The Importance of Environmental Factors on Business Strategy - Literature review Example

Running Head: BUSINESS ORGANISATION AND POLICY Business Organisation and Policy s Business Organisationand Policy Abstract This paper sets out to determine the importance of environmental factors on business strategy, fundamentally the differences between 3 forms of strategy, namely the planned corporate strategy, business planning and policy making and scenario planning and the implementation of policy development in regards to business planning within the strategies. In accordance with this, the advantages and disadvantages of these strategic thought in relation to the development of primary/core strategy. It also attempts to look at the differences between the proponents and opponents of strategy, in that a discussion is based on why planning is much maligned by its opponents. Introduction Strategic management has commonly been portrayed as revolving around the discrete phases of formulation, implementation, and control, carried out in almost cascading steps (Mintzberg, Ahlstrand and Lampel, 2008). These are three steps of the planned corporate approach to strategy involves a formal process to strategy formation: problem awareness, the development of solutions and the selection of a solution (Forbes and Fletcher, 2006). In the same context, Marlo (2006) denoted a planned corporate strategy comprising of a declaration of specific and expressed intentions, supported with formal controls. Jauch and Osborn (2006) commented with his realization that towards a successful outcome of the strategy, a firm structure is necessary for an organization. Hence all decisions made from the top management can be carried out throughout the organization, with the "people" convinced and act in ways that are expected to create desirable results ad hoc to the plan. Therefore, strategy-making authority rests with top management, committing a centralized power in an organization. In view of the forward looking nature of a planned corporate strategy, Mazzolini (2008) observed that goals or objective fulfillments are the critical outcome of the strategy. Environmental Factor in development of Corporate Strategies In a foresight, Snow and Hambrick (2007) notes that the planned corporate strategy is decision making to attain corporate goals in the future which are treated in a formal, explicit and systematic process. Harrison and Philips (2006) found out that a planned corporate strategy is often billed as a future oriented activity, merely projecting the recent past into the future. Through this process, it carries out operational planning, project planning and strategic planning constantly, making sure that top management holds the influence and control for the undertaking in the future. The basic concept behind planned corporate strategy is just exactly what the name implies meaning that it is planned corporate therefore at best a guess/forecast which then is the basis for any type of decision making. Typically, organisations will "plan"/forecast variables that they foresee that will have an future impact on their business, so they anticipate certain events to occur in the future, and as a result of this anticipation they design and implement a strategy to effectively allocate the proper resources in place to either minimise or maximise respectively the negative or positive effects of the event. In essence, it allows an organization to "see the bigger picture" of the challenges and opportunities ahead of them. Any form of planned corporate strategy will contain some element of contingency planning, though not much, but these contingencies are not the focal point of planned corporate strategy. Opponents of this type of strategy believe that this strategy is at best a guess, which could be totally wrong. An example of such a strategy failing was the lack of business planners to adequately factor "terrorism issues" in their business planning, The business planners in the airline industry were hit the hardest during 9/11, as their planned corporate strategy had no contingency to allow for such losses in their business. As with all strategic level decision making there are pros and cons (advantages and disadvantages) to every decision, so is the case with planned corporate strategy, which are outlined below:A major advantage is that a good strategic planning process involves the establishment of a clear goal and the necessary processes to achieve it (Armstrong, 2007). The main advantages to use formalized strategic planning in that it facilitates the inclusion of strategy in the corporate agenda and a direct result of the strategic planning process increases staff awareness and enhanced participation in the strategic plan. In addition, (Mang, 2006) argued that those strategic ideas might emerge from everybody, anywhere, anytime, through trial and error or through planning in that it allows the strategic planner to address and incorporate suggestions on strategy that might not have occurred to him/her. Planned corporate strategy is controllable for future occurrence and it makes current planners involved. It makes decision making rational. It pushes for coordination and every person involved such as suppliers and customers are represented and taken care of resulting in a more effective supply chain and customer relations. It also reduces company's risk when entering a new strategy (Shiner.D, 2008). Furthermore, Mintzberg (2008) pointed out that creating and integrating the efforts of the organization properly can be made sure by developing efficient internal coordination of activities with decision making in a single