STRATEGY DEVELOPMENT PROCESS
What is the purpose of an organizational strategy?
The purpose of an organizational strategy is to achieve the goals of the mission statement. This is done by developing a logical plan for utilizing the organization`s strengths and resources. An organizational strategy provides direction for the organization`s activities and its human resources within the context of its mission statement`s objectives.
What strategy must an organization develop to achieve its mission?
An organizational strategy must be developed for each functional area within its mission statement. The resulting strategies contain:
1. A clear purpose
2. Measurable expected outcomes
3. Fall-back plans in the event the primary strategy cannot be implemented
4. Costs and benefits
Developing an organizational strategy using The Strength, Weaknesses, Opportunities and Threats (SWOT) analysis.
SWOT analysis is to combine the assessment of the environment with the analysis of the organization`s internal resources and capabilities. The key objective is to arrive at strategic fit - the matching of strength to opportunities, the elimination or avoidance of threats, and the strengthening or avoidance of weaknesses.
Elements analyzed within the organization`s environment consist of the following variables:
3. economic technology
4. organizational publics
(a) capital originators including shareholders, creditors, bankers, and underwriters
(b) raw material and component providers
(d) human resources
(e) competitive rivals
(f) governmental and legal environment including regulators
(g) special-interest lobbying groups
The SWOT analysis allows managers to develop a strategic plan by examining organizational strengths and weaknesses in terms of the opportunities and threats presented by its environmental elements. Subsequent strategies and tactical decisions can produce a competitive advantage.
What does strategic analysis seek?
Strategic analysis seeks to understand the strategic position of the organization. The analysis should encompass the environment, resources, objectives, expectations, and behaviors. Strategic choice concerns the formulation of possible courses of action, their evaluation and the choice between them. And strategic implementation is the planning of how the strategy can be put into effect. Implementation would affect all aspects of the organizational system.
More specifically, strategic analysis is concerned with the understanding of the strategic position of the organization, and will thus seek to analyze:
· The mission - what business are we in? Why it exists at all? What is the value system of the business?
· The goals - the specific relevance of the mission to the various stakeholders.
· The objectives - embodying the mission, quantifiable and used to measure actual performance against.
· The external environment - scanning of the environment for factors relevant to the organization`s current and future activities.
· The internal appraisal or position audit - the current state of being in terms of resources, assets, facilities, and performance values.
· The corporate appraisal - evaluation of the strengths, weaknesses, opportunities and threats (SWOT) in relation to the internal and external factors.
· The gap analysis - identifying the gap between where we are, where we will be when
extrapolated, and where we desire to be.
What do strategic management and control involve?
Strategic management is facilitated when managers think synergistically. Synergy occurs when the combination of formerly separate elements has a greater effect than the sum of their individual effects. Market synergy arises when products or services have positive complementary effects. Shopping malls reflect this type of synergy.
Strategic control measures may be categorized as concerning either external effectiveness or internal efficiency. Flexibility overlaps these categories. It relates to effectiveness and efficiency. Thus, an organization must be externally flexible in responding to changing customer needs and internally flexible in reordering its structural arrangements, retraining employees, etc.
How important is value chain analysis in the strategic planning process?
Value-chain analysis for assessing competitive advantage is an integral part of the
strategic planning process. Value-chain analysis is a continuous process of gathering, evaluating, and communicating information for business decision making. A value chain depicts how customer value accumulates along a chain of activities that lead to an end product or service. A value change consists of the activities required to research and develop, design, produce, market, deliver, and support its product. Extended value-chain analysis expands the view of the parties involved to include those upstream (e.g., suppliers) and downstream (e.g., customers).
What are the three levels of planning? How are they related?
There are in general three levels of strategy: corporate strategy, business strategy and functional strategy. Corporate strategies define what business or businesses the firm is in or should be in and how integrated these businesses should be with one another; business strategies decide how each business attempts to achieve its mission within its chosen area of activity; and functional strategies governs how the different functions of the business (marketing, production, sales, finance, HRM, IT, etc.) support the corporate and business strategies.
These levels of strategies are matched by the three levels of planning: strategic planning, tactical planning, and operational planning. Strategic planning decides on the objectives of the organization, on changes in these objectives, on the resources used to attain these objectives and on the policies that are to govern the acquisition, use and disposition of these resources. Tactical planning ensures that the resources are obtained and used effectively and efficiently in the accomplishment of the organization`s objectives. Operational planning ensures that specific tasks are carried out effectively and efficiently.
What are Porter`s generic competitive strategies?
Michael Porter proposes two "generic" competitive strategies for outperforming other
corporations in a particular industry: lower cost and differentiation. Lower cost is the ability of a company or a business unit to design, produce, and market a comparable product more efficiently than its competitors. Differentiation, in contrast, is the ability to provide unique and superior value to the buyer in terms of product quality, special features, or after-sale service.
