Unit1 (MBM-543)
Unit1 (MBM-543)
changing environment through its conguration of resources and competences with the aim of fullling
stakeholder expectations.
Strategic decisions are about
The rst level is Corporate-level Strategy, is concerned with the overall scope of
an organization and how value will be added to the different parts (business units)
of the organization. This could include issues of geographical coverage, diversity of
products/ services or business units, and how resources are to be allocated between
the different parts of the organization. In general, corporate-level strategy is also
likely to be concerned with the expectations of owners the shareholders and the
stock market. It may well take form in an explicit or implicit statement of mission
that reects such expectations. Being clear about corporate-level strategy is
important: it is a basis of other strategic decisions.
The third level of strategy is at the operating end of an organization. Here there
are operational strategies, which are concerned with how the component parts of
an organization deliver effectively the corporate- and business-level strategies in
terms of resources, processes and people. Indeed, in most businesses, successful
business strategies depend to a large extent on decisions that are taken, or
activities that occur, at the operational level. The integration of operational
decisions and strategy is therefore of great importance.
VocabularyofStrategy
The concept of strategy has already been dened. It is the long-term direction of
the organization. It is likely to be expressed in broad statements both about the
direction that the organization should be taking and the types of action required to
achieve objectives. For example, in may be stated in terms of market entry, new
products or services, or ways of operating.
A business model describes the structure of product, service and information ows
and the roles of the participating parties. For example, a traditional model for
manufactured products is a linear ow of product from component manufacturers to
product manufacturers to distributor to retailers to consumers. But information may
ow directly between the product manufacturer and the nal consumer (advertising
and market research).
Strategic control involves monitoring the extent to which the strategy is achieving
the objectives and suggesting corrective action (or a reconsideration of the
objectives).
StrategicManagement
The scope of strategic management is greater than that of any one area of
operational management. Strategic management is concerned with complexity
arising out of ambiguous and non-routine situations with organisation-wide rather
than operation-specic implications. This is a major challenge for managers who are
used to managing on a day-to-day basis the resources they control. It can be a
particular problem because of the background of managers who may typically have
been trained, perhaps over many years, to undertake operational tasks and to take
operational responsibility. Accountants nd that they still tend to see problems in
nancial terms, IT managers in IT terms, marketing managers in marketing terms,
and so on. Of course, each of these aspects is important, but none is adequate
alone. The manager who aspires to manage or inuence strategy needs to develop
a capability to take an overview, to conceive of the whole rather than just the parts
of the situation facing an organization. Because strategic management is
characterized by its complexity, it is also necessary to make decisions and
judgments based on the conceptualization of difficult issues.
STRATEGIC MANAGEMENT can thus be dened as
STRATEGIC POSITION:
STRATEGIC CHOICES:
Strategic choices involve understanding the underlying bases for future strategy
at both the business unit and corporate levels and the options for developing
strategy in terms of both the directions in which strategy might move and the
methods of development.
There are strategic choices in terms of how the organization seeks to compete at
the business level. This requires an identication of bases of competitive
advantage arising from an understanding of both markets and customers and the
strategic capability of the organization. As mentioned above, Dell expected to gain
advantage through its knowledge of digital technologies.
Strategy may develop in the future in different directions. For example, Dell was
progressively moving from a narrow product base (computers) and a narrow
customer base (corporate clients) by extending both its product range and target
markets. The development method used by Dell was one of internal development
(growing its current business). Other organizations might develop by
mergers/acquisitions and/or strategic alliances with other organizations. These
options for development directions and methods are important and need careful
consideration.
Translating strategy into action is concerned with ensuring that strategies are
working in practice.
The reverse is also important to success, namely the extent to which new strategies
are built on the particular resource and competence strengths of an organization. Of
course some businesses, like Dell, had transformed the way that business was
conducted on their sector through developing a new business model based on their
IT capabilities.
