Strategic Planning in Strategic Management - Article Example

? Strategic Management – Essay Strategic thinking is the main ingredient of strategic management. Strategic management is an approach to management in an organization that determines fundamental mission, values, goals, objectives, and vision as well as deploys roles and responsibilities, and sets time lines, considering internal and external circumstances. It also controls whether mission, values, goals, vision, and objectives are achieved and takes corrective actions if they are not or if internal or external circumstances change. The main tool of strategic management is a strategic plan. Strategic planning focuses on setting goals or the point of achievement that we desire to reach some time in the definite future moment as well as on ways and means to get to that desired outcome. It is a tool with a purpose to help an organization perform at its best, so strategic planning helps an organization to focus its energy and make sure that all members are working toward the same goals, to control whether the organization is going toward its goals in as straight manner as possible and to adjust the course for changes in internal and external circumstances. Strategic planning is thus an organized action to answer fundamental questions of what an organization is, what it does, why it does it in that way, and were it intends to be in the definite future. Strategic plan development is a process of answering a set of questions in a specific order to keep it focused and productive. (Porter, Michael E. , 1980) ) The planners must first examine current experience and situation, set and test assumptions to the best of their capabilities, they must obtain and include current information about the present and envision internal and external circumstances in which the organization will be working in the future. Strategic planning involves preparing the best way to respond to changes in the environment, which are not known at the time of plan preparation, realistically, taking into account company’s resources and objectives. Strategic plan is a set of decisions of what to do, how to do it, and why to do it, in order of priority, meaning that it needs to set which decisions and actions are more important than others in order to reach the goals set. Strategic planing is a continuous process while strategic plan is a snapshot taken in various future points in time. Strategic planning is a tool of managing an organization just like hammer is a tool of reshaping a piece of metal into a horseshoe. Hammer does not make a horseshoe, a blacksmith does it applying his physical and mental power to it. In the same way manager uses strategic planning to lead an organization toward its desired goals. Strategical thinking is applied to strategical planning by management to make it work for better performance of the organization. Strategic thinking is geared toward specific purpose of setting and achieving goals, being at all times mindful of internal and external circumstances that influence the purpose in order to creatively develop best responses to changes in those circumstances. The question that best supports strategic thinking would probably be: “Are we doing the right thing in the right way?”. If the answer becomes negative at any measurable moment corrective actions need to be taken. “Are we doing the right thing” would translate into measurable milestones toward set goals while “are we doing it the right way” would translate in being aligned with company’s mission, vision, values and objectives. (Porter, Michael E., 1980) For example, a fictitious merchant with a convoy of cargo ships and a goal of making the most income and reasonable profit in regular voyages from port to port from Shanghai, China via Sydney, Australia, Los Angeles, USA, Amsterdam, EU, Mumbai, India, Singapore,Singapore back to Shanghai China envisions that the company would capture 10% market share in trading commodities in each port. (Vancil, R.,1976) His objective is to make the biggest regularly modernized fleet that does not harm the environment and his mission is to put out of use old units that pollute the environment from his fleet and from other merchants with less regards for the environment and to make working environment safe and enjoyable for his sailors and other crew. His values are preserving the environment, reward committed work, modernization and rising productivity, fair trade and respect for human rights. Assessing the current position he would need to answer what business is the company currently in and how this business is doing. Starting from vision and mission he will need to focus on what he wants to do, develop strategies and initiatives how he will do it and develop measures to check how well he did it. To see the magnitude of changes needed he must calculate strategic gaps between desired outcomes and current situation. He will need to specify strategies, time frame, individual responsibility and deploy resources. Preparing strategic plan he will ask his assistants to get data and information about the industry, competition, trading rules in each of ports in question, possibilities of getting acceptable quality storage space at lowest prices, ways of hedging and speculating in different currencies, commodity prices in different ports, and other relevant information. While the first part of setting goals, objectives, values, mission, and vision have been set in advance they need to be checked for objectivity. One of the tools he would use is a SWOT analysis where he will square company’s strengths, weaknesses, opportunities and threats. Looking at internal and external circumstances is it really possible to achieve set objective of capturing 10% of trading in above ports and when it would be possible. (Vancil,R.,1976) What needs to be done to enlarge his market share? Where are the weak links? Are his employees up to the task in each position? Is there a company with substantially bigger cash flow (political influence, port authorities influence) that might react in putting obstacles to his growth if start taking their profit share in any of market segments? Are there smaller profitable companies that he may buy to speed up the process? Will profits and credit suffice sustainable growth and at the same time support his mission of displacing polluting units and his values of protecting the environment, rewarding employees, modernization and rising productivity, fair trade and human rights? Are any of these in conflict? How priority needs to be set? Creativity of strategic thinking is now employed to devise ways of achieving set goals, vision, mission, and objective while at the same time incorporating values. The trader in question needs to deploy employees and other resources in a way that would best support his strategy. He