategies (5 Yardstick Employed)
The success of organisation will depend upon a number of factors including strategies. The formulation of strategies is an important task of top management. It will be equally important to see whether strategies have really benefited the business or not.
The following yardsticks may be employed to see the success or failure of strategies:
1. Consistency in Organisation:
A strategy should help in creating consistency in the organisation. Every business has a number of policies, programmes, rules, etc., for smooth running of the business. The strategies should fit into the internal organisation without disturbing other aspects. They should not be inconsistent with other things like policies etc.
2. Suitable in Environment:
Strategy should be suitable to the environment existing outside the organisation. The working of the business will certainly be influenced by what is happening outside it. Strategy should be in conformity with the prevailing situation. It should both be static and dynamic so that it adjusts under the changing environment.
3. Suitable for the Resources:
The strategy should be in conformity with the resources available. A strategy requiring more resources than the business can afford will not be successful. The resources may be in the form of money and physical facilities. A strategy will be successful only if it involves the available resources and nothing more.
4. Degree of Risk:
The strategy should also take into consideration the risk element in it. The amount of resources committed will determine the degree of risk. How much resources are required at present and what will the commitments in future should be, both taken into account. High risk strategies may even present threat to existence if the things go wrong. The strategy should be such which does not create threat to the existence of the concern.
The workability of a strategy will be judged by the results obtained. The working of a strategy will depend upon its proper implementation also. Its success can also be judged by its contribution towards organisational goals. The strategy will be successful only if it has helped in improving organisational performance.
Strategic Issues and its Characteristics
What decisions facing a business are strategic and therefore deserve strategic management attention?
Typically, strategic issues have six identifiable characteristics:
1. Strategic issues require top-management decisions:
Strategic decisions encompass several areas of a firm’s operations. Therefore, top-management involvement in decision making is imperative.
2. Strategic issues involve the allocation of large amounts of company resources:
Strategic decisions characteristically involve substantial resource development. The people, physical assets, or moneys needed must be either redirected from internal sources or secured from outside the firm. In either case, strategic decisions commit a firm to a stream of actions over an extended period of time, thus involving substantial resources.
3. Strategic issues are likely to have a significant impact on the long-term prosperity of the firm:
Strategic decisions ostensibly commit the firm for a long period of time, typically for five years; however, the time frame of impact is often much longer. Once a firm has committed itself to a particular strategic option in a major way, its competitive image and advantages are usually tied to that strategy.
Firms become known in certain markets, for certain products, with certain characteristics. To shift from these markets, products, or technologies by adopting a radically different strategy would jeopardize previous progress. Thus, strategic decisions have enduring effects on the firm—for better or worse.
4. Strategic issues are future oriented:
Strategic decisions are based on what managers anticipate or forecast rather than on what they know. Emphasis is on developing projections that will enable the firm to select the most promising strategic options. In the turbulent and competitive free enterprise environment, a successful firm must take a proactive (anticipatory) stance towards change.
5. Strategic issues usually have major multifunctional or multi-business consequences:
A strategic decision have affect on overall functions and businesses of the organization. Decisions such as customer mix, competitive emphasis, or organizational structure necessarily involve a number of a firm’s Strategic Business Units (SBUs), functions, divisions, or program units. Each of these areas will be affected by the allocation or reallocation of responsibilities and resources related to the decision.
6. Strategic issues necessitate considering factors in the firm’s external environment:
All business firms exist in an open system. They make an impact and are impacted by external conditions largely beyond their control. Therefore, if a firm is to succeed in positioning itself in future competitive situations, its strategic managers must look beyond the limits of the firm’s own operations. They must consider what relevant others (e.g., competitors, customers, suppliers, creditors, government, and labour) are likely to do.
Criteria for Effective Strategy
Although each strategic situation is unique, there are some common criteria that tend to explain an effective strategy.
Criteria for effective strategy include:
(i) Clear, Decisive Objectives:
All efforts should be directed towards clearly understood, decisive and attainable overall goals. All goals need not be written down or be chronologically precise but they must be understood and be decisive.
(ii) Maintaining the Initiative:
The strategy preserves freedom of action and enhances surprise and secure commitment. It sets the pace and determines the course of events rather than reacting to them.
The strategy concentrates superior power at the place and time likely to be decisive. The strategy must define precisely what will make the enterprise superior in power, best in critical dimensions in relation to its competitors. A distinctive competency yields greater success with fewer resources.
The strategy must purposely have built in resources, buffers and dimensions for flexibility and maneuvers. Reserved capabilities, planned maneuverability and repositioning allows one to use minimum resource while keeping competitors at a relative disadvantage.
(v) Coordinated and Committed Leadership:
The strategy should provide responsible, committed leadership for each of its major goals. Care should be taken in selecting the leaders in such a way that their own interests and values match with the requirements of their roles. Commitment and not mere acceptance is the basic requirement.
The strategy should make use of speed, secrecy and intelligence to attack exposed or unprepared competitors at an unexpected time. Thus, surprise and correct time are very important.
The organisation should secure or develop resources required, securely maintain all vital operating points for the enterprise, an effective intelligence system to prevent the effects of surprises by the competitors.
How a Strategy Contributes to the Success of an Organization? (Top 5 Ways)
Strategy defines the way in which an organization will react to its environment. It is a scheme for the marshalling and deployment of resources in pursuit of organizational objectives.
A strategy contributes to the success of an organization in the following ways:
1. Helps in Facing Environmental Challenges – Every organization operates within the overall socio-economic and political environment of a country. Business environment has become increasingly turbulent. The long-term success of a business enterprise depends, to a great extent, upon how it responds to the changes in its environment. Need for strategy arises due to the dynamic environment.
Strategic are helpful in facing environmental challenges. While formulating strategies, an organization identifies the threats and opportunities posed by the likely future environment. It prepares itself to successfully face the threats and exploit the opportunities by formulating strategies.
2. Provides Direction – Corporate strategy serves as the long term guide towards the achievement of objectives. It provides answers to some vital and crucial questions such as- (a) what business are we in? (b) What business should we be in? (c) Who are our customers, etc?
3. Optimum Utilization of Resources – Corporate strategy indicates how the resources of the organization should be marshalled and deployed for best results. It ensures more efficient and effective utilization of organization resources, e.g., time, money, talents, etc.
4. Facilitates Co-Ordination and Control – Master strategy interrelate the different departments and groups of the organization. It provides a unifying force by focusing attention on common objectives. Strategy also simplifies control by prescribing broad standards of performance.
5. Competitive Strength – Strategies are specifically designed to counter the action of competitors. A competitive strategy is formulated keeping in view the likely moves of competitors. It helps in maintaining or increasing the firm’s market share in the face of competition.
Thus, strategic planning clarifies the objectives of the organisation, reduces environmental uncertainty by identifying the key factors for the success of business, helps in fighting competition in the market and increases the chances of survival and growth of the enterprise.