Managing strategy very often involves change. This will include the need to
understand how the context of an organization should inuence the approach to
change: the different types of roles for people in managing change. It also looks at
the styles that can be adopted for managing change and the levers by which
change can be effected.
BASICMODELOFSTRATEGICMANAGEMENT:
FIGURE11
Figure11illustrateshowthesefourelementsinteract;Figure12expandseachoftheseElements.
Itisaplanningmodelthatpresentswhatacorporationshoulddointermsofthestrategic
managementprocess,notwhatanyparticularfirmmayactuallydo.Therationalplanningmodel
predictsthatasenvironmentaluncertaintyincreases,corporationsthatworkmorediligentlyto
analyzeandpredictmoreaccuratelythechangingsituationinwhichtheyoperatewilloutperform
thosethatdonot.
FIGURE12
ENVIRONMENTALSCANNING:
STRATEGYFORMULATIUON:
Mission
To organize the worlds information and make it universally accessible and useful.63
Objectives
Objectives are the end results of planned activity. They should be stated as action
verbs and tell what is to be accomplished by when and quantied if possible. The
achievement of corporate objectives should result in the fulllment of a
corporations mission. In effect, this is what society gives back to the corporation
when the corporation does a good job of fullling its mission. For example, by
providing society with gums, candy, iced tea, and carbonated drinks, Cadbury
Schweppes, has become the worlds largest confectioner by sales. One of its prime
objectives is to increase sales 4%6% each year. Even though its prot margins
were lower than those of Nestl, Kraft, and Wrigley, its rivals in confectionary, or
those of Coca-Cola or Pepsi, its rivals in soft drinks, Cadbury Schweppes
management established the objective of increasing prot margins from around
10% in 2007 to the midteens by 2011.
The term goal is often used interchangeably with the term objective. In contrast to
an objective, we consider a goal as an open-ended statement of what one wants to
accomplish, with no quantication of what is to be achieved and no time criteria for
completion. For example, a simple statement of increased protability is thus a
goal, not an objective, because it does not state how much prot the rm wants to
make the next year. A good objective should be action-oriented and begin with the
word to. An example of an objective is to increase the rms protability in 2010 by
10% over 2009.
Some of the areas in which a corporation might establish its goals and objectives
are:
Policies
A policy is a broad guideline for decision making that links the formulation of a
strategy with its implementation. Companies use policies to make sure that
employees throughout the rmmake decisions and take actions that support the
corporations mission, objectives, and strategies. For example, when Cisco decided
on a strategy of growth through acquisitions, it established a policy to consider only
companies with no more than 75 employees, 75% of whom were engineers.
STRATEGY IMPLEMENTATION
Strategy implementation is a process by which strategies and policies are put into
action through the development of programs, budgets, and procedures. This
process might involve changes within the overall culture, structure, and/or
management system of the entire organization. Except when such drastic corporate
wide changes are needed, however, the implementation of strategy is typically
conducted by middle and lower-level managers, with review by top management.
Sometimes referred to as operational planning, strategy implementation of ten
involves day-to-day decisions in resource allocation.
Programs
Budgets
For example, General Motors budgeted $4.3 billion to update and expand its
Cadillac line of automobiles. With this money, the company was able to increase the
number of models from ve to nine and to offer more powerful engines, sportier
handling, and edgier styling. The company reversed its declining market share by
appealing to a younger market. (The average Cadillac buyer in 2000 was 67 years
old.) Another example is the $8 billion budget that General Electric established to
invest in new jet engine technology for regional jet airplanes. Management decided
that an anticipated growth in regional jets should be the companys target market.
The program paid off when GE won a $3 billion contract to provide jet engines for
Chinas new eet of 500 regional jets in time for the 2008 Beijing Olympics
Procedures
the nal major element of strategic management, it can also pinpoint weaknesses
in previously implemented strategic plans and thus stimulate the entire process to
begin again.