would need to develop best motivational system to get the best out of his employees. Looking for highest possible income that would be reinvested to support growth he would need to find ways to support fair trade, meaning that possibly the cheapest sellers might be disqualified as his suppliers. (Vancil,R.,1976) The income differential should be compensated through marketing strategy that would put stress on fair trade and inform consumers of consequences of their purchasing choices to people in developing countries that are not compensated through fair trade but exploited to maximum and let to leave in conditions far below satisfactory level because other traders would unscrupulously maximize their profits. However, we would have to be prepared to respond to actions of competitors in best possible manner. Monitoring competition would be a must in any aggressive strategy like taking market share. In current economic system companies do not bare all the costs of doing business. Doing business in traditional ways pollutes and degenerates environment. Some companies do more environmental damage than others. Only recently some governments and United Nations through its United Nation Framework Convention for Climate Change started to charge some costs of repairing environmental damage back to companies that are the biggest polluters but majority of environmental damage and its repair costs are still not assigned to its sources. (Porter, Michael E., 1980) Therefore doing business in environmentally friendly way is in a way similar to unfair trade. Companies that pollute have smaller individual costs and their owners can rip profits at the expense of common good. To support his value of preserving the environment he will have to restrict suppliers to those that are environmentally friendly and will most likely have to exclude the cheapest suppliers, so he must devise a marketing strategy that will compensate for bigger costs with higher income. To support his value for modernization and rising productivity as well as employee welfare he would have to devise internal strategy that would rise productivity per employee as well as productivity of other resources. If he can do more business with less manpower and more productive use of resources than his competition he will achieve his goal of rewarding employees with better working environment and will be able to modernize fleet. This is probably an area where strategic gap can be closed the fastest. Using hybrid engines that use 30% less fuel because they have better performance (for example, vehicle inertia that is with usual diesel engines lost can be used to make Hydrogen in fuel cells that as additional fuel burns in the engine and saves diesel fuel. As the result of burning Hydrogen is water such an engine would emit 30% less harmful exhaust in the air. Implementing enterprise resource planning software would also achieve the same goal as well as provide him with real time information about company’s performance. . (Vancil,R.,1976) Enterprise resource system would also free company accountant from preparing reports and would allow him to creatively exploit other areas where the company can save on costs or gain additional income. Trader’s profitable practices would be followed by competition and oil guzzling old polluting ships would be remodeled without the need of regulatory actions. Netflix is a company lead by a visionary with a means to support his vision. They did not invent movie rental business as it was a growing business worth billions before Netflix even started. The management recognized growing trends in the industry and focused its efforts on two things convenience and subscription based members building while at the same time they used innovations in technology to build sophisticated tracking and delivery system, inventory management, and consumer preference based individual marketing. They focused on current market situation with a vision of changes so they started DVD rental model with a vision to develop exclusively internet delivery when times for it become ripe. Development of individually tailored recommendations software as their strong marketing tool was possible because technology allowed all individual actions tracking, clustering and comparison in real time. Based on current needs and likely future developments the company focused exclusively on internet based sales but organized 50 fully equipped distribution centers. On one hand they wanted to provide customers with as many DVD titles as possible and on the other gave them a choice of subscription plan they were comfortable with. Their main selling point was 14 days free unrestricted trial that should convince customers about their quality. (Vancil,R.,1976) They made it convenient for customers to order a DVD online and receive it the next day through mail while at the same time provided them with addressed and prepaid return envelope. Having smart devised plans that allowed subscribers to have between 1 and 8 DVD`s in their possession at any time they were able to eliminate late fees. Customers with single DVD plan were able to order new DVD only when they have returned the first one, so the plan with 3 titles out at a time became the most popular option. Netflix strategy has many advantages over Blockbusters strategy and one minor inconvenience of one day in advance planning. Customers ordered online from the convenience of their home armchair. They did not have to dress-up and drive to Blockbusters, checked their shelves and pick the DVD`s with an obligation to return them in 3 days subject to late fee if they missed the deadline. Also, it is more likely to find what you are looking for in large 50 centralized distribution centers than in a single small space of 9.500 widely distributed local centers. Extensive movie review library including trailers, on Netflix is also superb to Blockbusters shelves. Blockbuster has nothing to match individually customized customer recommendation that offers customer titles based on his renting history, cluster renting history and reviews made by the customer when he comes online. This way a customer is offered titles that he would be likely to miss in a 100.000+ title database. Keyword search is imperfect if you do not know what to look for or if it exists at all. At the same time as they do their business as usual via mail, Netflixs started developing online delivery of selected titles with no cost to existing subscribers. This is basically a smooth transition at customer convenience and also growing acceptance of this kind of business model by studios who feared that unauthorized copying would be a problem with online delivery. Somewhere in the future Netflix DVD distribution centers will become obsolete. (Mintzberg, H., 1987) I would argue that strategy of Netflix is great and that it