These strategies are called generic because any type or size of business firm-and even not-forprofit organizations-can pursue them.
What are operations strategy?
Operations strategy is concerned with setting broad policies and plans for using the production resources of the firm to best support the firm`s long term competitive strategy. Four basic operations strategies were identified: cost, quality, speed of delivery, and flexibility. These four strategies translate directly into characteristics used to direct and measure manufacturing performance.
Within every industry, there is usually a segment of the market that buys strictly on the basis of low cost. To successfully compete in this niche, a firm must be the low-cost producer. But even doing this does not always guarantee profitability and success. Products sold strictly on the basis of cost are typically commodity-like in nature. In other words, customers cannot distinguish the products of one firm from those of another. As a result, customers use cost as the primary determinant for making a purchase. However, this segment of the market is frequently very large
and many companies are lured by the potential for significant profits, which they associate with the large unit volumes of product. As a consequence, competition in this segment is fierce-and so is the failure rate. After all, there can only be one low cost producer, which usually establishes the selling price in the market.
Quality can be divided into two categories: product quality and process quality. The level of quality in a product`s design will vary as to the market segment it is aimed for. Obviously, a child`s first two wheel bicycle is of significantly different quality than the bicycle of a world class cyclist. One advantage of offering higher quality products is that they command higher prices in the marketplace. The goal in establishing the proper level of product quality is to focus on the requirements of the customer. Overdesigned products with too much quality will be viewed as being prohibitively expensive. Underdesigned products, on the other hand, will lose customers to products that cost a little more but are perceived by the customers as offering much
greater benefits. Process quality is critical in every market segment. In general, customers want products without defects. Thus, the goal of process quality is to produce error free products through total quality management (TQM).
SPEED OF DELIVERY
Another market niche considers speed of delivery to be an important determinant in its purchasing decision. Here, the ability of a firm to provide dependable and fast delivery allows it to charge a premium price for its products.
Flexibility, from a strategic perspective, refers to the ability of a company to offer a wide variety of products to its customers. Flexibility is also a measure of how fast a company can convert its process(es) from making an old line of products to producing a new product line. Product variety is often perceived by the customer to be a dimension of` speed of delivery.
What are the objectives and goals?
Objectives are the end results of planned activity. They state what is to be accomplished by when and should be quantified if possible. The achievement of corporate objectives should result in fulfillment of the corporate mission. A community bank, for example, might set a oneyear objective of earning a 10% rate of return on its investment portfolio.
The term goal is often confused with the term objective. In contrast to an objective, a goal is an open-ended statement of what one wishes to accomplish with no
quantification of what is to be achieved and no time horizon for completion. Note: Effective goal setting requires a sufficient knowledge of employees` jobs. Employees must also understand how goal-oriented performance will be measured.
For example, a community bank`s goal might be to increase its rate of return-a
rather vague statement. Some of the areas in which a corporation might establish its goals and objectives are:
· Profitability (net profits);
· Efficiency (low costs, etc.);
· Growth (increase in total assets, sales, etc.);
· Shareholder wealth (dividends plus stock price appreciation);
· Utilization of resources (ROE or ROI);
· Reputation (being considered a "top" firm);
· Contributions to employees (employment security, wages);
· Contributions to society (taxes paid, participation in charities, providing a needed
product or service);
· Market leadership (market share);
· Technological leadership (innovations, creativity);
· Survival (avoiding bankruptcy); and/or
· Personal needs of top management (using the firm for personal purposes, such as
providing jobs for relatives).
The top management of most large, publicly traded U.S. corporations like to
announce their long-term objectives for the company-partially because that will set challenging measurable goals to work toward and partially because they hope to impress shareholders and financial analysts. For example, Rubbermaid, Inc., a maker of housewares, toys, outdoor furniture, and office products, established the objective that its sales and earnings should increase by 15% annually. To emphasize the importance of developing new products in this highly competitive market, it also set the objective that 30% of its yearly revenue come from products
launched in the past five years.
What is the role of the board in strategic management?
How does a board of directors fulfill strategic management`s responsibilities? In terms of strategic management, a board of directors can do so by carrying out three basic tasks.
· Monitor: By acting through its committees, a board can stay abreast of developments both inside and outside the corporation. It can thus bring to management`s attention developments that management might have overlooked. At a minimum, a board should carry out this task.
· Evaluate and influence: A board can examine management`s proposals, decisions, and actions; agree or disagree with them; give advice and offer suggestions; and outline alternatives. More active boards do so in addition to monitoring management`s activities.
· Initiate and determine: A board can delineate a corporation`s mission and specify
strategic options to its management. Only the most active boards take on this task in addition to the previous two.