Strategic Business Environment - Essay Example

STRATEGIC BUSINESS ENVIRONMENT By Location of Causes of Strategic Drift Introduction Within strategic management, exists a concept referred to as strategic drift. It is the response of an institution or business through a dynamic environment. Various situations and unpredictable challenges are common phenomena that may arise anytime when developing and driving strategic change in the organization. In simple terms, they are the instances when the organization fails to achieve the particular goal. Th prevention of a strategic drift necessitates envisioning the future for the company through setting goals, creating structures, sharing the vision and motivating people to pursue the idea. While implementing a strategy, there is a need for change in thoughts, behaviors, and structures to fit the idea and adapt to the changing environment. According to Hensmans, Johnson, and Yip (2015) a strategic drift may occur where the management fails to observe subtle changes in the atmosphere of the business. The paper seeks to assess the causes of strategic drift with examples in different industry sectors. Change and the Business Environment The business setting plays a critical role in management. Environmental factors that influence a company are the technological, socio-political, legal and economic environment. Up to recently, a tool of classification known as PESTLE analysis applies to various groups to classify the environment (Hasan, 2012). Organizations have a choice in how they manage their relationship with the environment. Some firms are reactive while others are proactive by identifying and foreseeing changes in the environment and planning their responses before these changes occur. It may be difficult analyzing the situation especially if it is dynamic. Corporate Strategy and Organizational Structure Corporate strategy refers to decisions a company makes and which looks into where the company is, where it is going and what it needs to be there. Such policies affect the company in one way or the other. As businesses change their corporate strategy, their organizational structure too has to change because different strategies involve different ways of management. An example is from unrelated diversification to vertical integration that comes with an increase in bureaucratic costs associated with, managing multi-business model. Corporate strategies involve decisions around strength and weaknesses of the organization. It puts the interest of the shareholders first in line before the interest of the employees, and this may have an adverse impact on the structure after all (Gandellini, Pezzi and Venanzi, 2013). Vallabhaneni (2013) defines organizational structure as the distribution of activities within an organization. It involves task allocation to individuals, coordination, and supervision as in various departments. Its complexity results from the size of the company and it can range from a simple structure to a very complex one. Enactment of corporate strategies has a direct influence on these structures and may range from laying off some workers who may not meet the target in the plan. There may also be changes in hierarchical reporting structures that may see people shift to various departments and as well, other departments dropped. When done well, the organizational structure may see people fit well in areas where they can exercise their skills and motivations. Team dynamics may also result in a stronger team energetic enough for sound output. On the contrary, when conducted poorly may lead to people experiencing difficulty working with others and may result in lowering of production. Business Environment and Strategic Management Tracy (2014) defines management in four broad aspects namely the planning phase that involves setting objectives. Secondly, it inculcates organizing that entails developing an organizational structure and allocation of duties to ensure achievement of goals. Thirdly, leading which involves influencing of others. Lastly, controlling which provides a minimal deviation from the right standards. The business environment influences these ts as below. Schermerhorn (2013) states that economic conditions affect how easy or difficult it is to be successful or profitable at any time since it affects capital availability, cost, and demand. For example, if demand is buoyant and cost of capital is low, many firms may consider investing with the hope that it will be profitable. Economic environment influences the timing and relative success of particular strategies. When certain sectors of the economy grow, demand may exist for specific services and products that would not otherwise exist in depressed conditions. It may create an opportunity to develop a strategy in line with the demand Schermerhorn (2013). Additionally capital markets determine conditions for alternative sources of funding for organizations as guided by prevailing economic conditions. On the other hand, inflation and international economics influenced by government priorities may affect the rates of interest on loans. Also, government spending may increase the money supply and make capital markets more buoyant. Eventually, it affects shareholders with respect to their funding for the company. In the socio-political environment, demand and tastes vary with fashion and disposable income and general changes may result in providing either opportunities or threats to firms. In most cases, most products vary from being the novelty of market saturation conditions and these calls for a change in strategy. Similarly, some products may sell around the world with little variation. An example is of a washing machine designed differently to satisfy consumer preferences. Organizations, therefore, need to be aware of demographical changes. Primarily because the structure of the population by ages, regions, number working and affluence can have an effect on demand for various products and services (Schermerhorn 2013). According to Ghuman and Aswathappa (2010), the legal environment involves a system of laws. Different countries have a given set of rules in operation. Businesses that operate in the global market, therefore, have to take into perspective the existing legal environment. It entails considering the method of justice and its speed to the complainant party. Besides, judiciary strengths vary from country to country, and there is a need for companies to understand clearly as such factors affect the security of investment made in a country (Ghuman and Aswathappa, 2010). Also, it influences the decision as to whether a particular business is fit for a country. Certain legal practices in a country limit the marketing capability of a product and thus before production there is a need for a market survey to know what is legal and is legal. An example is the US issuing smoking cigarette warnings in 1965 that later led to an enactment of the law in 2009 further prohibiting tobacco use. It was after a health report on the dangers of smoking and its rate of killing. It had an impact on the marketing strategy of the industry, and it has since then suffered because of the law. Lastly, legal provisions influence the nature of a business organization that a company can establish in a particular country. Causes of a Strategic Drift and examples of Industry Sectors Organizational culture is a critical aspect that influences strategic gist. It focuses earlier success to frame its strategies for the future and exhibits traditional methods of planning and execution without considering changes in business environment. It operates in four cycles namely, paradigm, behaviors, beliefs and values of an organization. Paradigm refers to a set of assumptions held in common and taken for granted within an organization (Dziri, 2011). Values refer to that which the organization upholds in terms of ethical concerns and standards. According to