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Strategy Strategy is a broad based formula for how business is going to compete, what its goals should be, and what policies will be needed to carry out these goals. The essence of formulating competitive strategy is relating a company to its environment. Porter (1980), Competitive Strategy The definitions of strategy change from scholar to scholar. There is no agreed way to define strategy as the interpretations of each writer are based on methodological preference (Robson, 1997). The above definition is an example of Porters stance on what a strategy is.
Strategic planning Strategic management is concerned with deciding on strategy and planning on how that strategy is to be put in to effect via: Strategic Analysis Strategic Choice Strategic execution The above definition of strategic management is by Johnson and Scholes (1993) and essentially outlines that strategies are formulated and concern all organizations, large or small. Strategic planning is a continual process within an organization, the people responsible for the success of strategic planning outline the desired future, then devise a strategy for making it happen. Strategic planning by its very nature is adaptive and the devisor is always developing it to be relevant for the future. Key environmental factors are predicted and their influence on the organization looked at and then optimum measures are taken so the organization can benefit from these environmental factors. Business planning and strategic planning are two different things. Business plans are usually for an outside audience where the strategic plans are developed for internal purposes.
Also strategic plans look at the 'bigger picture' where business planning looks at certain elements of an organization. The Composition of a Strategic Plan Strategic plans are generally made up of one or more interconnected elements; Vision, mission, Values, assessment, goals / objectives , strategy and outcomes. They also incorporate strategic management principles and models. A possible example of a strategic plan follows: The Vision shows the dreams of the organization and broadly capture future services, markets and structures but do not go in to great detail. The Mission outlines customers, competitors and markets.
It shows "a desired position in a predicted future world" and a "bulls eye or target of the strategy" (Yavitz & Newman, 1982). "A mission should not commit a firm to what it must do in order to survive but what it chooses to do in order to thrive" (Ack off, 1986). Values are what the company believes to be true; values offer guides for staff on how to act within the company and ethical standards for all the stakeholders. Values set the company apart from its competitors and show the integrity of the organization. Assessments of the organization are the outside and inside forces, which will affect the company in making its mission and vision successful. These can be carried out in an environmental scan, which includes the following components: Internal analysis of the firm Analysis of the firm's industry (task environment) External macro environment (PEST analysis) A SWOT (Strengths/Weaknesses/ Opportunities/Threats) task can also capture the overviews of a business. Outside factors can range from economic condition to changing technology and competition and are shown as threats and weaknesses.
Inside factors can be anything from assets to liabilities and are usually shown as threats and weaknesses. Then the transition to the future is assessed with regard to industry and competitive environment, general and organization specific environment. PEST stands for political, economic, environmental and technological. The PEST analysis and shows the components of a macro environment within the organization and these can also be translated to fir in with a SWOT analysis. Goals are defined next; these are broad aims that the organization is always working towards.
They are qualitative and directional where objectives are quantitative and specific. Objectives are subtle aims to complete within certain time scales. Next strategy is defined; a strategy is "the framework which guides those choices that determine the nature and direction of an organization" (Tree & Zimmerman, 1980). Strategy looks at long-term direction and guides short term plans. It is understood at the top and middle levels of the organization (Yavitz & Newman, 1982).
A strategy is very clear and is in no way subtle. Finally outcomes are defined; this is involved with the translation of strategies in to realities of the organizational structure, operations, policies and products. This in essence closes the gap between the companies' current position and where it would like to be. Finally critical issues are identified and prioritised. Outcomes are positive statements of the changes the company needs to make to itself and the results that it must carry out in its environment to fulfil strategic necessities. Outcomes are the steps for an organization towards strategic closure.
Strategies for Management of Organizations Between the late seventies and early nineties strategic planning for IS was introduced in to organizations. This came about because executives within organization were looking at linking business objectives with systems (Somogyi and Gallery, 1999). Michael Earl Michael Earl's stance on IS methodology is not on internal but external or outward looking so business objectives can be met fully. Earl pioneered a multiple methodology with three approaches for corporate strategy, top down, bottom up and inside out. Top down considers the organization from a structural perspective aligning IS with the business strategy of the organization through looking at Critical Success Factors (CSF). CSF's are identified through existing policies, interviews and debates.
