Strategy: Definition, Evolution, and Construction - Term Paper Example

Strategy: Definition, Evolution and Construction Introduction Strategy is an important aspect for companies. Today’s business environment has become complex and uncertain as well. For companies, it is hard to understand the different factors that contribute and increase the business complexity. In these factors, both internal and external aspects collectively contribute. Some external factors are so substantial that the organisation finds it hard to avoid the impact of such factors and at the same time evaluate and measures the effect of the external factors on the actual performance of the organisation. As a result, the senior management of organisations encounter the problem of uncertainty which further adds fuel to the fire of complexity. When a company does not know how to tackle the complexity being contributed by the external factors, the only option for addressing such issues would be to develop, design and implement a strategy. However, before going to implement, the strategy, it is highly significant to take into account the external and internal factors along with considering the examples of successful and failed strategies. In the following parts of this paper, first strategy has been defined in which Mintzberg’s 5Ps have been included. Subsequently, it is followed by the evolution of the word ‘strategy” has been provided. After that part, different schools of thoughts have also been included. Before the part addressing the question of strategy construction, the answer of the question (Does strategy matter?) has been provided. Section 1: What is strategy? A) Mintzberg’s 5ps & Other Definitions Strategy is a broad term (Snyder, 1999). Strategy has a specific definition and sense particularly within the context of business (Campbell et al. 2002). In this regard, Mintzberg (1987) defines strategy can have five different types of definitions: plan, ploy, pattern, position and perspective. And each is separately defined and explained below. Strategy can be defined as a plan (Mintzberg, 1987). It can be a course of action, a set of guidelines for carrying out specific actions for dealing with a particular situation (Mintzberg, 1987). Mintzberg (1987) further explains that this definition has two dimensions: the plans are developed in advance and concentrated and careful efforts are utilised for developing such plan. Subsequently, strategy can work as a ploy (Mintzberg, 1987). In this type of situation, an organisation tries to manoeuvre for the purpose of discouraging competitors from taking certain strategic action Mintzberg (1987). In this type of strategy, the organisation is not really interested to implement what it portrays but uses its strategy to increase its market position and market capability by threatening the competitors from going ahead with their that expansion strategy which could decrease the competitive position of the organisation (Mintzberg, 1987). Based on this type of strategy, it can be deduced that some organisations have no capacity to increase their market capability. Under this condition, they use the ploy strategy as a camouflage for disallowing new competitors from entering into the industry. Moreover, strategy can be defined as a pattern in which a certain type of consistency in behaviour is displayed by an organisation (Mintzberg, 1987). In other words, Mintzberg (1987) emphasizes that there should be a consistency in actions and behaviours which reflects that the organization takes the subsequent actions by keeping in view the completion of the previous action. As a result, there would be an element of consistency in the actions of the organisation (Mintzberg, 1987). Similarly, strategy can also be referred as a position in which an organisation “locates” itself within the competitive external environment and it is also defined as a process of positioning, placing or offering products or services against the actual demands in the market (Aartsengel and Kurtoglu, 2013, p.52). Within the context of this definition, Mintzberg (2987) asserts that this strategy is seen and developed by keeping in view the external environment and its different factors which directly or indirectly affect the competitive position of the organisation. Furthermore, strategy can also be defined as perspective in which the organisation is seen from the inside environment (Mintzberg, 1987). In this regard, Mintzberg (1987) highlights that how the senior management of organization is perceives the external environment and what type of strategic thinking they adopt for deciding and implementing their current and future steps for obtaining the objectives of their strategy. B) Evolution The word “strategy” has been found and used in the Old Testament as highlighted by Jeffrey Brackery (Orcullo, 2007). Jeffrey Bracker contends that this word has been discussed as semantic issue and mentions that the writers, such as Homer and Euripides and others have pointed out the principles of strategy in its historical evolution of this word (Orcullo, 2007). In this regard, Bracker highlights the genesis of this term by stating that the word “strategy” has been taken from the Greek word “stratego” meaning “general” which reflects the origin of the word from the words “army”; consequently, this word has been defined as a plan which is constructed for destroying or eliminating the presence of enemy (Orcullo, 2007). Based on this definition, it can be deduced that the word “strategy” has no historical perspective from the business world but it has been taken from the books of army which used it for developing its own military tactics and strategies for combating against the enemy forces. However, despite the fact that it has been taken from the military background where its usage and application has a clear-cut direction and implementation as well, in the real business