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Strategy

Defined as:
The direction and scope of an organisation over the long-term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations.

Direction and scope Long-term Advantage Environment Resources and competences

Stakeholder expectations.

Levels of Strategic Planning


Corporate Strategy This looks at the industries in which the organisation operates. This may mean deciding to leave existing areas or enter new ones. This is particularly true if the organisation has a number of divisions. Business Strategy This looks at how the organisation (or subsidiary / division) competes. This tends to mean either: The division is trying to win customers by being better than rivals in some way. The subsidiary is trying to win customers by being cheaper than rivals. Operational Strategy This looks at how resources are used to carry out the strategies noted above. In addition it looks at how areas like processes can be improved to help make the strategy more likely to succeed.

Crafting a Strategy
pesticides
Cosmetics

Polyester

Chemicals

A DIVERSIFIED COMPANY

SINGLE BUSINESS STRATEGY

Responsibility of corporate level managers. Corporate Strategy Responsibility of business level general managers.

A DIVERSIFIED COMPANY

Business Strategy

Responsibility of heads of major functional activities within a business unit.

Functional strategies
(R&D, manufacturing marketing, finance, human resource, etc. Operating strategies. (Regions and districts, plants, departments within functional areas.

Responsibility of plant managers, geographic unit managers and lower level supervisors.

Responsibility of executive level managers.

Business Strategy

SINGLE BUSINESS STRATEGY

Responsibility of heads of major Functional strategies functional activities within a (R&D, manufacturing , marketing, finance, business unit. human resource, etc.

Responsibility of plant managers, geographic unit managers and lower level supervisors.

Operating strategies. (Regions and districts, plants, departments within functional areas.

Ambledon Ltd is a company selling widgets. The finance directors says, We plan to issue more shares to raise money for new plant capacity- we dont want loan finance which will enable us to compete better in the vital and growing widget markets of Latin America, while delaying the development of new products in new business sectors. After all, weve promised the shareholders 5% profit growth this year and trading is tough. IDENTIFY THE CORPROATE, BUSINESS AND FUNCTIONAL STRATEGIES IN THE ABOVE CASE.

CORPORATE Profit growth. Entering new markets rather than producing new products . Allocation of funds for additional plant capacity. BUSINESS Promotion in existing markets and existing products. FUNCTIONAL Invest in new plant. Equity financing rather than debt financing.

There are two extremes when deciding on organisations future strategy:


Strategic

planning

Free

wheeling opportunism

Toyota
Toyota's top management has periodically talked about extending a helping hand to GM and Ford, in particular by raising prices in the US market. But the company's ambition is to make Toyota the world's largest automotive company. The firm intends to continue gaining market share, to reach 15% of the global market over the next decade, and it continues to be the largest investor in the industry. North America remains a key market, where Toyota plans to open its sixth plant in the second half of 2006, which will be located in Texas. Another plant will open in Canada.

Toyota maintains its lead by watching its costs, designing attractive new vehicles which consumers actually want, providing high quality products and maintaining production efficiency. Its investment in fuel-saving technology has paid off with the success of its Prius petrol/electric midsize. The company contends that the car gets as much as 80 miles per gallon and is winning the title of best car from last 4 years..

Stage 1 Strategic Position


Identify key stakeholders and their expectations. Develop long-term objectives to satisfy these stakeholder

expectations. Calculate financial and non-financial ratios to show position of organisation. Identify core resources and competences within the organisation. The culture, beliefs and assumptions of the organisation Identify key factors changing the environment outside the organisation. i.e. the environment (competitors, markets, regulations, discoveries etc. Opportunities and threats) Use SWOT analysis (also known as a corporate appraisal) to summarise the strategic position.

Stage 2 Strategic Choices


Generation of strategic options Evaluation of the options to assess their relative merits

and feasibility. Selection of the strategy


Consider possible exit from existing industries. Consider diversification into new industries.

Consider developing new competitive advantages.


Consider entry into new markets. Consider development of new products.