process. It also allows for greater control, which is vital in formalizing strategy making, for it makes certain that actions are taken care of progressively and quality, accuracy and completeness are taken into account, optimal coordination of these gives the organization the control for the future, both internal and external (Dean and Sharfman, 2008). Integrating control into preparation, evaluation and implementation of decision making will result in realisation on ways towards the desired future of an organisation (Miller, 2007). In other words, effectiveness and efficiency as a whole, can be attained when strategy is divided into measurable and realistic objectives to each part of the organisation by expressing courses of actions clearly (Eisenhardt, 2006). Mintzberg (2008) paper suggested three disadvantage of planned corporate strategy. He argued that primary among these was the planners' inability to foresee the market position in the future. Basically any form of planning is at best a guess, no matter how accurately one tries to forecast it, it is still a guess, and sometimes guesses can go wrong. Secondly, Mintzberg held strong opposition that the theory, which formalized strategy, can produce strategies, which implied significant resource deployment (in terms of expenditure) and time consumption. Lastly Mintzberg, argued that administration and operations part of formulating a strategy are both very different. Additionally, a planned corporate strategy limits an organization's flexibility as it confines in one course of action depicting the occurrence of a means-end shift (Fredrickson and Mitchell, 2006). In actuality, the means to an end, the plan becomes the end and adjustments in the plan are impulsively resisted. Harrison and Philips (2006) commented that the basis of a planned corporate strategy is often built on future plans. However, when organizational resources are allocated based on future plans instead of past performances; the risk of strategy turning into a crisis naturally exists. Moreover, planned corporate strategy overemphasizes the degree to which it is possible to foresee which competences or strategic positions. Little emphasis has been put upon the importance and challenge of creating and executing the chosen strategy. It is not capable with the intense rapid change in the industries. It also might make the organisation lose important sharing bond that will improve the overall organisational performance (Shiner, D, 2008). Another disadvantage is that planned corporate strategy often makes top management neglect that individual and teamwork effort can coordinate better to qualitative goals and measures that relate directly to their job (Amit and Schoemaker, 2007). As they are assessed on the ability to allocate capital effectively, makes a great deal for top management. The business planning and policy making, however, is in sharp contrast to planned corporate strategy. Business planning and policy making views strategies as "emerging from" the organization from time to time, rather than "planned corporate for" the firm at particular decision points. It will make clear the pursuit of consistent actions by the organization that was not included in its formal intentions and indicate the flexibility and ability to respond to circumstances by the management (Pettigrew, 2007). Interestingly though emergent strategies have existed historically, but have been in the limelight and thus were not incorporated into the formal planning concept (Shiner, D, 2008). However, the concept of business planning and policy making appears controversial - the notion that organizations can pursue "strategies" without intending them. After all, the term strategy has always been associated with voluntarism and free will. Dill (2009) has called" machismo management" were "deliberate" and "emergent" strategies two distinct phenomena in practice. Then there might be merit in implementing the label strategy only to the formal (Mintzberg, Henry and McHugh, Alexandra, 2008). Business Planning and Policy Making The main advantage of business planning and policy making is apparent because it allows a response to a real situation, which the planned corporate strategy does not do. Business planning and policy making is particularly important during times of challenge, perhaps owing to some external threat, or to internal change (Mintzberg, 2008). Secondly it encourages open communication and information sharing which enhance relationship between companies and alliances. It also gives the flexibility to adapt to the changing technology and market trend (Shiner, D, 2008). According to Steven (2008), emergent planning is used to drive flexibility in the implementation of plans, making change to strategies to respond to the dynamic environment, and plan is used as parameters and guidance rather than as process boundaries and control. Additionally, the business planning and policy making reduces power of control and creates an urge to management and business units of the organisation for flexibility of their work in effort to create a stimulus for innovative directions; contrast to the inflexibility of a planned corporate strategy. However, there are a number of disadvantages to the business planning and policy making. Primary among these is that managers may not be able to plan effectively, they may focus too much on change only, may it be market change or product change. No matter how adaptable the strategy is, the future is still unpredictable (Shiner, D, 2008). Secondly, it opens an exposure to risk of focusing too much on short term and neglects strategic thought in the absence of