Strategy is the science of formulating decisions, implementing them and then evaluating cross-functional decisions in an organization. Strategy helps organization to achieve their aims and objectives. It provides a competitively superior fit between the organization and its environment or culture so that the organization can achieve its goals. Strategy basically focuses on integrating management, marketing, finance, accounting, production, research and development and computer information systems to achieve organizational success and objectives or goals. Sometimes the term strategy is also used to refer to strategy formulation, evaluation and implementation where strategic planning only refers to strategy formulation.
For example companies like General Electric, Johnson & Johnson want their middle and low-level managers to think strategically. And there are some other companies who want their front-line workers to be involved in strategic thinking and planning. Strategic thinking basically means to take a long-term view of the organization and to see the big picture as well and see the competitive environment and see that how all of these fit together (David, 2006).
Strategy management basically helps to answer such questions like where is the organization now? Or where does the organization want to be? Or what courses of action will help us to achieve the company’s goal? Basically with the help strategic management the executives of the company define an overall direction of the company that is the grand strategy. And grand strategy can be defined as the general plan of a major action that the organization basically intends to achieve and that is the company’s long-term goals.
Grand strategy basically falls into 3 categories. And they are as follows:
1) Growth: growth can be defined in two ways that is internally or externally. Internally basically it means development of new products or a change of products. Where as external growth means that the company buys additional businesses or diversifies. Diversification is basically done when the company produces similar kinds of products like introduces different kinds of flavors in soap etc.
2) Stability: stability basically means that the organization wants to remain the same size or it wants to grow slowly but at a steady speed. Stability is also known as a pause strategy as well. For example Allied Tire Stores, this company only sells tires and the motto of this company is that “we just sell tires”.
3) Retrenchment: retrenchment basically means that the organization forces itself to go through a forced decline. This can be done either by shrinking its current business or by selling of the entire business unit. For example when General Electric sold its family financial services and house ware divisions, the reason being that these both business units were going through a period of retrenchment, which also called downsizing (Daft, 1997).
There are eight terms in strategic management. And they are as follows
1) Strategists: are those people within the organizations who are responsible for the success or failure of the company.
2) Vision and mission statement: vision statements tell us that what does the company wants to become and the mission statement tells us the scope of a company’s operations in product and market terms.
3) External opportunities and threats: it basically tells about the economic, social, demographic, environmental, political, legal, governmental, technological and competitive trends that could benefit the company or harm it.
4) Internal strengths and weaknesses: these are the organizations controllable activities. These basically happen in all the business functions of the company.
5) Long-term objectives: objectives that are important for the success of the organization. Such as they help in evaluation, coordination, motivating employees etc.
6) Strategies: strategies are basically actions that help the company achieve its long-term goals or objectives. Strategies may include retrenchment, diversification, joint ventures, product development, business expansion etc.
7) Annual objectives: are short-term goals of the company that help to achieve the long-term goals.
8) Policies: policies help to achieve the annual goals of the company; these are the company’s rules and regulations.
Strategy Formulation
The first step in strategy formulation is the business mission of the company. Business mission includes the vision and the mission statement of the company. The vision statements tell us that what does the company wants to become and the mission statement tells us the scope of a company’s operations in product and market terms. The mission statement is also called a creed statement as well, which means a statement of purpose or a statement of beliefs etc (Witteveen &Wiebs, 2007).
For example Johnson & Johnson’s managers meet regularly with employees to review, reword and reaffirm the firm’s vision and mission statement. The entire J&J workforce recognizes the value that the top management places on this exercise and the employees of the company respond to it. When developing a mission statement of the company it is important to involve as many managers as possible in the process. When a company involves as many employees as possible the people of that company become committed. The importance of vision and mission statement is that the companies have twice the average return on the shareholders equity, than those companies who do not have a mission statement because it is the mission statement that basically helps the company to sell its product.
The second step in the strategy formulation is the external assessment. External assessment basically means when the company does an industry analysis to find out who are its competitors. For example the competitor for Unilever is P&G. There are five key external forces and they are as follows;
1) Economic forces
2) Social, cultural, demographic and environmental forces
3) Technological forces
4) Political, governmental and legal forces
5) Competitive forces.