precedes great execution and it could only be devised by a great leader. Firstly, Netflix strategist recognized the trends in movie rental business, isolated convenience as main driver and while envisioning changes in delivery they still stayed with original DVD until perception changes. Perfect execution of great strategy sure helps but horse driven buggy milk delivery could be executed with perfection yet it has no future. Strategic management is dynamic not static. (Netflix) Strategy devised years ago could not be perfect forever if not adjusted for changed internal and external circumstances. There are new technological developments coming out on daily basis. Mobile technology changes business models. Alliances between technology companies and studios constantly change business landscape. New software protocol may come out that would prevent unauthorized title views. Laws and legal practice may change. So the strategy and assumptions on which it is based of any business including Netflix has to be checked on regular basis. Sometimes only minor changes are enough to adjust while sometimes complete strategy needs to be retaught from the start. Blockbusters business model was very good if it allowed profitable operation of 9500 stores but it obviously did not adjust to changing environment on time. Great leaders are needed to operate great strategies and take care that they are executed to perfection. (Richard V., 1976) Empowerment of employees is a concept that requires accountability of every employee including and foremost top management. It requires clearly defined company strategy with in details specified goals, vision, mission, values, and objectives and exemplary rules of conduct. It requires means of team cooperation and measures of team and individual success that translate in team and individual rewards. (Website: Netflix.com, 2010, Annual Report) Therefore a carefully designed compensation plan needs to be geared toward rewarding results and as the Whole Food Market puts it “there are no entitlements”. Like being bosses nephew automatically qualifies you for good salary without working for it. Top management is thus the first to limit its members to be popular by giving out entitlements. As soon as this policy is breached the system breaks down. While management is still responsible to hand out paychecks employees can clearly see the connection between company’s success, their contribution and their reward. It is not the manager who pays wages it is the product or service the company is able to sell in the marketplace that pays wages. Another employee empowerment feature is open books policy. In a regular manner employees can view companies reports and accounts including such items as annual employee compensation reports which are considered top secret in many large organizations mainly to hide “entitlements”. (Richard V., 1976) Employees can not check on everyone but they can compare themselves to other employees they work with. They can compare what they can see in their contribution to their own or other employees on similar position and come to a conclusion whether their reward matches their contribution as they see it. Also, employees in an employee empowering environment can voice their opinion. It is, of course, not possible to do it whenever and wherever but in regular team meetings, regardless of their point of view. As teams meat regularly, team members participate in discussions and come to collective conclusions. It is a democratic process where entitlements are hard to hide. Teams are self directed to execute set strategy and plan as they see fit. Empowered employees that are rewarded according to precise and fair reward scheme will strive to work at their best. They will contribute their ideas about savings on costs and getting more revenues whether this be organizational change, better use of resources, sales possibilities or anything else. Although it looks like communism where people should be self-managing companies on collectively owned means of production there are big differences in accountability and entitlements. Leaders in communism did not do what they preached and where first to widely distribute entitlements to their family and lovers. People there were able to discuss but not to decide as communist party had overriding authority. Books were cooked, real information unavailable. (Richard V., 1976) It became a farce. Employee empowerment is a type of decentralized management. It differs from delegation of authority by means of openness and control. Manager can delegate authority for particular part of business to a subordinate and control his/her work performance based on comparison with a plan yet he does not need to open books and can always override a decision of subordinates. Strategy may or may not be written and rules of conduct can be vague. While empowering employees as discussed above makes managers accountable delegation of authority does not. While employee empowerment will most likely make employees work harder and contribute more delegation of authority will only put pressure to fulfill plan obligations to lower level in the company and will have nothing to do with employee contribution to better management. Centralized management is more about control than contribution. (Eisenhardt, 1990) Under centralized management employees are expected to do their work in assigned time according to order. They have little authority and responsibility and almost no control of their reward above basic salary. They have no or little access to information. Their motivation to contribute toward better work flow is minimal. Their loyalty to the company is measured through paycheck as they are completely disassociated from results of their work. Top managers in decentralized companies act more like leaders while in centralized companies they are closer to army generals. References: Porter, Michael E. (1980) Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: The Free Press, Porter, M., ( November/December, 1996) “What is Strategy?” Harvard Business Review., pp. 61 – 78. DeGeus, Arie. (March/April, 1988 ) “Planning as Learning.” Harvard Business Review., pp. 70 – 78. Mintzberg, Henry.( July/August, 1987) “Crafting Strategy.” Harvard Business Review., pp. 66 – 75. Vancil, Richard F. (1976) “Strategy Formulation in Complex Organizations.” Sloan Management Review. Winter, , pp. 1 – 18. Eisenhardt, Kathleen (1990) “Speed and Strategic Choice: How Managers Accelerate Decision Making.” California Management Review. Spring, p. 39. Netflix. Retrieved from https://www.netflix.com/ Netflix has revolutionized the way people watch movies. Again http://www.netflix.com/MediaCenter?id=5379&hnjr=8#snapshot Overview http://ir.netflix.com/ Website: Netflix.com, 200, Annual Report http://ir.netflix.com/downloads/2003ARscreen.pdf Read More