Strategy - Its Importance and Role in Business - Coursework Example

EXECUTIVE SUMMARY The underlying report is aimed at the assessment of the various aspects of the term strategy, its importance and role in business and the ways of crafting strategy. Despite fact of incremental importance in the business environment, the assessment in this report has revealed that strategy in the discipline of management has failed to bring the all the practitioner, theorists as well as experts in a single platform. There are equally opposite views on a similar concept of strategy from different schools of thoughts. This has led a vacuum in the development of a single layout or guideline following which an organization can draft and follow a strategy for the successful conduct of the business in a dynamic business environment. INTRODUCTION Strategy is one of the most important disciplines of the management. Perhaps, it is the only thing that widely agrees about strategy in the discipline of management. Simply stating strategy is the plan of action that is employed in order to achieve the desired action. The similar meaning also implies for the business perspective. However, with this single agreed upon thing about strategy, the practitioners, experts, and theorists cannot provide a unified definition of strategy. There still exists a difference between different schools of thoughts about the core of the strategy being science, art or humanity, etc. This has created a challenge for the business practitioners as they are not provided with uniformly and systematic plan for understanding every element of strategy along with its potential perspectives and implications. With this difference present in the backdrop, this assessment report is developed to explore the different schools of thoughts in comprehensive yet concise manner in order to arrive at answer t the critical questions about strategy. The three-core questions of strategy that are attempted to be explored in the review of the literature and practical applications are: What is Strategy? Role and importance of strategy in business? The process of crafting and defining strategy for the business? Inside assessment of the different perspectives is conducted for each of the mentioned questions, and an attempt has been made to arrive at responses to each of these aspects. MINTZBERG 5P’S Mintzberg presented the 5ps of strategy in 1987. Each of the five P’s has a different approach towards strategy. They are as follows: Plan Strategy is a course of action done consciously, a guideline to deal with a certain situation. They are developed consciously and have some purpose and the other characteristic is they are made in response to an action (Hill and Jones, 2007). Ploy A strategy can act as a ploy too. It is just a specific movement intended to outperform or outwit a competitor (Pettigrew, Thomas, & Whittington, 2001). Pattern A strategy cannot only be defined as a plan. It is also required to look at the dimension of behavior. Sometimes strategy arises from past organizational behavior patterns. To use these elements of 5p’s note down the patterns observed in the team and then ask whether this observed team can be a part of the implicit strategy process making. Moreover, think about the impact of these patterns on approach towards strategic planning and controlling (Thompson, 2003). Position Position can be another way of defining the strategy. This means that how you want to position yourself in the marketplace. In this way, strategy will help you to determine the fits between your organization and changing environment. It also helps the organization to build a sustainable competitive advantage over others. As far as strategic position is concerned, it helps the organization to portray their “bigger picture." PEST analysis, porter’s five forces and porter’s diamond is done to analyze the external environment in response to the organization competiveness (Thompson, 2003). Perspective The choice of organizational strategy relies heavily on culture prevailing within the organization. As patterns of behavior can bring a strategy, patterns of thinking can also reflect towards creating and developing strategy. When strategy is talked about within the parameters of perspective, it is concerned about collective thinking dynamism. To do this, some cultural related tools like Cultural web and congruence model are used (Thompson, 2003. DIFFERENT PERSPECTIVES OF STRATEGIC THINKING There are two ways in which any business can be observed i.e. inside out and outside in. The first approach refers to what an individual assumes and thinks before looking anything else. It encourages questions related to capital investments, capabilities, human resources, customer relationship, brand image and networks. Such organizations have a reflexive sort of management. It is aware of his history concerns and aware of its growth. On the other hand, organizations that used the second approach “outside-in” shift their mindset outwards. They deal more with the factors such as changes in their operating environment, competitors, supplier and customer’s preferences and choices. They look for potential opportunities that could be found outside the box (De Wit & Meyer, 2010). These organizations are less cared about its limitations and boundaries. They keep insights on customer’s preferences and deliver value by excellent service. Of course, the choice between both the approaches is not simple. Most of the organization finds itself confusing between the continuums of the two. The outwards facing functions, which include sales, business development, marketing