Strategy, Business Information and Analysis - Coursework Example

Strategy, Business Information and Analysis Name Unit Class Executive Summary This essay has tackled the issue on why the consultants and theorists find it hard to agree on the meaning of the strategy, it’s important and how it is constructed. This has been achieved through looking at three main questions which are; what is strategy? Does strategy matter and how it is constructed. To tackle the first question, the essay has defined the strategy by utilizing the Mintzberg 5ps, evolution of the strategy schools of strategic thinking and analyzing. From the analysis, strategy can be defined as a plan, ploy, position, pattern and perspective. All these meaning on strategy stem from Mintzberg definitions. Strategy started in the early war period. This involved coming up with strategies that avoided wars and enabled business monopolies. The emergence of the scientific management led to the expansion of the boundaries to include all the aspects of productivity (Heuser, 2010). The essay has looked at all the methods in which the strategy can be constructed. The methods used are planned approach or emergent approach. The planned approach is the most used tactic in coming up with strategies. Despite the planned approach being more preferred, irrationality exists. Innovation has been proved to affect the strategic planning. There is a distinct relationship between innovation and strategy. For an organization to succeed, strategy and innovation should exist. In conclusion, the essay has explained all the three questions which the theorists and consultants find hard to agree on. Introduction In the 1969 to mid 1970, it was referred to as the strategy heydays due to the invention of the work experience curve. The discovery argued that the more experience an industry has in coming up with a product, the lower the cost they incur. This work became a base in which the companies strategized upon to have a competitive edge. The competitive strategy was advanced with differentiation and resource based competitive strategy was introduced in 1990s. Strategic proliferation have been among the last steps in strategic history and started from mid 1995 to mid 2010. The rise of internet in the late 1990s and automation technologies have made the concept of strategy more complex. The schools of strategic thinking according to Mintzberg are ten and have been well elaborated in the essay (Heuser, 2010). From the research, the importance of strategy cannot be underrated. Lack of a strategy puts the firm into threats in the business world. Despite this, some of the firms have been able to survive without strategy. This brings the controversy on whether having the strategy matters. The blue ocean and red ocean strategies have been looked upon and their characteristics analyzed. It’s evident that the blue ocean strategy enables the firm to avoid competition through innovation. Red ocean strategy involves cutthroat competition. Blue ocean strategy can arise from the red ocean strategy. This essay will look at various aspects involving strategy, the issue on why the consultants and theorists find it hard to agree on the meaning of the strategy, it’s important and how it is constructed as well as other crucial elements involving strategy. WHAT IS STRATEGY Mintzberg 5 P’s A strategy can be defined as an intended course of action in dealing with a situation (Porter, 2008). A strategy must be made prior to taking an action and developed in a conscious and purposeful manner. According to Mintzberg 5P’s, strategy is seen as a plan, ploy, pattern, position, perspective (Mintzberg, 1987). Looking at the strategy as a plan, it acts as a guideline in a specific situation. As a plan, a strategy is general or specific. The definition of strategy is supported by various fields such as military, game theory, management and in dictionary definition. For example, the military comes up with the war strategy as a plan and decides how to engage the individuals involved (Mintzberg & Quinn, 1996). In the game theory, strategy is a plan in which the player choices are specified. The management uses the strategy as a plan in which they have to use in achieving the objectives. Looking at the dictionary definition, a strategy is a plan among other definitions. A strategy can also be viewed as a ploy. This is when a strategy is used as a maneuver that will help in outwitting a competitor. The business can use ploys to reduce the capability of the competitors to be a threat. Ploys have been used for a long time to make sure that the business outwits the rival. Strategy can also be viewed as a pattern. This is a defamation that encompasses the resulting behavior of the strategy. The strategy involves a stream of actions that makes it look like a pattern. Whether is intended or not, a strategy is consistent in its behavior. The pattern of behavior in a corporation is viewed as its strategy. Strategies used depend on the person using it. A person strategy can be used by the competitor as a tactic. The fourth P looks at strategy as a position. This is through looking at the organization environment. The strategy as a position is seen to act as the link between the organization and its environment. This definition is easily associated with plan, ploy or pattern (Mintzberg, Quinn & Voyer, 1995). The fifth definition of strategy looks at the strategy as a perspective. Looking at the strategy as a perspective, it involves looking at the world in an ingrained way. This involves looking at the strategy as the organization personality. Strategy is a concept hence an abstraction that exists in the mind of those involved (Mintzberg & Quinn, 1996). This involves looking at the perspective as the perspective that is shared among the members in an organization. The individuals in an organization are united by a common behavior. All the five Ps in Mintzberg are interrelated. The view of the strategy as both a position and a perspective can be combined with the view of the strategy as plan or pattern. Evolution from Ancient Times till Date The history of strategy can be associated with the art of the war in the early period. In early days, strategy involved creation of monopolies in business and avoiding wars. From 1900 to 1968, industrial proficiency started. The world started turning away from the strategies that were aimed at avoiding war and creating