Performance is the end result of activities. It includes the actual outcomes of the
strategic management process. The practice of strategic management is justied in
terms of its ability to improve an organizations performance, typically measured in
terms of prots and return on investment. For evaluation and control to be effective,
managers must obtain clear, prompt, and unbiased information from the people
below them in the corporations hierarchy. Using this information, managers
compare what is actually happening with what was originally planned in the
formulation stage. For example, when market share (followed by prots) declined at
Dell in 2007, Michael Dell, founder, returned to the CEO position and reevaluated his
companys strategy and operations. Planning for continued growth, the companys
expansion of its computer product line into new types of hardware, such as storage,
printers, and televisions, had not worked as planned. In some areas, like televisions
and printers, Dells customization ability did not add much value. In other areas, like
services, lower-cost competitors were already established. Michael Dell concluded,
I think youre going to see a more streamlined organization, with a much clearer
strategy.
CHALLENGESOFSTRATEGICMANAGEMENT
1.Strategic drift
2.CONTEMPORARY ISSUES:
2.1.Internationalization
2.2.E-commerce
The speed at which data can be analysed and communications enacted has been
transformed through the development of cheap and powerful information and
communication technologies (ICT). Although most managers would accept that this
is likely to impact on their own organization they are left with considerable
uncertainty about the direction and speed of those changes. In order to reduce this
uncertainty managers rst need to assess the impact on their current and future
strategic position.
Finally, the ways in which strategy is translated into action need to change to
support e-commerce models. Flatter structures; an increased ability to integrate
resources from different parts of the organization and beyond and the need for
almost constant strategic change are challenges for many organizations.
2.3.Changing Purposes
There used to be a clear distinction between the purposes of the private sector and
organizations in the (so-called) not-for-prot sector and/or the public sector. The
former were prot-driven organizations working to the best interests of their
shareholders. The others were mission-driven organizations working to increase
the quality of life for a specic group of the community or society at large. Of course
it was never really quite so polarized but increasingly these distinctions are
becoming blurred. The private sector has seen major changes in regulations and
corporate governance reforms many as a result of corporate scandals, such as
Enron and SATYAM. They have also faced pressures to develop a much stronger
framework of business ethics and corporate social responsibility. At the same time
there have been opposing forces arguing for a much clearer emphasis by boards of
directors on increasing shareholder value as their primary responsibility .In not-for-
prot organizations and in the public sector there has been a danger of being
dominated by the purposes of the funders and being concerned more with
resource efciency than with service effectiveness . Awareness of such dangers has
led to major efforts to make the purposes and modus operandi of these types of
organization more business like. This has resulted in a much more prominent role
for both nancial targets and strategies and a major emphasis on improving the
quality of service to the beneciaries (for example, patients in hospitals). In turn this
is changing the way in which strategy is managed. There is a greater need for:
market knowledge ;new competences, such as nancial management ; an ability
to work in partnerships and for less centralization , to name just a few of these
changes.
3. STRATEGIC LENSES:
The strategy lenses are three different ways of looking at the issues of strategy
development for an organization
3.1. Strategy as Design: the view that strategy development can be a logical
process in which the forces and constraints on the organization are weighed
carefully through analytic and evaluative techniques to establish clear strategic
direction. This creates conditions in which carefully planned implementation of
strategy should occur. This is perhaps the most commonly held view about how
strategy is developed and what managing strategy is about. It is usually associated
with the notion that it is top managements responsibility to do all this and that
therefore they should lead the development of strategy in organizations.
3.2. Strategy as Experience: here the view is that future strategies of
organizations are based on the adaptation of past strategies inuenced by the
experience of managers and others in the organization. This is strongly driven by
the taken-for-granted assumptions and ways of doing things embedded in the
culture of organizations. Insofar as different views and expectations exist, they will
be resolved not just through rational analytic processes, but also through processes
of bargaining and negotiation. Here, then, the view is that there is a tendency for
the strategy of the organization to build on and be a continuation of what has gone
before.