Stage 3

Strategy into action/implementation

Implementing a strategy has three elements. Organising/structuring. For example, should the organisation be split into European, US and Asian divisions? How autonomous should divisions be? Enabling an organisations resources should support the chosen strategy. For example, appropriate human resources and fixed assets need to be acquired. Managing change. Most strategic planning and implementation will involve change, so managing change, in particular employees fears and resistance, is crucial.

Why Strategic Planning (Rational Model) is necessary

Strategic planning
Involves formal analysis of each of the stages of strategic position before a final strategic choice is made. Strategic planning is useful because: It forces managers to consider each stage of the strategic process It forces managers to justify their actions It forces managers to consider the effect of a strategy on all aspects of the business It allows managers to be proactive rather than reactive.

Freewheeling opportunism
Freewheeling opportunists do not like planning. They

prefer to see and grab opportunities as they arise. Intellectually, this is justified by saying that planning takes too much time and is too constraining. Probably, the approach is adopted more for psychological reasons: some people simply do not like planning. Often such people are entrepreneurs who enjoy taking risks and the excitement of setting up new ventures. However, once the ventures are up and running, the owners lose interest in the day today Repetitive administration needed to run a business.

Alternative Ways of developing organisational

strategy other than Rational and Free wheelers Approach.


Incrementalism

Emergent strategies
The strategy lenses

Emergent strategies
The research of Mintzberg (1987) suggests that few of

the strategies followed by organisations in the real world are as consciously planned as the approaches above suggest. He believes this to be an unrealistic view of strategic planning, believing instead that strategies evolve over time (emerge) rather than result from an in depth analysis of every aspect of the environment and an impartial evaluation of every possible alternative.

Incrementalism
Lindblom did not believe in the rational model to decision

making as he suggested that in the real world it was not used, citing the following reasons. Lindblom believed that strategy making involving small scale extensions of past practices would be more successful as it was likely to be more acceptable as consultation, compromise and accommodation were built into the process. He believed that comprehensive rational planning was impossible and likely to result in disaster if actively pursued. Strategic Managers do not evaluate all the possible options open to them but choose between relatively few alternatives. It does not normally involve an autonomous strategic planning team that impartially sifts alternative options before choosing the best solution. Strategy making tends to involve smallscale extensions of past policy incrementals rather than radical shifts following a comprehensive search.

The strategy lenses


Johnson and Scholes talk about strategic lenses, which are three ways of viewing what can be meant by the term strategy. These are as follows. Strategy As Design. This is the view that strategy formulation is a rational, logical process where information is carefully considered and predictions made. Strategic choices are made and implementation takes place. Essentially this is the same as the rational planning model discussed earlier. Strategy As Experience. This is the view that future strategies are based on experiences gained from past strategies. There is strong influence from the received wisdom and culture within an organisation about how things should be done. This reflects the emergent approach described above. Strategy As Ideas. This is the view that innovation and new ideas are frequently not thought up by senior managers at the corporate planning level. Rather, new ideas will often be created throughout a diverse organisation as people try to carry out their everyday jobs and to cope with changing circumstances.

Illustration The strategy lenses


Choosing a family holiday. A family is considering a holiday. The family has for many years gone to the same resort, Golden Sands which has been perfectly suitable. Applying the strategic lenses to this modest planning exercise could result in the following approaches:

Strategy as design. The family gets lots of holiday

brochures and makes extensive queries on the internet. Checklists of family members requirements are drawn up and the holidays are scored against these. Careful budgeting exercises are carried out. The result of this rational, logical process is that another resort, Emerald Coast seems to be a better fit to what the family needs.

Strategy as experience. Despite the analysis carried

out, the head of the family would like to return to Golden Sands. There is strong emotional attachment to that resort, the facilities and activities available are well known and holidays there have always been enjoyed.

Strategy as ideas. An old school friend of the head of the family now lives abroad and has just emailed with the suggestion that the two families do a house swap for a couple of weeks. Both families live in interesting and attractive areas of their countries and the house swap would be cheap, comfortable and interesting.

Of course, there is no right answer as to where the family should go on holiday, and assessment of the success of the holiday can only be carried out retrospectively. But one thing is clear, all three of the lenses have a part to play in trying to make a good decision.