organisational objectives (McDermott and O'Connor, 2007). Lastly, Liedtkla and Rosenblum (2006) observed that lower level management were unable to deal responsibly with high level of uncertainty, so order and stability cannot be maintained. Scenario planning is a method for learning about the future by understanding the nature and impact of the most uncertain and important driving forces affecting our future (Brjusson, 2008). Scenario planning is more focused on describing the future rather then forecasting the future. The scenario method is contrasted general with more traditional planning techniques, which tend to perform less well when faced with high uncertainty and complexity. Scenario planning is a method of planning; it contains both planned corporate and emergent elements. Planned corporate strategies are about forecasting, predicting, plan and control the future. However, scenario strategy is about describing the future, which has at least two alternative futures. It helps the manager be realistic and understand the outside world more. In other words, scenario planning is more flexible (at least have two alternatives) compare with the planned corporate strategy (fix strategy, trying to expect the unexpected). Scenario planning allows the company to consider a range of "alternative futures," each of which is dramatically different from the other and from the current operating environment, rather than having dependency on one single "most likely" estimate. In addition, scenario planning is very effective at identifying growth strategies for the company as well as potential threats to the market positions. Moreover, scenarios can also identify the specific external industry changes that are causing the company to lose market share or margins (Adam J. Fein, 2008). The major benefits of using scenario planning involve increased understanding of key uncertainties, the incorporation of alternative perspectives into conservation planning, and greater resilience of decision to surprise. On the contrary, the disadvantages of scenario planning are (1) stuck - it takes a long time to describe the things that may happen in the future (2) there are too many alternatives, which are difficult for the manager to access (3) it is impossible to expect the unexpected (4) finally, it is difficult to manage when there are too many possibilities. The company cannot afford to do the research for all of the alternatives (Scenario Planning: a Tool for Conservation in an Uncertain World, 2007). Economic perspective of organisational policy and corporate strategies Hobson (2007) and Weiss (2008) argue that states need to have internal coherence in policies and institutional practices and they need to be connected to society. In the case of industry adaptation, this means being connected to business in particular. Evans (2008) refers to this as embedded autonomy. Weiss (2008), extending Evans' work, proposes that a more useful term for analyzing state and business relations is governed interdependence, which describes private and public autonomy emphasizing the importance of both cooperative and coordinated capabilities. It describes a system of central coordination based on the cooperation of government and industry. Policies for this or that industry, sector or technology are not simply imposed by bureaucrats or politicians but are the result of regular and extensive consultation and coordination with the private sector. Because of insulated policy making, the government's transformation project does not lose out to clientelistic or sectional interests; because of institutional connectedness, business does not lose out to remote and bumbling bureaucrats (2008: 39). This quote highlights two important elements of the joint governance system's capabilities. One element is the administrative ability of the state to act autonomously in the creation of policies, removed from social group influences, coupled with the capability to effectively implement the desired policies and directions. The other is that business and industry are not simply passive respondents of state or government direction; they participate in the transformational process. Such capabilities are required for coordination of actors and for leveraging their support to achieve objectives (Amsden, 2009; Mathews, 2008). Mathews (2007) also demonstrates the importance of coordinated approaches found in R&D networks in Taiwan for enhancing innovative outcomes in knowledge-intensive industries. Such approaches are reminiscent of the capacity of the Planning corporate strategies will help to generate rapid adaptation and spin-off industries and enterprises. This governance system is reliant on highly innovative institutional systems. Innovation processes are seen as industry-wide activities, involving joint learning and sharing of public and private knowledge. Industry institutions are geared toward encouraging these forms of collaborative activities, as a means of sharing risk and learning (Mathews, 2007; O'Sullivan, 2006). Innovation is a means of continual product, process, and organizational improvement. Conclusion Despite the advantages of three strategies outlined above, there is much debate and controversy surrounding the issue. Central to this is that planning is maligned in terms of its formal structure and control. The proponents of planning argue that it is much more about a system for thinking rather than of control. The opponents think otherwise. At grass-root level planned corporate strategy is more about control, whereas emergent and scenario planning is more about thinking. 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