world, similar type of application has not been seen in the business world. Consequently, it encouraged and promoted many critics and authors to provide their assessment and contribution of this word for using this word in order to gain success in the entrepreneurial and business world. C) Schools of strategic thinking – Inside Out / Outside In Both strategies have different steps and objectives and strategy paradigm as well. inside-out strategy has been defined as a strategy in which the organization primarily relies on the internal strengths and objectives in which inbuilt internal values and resources are used for obtaining the objectives whereas the outside-in strategy primarily depends on the external factors which dictate the entire current and future strategies of organization (Day and Moorman, 2010; Franzen and Moriarty, 2009). In other words, the outside-in strategy gives primary importance to the choices and expectations of the customers. In contrast, the inside-out strategy does not follow this strategy but mainly focuses on its own choices and resources as well. moreover, Outside-in approach expects that customers are loyal and they are key to profitability whereas inside-out strategy requires expanding the customer base which is a key issue; additionally, outside-in strategy highlights that customers provide the best ideas and the opposite view is perceived by the supports of inside-out strategy (Day and Moorman, 2010). Examples of Failed and Successful Strategies Various examples highlight failed and successful strategies. For example, General Motor’s failed auto design strategy is the latest example of the failed strategy (Love, 2011). The General Motor (GM) designed strategy in which certain new car designs were used for attracting and increasing sale of cars. Similarly, the strategy of JC Penny miserably failed when it experienced 32 per cent decrease in store sales (Nisen 2013). In both examples, the companies were not able to experience the rise in their sale but a decrease of sale was observed. It means that both companies did not properly take into account the external factors essential for successful implementation of strategy. On the other hand, the success of strategy can also be gauged from the rise in the related company’s share price. For example, Tesco’s stock price has grown more than 291 per cent over the period of last decade (Moreno, 2004). Also, Google, which is a technology-based enterprise, has experienced a remarkable stable growth for last many years and that growth signifies the stable strategic thinking and strategies as well (Markovich, 2014). Both companies have been successful in their respective industries. For example, Tesco is a retail giant in the United Kingdom and has been implementing strategies that are successful to generate the expected level of performance. For instance, the company considers both internal and external factors before making decision pertaining to strategy and subsequently it implements the strategy. On the other hand, Google uses technology for advancing and reaching out to the new customers by providing them new gadgets; in other words, successful strategy of Google is mainly contributed by the innovation in the field of technology. 2. Section 2 – Does Strategy Matter? Strategy making is an important mechanism (Pretorius and Maritz, 2011). In this regard, the process of strategy making not only involves creating a strategy but also putting it into the real business situations (Harrington et al., 2004). However, it has been observed that scant focus has been given to the people who “develop strategy” (Whittington, 2006). Undoubtedly, strategy has overarching significance for successful prolonged existence of organisations. However, there are a number of preliminary conditions that must be satisfied is essential before developing, making and finally implementing strategy in practice. For this purpose, the essential components include corporate size, nature of industry and competition are the main indicators that determine and subsequently influence on the subsequent levels of strategy. The corporate size is of central importance for developing strategy (Scully, 2006). Within the background of different sizes of organizations, it would not be incorrect to say that developing a perfect model of strategy for all sizes of organization would be a useless effort. As a result, it is highly significant to mention that corporate size matters. For example, it has been seen that some organizations are small, having less than 50 employees (a benchmark) and it is also known as small and medium enterprise within the United Kingdom, some are considered to be medium size firms, employing more than 50 but less than 250 employees (The Company Warehouse, 2012). In other words, it can also be contended that small firms have limited resources (man, machine and financial capability); consequently, they do not operate on a mega scale of business and due to their limited resources, they do not develop and implement those strategies which are formed and implemented by the medium-sized firms because they have better and more resources than the small organisations. Nature of industry also matters for developing strategy (Hrebiniak, 2013).. It has been observed that some industries have a higher turnover and others have lesser turnover. For example, in the retail and grocery industry, purchase and consumption of items have a substantial amount of frequency as food and other related items are consumed on the daily basis whereas the furniture industry has a very limited turnover because the frequency of purchasing furniture is not as faster as in the retail and grocery industry. In other words, there are higher chances that more and more new investors would be interested to invest in the retail and grocery industry because the frequency of consumption and purchase is considerably higher whereas the