monopolies. There was the beginning of the school of thought which focused on increasing the workers efficiency for high output. The emergence of the scientific management led to the expansion of the boundaries to include all the aspects of productivity. In the 1969 to mid 1970, it was referred to as the strategy heydays (Heuser, 2010). Bruce Henderson came up with work on the experience curve. He argued that the more experience an industry has in coming up with a product, the lower the cost they incur. This work became a base in which the companies strategized upon to have a competitive edge. The competitiveness strategy was further expanded with the differentiating strategies which acted as alternatives to the cost leadership strategies. This helped the companies to come up with more powerful strategies. The expansion of the concept of strategy was done by Michael Porter. In 1990, articles from Harvard business review gave another view on competitive advantage. The view involved looking at the competitive advantage not only at the competitors, but in the company itself. The view led to resource based approach on the competitive advantage (Heuser, 2010). Strategic proliferation In the mid 1990s, the new era was ushered known as the strategic proliferation. This period extended from mid 1990 to mid 2010. The fundamental shifts were brought by re-engineering revolution and the great advance in the technology. Through reengineering did not last long, it was hijacked by the internet revolution. Internet brought the biggest strategic revolution in the late 1990. The strategy brought a lot of opportunities for the industries to create or lose competitive advantage. Using the technology, it has become easier to tap into resources (Heuser, 2010). Schools of Strategic Thinking – Inside Out / Outside In Mintzberg came up with the ten schools of thought on strategy formation (Mintzberg, Quinn & Voyer, 1995). The first school of thought was the design school. The school was based on the process of conception and architecture as metaphor. The second school was the planning school. It involved rigorous process from the analysis stage to execution. The school allowed resource control though was associated with difficulty in predicting. The positioning school involves the analytical process. The entrepreneurial school was the fourth and used a visionary process. The school relies heavily on intuition, judgment, experience and insight. The cognitive school is a mental process. The school looks at how people perceive the patterns and the way information is processed. The main basis in this school is psychology (Heuser, 2010). The learning school is an emergent process. The basis used is the education learning theory and strategies are developed in small steps. The power school is a process of negotiation. The main basis in this school is political science where the strategy is developed through negotiation between power holders. Cultural school is a collective process. This school of thoughts involves different groups and departments and strategy is developed as a cooperative process. The environmental school involves a reactive process with a biological basis. The main examples are the contingency theory and situational leadership. The last school is the configuration school. This involves transforming an organization from the decision making type to another structure. The best example is the chaos theory and catastrophe theory (Mintzberg, Quinn & Voyer, 1995). Strategy became a discipline by itself and landed to the hands of the planers and experts. The main issue arose from the fact that the handover created a distinct handover on formulation and implementation of the strategy. The strategies became more sophiscated with large handover hurdles. With the globalization and industrial automation, the concept of strategy became more complex and self inflicted issue. The rest of the period involved a lot on organization change by looking at what the organization can do and what it is capable of doing. This involved closing the gap between what the organization required and what it had. Performance metrics were another important area in execution of the strategy (Baum & Lampel, 2010). SECTION 2 – DOES STRATEGY MATTER? The importance of strategy in an organization is determined by what the organization needs. If the organization wants to be financially successful, strategy is needed. If the company thrives on daily crisis and acts according to the competitors, strategy may not be used. But in the real business world, strategy is required (Besanko, Dranove & Shanley, 2000). Lack of strategy exposes the company to threats. Using the classical perspective, the manager is viewed as having the power to manipulate and allocate the internal and external resources in the firm. This is where the organization behavior is guided by rationality and self interest. By utilizing an evolutionary perspective, the emphasis is placed on the differences between the firm behaviors. For some firms, the behavior is based on rational decision making without using imitation. These are firms that do not rely only on the manager, but on the mix between all the market forces (Besanko, Dranove & Shanley, 2000). Planned, rational and irrational approaches Human beings are not purely rational, but they are bounded inn their rationality. This when associated with the bargaining which is done collectively makes dynamics of the economy unpredictable. The strategic behavior is thus in a network that is composed of the norms, class and relations among others. This makes it hard to determine rational and irrational behavior. What is rational for one person may be irrational for the other. There are processes in which the strategies from within an organization. There are intended strategies and released strategies. Intended strategies are a product of a planning process while the intended strategies come from what the organization has actually done. The two strategies provide a good framework which can help to understand their main difference. This is through a continuum where planned strategy is kept at one end and the other end lays the emergent strategy. The planned strategy is clear since the intentions are translated into actions (Mintzberg, Quinn & Voyer, 1995). Emergent and Rational versus Scenario Planning The emergent strategies involve a situation where the final decision is arrived from