Three Horizons for Making Strategies - Coursework Example

Essay Plan Table of Contents Introduction 3 Three Horizons For Strategy 3 Levels of Strategy 6 In an organisation, the strategies can be demarcated into three levels, which include: 6 Conclusion 11 References 12 Introduction Strategy is one of the key constituents within the periphery of an organisation needed to set forth and determine the long-term aims and objectives of the company. A well-deciphered strategic initiative can facilitate an organisation in ascertaining its supremacy and gaining significant competitive advantage in the marketplace. The overall direction of a business entity is largely dependent on the decisions and strategies taken by the company. Strategies are also crucial in responding successfully to the uncertainties, complexities and competitiveness prevailing in the business market scenario. Different companies have their own set of rules and methods to create strategies for their business. Moreover, the formation of strategic initiatives significantly depends on the core competencies of an organisation (John et al., 1996). The paper aims at constructing an essay plan based on the key discourses concerning the illustration in detail the different horizons for making strategies. It would also provide an elaborative explanation of the different levels of strategy. Three Horizons For Strategy Different companies all over the world now-a-days are very much focused on enhancing their profitability of their business operations. Owing to this reason, they aim to develop various distinctive strategies. The process of developing a strategy involves a particular framework, i.e. the ‘three horizons for strategy’. The significance of a long-term-based viewpoint upon the formulated strategies is emphasised by the three horizons framework. The three horizon framework suggests that each and every organisation should visualise itself as comprising three different kinds of business or activity (Johnson & et. al., 2010). The three horizons framework is exemplified below: Horizon 1 This horizon involves “Short Jump” initiative that would strengthen and expand a company’s position in the existing market. In this step, the company essentially focuses on adding new products to its existing product line. This step also engages the expansion of the company in terms of geographical area and reaching fresh marketplaces where it is yet to have its presence. In this approach, the company can capture a significant portion of the market share of its competitors. The main objective of this horizon is to capitalise largely on its growth potential in the present business market (Thompson et al., 2006). Horizon 2 This step of the horizon is called the medium jump. In this step, the company acquires strategic proposals to influence the present resources and potentials by entering into a new business with a considerable prospective of growth. The companies in the modern-day context need to always be aware of emerging opportunities in the market. Whenever there is a prospect where there is an assurance for rapid growth with the incorporation of enormous prevailing experience and rational capital influx and technological knowledge that could be helpful for rapid market access, the company should jump in to leverage that prospect with full strength. When the second demarcated horizon takes a restrain, the first horizon takes the initiative as long as there is enough unexploited growth present in the company’s business perspective (Thompson et al., 2006). Horizon 3 This step is called long jump. In this horizon, the the company takes strategic decisions to plant a seed for a new business undertaking. These type of initiatives calls for a high influx of funds in the long-term Research & Development (R&D) projects of the company. Setting up a new venture would require a large amount of capital funds to ensure a promising start. In this step of the horizons framework, the company attempts to create an industrial presence for the future. In the process, they aim to acquire a number of minute companies that are testing with similar techniques and product ideas that relate to the company’s current business. For instance, Intel, a technology based company, set up a huge venture to invest in numerous projects and start-up companies that could broaden its reputation in the global business as a leader in delivering building blocks for personal computers (PCs) (Thompson et al., 2006). Figure 1: The Three Horizons for Strategy Source: (Thompson & et. al., 2006) Risks of Using the Three Horizons Framework for Strategy There are certain risks involved in implementing multiple strategy horizons in business. A company cannot rely upon every strategy that comes in its way. The medium and the long jump steps in the horizons would force the company to stay away from its rivals, and in the process it might end up in attempting to compete in certain businesses in which it is not appropriately suited to operate and attain significant growth prospects. Furthermore, the medium and the long-jump steps make it difficult for the company to attain competitive edge in the market. Moreover, the results of the long-jump initiatives would often be obscure. It is mandatory that every seed that the company sows produce positive results, instead only a few of them proving profitable to the company. The failure in the long-jump ventures may result in relatively fewer gains in the overall profit of the company (Thompson et al., 2006). Levels of Strategy In an organisation, the strategies can be demarcated into three levels, which include: Corporate-level strategy Business-level strategy Operational strategies Source: (Johnson et al., 2010) Corporate-Level Strategy The foundation