new investors would be less willing to enter into the furniture industry because of the limited frequency of purchase in the furniture industry. Competition also influences on the making of strategy (Hinton, 2005). For example, in an industry, there are more competitors than the potential of industry to provide adequate amount of turnover to the competitors, in that case, companies find it hard to make an effective and useful business strategy which provide them sufficient turnover and subsequently profit as well. On the other hand, if there are a few companies operating in an industry, there are higher chances that the companies would generate maximum turnover and profit because the frequency of purchase and consumption is larger and greater than the requirement. However, there are industries where competition does not increase substantially but remain moderate or stagnant as well. for example, retail and food industry experiences a limited type of competition when it is compared with the competition in the technology industry in which the new and latest means and methods, devices, gadgets and other instruments are being innovated and there demand continue to rise because technology has been seen as a source of decreasing business cost and introducing more cost effective mechanism in the technology industry as well. Based on this understanding, it can be highlighted that some industries experience more competition and others receive a limited competition. Consequently, the respective companies are required to develop, adjust and increase their strategies within the context of competition prevailing in their industry. 3. Section 3 – How Is Strategy Constructed? A. Market Analysis (PESTLE, SWOT) Various steps and instruments are required to develop a strategy. In which both internal and external requirements and conditions are taken into account. Internally, a company is required to understand its strategic objectives along with the available resources for meeting those objectives. For this purpose, strengths and weaknesses analysis offers a great opportunity for examining the usefulness and productivity of the current resources for satisfying the long term strategic objectives. Externally, the PESTLE analysis, SWOT analysis are key tools that are used to understand the dynamics of the external factors that directly or indirectly affect strategy construction process of companies. PESTLE is an acronym and represents political, economic, sociological, technological, legal and environmental factors. All these factors are highly important and they put considerable amount of effect on the strategy development process of a company. For example, during the process of strategy making it is highly significant that the political environment must be taken into account in which the amount of taxes on business and other related business legislations are important aspects that are contemplated before and during the process of constructing strategy. In the economic market analysis, certain factors are taken into account; these include current and potential level of inflation, employment and unemployment rate, consumer confidence and other economic indicators reflecting the overall economic environment of industry. By knowing the economic conditions, strategists become in a position to construct such strategy which is capable of generating more turnover and profit as well. Subsequently, sociological factors are also important for developing strategy. For example, in some cultures, wine and poke are disallowed. Under such conditions, the existing companies should avoid investing in such areas where culture disallows the use of wine and poke as well. Similarly, technological factors also important for constructing strategy. For example, it has been seen that more and more companies are heading toward the virtual world (i.e. the Internet) as they the presence of social media and its rising use has provided an opportunity to companies for increasing their revenue through marketing their products and services in the virtual world. For this purpose, online buying and selling and payment have become more than common and the trend indicates that more and more people are using the online source for buying and paying for the purchase. However, for strategist, this dimension has both types of ramifications for the business. First, they are required to invest additional resources for developing their base on the land of the Internet. For this purpose, developing and launching a website would be a reasonable way to increase the presence in the virtual world. However, for this, they are required to incur additional resources and at the same time, they are also needed to maintain their virtual presence through maintaining the different dimensions of the website. At the same time, while making strategy, companies are also required to take into account the legal environment as well in which the possibility of litigation cost and other legal requirements that are essential and directly related to the businesses, must be considered in the process of making strategy. Additionally, in the recent business history, carbon tax and other environmental obligations have further complicated the process of developing a business strategy. It has been seen that many companies especially manufacturing one, are required to comply with the environmental codes and if they do not comply with, there are heavy penalties for non-compliance. B. Various environmental approaches SWOT is consisted of the strengths, weaknesses, opportunities and threats as well. This environmental approach is highly relevant and important for constructing business strategy. The first two (strengths and weaknesses) are internal and the last two (opportunities and threats) are external tools. The first two parts highlight those internal aspects which are strengths and weaknesses of companies. For example, strong