When a company is conducting a competitive analysis is uses the Porters Forces and Strategies Model. This model also helps the company to develop strategy for the company. According to this model the nature of competitiveness in a given industry can also be viewed as five competitive forces, which are as follows;
1) Rivalry between competing firms
2) Threats of new entrants
3) Threats of substitutes
4) Bargaining power of suppliers
5) Bargaining power of customers.
The strategies that would be included in the Porters Model would be as follows;
1) Cost leadership
2) Differentiation
3) Innovation
4) Focus.
The third step in strategy formulation is the internal assessment. The internal analysis of the firm basically depends on the strengths and the weaknesses of the firm. There is no company that is strong or weak in all areas. Since there are different types of organizations therefore its business functions would also differ. For example a hospital’s function areas would be nursing, maintenance, physician support, cardiology etc. with in all organizations each division has its own strength and weakness. The relationship within the company’s areas of business can best be explained by focusing on the organization’s cultural, internal phenomenon and the areas of the organization.
The company’s culture basically captures the forces that shape the organization. The culture of the organization can be considered as a major strength or weakness. There are different cultural products that are present in the company and they are as follows; values, beliefs, legends, languages, symbols, heroes, rituals etc. the strategic management process takes place within the organization’s culture. The executives of the organization are emotionally committed to the company’s culture.
There are two ways that strategic management can be inhibiting in the culture of the organization.
1) The managers of the company cannot let go of their beliefs
2) When the culture of the company is affected in the past it is better stick with it. The organizational culture affects the company’s business and therefore it must be considered in the evaluation when an internal strategic management audit is being conducted(David, 2006.)
The fourth step in strategy formulation is strategies in action. Strategies in action basically mean how the company is going to achieve its objectives. The organization’s long-term strategy basically shows the results that are expected from following certain strategies. The time frame that is considered is usually from 2 to 5 years. Long-term objectives are needed at the corporate, divisional and functional level of the organization. Objectives are there to help the shareholders of the company to understand their role in the organization’s future. The objectives also provide a basis for consistent decision making by the company’s managers whose values and attitudes are different form each other.
The organization can reduce its conflicts by reaching a consensus on objectives during the strategy formulation activity. If there were no objectives, a company would not have any purpose at all. There are different kinds of strategies that are that are being used with organizations and they are as follows; forward, backward and horizontal integration, market penetration, market development, product development, concentric diversification, horizontal diversification, retrenchment, liquidation and divestiture. An organization can achieve its strategies through joint venture or partnership or through merger or acquisition (Roney, 2004).
The fifth step is strategic analysis and choice. It helps to understand the nature of the strategy. The company’s present strategies, objectives, mission statement mixed with the external and the internal assessment provides a basis for creating and evaluating feasible alternative strategies. The alternative strategies basically help the firm to move from its present position to a more desired one. The essence of strategy formulation is basically an assessment of whether an organization is doing the correct things or not. And how can it be more effective in what the company does. The company should be aware of becoming a prisoner to its own strategies. The objectives and strategies should be properly developed and coordinated.
Strategy formulation takes place at 3 levels, which are
1) Corporate level
2) Business level
3) Functional level.
Frameworks that are used to accomplish them would include BCG Matrix, and the SWOT analysis. The business level strategies basically include the product life cycle and Porters Model. Once the business strategy has been made or formulated then the functional strategies that support the business strategies are developed.
Implementing Strategies
The final step in strategic management process is to put it into implementation. Strategy implementation basically tells us that how a strategy is put into action. Strategy implementation can be defined as an internal, operation driven task, which basically involves motivating, culture building of the employees, supervising and leading to make the strategy work. It has been argued about that strategy implementation is most difficult and the most important part of the strategic management. When a strategy is being implemented it includes the following things like creating and building a company which can carry out strategy successfully, allocating the resources, installing support systems, need leadership, provide rewards to the employees so that the desired result can be achieved and create a strategy supportive corporate culture (O’donovan,2007).
No matter how the strategy is formulated if it is not properly implemented it would not be a success. Strategy is not considered to be static, analytical process but which requires vision, intuition and employee participation. Once a new strategy is selected it is implemented through the changes in leadership, structure, information systems and human resources (Beamish & Killing, 1997).
