Strategic Management and the Business Environment - Essay Example

Order 130571 Topic: Strategic Management and the Business Environment: Introduction This paper seeks to accomplish the following objectives by writing an essay critically examining the idea that a companys products are an expression of managements reactions to the business environment: 1. To discuss (with references and critique) whether tools of strategic analysis enable managers to understand changes in the business environment and to plan responses; 2. To demonstrate knowledge and understanding of the constraints and opportunities of market and competitive situations and how product positioning can be seen as a response to market conditions; 3. To delineate alternative conceptualizations of the "strategy process" and explain how these views deal with the complex relationship between an organization and its environment. Assess whether market conditions and product positioning can really be understood, or whether they are an idea that are used to mobilize effort and resource within an organization; and 4. To make robust and clear argument by covering different perspectives, taking a view about their merits and forming a coherent examination of the theoretical and pragmatic issues involved. 2. Analysis and Discussion 2.1. Do tools of strategic analyses enable managers to understand changes in the business environment and to plan responses? The ready response to the question is in the affirmative. Strategic analyses do enable managers to understand changes in the environment and to plan responses since its the function of the managers to respond logically to changes. Changes in the environment are external to the organization and therefore external to the managers. Being external, managers may not prevent the events from happening but it does not mean that the managers cannot do any thing about them. Either the environment may give opportunities or threats to the company. As managers they can do at least two things. One is to take advantage the industry opportunities and the other one is to protect the company from industry threats. Failing to do either in this act is not managing; it would be “managed” by the environment. Taking advantage of the opportunity is actually making a strategic move, which may enable the company to earn more profits and stay longer in business. It is also a logical response to the reality the business eventually mature under economic theory, which points to the direction of a perfect competition as an eventuality. Expressed differently, profitability will dwindle until they become too low or worse would zero because companies would be operating at equilibrium. The latter means that business may just be operating just to recover its cost of doing business. Another thing that the company could do is to protect itself from the threat of the industry. Industry threat could come in the form of more competition and therefore lower chances of profitability or greater chance of eventually losing business. The main business objective is to maximize the wealth for the stockholders, for it impels management to rather invest company resources in less risky or non-risky business where return is equally the same or could be greater return or promise of return. Hence, a strategic thinking manager should see to it that he would protect the company from industry threats by designing a strategy that will serve the company like shifting to other industry and generating more options because the worse could get to worst. Alternatively, the company could create competitive advantages so that competition could not come in further. Before management could take advantage of industry opportunity and protect from industry threat, it must know how to determine the opportunity or threat. Porter offers his five competing forces model to know these threats. These forces include the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services and rivalry among existing firms. An example is the high threat of entry in the case of automotive industry. It would be difficult for new entrants to come in because of the economies of scale enjoyed by existing firms. (Baki, et. al, 2004) Furthermore, taking advantage of opportunity and protecting from industry threat requires preferably management to know its strengths and weaknesses. Its strength and weaknesses could come from value chain, which “categorizes the generic value-adding activities of an organization,” the purpose of which is to “maximize value creation while minimizing cost” (Wikipedia, 2006). A firm for example would like to have its suppliers located near its factory so as to minimize cost while trying to deliver customers’ order on time. Another of basis of company’s strengths and weaknesses is financial analysis using the company’s financial statement. Let us take the case of General Motors (GM) as example. Baki, et. al (2004) identified GM’s strength as that “having the largest amount of annual sales at $185,524.00 million, reaching about 15 percent of the global market (Company Press Release).” Citing, (Stein, 2004), it said: “Leading the industry in sales enables General Motors to spend time and money in its’ R&D department. One of General Motors’ current projects is releasing two Hybrid cars in China and hopefully more in the United States in the year 2007.” 