A bottom up approach considers the current system, then analyses it for potential gaps, which can be done using a SWOT analysis, which will be considered later. This approach shows the current state of the company and what it wants to achieve in the future. An inside out approach analyses different ways to do business and research in to new technologies is carried out by looking at the organization to gain competitive advantage. Michael Porter Porter's five forces model looks at the forces that play upon an organization and shows how IS can build barriers and give competitive edge. The forces are depicted in the diagram below: (Robson, 1997) Porter defines the rivalry of the organization in relation to the industry where high rivalry leads to low profits. The threats from new entrants are heights of the barriers in place to stop them and define the profitability of the industry.
Threats from substitutes is the threat by others to copy the product so the margin for guaranteed profit goes low and customers are more prone to change. The bargaining power of buyers depends on the price of the product and the leverage the customer possesses. Similarly the power of the suppliers is determined by how much the buyer needs the product and how much they are willing to pay. Porter's Generic strategies To create competitive advantage for an organization Porter identified three strategies, Cost Leadership, Differentiation and Focus or Niche. The proper generic strategy will position the firm to leverage its strengths and defend against the adverse effects of the five forces.
Cost Leadership involves having low profit margins and selling lots of units of a product this way, essentially undercutting the competition. Supermarkets do this on certain brand labels so customers will come in to their store and potentially buy other higher priced goods, this can be known as a loss leader. Differentiation is when organizations make products or services different from everyone else, an example of this was the door-to-door selling by Avon in the past. This was not the ordinary way to provide products for housewives but was different and seemed to work.
The focus or niche strategy was to target a gap in the market where an exclusive product or service would fit in and succeed. An example is Brabus, a German company specialising in the customising of Mercedes Benz Motor cars. They essentially customise the car down to the exact specification of the engine to the shade of leather and the way the car drives to the customer's exact specifications. The cars are hand crafted and meticulous detail is added at every stage of reproduction.
This makes the product unique and therefore creates a niche for high class, big spending customers. Analysis of Strategic Management Approaches There is disagreement between the theories in which corporate strategy is developed. This is apparent within the strategic planning process, as it is a diverse and complicated subject. This has meant that there have become two approaches to strategic planning; prescriptive and emergent approach. They both have similar elements but have dissimilar models within the strategic planning process. The prescriptive approach views the analysis, strategy development and implementation within the planning process as rational and linear.
This fundamentally means that prescriptive strategy is one whose objective has been defined in advance and whose main elements have been developed before the strategy begins (Lynch, 1997). In relation to this an emergent strategy is fuzzier and it has been stated by theorists that the strategy evolves or emerges to adapt to human needs. Over the last ten years developments in strategic planning and management have not emphasised heavily on planning and have concentrated more on adaptability and learning, an example of this is systems thinking (Senge, 1990) and chaos theory (Stacey, 1993). Schools of Thought: Design School There are differing schools of thought related to strategic management.
Firstly the design school which assumes that the strategic process is logical, rational and capable of giving true insight in to the company. It makes the assumption that the users can learn to anticipate and respond to complexity in a controlled manner (Robson, 1997), using a range of models based upon principles. An example of this is Porter (1985), other examples include the boston matrix and portfolio analysis. The disadvantage with this school has been that they assume predictability in an environment and do not take in to account interdependence of activities within an organization. More importantly they do not take in to account the politics, culture, and leadership of an organization and are too simple. Mintzberg (1990) identifies a number of major difficulties with the prescriptive strategic process, processes are invalidated when there are major changes in competitors and government.
He also concludes the following: It may not be possible to determine the long-term good and, even if it were, those involved may not be willing to make the sacrifice, such as jobs or investment. This is particularly relevant within local government, that are dictated at local levels by the public. The strategies proposed are logical and capable of being managed in the way proposed. Due to political realities of many organizations, there may be many difficulties in practice. Chief executives have knowledge and power to choose between options. They does not need to persuade or compromise on thier decisions.
This may be naive in many organizations where the culture and leadership seek discussion as a matter of normal practice. After careful analysis, strategy decisions can be clearly specified, summarised, and presented; they do not require further development, nor do they need to be altered because circumstances outside the organization have changed. This point may have some validity but is not always valid. (Mintzberg, 1990) Schools of Thought: Evolutionary School Within these schools commentators such as Pettigrew (1985) and Mintzberg (1990) talk about strategy that incorporate everything rarely exist. They say strategies are borne about compromise between power groups and involve a process of trial-and-error to de...
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Research essay sample on Schools Of Thought Strategic Planning
