Strategy Formation and Development of a Contemporary Business Organizations - Coursework Example

BUSINESS STRATEGY Critically evaluate the potential benefits and limitation of strategic management for the organization where you work Aim is to consider the potential benefits and limitations of strategic management in the context of an organization with which you are familiar. (discussion) Contents 1. Executive Summary ………………………………………………………………………..2 2. Introduction …………………………………………………………………………………4 3. Discussion of Key Issues ………………………………………………………………….6 3.1 Components of Strategic management process………………………………..6 3.2 Benefits of Strategic management process……………………………………..7 3.3 Limitations of Strategic management process………………………………….8 4. Conclusion …………………………………………………………………………………12 References…………………………………………………………………………………..13 1. Executive Summary: Strategy formation and development forms the core of a contemporary business organization and hence the fact that it is given due significance by the top management can hardly be an overstatement. According to Barry & Elmes (1997) “Strategy must rank as one of the most prominent, influential and costly stories told in organizations”. A strategy acts as a bridge between the internal organization and the external environment and connects them by mutually and commercially viable processes and plans and hence strategy formulation is regarded as one of the most critical aspects of any business. A strategy comprises of various plans and policies adopted by an organization to gain competitive advantage over its business allies and retain its competitive positioning in the industry. It also helps it in retaining its current customer database as well expanding it through creative and innovative strategies, and achieving the company’s goals and targets. Strategic management on the other hand is defined as “an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment (Lamb, 1984). ” Strategic management facilitates a clear and precise understanding of the external environment and helps the organizations and managers in devising appropriate plans to combat such external forces and thereby protect their organizational goals and objectives. It helps in interpreting the factors that are likely to have a strong impact on the organization through various analytical procedures adopted by the top management and thereby shield the external forces from penetrating the organization and disrupting its goals and visions. Strategic management is inevitable for smooth functioning of any business establishment as well as for the creation of a sustainable business environment. Organizations often use strategic analysis as a tool for conceptualizing its competitive environment as well as the resources at its disposal which could be used for framing adequate policies and measures in order to fulfill its long term strategic visions and goals. This report provides an insight into the contemporary business strategies adopted and implemented by global / international organizations to accomplish their long term goals. It also helps in understanding the various factors that should be taken into consideration such as external environmental factors, management skills, resources at the disposal of the firm, as well as conducting external and internal analysis, which would further help the managers in developing strategies at various levels – corporate as well as business levels based on resource planning as well as competitive analysis conducted by the firm. The report seeks to address the issues concerning a strategic management process in an organization and discuss the various aspects of the process such as its components, the potential benefits and limitations as well as its role in influencing managerial decision making and its significance for the organization as a whole. For the purpose of this study, IBM Corporation is chosen to review the various aspects of the strategic management process and its effects, consequences and impact on the organizational mission, vision and goals. It also discusses how companies frame their policies in accordance with its external environment, build sustained competitive advantage, analyze their respective strengths and weaknesses and use the same as a tool for improving their strategic positioning in the industry, identify their core rigidities and transform the same into their core competencies and enhance their business performance in the process. 2. Introduction: Brief History The International Business Machines Corporation more popularly known as IBM, often known as the Big Blue, is a multi million dollar multinational business giant, which primarily deals in computer technology and is headquartered in Armonk, New York, U.S.A. Its journey, dating back to the early 19th century, to the 21st century has been phenomenal. The company has been involved in dealing with information since as long as 100 years now and has helped accelerate the pace of the I.T. industry by revolutionizing the manner in which organizations and business enterprises, especially in the I.T. industry, operate and thrive. IBM, today, is mainly involved in manufacturing and selling of computer hardware and software and providing services including infrastructure services, consulting services and hosting services in various fields ranging from mainframe computers to nanotechnology. With a host of products and services and over hundred years of history behind it, the company today commands a position of trust and integrity and is one of the largest I.T. employers in the world. Established in the year 1911, as the computing – tabulating and recording company it went on to become one of the world’s largest dealer in computer related components through strategic planning and vision. Achievements & Success story IBM is considered as one of the largest companies in the world with over 3lakh employees worldwide. With competitors such as Hewlett Packard, Dell, Microsoft, Sun Microsystems, IBM has outsmarted all the major players in the industry through sheer knack innovative and precise strategy formulation and management skill. It has the distinguished opportunity of holding the most number of patents in the U.S. (IBM, 2008) and its employees have been honored with awards such as the Noble prize, Turing Award, National Medals for technology, as well as National Medals for Science (IBM, 2008). It has also been featured in the list of Top twenty Semiconductor Sales Leaders in the chip making category, in the past years and has been ranked second in the list of largest software companies in the world (Software top 100, 2007). Current Scenario IBM today has drastically changed its policies and business operations to suit the current requirements of the market as well as customer demands which includes a remarkable change in its product mix, range of services offered, management skills as well as technologies adopted. It has indulged in several rigorous expansion drives which include more than 60 acquisitions in the past five years and has shifted focus on its R&D activities with a view to promoting new product development. Today, IBM offers an impressive range of product and technology portfolio which are primarily built around networked, modularized and embedded technologies, service oriented architecture, information on demand, as well as virtualization and open, modular systems for businesses of all sizes. Moreover, owing to the gradual change in the competitive scenario in the industry IBM has aptly revised its management approach including its business processes, policies as well as its core business model, which has moved from resorting to cost savings from off – the – shelf technologies to investing in new and improved innovation capabilities. The company now successfully integrates advanced technology with its internal business processes and operations with a view to generating client value improving their decision making processes which is discussed in detail further in this report. 