2.1.1 What really are these strategies? Different authors talked of the reality of the concept of strategy and its related different formulations below: Mintzberg, H. (2001) talked of “Crafting Strategy” where the author said: “ In my metaphor, managers are craftsmen and strategy is their clay. Like the potter, they sit between a past and corporate capabilities and a future of market opportunities. In addition, it they are really craftsmen, they bring to their work an equally intimate knowledge of the materials at hand. This is the essence of crafting strategy.” On the other hand, Hamel and Prahalad (1989) talked of “Strategic Intent” which the author described as the concept that “encompasses an active management process that includes focusing the organization’s attention on the essence of winning; motivating people by communicating the value of the target.” Crafting a strategy is indeed a deliberate action with intent to bring the mold the future by combining what a company has and the future has to offer. There must therefore be a working knowledge of the past to receive the application of the present to bring the future to fulfilment. Pursuant to choice to make a deliberate action is the need for focusing organization’s attention by moving people to their fullest potential. Porter (2006) talked of a company doing well in competitive environment saying: “A company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at a lower cost, or do both. The arithmetic of superior profitability then follows: delivering greater value allows a company to charge higher average unit prices; greater efficiency results in lower average unit costs.” It is very easy to accept Porter’s competitive strategy if one would undertand his framework. His framework is economic analysis and therefore the reality of competition. Delivering greater value to customers or creating comparable value at lower cost strike the foundation of a strategic move in business. Collins and Porras (1996) emphasized the need to building companys vision when they said: “Companies that enjoy enduring success have core values and a core purpose that remain fixed while their business strategies and practices carelessly adapt to changing world.” Core values could be taken to be analogous to company vision and core purpose to company mission. Mintzberg and Lampel (1999) in discussing "Reflecting on the Strategy Process” said: “Managers take one narrow perspective or another- the glories of planning or the wonders of learning, the demands of external competitive analyses or the imperatives of an internal “resourced-based view”. The authors on their observations saw the choices the managers must make. Each choice is not an easy choice. Frankilin, P. (2001) described the meaning of being strategic as quite being “future-looking” by saying : “Its about being able to read the future (or a range of alternative futures), feel the future, live the future and describe the future in a way which enables others to share and "see" the future with you.” Trying to be observant about the authors’ statements, we could actually expressed in some form what all of them mean; that strategies are need to attain the company’s vision which has to be future oriented. It is just being able to see the future ahead of others and doing something favourable to itself in return. 2.2. How are constraints and opportunities of market and competitive situations related with product positioning? Is product positioning seen as a response to market conditions? As stated earlier, constraints or industry threats drive competition further where firms compete for profitability while opportunities create greater chances for profitability. Any company wanting to survive in an industry must craft a strategy. In so doing, the business would have to make a new product positioning as a part. Economic theory says that firms in the industry may eventually enter into a highly competitive industry and profitability would necessarily suffer. Lower productivity would ensue as product is less differentiated because consumers would treat one company’s products as close substitutes of the others. Not all customers however would react that way because some customers would not only look at the price but also quality of the product. Some customers are just willing to a pay at premium price because they want a better service or a better product than what the market offers. There is always that desire to be different or the desire to be unique in many circumstances and that attitude of customer are dependent on their perceptions, their motivations, their attitudes even their lifestyles. This is where product positioning will take a centre stage. Managers must see to it that despite the industry threats its products are needed, are being used and of value to customers. From the point of view of management then, it must really conduct a SWOT analysis. SWOT means strengths, weaknesses, opportunities and threats and they are used as bases of company plan or strategy. The first two are internal to the company but the last two are external factors. How? Just in the way a human being lives, an organization does the same thing. The external factors are like the stimulus from the environment from which emotional and rational human being will have to react into and respond accordingly. If a person is emotionally healthy, problems are challenges to respond to and could offer chances for more