and stable supply chain can be strength for a company and through this ability, the company is availing the competitive edge and has been able to develop and retain competitive position in the industry. On the other hand, un-skilled and unproductive employees can be weakness. For the external part, opportunities can be provided in various shapes. For example, if a company finds that a middle class in a particular area or city is increasing, in that case, the company would open its business outlet and provide retail and grocery services in the industry. In this way, the company would generate additional turnover and profit as well. In this regard, it is important to highlight that some companies conduct market surveys for the purpose of knowing and understanding the changing consumer tastes and requirements as well. As this step is considered to be a highly essential for the future growth and expansion of company, a sizeable amount of money is invested in this area of market research. As a result, by knowing the consumer requirements, the companies become in a position to predict the future trends in the consumer choices. And based on their market assessment and analysis, the companies develop and implement their strategies for obtaining their strategic and long term objectives. After knowing the external factors, firm becomes in a position to select and implement from two options: inside-out and outside-in approach. In this regard, it is important to highlight that the analysis of the external factors are largely useful for outside-in approach because this strategy formulation method primarily relies on the customers and other external factors for devising the strategy. On the contrary, firms, using the inside-in approach, may not be able to avail as much benefit as obtained by the firms using the outside-in. However, it is still relevant the firms employing the inside-out approach may still be interested to know those external factors, such as customer choices and trends, as they provide important information for adjusting the strategy. C. Implementation After gathering the relevant market data and research, the companies are required to implement their respective strategies. However, before implementing their strategies, it is highly important to understand that some other factors should also be considered. For example, the questions like, what are the key short term and long term objectives of the strategy? What are the specific customers who will be targeted? What type of incentives and other discount offers can be offered and provided to the current and potential customers? What are the key milestones that will be achieved during the process of implementing the strategy? These are some key questions that are needed to be answered before going to fully implementing the strategy. The clarity and understanding of these questions are highly important not only for the senior management but also for the staff working in the different department who will be responsible for enforcing the strategy and will be directly accountable for success and failure of the strategy. D. Value Addition After implementing the strategy, it is also significant to take some measures for increasing value in the strategy. For example, a company can add value to its strategy by adjusting the strategy by keeping in view the market condition and customer taste as well. In this regard, if the company experiences that the sale of goods is increasing and which is mainly caused by the rising income of consumers. In this condition, the company should increase produce more goods and for this purpose, production strategy should adjusted by introducing changing in the sale strategy. Moreover, this change in the strategy which increases its value is mainly caused by the fact that the outside-in impact has put its influence on the internal factors which in turn require that the company should produce more goods. E. Control Controlling strategy is also important. For example, sometime, a company finds that the current production strategy is not generating enough sales and consequently it fails to meet its stated objectives as described in the strategic framework. Under this situation, the company should decrease its production and control in the production strategy would decrease the additional cost which has been incurring. Moreover, by exercising the control option, the company will avail an opportunity in which it will be in a position to revisit its current strategy and consider whether the current strategy is meeting its stated objectives. As a result, this overhaul enables the company to avoid incurring bigger loss in future and take necessary measures in advance. Conclusion Strategy has different definitions. Mintzberg has defined it by keeping in view the paradigm of 5Ps: Plan, ploy, pattern, position and perspective. Each has its own dimension and effect on the overall business performance. Historically, the word ‘strategy’ has been used in the military or war contexts where this word was used to mitigate the effects of enemy threats. Moreover, both inside-out and outside-in frameworks have divergent views on the development and application of strategy because in both practices separate emphasis is given on the overall business strategy. Undoubtedly, strategy matters especially when it is developed within the context of corporate size, industry nature and competition as well. Each is important and puts its own effect on the development of strategy. However, before constructing a strategy, it is of higher importance that the PESTLE and SWOT analysis should be taken into account as they enable companies to construct, design, develop and implement effective strategy. But for the firms using the inside-out strategy may not be as much interested as the firms using outside-in strategy about the external factors. 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