and customer services, would need to adopt outside-in approach (De Wit & Meyer, 2010). The functional areas, such as HR, finance and operations, need to follow the continuum of both the strategy, and mingle in such a way that it could leads towards competitive edge. Organizations who do not understand their limitations and concerns while just concentrate on picking up pretty rainbows may fall quickly. The best organizations tend to achieve the best practices from both the approaches. They know what their strengths are and where they lack behind. They keep their radar on for the opportunities that exist in the market. Such organizations have an idea that the most effective business strategy need to consider both the approach simultaneously to order to gain an edge (De Wit & Meyer, 2010). EVOLUTION OF STRATEGY OVER TIME The evolution of corporate level strategy has been driven by practical approaches rather than on fundamental theories. During 1950’s and 1960’s senior executive level managers are facing problems in communicating, coordinating, controlling the strategic objectives in the companies that were growing (Grant, 2010). Therefore, to cater this need corporate planning was developed in 1950’s (Grant, 2010). Investment appraisal and budgeting provide short-term guides for the long-term objectives. In 1960’s strategies are largely incorporated with the corporate planning processes. In 1970’s emphasis was on portfolio planning and diversification within different boundaries (Grant, 2010). In 1980’s the concentration was more towards on core business with more people approach with less scientific approach (Grant, 2010). However, the current market is still dominated by rationalist approach to strategic thinking. Therefore, field has progressed much from its inception and has considered being a part of the curriculum, providing critical insights and knowledge for knowing and analyzing the competitive landscape (Furrer, Thomas, & Goussevskaia, 2008). CRITICAL DISCUSSION This section focuses on the strategy with respect to strategic thinking. The strategy can act as a plan, processes, ploy, pattern and position. As the plan, strategy deals with how leaders developed and organized directions for the organization. As a ploy, strategy considers competition. Whereas, threat or other activities are considered as advantage drivers. As the pattern, strategy focuses on action, and as the position strategy, encourages to look in context of other organizations within the parameter of competitive and volatile environment. Various relationships occur between these concepts. However, one cannot precede the other. Well, each element adds value to the understanding of strategy. In the inside-out approach, focus is on a single parametric context and analyze the impact of changes in the external business environment. Every single element is perceived in terms of its context. On the other hand, outside-in approach refers to understanding the organization in a bigger context. In a practical context, there will always be some concerns and modification with these perspectives and both can be switched-over if preferred. Both are somewhat related to the other and, therefore, carried out efficiently. Very few of the architectural framework consists of the all the sets of perspectives like TRAK. The evolution of business level strategy evolves as the time moves on, and the requirement for strategic planning and thinking came into existence. The progression of the field is going on an upward shift resulting in various new theories and practical implementations but as an element of innovation and building sustainable competitive advantage emerges, it has become quite difficult for the managers to compete with competitive environments. IMPACT OF VALUE INNOVATION ON THE PROCESS OF STRATEGIC PLANNING Managers are always much concerned about the time and the resources necessary to implement an issue-based strategic planning continuum. One of the rarely adopted but an easy approach is to free business units from all strategic process conducted every year. However, forcing businesses to abandon such activity may have adverse results. Managers need to focus on the major projects many of which take more than a year. Therefore, value innovation may create hindrance in the way of other planning and strategic processes. Some companies use a mechanism named as “trigger mechanism in which a specific business will undergo to a strategic planning process. The strategic process has now changed it is more focused towards experience, technology and processes. Obviously, the steps have changed the way strategic planning carried out traditionally. The process used traditionally was more towards making more profits and generating cash flows for the future but the value innovation has changed the way things are done. In value innovation, customer’s satisfaction driven by superior value in terms of service and quality is on priority. In value innovation, customers make the decisions and have the right to trade off. In the traditional approach, customers have just two choices whether to buy or not to buy. Therefore, if the company is focused towards value creation then the strategic process will differ from the one followed in the traditional approach (Kim & Mauborgne, 1997). HOW PLANNED APPROACH HELPS IN CRAFTING STRATEGY In the early studies conducted, a critical and logical characteristics of rational decision making process illustrate a positive relationship with organizational overall performance in sound and stable environment. However, it has a negative impact in an unstable