growth. On the other hand, a person under depression or is emotionally disturbed need not have to be depressed further by problems, only a joke could put his response in a very pathetic mode. A wise, healthy and responsive organization must take advantage of industry opportunities and try to protect itself from industry threats. It could only do so however, if the company has strengths like financial strength to carry on or it could at least put under control its weakness points, which may be vulnerable to attack by external factors. The best strategy therefore is to use SWOT as basis for a logical and responsive strategy. In addition, in a great probability, product positioning would be one of the strategies. Viewed therefore that product positioning is part of the strategy, it must seen as a response to market conditions. In the following section, let us see how different authors have used or analyzed the SWOT, which presupposes a need for a strategy or plan. 2.3. Proofs of uses of SWOT and similar concepts by different writers 2.3.1 Assessing corporate strengths and weaknesses presupposes use of strategy Jenster and Hussey (2001) quoting Ansoff (1965) said: “Assessing corporate strengths and weaknesses was seen as a critical step in much of the early literature on strategy, such as Ansoff 1965. In his thinking it was bound up with capability profiles, the search for synergy, and the internal and external appraisals.” It is a work of in 1965 that is being quoted by 2001 writing acknowledges the clear need for a strategy. What could make a company strong is its chance to access greater profitability. 2. 3.2 “In terms of usage, executives may be divided into groups to initially identify –first as individuals and second as groups – their views on the firm’s SWOT." Jenster and Hussey (2001) said: “To summarize what SWOT is now seen as I have turned to an encyclopaedia of strategic management, Channon, 1997, page 263 calls it "….a simple but powerful tool for evaluating the strategic position of a firm.” He argues "…the requirements for undertaking such an analysis are relatively simple." He outlines the process to be used: "In terms of usage, executives may be divided into groups to initially identify –first as individuals and second as groups – their views on the firm’s SWOT." Based on the above, SWOT is an indispensable part of strategy making and to formulate a strategy without doing something about the product would be just having a meeting with out discussing something. Why waste time understanding the company’s strengths and weaknesses as well us the industry opportunities threats if one will not react? How will one react other than selling its products under better conditions (We term as product positioning.) if one’s business is to deliver the products and service to customers. 2.3.3 Changing the meaning of SWOT, or focusing on an element of the overall appraisal. When one changes the meaning of SWOT or want to focus on an element of appraisal, there is also basis to say strategy formulation is necessary effect. This is confirmed by Jenster and Hussey (2001) when the latter said: “Much of the guidance offered in various books and journal articles has either changed the meaning of SWOT, or focused on an element of the overall appraisal. For example Cooper and Kaplan are associated with activity based costing, which takes Drucker’s comments on apportioned costs a few stages further(see, for example Cooper 1990, Cooper and Kaplan 1991, and Kaplan and Cooper 1998)” Changing the meaning of SWOT would not detach the manager from intending to come up with reaction. If Cooper and Kaplan talked of activity cost, what was the target of what they were doing? Are they not saying that profitability would come from understanding the activity because the organizations’ activities determine the chain of directed activities that will eventually lead to strategy or a to reaction to do better? Will not product positioning become part of the process? I believe the answers to both of these questions are in the affirmative. However, the next questions would be as of follows: Where is the product positioning there? How do activities-improvements lead to product positioning as market reaction? Well, whether it is a simple way of improving the service or the activity, such will lead to satisfaction of needs and wants. If that happens, there will always be the objective of profitability of business for which the selling the product will take a centre stage. This must be because after minimizing cost of the activity base costing, management will not stop there, it will still have to sell a product and product positioning will be an inevitable thing to arise. 2. 3.4 Criticisms of the current approach to SWOT When there are criticisms for SWOT, there could also be a presumed interest in a better basis for strategy or it could mean SWOT is simply given importance in some other forms. This we can observe when Jenster and Hussey (2001) said: “Other writers have criticized the current approach to SWOT, for example Haberberg, 2000 and Pickton and Wright, 1998. The first author wants to dump it; the second pair believes it can be improved. So what is wrong with it? My observations come from years of observation, particularly from some 20 years experience in management consultancy, so that I have experience as a participant in such a process, have had the opportunity to critique numerous strategic plans from different organizations, and have been involved with many organizations in helping them to develop strategies and strategy processes.” Necessarily implying a need for a plan, it is safe to ask: “For what a business is without a plan?” How would a plan become executed without products? How could people in the organization come to a rallying point to do activities day in and day out with out really trying to satisfy the needs and wants of customers via something concrete in the form of a product. Are not products the reason of its being? 