of the corporate-level strategy is based on three aspects, namely, resource, organisation and business. This strategy is mainly based on five values which produce results only when they are assimilated together. They comprise: Values and goals of the organisation Resources Business Corporate advantage The function of corporate office, its structure and system These facets work together to provide value for the company (Furrer, 2010). This is regarded as the top-level strategy of the business. It is mainly concerned with the entire periphery of the company. This strategy aims at implementing value at different areas of the business unit of a particular organisation. The process would include the concern for geographical coverage of the company. It also bestows concern about the variety of products with services of the business unit and the resources that are to be allocated in different areas of business of a particular organisation. Generally, the corporate-level strategy deals with the expectations of the shareholders from the company. It is important to be very much attentive about the corporate-level strategy as it will be quite effective in taking decisions in the business (Johnson & et. al., 2008). Corporate-level strategy primarily deals with three key issues. They are: Directional Strategy It is concerned with the overall growth and stability of the company. The two basic strategies regarding growth are concentrated along with diversification. The growth of an organisation could also be attained through mergers, acquisitions and takeovers among others (Thenmozhi, n.d.). Portfolio Analysis With regard to this element, the top management of the company continuously keeps on evaluating its product line as a portfolio investment for a lucrative return (Thenmozhi, n.d.). Parenting Strategy This element involves the manner in which the company coordinates its activities and resources to develop capabilities within its assorted products and the business (Thenmozhi, n.d.). Business-Level Strategy This is the second level in the strategy-making process. This level of strategy is intended to understand how the different types of businesses which are incorporated in the corporate-level strategy perform in their particular markets. For this particular reason, this level of strategy is also at times called a ‘competitive strategy’. The main concern of the business-level strategy in the public sector is to take effective decisions on how to present best quality services for the product. This step involves certain issues, such as pricing of the product, innovation and differentiation of the product, quality of the product and the distribution channels among others. As corporate-level strategy mainly deals with the decision making in context of the overall organisation, business-level strategy deals with particular areas in the business (Johnson et al., 2008). There are several different types of business-level strategies that an organisation can utilise to establish and protect themselves from their rivals. They are cost leadership, focused cost leadership, differentiation, focused differentiation and incorporated cost leadership. These five strategies are at times said to be generic as they can be used in any type of business as well as industry. Each of them helps the company to ascertain and develop themselves in a particular market (Hoskisson et al., 2008). Operational Strategies This is the third-level strategy-making process in the organisation. This level of strategy is at the operating end of the company. Operational strategy is mainly concerned about how the different component parts of a particular organisation deliver the corporate as well as the business-level strategies effectively with regard to processes, people and resources. It can be analysed that in many instances business successes of the different strategies largely depends on the decisions or activities that occur or are taken in the operational level. For this reason, the operational level is of great importance in the business (Johnson et al., 2008). Figure 2: Levels of Strategy in Business Source: (Johnson & et. al., 2010) Conclusion It can be concluded that strategies are vital in the context of the modern-day business. It provides direction to the business. There are three different horizons for making decisions regarding strategies. The first horizon concerns about the present functioning of the business, the second aims at establishing the business in a new market by using the present resources of the firm, and the third involves establishing a business of future. Moreover, there also exist certain levels in the process of strategy-making. Every level has its own importance in the strategy-making process. The three recognised levels play a pivotal role in the performance of the company in both short and long run. References Furrer, O., 2010. Corporate Level Strategy: Theory and Applications. Routledge. Hoskisson, R. E., et. al., 2008. Competing for Advantage. Cengage Learning. Johnson, G., et. al., 2010. Exploring Strategy: Text and Cases. Financial Times/ Prentice Hall. Johnson, G., et. al., 2008. Exploring Corporate Strategy. Levels of Strategy. [Online] Available at: http://www.dei.uminho.pt/~gerardo/Johnson-ExploringCorporateStrategy8Ed.pdf [Accessed on February 16, 2013]. John, R., et. al., 1996. Global Business Strategy. Cengage Learning EMEA. Thompson, A. A., et. al., 2006. Crafting and Executing Strategy: The Quest for Competitive Advantage (Special Indian Edition). Tata McGraw-Hill Education. Thenmozhi, M., N. d. Strategy Formulation: An Overview. Management Science I. [Online] Available at: http://nptel.iitm.ac.in/courses/IIT-MADRAS/Management_Science_I/Pdfs/9_1.pdf [Accessed February 16, 2013]. Read More