bargaining, chance as well as feedback. This can be explained in a situation where the strategy is achieved through consensus. The best strategy depends on the nature of the organization (Mintzberg & Quinn, 1996). Ann organization can also benefit from scenario planning by accessing how the future situation may look like. This helps the organization to know the consequences of their actions. The organization can then come up with well drafted recovery plans and disaster management. If the organization is facing uncertain future, it is hard to predict the appropriate scenario. The organization can arrange the possibility of occurrence of the scenarios and rank them. The ranking can then be used to select the most likely to occur and came up with a course of action. The main challenge that is faced by scenario planning is the fact that the scenarios are time consuming and costly as opposed to other strategies. There is also high likelihood to regard the scenario as unreal as well as hypothetical. This may lead to the key players ignoring the scenarios especially if they constitute unpopular decision. Scenarios are also known to have provoked misunderstandings among the managers (Besanko, Dranove & Shanley, 2000). Value Innovation (BOS) versus Red Ocean Value innovation or the blue sea strategy is best illustrated in an industry that is able to achieve rapid growth while experiencing declining revenue (Siegemund, 2008). The growth is achieved by creating a new market place which they are able to compete. This is a success that is based on realizing that in order to win the future, competition must cease. Red oceans represent industries that are in existence while blue see represents all the future industries or the unknown market place. The red seas have all the market boundaries defined and have established rules. The companies in the red sea works to outperform their rivals and make the best of the demand that is in existence (Siegemund, 2008). The main disadvantage occurs when the market becomes more crowded making the profits to dwindle. When market becomes more crowded, competition increases and there is emergence of red sea. The blue seas are untapped market resources. They offer demand creation and opportunity for growth. Though some of the blue oceans industry exists beyond the red ocean, some comes out of the red ocean. The competition in the blue ocean is not there as there are no rules of the game set. Blue ocean strategies are uncharted. The most work done on strategy have been based on the red ocean strategies. The strategies in the red ocean have been based on the skills on how to survive in the competitive red waters. The strategies involve lowering costs, economic structure and differentiation. The blue ocean has been focused mostly on coming up with new markets where competition is non-existent and demand is high. Most of the new businesses strategize to operate on the red ocean. By opening a business venture in the blue sea, the company is able to create a new demand cycle and enjoy high returns. The approach strategy used in creating the blue sea has the capability to determine the winners and the losers. Companies in the red sea used the competition as their benchmark to come up with a defensible position in the industry (Siegemund, 2008). This is very different from the companies in the blue sea. Companies in the blue sea used a different logic which is value innovation (Mintzberg & Quinn, 1996). The use of value innovation acts as the main building block in the blue ocean. This is a strategy that makes competition irrelevant and creating a value leaps for the customers. The market opened is new and uncontested (Siegemund, 2008). Value innovation is taken as a strategy that enables the firms to break away from the competition of the red ocean to create Blue Ocean. Value innovation has the capability to defy the competition strategy and value cost trade off. By pursuing the blue ocean, the industries are able to adopt both the differentiation and low cost strategies simultaneously. The main differences in Blue Ocean and red ocean strategies lie in their nature. Red sea strategy compete in a marketplace that exists, beat the competition, exploit the existing demand, uses the value cost trade off and all the firm’s activities are aligned with the strategic choice between differentiation and low cost. The blue sea strategy creates uncontested market space, have no competition, create and capture new demand, break the value and cost trade off. The blue ocean strategy has all the firm activities based in the pursuit of differentiation and low cost. The blue sea strategy focuses on reconstructing the market boundaries, reaching beyond the demand, having the right strategic sequence and overcoming the organization hurdles (Siegemund, 2008). The blue sea strategy also builds its execution within the strategy. HOW IS STRATEGY CONSTRUCTED? Crafting strategy from a planned/rational approach Use of rational planning model is the most used model in coming up with a strategy. Planning involves formulation, establishment and coming up with tactics and actions that will enable enactment of the strategies. Using the rational approach in crafting the strategy have an advantage due to fact that it is well known and helps the organization to come up with strategies (Mintzberg, 1987). The planning model has an interface with the accounting constructs as well as the annual accounts and budgets. The main importance of the model is the fact that it enables ease of coming up with plans. Strategies are always defined as plans of some sort and a guide to the future. The strategies are seen as a planner and someone who is visionary. The planning is a process of coming up with the organization objectives and is mostly taken to be the primary function. The planning process involves formulating plans and carrying them out. Planning has three main levels which are strategic, intermediate and the operational levels (Baum & Lampel, 2010). The strategic level involves achieving the main business objectives and is mostly done by the head of the functions. Intermediate level involves giving the directions and also allocating the available resources. The middle managers work together with their departmental teams. Operational level involves accomplishment of the task which is done by the unit managers and the individual staff. The rational approach requires