2.3.5 The core competency concept Some authors would simply not call it a strength, or weakness. They would just call them competencies. Are they not really the same thing implying a need to tap these competences and by tapping there is a need to reposition the product? The delivery of the good and service, competencies will necessitate a strategy and a strategy presupposes product positioning. Jenster and Hussey (2001) confirmed the validity of this observation when the authors said: “This is the core competency concept (see Hamel and Prahalad 1994). Although it is generally promoted as something different and special, it is really no more than a particular way of thinking about strengths and weaknesses, which provides a focus on what is critical for the future of the organization.” 2. 3. 6 Assessing competitive situation in the market When one assesses the competitive situation in the market, one must be doing strategy. Jenster, and Hussey, D. 2001 agreed saying: “Most books on marketing deal at some length with assessing the competitive situation in the market, just as numerous books on finance show how to undertake a financial analysis of an organization. Elsewhere we can find references to auditing the information system (e.g. Stanat, 1990), or HRM (e.g. Hussey 1996).” The authors revealed the very nature of business; they did exist to satisfy needs and wants. These entities therefore need a marketing plan for it to be believed that it must be selling something to the customers and to the public. The functional areas of the business from operation, finance, human resource, accounting, have all in them marketing. In fact, the most important part of the business is marketing and when we talk of marketing, the product will be always being a part of the marketing mix consisting of the product, price, place and promotion. The product in the mix assumes a very significant role because if there is no product, what will be the price? And if there is price, what will the company advertise. 2.3.7. Books which deal specifically with analyzing an organization to ascertain its strengths and weaknesses. Jenster, P. and Hussey, D. 2001 further confirmed earlier books that particularly dealt with strengths and weaknesses by saying: “There is an exception in my own textbook (Hussey 1998), and there may be others which are different from the common mould, although I have not come across them. If we look for books which deal specifically with analyzing an organization to ascertain its strengths and weaknesses and weaknesses, what is there? The landmark book for me was 1964, which I still use. There were some early articles, which stressed the analytical aspects, such as Hussey 1968. Then there seems to have been something of a sea change.” The same authors further said: “It is a form of force field analysis, which is described in many of my books, including Hussey 1999, pages 56-60. This can begin with an effect, such as current volumes, market share, the cost of a product, or a labour turnover ratio.” 2.4 What are the alternative conceptualizations of the "strategy process" and how do these views deal with the complex relationship between an organization and its environment? The alternative conceptualizations of the strategy process of the strategy process includes that looking at it from a scientific point of view and another is looking at it from behavioural point of view. From the economic and scientific point of view market conditions and ‘product positioning can really be understood, but from the behavioural point of view or are they just an idea that is used to mobilize effort and resource within an organization. (Frankilin, 2001) The competitive strategy of Porter based from the economic a scientific point of view because talks there about trying out perform each other in the industry. On the other hand the Micro Strategy of Frankilin (2001) is asserting the behavioural dimension. Frankilin (2001) said: “….micro-strategy is concerned with the thought processes, attitudes and behaviours of individuals when contemplating and choosing a future they want to pursue for themselves, for others, or with others. Supporting this definition, micro-strategy involves a number of core processes, and a number of key aspects - some of the latter being processes and some being implications. We shall examine each of these in turn.” He discussed the three processes as follows: Frankilin (2001) identified the first key process as imagination which he explained as follows: “In micro-strategy, the first key process concerns the ability, inclination or skill of an individual to "dream up" possible futures. For those of us with imaginative or creative brains, maybe this is an easy process. But for those of us whove been deterred from being creative, the development of new visions