3. Discussion of Key Issues: 3.1. Components of Strategic Management Process The strategic management process comprises of several components such as formulation of vision and mission statements for the enterprise, converting them into realizable performance objectives, developing strategies to achieve the goals and objectives, implementation of the strategies developed, and finally the evaluation of performance. The formulation of vision and mission statements is critical for the organizations since they describe what the company stands for and their aspirations as a business enterprise. It defines the scope of business for an enterprise including elements such as the core existence of the business enterprise, its long term growth plans and objectives, the technology to be used, the various threats and opportunities in the industry, as well as various other entrepreneurial factors such as management issues and employee concerns. On the whole, it helps in defining the needs and demands of the customers that the company is required to address and fulfill, the target audience to which it caters to or intends to address, and the ways and means by which it proposes to accomplish its targets and goals. The degree of clarity of a company’s vision is directly related to the success or lack thereof of formulation of its mission statement. IBM’s vision and mission statement are: Vision: IBM’s vision is based on three core values which include: Dedication to every client’s success Innovation that matters – for our company and for the world and Trust and personal responsibility in all relationships Its mission for the year 2010 is - “The future of business software applications – Business Challenges and Innovative Application of Technology in Higher Education” (IBM, 2008). This mission is further transformed into realizable long term and short term objectives and goals which include realization of both financial as well as strategic objectives. These objectives are measureable statements of the company’s intended plans containing specified performance objectives in a stipulated period of time. IBM’s short term objective is described aptly in its vision 2010 which includes aiming for new product development, software innovations and revising its business practices with an intention to reshape its administrative applications within a reasonable planning horizon (IBM, 2008). These objectives need to be converted into actionable plans through strategy formulation. This involves the use and application of various methods and polices adopted by the organizations to convert its objectives into actual realizable goals. This requires identifying its internal strengths and weakness, an in-depth internal analysis for assessing the resources at its disposal that would help them in achieving the said objectives as well as external analysis to gauge the opportunities offered and threats posed by the external environment. Strategic tools such as SWOT analysis, PESTEL analysis, PORTERS five forces analysis etc should be used to generate a fair view and understanding of the company’s overall competitive standing in the industry. In case of IBM, for instance, the realization of its objectives would require achieving significant reduction in cost of purchases, eliminating complexity in procedures and methods applied, gaining better flexibility in adapting to the rapidly changing business environment, as well as integrating its data and processes with the external resources. Strategic decision might involve decision to use old and tested methods to achieve the framed goals or use of modern and innovative technologies or a combination of next generation applications with its established business practices. Strategies are required to be built at various levels of the organization such as corporate level – which requires decisions involving diversification, business level – which might involve decision making related to a single line of business, functional level – involving decision making for a particular part of a single business, and operating level – involving decisions related to various operating units of a business. The next step in the process is implementation of the strategies framed by the management. It involves various factors such as budgeting, organizing, creating appropriate framework to ensure compliance with the company’s rules and guidelines, creating a healthy working environment, motivating the employees by implementing a reward structure and creating and implementing information and reporting systems to ensure compliance with the company policies and successful implementation of the organizational goals and objectives. The task of ensuring successful and timely implementation of all the strategies designed by the organization rests of the shoulders of the managers. It is the sole responsibility of the top management to ensure the execution of the proposed strategies and ensure compliance with the company policies and guidelines. The final and most important step in the strategic management process is the “Evaluation of performance”. The process of evaluation involves a careful study of the manner in which the proposed strategies and its implementation has affected in achieving the organizational goals. It is a kind of review process whereby the management has the opportunity to review its policies in the light of the organization’s external environment as well as the resources and internal strengths and capabilities to carry out the plans framed for the purpose. In case of any discrepancy in the achievement of goals – i.e. targeted goals and goals achieved, the management may consider strategic decision making in relation to readjusting its goals and mission statement, as well as its objectives – both short as well as long term depending on the individual case, and finally launch initiatives or corrective measures to prevent the occurrence of such discrepancies in the future. The process of strategy evaluation involves internal review, external review, performance metrics and initiating corrective actions. 