that the strategy should be managed in a rational planning process. The process begins by coming up with the objectives, analyzing the environmental trends and resources, evaluating different options and lastly careful planning and implementation (Mintzberg, 1987). The principle behind rational planning is that strategies should only follow a careful and procedural analysis. This is through the use of a logical process and avoiding being chronological. The rational planning model is based on assumptions. The assumptions are; strategies are created using up down approach, corporate strategies are developed first, can be broken into components and there is objectivity. The rational planning model has been criticized as a practical failure as data are hard to gather. The process has also been criticized due to fact that it is a routine and leads to reduced initiative. The model is said to ignore the internal politics and obsessed with control. Crafting strategy from an emergent/umbrella approach Emergent strategies develop as a pattern of behaviors which is in contrast to planned strategies. The emergent strategy develops from the patterns of the behavior which adopted and always has a strategic impact. In some instances, emergent strategies require to be given conscious direction. The management is in some cases forced to accept some of the aspects of the emergent strategy while they reject others (Mintzberg & Quinn, 1996). Irrationality in crafting In some cases, strategies are drafted irrationally. This involves crafting the strategies with the emotional side of the human beings which can lead to a competitive advantage. The drafting of the strategies n occurs in the mind of those involved and not in the physical market (Gambla, 2004). If the firm is not able to come up with strategies that touch the mind of the consumers, they lose the market due to competition. Irrationality like the emotions and perceptions which guides the mind of customers are very vital in coming up with strategies. Value Innovation affecting strategic planning process Having an innovative perspective enables to create a clean view on the future (Burns, 2013). Organizations are required to come up with strategies that create value. This requires synergy to exist between the strategy and the innovation (Birkinshaw, Bessant & Delbridge, 2007). For the organization to achieve growth and profitability there is a need for innovation. The main weakness of the strategies is the fact that they establish limits and boundaries that limits the organization potential to innovation. For most organizations that are seeking for innovation, they look for the strategies. This has been criticized as a false start due to fact that innovation is hard to be channeled through a strategy process. The main problem with these organizations is the fact that they do not fortify their strategic position on innovation (Verhees & Meulenberg, 2004). Innovation is defined to be exploitive and hard to predict. The process of coming up with a strategy is based on coming up with a plan and controlling it. Strategy and innovation should always coexist. For innovation and strategy, there exists a distinct relationship. This means that there is a need for good strategies that will enable innovation (Dobni, 2006). Innovation acts as the basis of gaining a competitive advantage. If the strategy and innovation are interfaced properly, the result will be a highly performing industry. For the industry, there is need to practice the strategy in a way that will enable it to complement innovation. Innovation is able to become strategic if it is capable of being integrated to the organization planning. Innovation is considered to be a strategic theme (Murray, Markides & Galavan, 2008). A strategic theme is able to map on the way in which different objectives can work together to come up with an innovative culture. From this, it’s clear that value innovation has an effect on the strategic planning process. Conclusion In conclusion, strategy has been given several definitions. According to Mintzberg 5ps’ strategy is defined as plan, ploy, pattern, position and perspective. All the definition given by Mintzberg, all the five Ps are interconnected. For example plan, ploy and pattern can be combined with the view of the strategy as perspective or position. The history of strategy dates back towards the early war period and has evolved to what it is now. By looking at its development, strategy were first used in wars, they then developed into businesses which were more concerned with creating monopolies. After the monopoly strategy, there came the competitive strategy that gained wide use in the business arena. The improvement to the competitive strategy was in addition of the differentiation to the competitive strategy. This was followed by the proliferation period in the mid 1990. The rise of internet and industrial automation has led to revolutionized strategy. Many firms have become global with the use of technology. Lack of a strategy exposes the business to threats. It’s through strategy that the business is able to plan about its future. Strategies can be crafted through emergent, planned or rational approaches. The blue ocean strategy is used where the organization comes up with new market with no competition. This is opposed to the red ocean where the business survives through cut throat competition. Innovation affects the strategic planning in an organization. This is due to fact that organizations are required to come up with strategies that create value in an organization. Innovation and strategies should coexist if the organization is to be profitable. Despite this, strategy is a complex issue. The concept of strategy has different meanings and interpretations. Consultants and theorists still cannot even agree on the most basic questions about strategy. The essay has got to the depth to explain the mystery behind strategy by explaining its meaning, whether it matters and how it is constructed. References Baum, J & Lampel, J 2010, The globalization of strategy research, Bingley, UK: Emerald. Besanko, D., Dranove, D & Shanley, M 2000, Economics of strategy, New York, Wiley. Birkinshaw, J., Bessant, J & Delbridge, R 2007, ‘Finding, Forming and Performing: Creating Networks for Discontinuous Innovation,’ California Management Review, Vol.49, no.3, p. 67-84. 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