of the future, like new ideas, maybe hard to achieve.” He deplored the fact that many managers find it hard to dream a little. Hence, he said that managers are often unable to suspend disbelief and that the urgent message and the pressure of their current projects crowd out their ability to be imaginative and think the unthinkable. The same author called the second process as simulation where “there is the need to test ones imagined future(s) against the realities perceived by the individual.” He thus proposed that to undertake this process successfully, the individual needs to have a number of different skills: First, the individual needs to be able to surface successfully his or her mental models of the world and understand how they are shaped by past experience and current aspirations. This is unlikely to be an easy task and, as Senge (1990, p. 176) implies, potentially misleading as the problem "with mental models lie not in whether they are right or wrong – by definition, all models are simplifications." A second requirement of this key process is the ability of the individual to simulate how their vision will be received by those from whom he/she wants support. This ability is something akin to the internal processing or internal dialogue one has when making any decision, but to propose a new vision or a new idea in abstract has a different quality than one which will need support from other people. So here the simulation is likely to require and use prior knowledge about others views, their political stance and their place in the pecking order. One will need to know ones likely allies and ones likely enemies, and have a view about how to get support from friends and overcome or deflect opponents. He thus came with most important process that is dialogue. Under the process, Frankilin (2001) said: “So the simulations being complete, the third process in micro-strategy involve the individual "coming out" and sharing his/her ideas with others. Here an individuals forecasts and expectations are tested; here, as occasion requires and permits, the individual modifies they way their vision is presented, and the timing and order of the audiences with whom s/he communicates. In a situation where dialogue is part of a normal routine and embedded in the human relationships that the strategist has with others (and/or embedded in the organizational culture), we may expect an open discussion about the merits, limitations and requirements of the vision.” 2.5. Can market conditions and product positioning really be understood, or are they just an idea that is used to mobilize effort and resource within an organization. To therefore assess whether market conditions and product positioning can really be understood, there is enough ground to say so as discussed in the earlier in the formulation of strategy based on SWOT analysis. On the other hand, to assess whether these are also used to mobilize effort and resource within an organization, there is also basis to agree on the basis of Frankilin’s discussion of Micro-strategy. The first assessment need not appear inconsistent with the second. They could both perform a role in being both scientific and behavioural in approach. To understand the meat of this position, let us take the case of the human brain. While the left brain uses logic to plan, to argue and analyze, the right does all other functions of the human person like is being creative, being with the art and every thing that is rational based. The human brain need not function divisibly with one of its function. It could attain its objective by tapping the potential of the two brain hemispheres. Just like on organization, there is a need to have an objective analysis of the market using the SWOT analysis in identifying the industry opportunities and threats and company strengths and weakness as bases of strategy. On the other hand, human functioning of the different members of the organization, by undergoing the processes of micro-strategy, which includes imagination, manipulation and dialogue, could actually work to together or in a different dimension. It is also just the writers who are looking from different perspectives. People are emotional and creative people, they could not be just said to be purely rational. They remember they exist through their culture too whether rational or not. What is obvious between the scientific and behavioural perspective of strategy is that both actually working under a common direction 3. Conclusion: It is not difficult to see that companys products are an expression of managements reactions to the business environment. This we have seen in the expression of not less than seven great management writers where they discuss the realities of SWOT analysis or similar terms they would like to call it. Company’s strengths needs to be known in order to be used in taking advantage of the industry opportunities while protecting the company also from industry threats. Company’s weaknesses are also acknowledged in the design of strategy where the strategist could convert also into strengths and trying to deliver greater profitability of the firm.   Working under the context of market conditions and product positioning via the strategy formulation using SWOT analysis as bases need not be inconsistent with the behavioural perfective of just being strategic. 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