3.2. Potential Benefits of the Strategic Management Process: The benefits of strategic management are manifold. The strategic management process helps the organizations in improving its sales, leading to increased revenue inflows and hence greater profitability, increase in productivity, thereby achieving increased employee satisfaction leading to better quality of products and hence customer satisfaction. It helps the organizations in adapting to the changing external environment and adjusting to the rapidly changing trends by improving its capabilities and leveraging its internal strengths and resources. It helps them in realizing its potential strengths and weakness and initiate proactive measures to influence their business activities and steer their organization towards growth and prosperity. The basic aim of strategic management process, however, is to help the top management in framing appropriate strategies by using systematic, logical and rational tools so as to fulfill its long term objectives in sync with the company’s vision and core values. Certain qualitative benefits or non financial benefits accruing from the implementation of a strategic management process include increased enlightenment of the competitive strategies adopted by business allies or other rival companies in the industry, an increased awareness of the potential threats posed by the external organizational environment, a significant reduction in the company’s resistance to change, and a remarkable improvement in the firm’s strategic decision making as well as problem solving and prevention capabilities. 3.3. Potential Limitations of a Strategic Management Process: Although the strategic management process has several benefits to offer, as discussed in the above section, the process isn’t devoid of any limitations either. It has certain basic flaws which might hamper the overall growth and development of the organization. Strategic planning, for instance, involves developing strategies and plans on the basis of the external and internal analysis of the organizational environment. The top management is entrusted with the responsibility of ensuring strict adherence to such pre conceived plans and any deviation in the said plans is likely to attract strict managerial action. This, however, often leads to a certain level of rigidity. The external environment is highly dynamic, and is full of uncertainty and ambiguity. It might restrict the organization’s creativity and prevent it from venturing into new and innovative areas for the purpose of expansion of its business activities and lead to a narrow definition of its overall vision, scope and core values. In fact there have been several disagreements and arguments against certain theories of strategic management by researchers and scholars who strongly disagree about formulation and implementation of pre planned objectives and strategies for the achievement of organizational goals in order to gain a competitive positioning in the industry on the grounds that it might restrict the organization in taking prompt action which would be needed in the rapidly changing and highly dynamic environment of recent times especially so with the emergence of new technologies that are developed almost every month. Various authors have defined the term strategy in various ways. According to Vijeon & Dan (2003) “Strategy is the management of the interface between the activities of the organization and the changing environment in which it operates. This process involves too much uncertainty, novel situations and lack of firm information to be automated. (Viljeon & Dann 2003, p.68)”. This too signifies the degree of uncertainty associated with pre planned goals, considering the dynamic nature of the organization’s external environment in which it thrives and operates and hence poses a threat to the organizations as well as its leaders / managers whose capacity as potential strategists might be challenged in the wake of sudden occurrences or unforeseen situations to which the industry as whole isn’t averse. The management’s inability to deal with such sudden occurrences might prove to be fatal for its overall financial health and hence could disregard the pre conceived plans challenging the management to adopt bold steps to avoid their organization from falling into any further strategic turmoil. Some researchers have often argued that planning restricts the creativity and responsiveness to change on the part of the leaders or managers. They create a false sense of security owing to which the managers lose their effective strategy making abilities and often tend to become inattentive to change. According to Mintzberg (1994), “A climate congenial to planning may not always be congenial to effective strategy making, while a climate hostile to planning may sometimes prove effective for strategy making” (Pp.173). The researchers put forward the argument that these preset guidelines might lead the organizations to loose focus and restrict the organization’s goals by narrowing down its scope hence preventing them in developing a complete organizational strategy. The preconceived goals and plans are often either too generic or too specific thus limiting the organization’s response time in reacting to a sudden change in the industry environment. The process of strategic management often involves conducting research of the organization’s internal as well as external environment. This however, requires an insight into the various ethical issues involved in business research. According to Zikmund (2003), the ethical issues involve philosophical questions, societal norms, as well as codes of professional ethics and practices, for instance: The American Association for Public Research, Association for Public Opinion Research, etc. In conclusion, irrespective of the variations in definitions of strategic management, the potential benefits of the process might hardly be refuted by a majority of contemporary business theorists and the process would invariably be considered as fundamental to the existence as well as survival of any business organization especially owing to its unique and sustainable ways of creating value to the organizations (Kaplan & Norton, 2001). REFERENCES Barry, D., Elmes, M. (1997). Strategy retold: Toward a narrative view of strategic discourse. Academy of Management Review, Vol.22. Pp. 429 – 452. Lamb, R. (1984). Competitive Strategic Management, Englewood cliffs, NJ, Prentice Hall. IBM, (2008). News: IBM maintains patent lead, moves to increase patent quality, viewed on 28 September, 2008. < http://www.ibm.com/news/us/en/2006/01/2006_01_10.html> Software Top 100, (2007). The World’s largest Software Companies of 2007, viewed on 28 September, 2008. Zikmund, W.G. (2003) Ethical Issues in business research, Business Research Methods (Pp. 77 – 90), Mason Ohio: South – Western Mintzberg, H. (1994). The rise and Fall of Strategic Planing, Fundamental Fallacies of Strategic Planning (Pp. 173). The Free Press, New York. Kaplan R. S., Norton, D. P. (2001) The Strategy Focused Organization, Pp.2, Harvard Business School, Norton. Read More