Leadership is one of the ability that can influence the organizations members to adopt the behaviors that are needed for strategy implementation. Leadership includes persuasion, motivation and changes in the corporate values and culture. Managers basically seek to implement a new strategy, they would make speeches to the employees of that company and issue memos, create and build coalition and would try to persuade the middle managers to go along their vision for the corporation. If the managers of the company do not let the employees participate during the strategy formulation, then implementing the strategy would be hard the reason being that the managers of the company had not let the employees participate and the employees would not be able to understand and would not be committed to the new strategy (Freedman, 2004)
Leadership is basically used to motivate employees to adopt the new strategy of the company and infuse new attitudes and values in their behaviors. For example a manager of Marshall Field’s department store in Illinois uses leadership as a tool to meet holiday sales target by motivating the employees of the store to make sales. The manager basically infuses new values and a new way of thinking within the employees so that it will motivate the employees.
The structural design starts from the organizational chart. It basically shows the manager’s responsibilities and duties, the degree of their authority and the facilities, departments and division. Structure also shows the degree of decentralization, task design and the production technology of the company. Structural changes can be used to implement strategy. The workforce can be reorganized into small groups and those groups would be responsible for their own products or customers. Each of the groups has an autonomous structural unit with skills and functions that are considered necessary to achieve these goals. (Daft, 1997)
Information and control system basically includes reward systems, pay incentives, budgets for allocating resources, information systems and the organization’s rules and policies and procedures. Changes in these systems basically represent major tools for putting strategy into action. For example resources can be reassigned from the research and development department to marketing if a new strategy would require an increase in advertising but no to product innovation, the mangers and the employees would have to follow the new strategy to make it a success and then they should be rewarded for the success, this would help to keep the employees motivated.
As we now that the human resources are the employees of the company, the human resources function is to recruit, select, train, promote or fire the employees of the company. A well-designed strategic management system can fail due to the reason being that sufficient attention is not being paid to the human resource department. Problems can be created in this department like for example disruption of social and political structure within the company, inadequate top management support and a failure by not matching the employee’s aptitudes with the implementation tasks. For example training the employees can help them understand the purpose and importance of the new strategy or help them develop the necessary skills that would be needed and the behaviors the employees would have to adopt. And sometimes it so happens that old employees have to be replaced with new ones. Because the old employees resist change and do not want to adopt the new strategy. It is known that there is no organization in the world that can escape change. Change basically creates fear in employees they believe that with change they would either lose their jobs or they considered it to be an inconvenience. If there is any sort of change it can create disruption in the normal routines. The strategic management can create a lot of change on the employees of the firm and on the business processes as well. To overcome such a problem the management can implement the rational change strategy, which is considered to be one of the most desirable strategies this strategy basically tries to convince the employees that the change is good and it would be an asset to their personal advantage.
It is even more difficult to implement strategy in a multinational organization. When a company is operating internationally, its flexibility and communication are considered to be as important as leadership skills. It is necessary in the structural design to successfully merge with the foreign culture and link the foreign operations to home country. And the information and the control system must fit with needs and incentives of the local people who are working in that organization (Wheelen & Hunger, 2007).
Strategy implementation is considered to be very important for effective strategic management. The managers of the company must implement strategy through the tools of leadership, structural design, information and control system and human resources. If the implementation of the strategy were not done right way the most creative strategy would fail. The success of implementation of strategy depends all on the corporation’s the functional and divisional area managers. The nature and the role of the company’s department merged with the management activities play a major role in the organization’s success (Kotter, 1992). Strategy formulation and implementation can be differentiated in the following terms.
1) Strategy formulation is done in advance whereas strategy implementation is managing when something happens.
2) Strategy formulation focuses on the effectiveness where as strategy implementation focuses on efficiency
3) Strategy formulation is based on intellectual process where as implementation is based on operational process
4) Strategy formulation calls for analytical skills whereas Strategy implementation needs motivation and leadership skills.
5) Strategy formulation requires contribution and teamwork from few individuals only whereas Strategy implementation requires Contribution and teamwork from many people.
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