Dziri (2011), paradigm influences the manner in which people think and interpret an act, and this subsequently drives their action. Many organizations on the path to strategic drift always use the same paradigm approach in handling all the problems encountered despite a previous challenge. In turn, they find themselves out of touch with the external environment and if no transformational change occurs, they might as well die. It happens when the leadership takes shelter in using past formula to run the organization presently. There is a need for a proactive form of management that looks into the future, the present and that invest in innovation (Dziri, 2011). In technology, an example is the Motorola Company, invented in the 1980s a leader in cell phone production using analog technology. In 1996, it launched a star-TAC Phone while still maintaining analog position. In the Mid 1990s, arose the demand for digital phones that saw an introduction of the digital platform. There was a rapid growth in demand for digital phones. Gibson (2011) argues that Motorola did not take the initiative to rise to the digital platform and in 1998, its share dropped to about 34% with twenty thousand workers laid off. Additionally, culture has a direct influence on management style, where management refers to the effective use and coordination of resources involving capital, labor, and materials amongst others. These goal of management is to see everything done and to the correct standard. Kessler (2013) states that culture influences the management theory was taken up by those in authority or responsibility dockets, and it plays a critical role in building employee relationship to the people in power. An example is the classical school of management theory that seeks to find one right way of doing things. If a leader takes up this theory, the success of the organization may be at stake being that there is no one right way of doing something. Besides, it may hinder innovation and make the organization resistant to change, as it will consider the products out of date (Kessler, 2013). Cognitive mapping is another factor that plays a role in strategic drift. It refers to the assumption of driving management processes by personal knowledge, perception and limitations of organizational structures rather than objective processes. Kessler (2013) reiterates that individuals especially the top managers operate under this condition of bounded rationality. In most cases, belief systems for managers result out of their experiences over time as they climb the career path. Such experiences lead to choosing particular solutions to strategic problems. A typical example in the retail sector is of the Mark and Spencer a UK based retailer with a focus on home ware, groceries, and clothing (Moss, 2014). Early in the 1880s, it was the dominating company with a small market stall in Leeds. It expanded globally owing to its good quality products and family reputation. The company experienced a rise in rank up to about the 1990s when there was a shift in consumers’ preference. A strong organizational culture had seen them rise to this level to the point they saw it impossible to change and lean towards the more pressing external environment. Competition became stiff and consumers preferred other goods, which were not comparable to their production. At this time, their culture restricted their change towards the environment that saw them run into losses of both sales and market share. Another contributing factor is unhealthy institutionalized patterns and associated social culture. It is the interaction both inside and outside that occurs within an organization determining its success and survival (Issel, 2010). It looks into confirming whether the organization is in meaningful interaction through the isomorphism performance logic. At the level of the organizational field, it concerns the production of goods and services by the organization. Besides, it considers the use in the interaction of the products and services. Within the organization, it entails interactions of production of the goods and services, and how separate but interdependent the activities are coordinated. All these interactions come with an expectation that has to meet. There is a likelihood of not achieving the expectations, and this could lead to strategic drift. Davila (2014) says the reactive nature of most organizations has resulted in strategic drift. He defines this as a state in which the organization seeks to analyze the market and its change first before taking a step. It looks into the alignment of the organization to trade demands or needs. Most cases, the organizations do not get to realize these changes early enough; furthermore, they may not have the expertise to help them cope. The result is a case where the organization slowly evolves to catch up with the trends in the market. Further studies have shown that it may be difficult for the company to catch up fully as the trends may be fast rising. Also, considering that the change in the business environment may be dynamic and complex not all organizations may be able to keep pace with it. A more sure way is to strive towards innovation. Innovation ensures total control over the market because it introduces a new product for which there is no competition. It requires the organizations to be proactive in nature, by promoting research and development sector. They can tap skills and motivations from employees and put these ideas into writing. Besides, innovation does not entail just a new product; it could also be the method of advertisement of an existing product or a merger of two products to satisfy customer needs. A good example is a coca-cola brand that invests in extensive publication globally (Elmore, 2014). Coca-Cola is one of the leading beverage providers globally. Its unique method of packaging in terms of the bottles has also put it on par with the other market holders. Another critical factor is the incremental changes. Most of the planning and decision-making processes lean on these changes. Lind (2015) says these adaptations to use past strategies are links to the maintenance of status-quo. First, it seeks to ensure that every strategy is in line with the vision, mission, and the goal of the organization. The mission of any organization is always in line with the culture and thus aligning strategies in line with these means that only consideration of internal factors. Not anything that has to undergo a thorough review is a plan for a competing market. Besides, it seeks to maintain the norms and the beliefs of the people. These incremental changes are gradual changes towards the product, and their effects are not as influencing enough to the company, as it should. In most studies, gradual changes result in retention of most of the business manners of conducting themselves; it gives no form of awakening to the employees and even to the top managers. Conclusion In summary, a strategic drift results from choices made in the organization. Not only does strategic drifts distract the management from its path of success, but also result in a complete loss of momentum. Additionally, it can lead to the wastage of money, time and other valuable resources. Overall, it increases the overall cost of operation and may sometimes lead the firm away from achieving its competitive advantage. Though undesired in the current business world, numerous causes result in a strategic drift. Some of the causing factors include paradigms, organizational culture, the reactive nature of companies and unhealthful institutionalized patterns. Organizations need to study the market condition prior to the changes occurring in it. The proactive aspect of the operation is the only tool that can control strategic drift. Besides, for sound management practices, a critical analysis of the business environment is necessary. 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