environment. In this strategic approach, manager assumes that they can operate in a rational manner when strategies are crafted. First, they think that the external environment provide them complete knowledge and secondly organizational decision take place in the sequence and logical way. Thus, other factors should also be considered. Therefore, strategy is not a rational process (Fredrickson & Iaquinto, 1989). HOW UMBRELLA APPROACH HELPS IN CRAFTING STRATEGY In the umbrella approach, the senior managers set out the guiding boundaries and goals, for example, cutting or using a specific technology, high or low production. The other decisions such as which product to be offered to which market segment or how to maintain an edge in R&D would be upon the members of the organization. In the early 1960’s IBM used the umbrella approach for threaten 360 series. IBM’s senior management approved an outlay and set a prospective criterion. The other decisions remain with the member of the organization (Montgomery and Porter, 1991). The value of an umbrella strategy provides a built-in flexibility that allows an organization to react to the unexpected incidents and events actively. IRRATIONALITY IN THE PROCESS OF STRATEGY CRAFTING Many authors have suggested ways to tap the markets into irrational and emotional side of the human brain to create and maintain sustainable competitive advantage. The fight to grab the market share is not in the physical market, but it exists in the minds of the consumers. If a firm cannot create or maintain a favorable position in the minds of its customers, it loses its competitive advantage. It is, therefore, necessary, to have an idea of the perceptions and believe of the customers rather than looking on the rational side only. The left side of the brain that deals with the emotions and believes should be more focused when creating a strategy. This approach opens up interesting dynamic factors of human perception that must be kept on mind before or while going for a strategy (Heracleous & Jacobs, 2008). IMPORTANCE OF STRATEGY AS PLANNED, RATIONAL AND IRRATIONAL APPROACHES The rational approach favors that strategic management in an organization is carried out in a formal process (Goll & Rasheed, 2005). It is an efficient process. While, irrational approaches point out that organizations are not rational, there are plenty of dynamic factors that are prevailing within an organization to affect the strategic management process like politics, chaos, norms, psychology (Bromiley, 2009). Various rational approaches are considering originations as profit making entity under best knowledge. Several disagreements had highlighted the underlying limitations of the rational model and backed the political framework of the strategic change, psychological view. The rational model encourages the need of cultural change in originations when desired, and advice step-by-step guide towards any cultural change within the organization (Khatri & Ng, 2000). The model is explained by the dynamic paradigm change, which comprises of symbols, controlling system, organizational strategic strategies (Wheelen & Hunger, 2011). The process starts with organizational paradigm, where it has to organize certain strategies and implement them. Implementation will leads to organizational performance that can be calculated and analyzed through various method and techniques. This technique includes return on capital (ROC) and return on investment (ROI). An unsatisfactory performance will leads to tight up control or revise a new corporate strategy. However, unacceptable performances indicate to abandon the current paradigm and start with a new course of action (Bromiley, 2009). However, the formal procedure is not realistic in the real world as organizations are very dynamic in nature. In addition, rational approaches advocate useful models that organizations should adopt like PESTLE analysis. This is done to analyze the general environment that is affecting the organization. The organization does not have control on the external factors (Wheelen & Hunger, 2011). Porter’s five forces model can also be done critically to analyze the competitive and industrial environment facing by the organization. The purpose of this analysis is to find out the industrial profitability and fascination of the industry dynamics (Pearce & Robinson, 2000). UNDERSTANDING IMPORTANCE OF STRATEGY - EMERGENT AND RATIONAL VERSUS SCENARIO PLANNING The first approach holds a definite believe that the corporate world is predictable, and only if the correct tool is found then the future can be predicted correctly. This approach concentrates more on data rational findings to communicate a message (Postma & Liebl, 2005). Unfortunately, this approach lets one down in a critical situation, when an unexpected event will occur all of a sudden the strategy is of no worth. Therefore, this approach de-motivates the managers (Schoemaker, 1995). Emergent strategies do not arise from the strategic planning, perhaps created on down the hierarchy. In such a way, the overall objective of the strategy remain ambiguous and unclear, and element will keep on developing as the strategy proceeds on. The emergent strategies are incremental and evolving. For example, a salesman visits a respective customer, and they both will work out on the modifications and alteration aspect about the product. The salesman comes back to the company and note down the changes (Morgan & Hunt, 2002). After two or three months, the company modifies that product (OShannassy, 2003). In an environment occupied by uncertainties and fluctuations, a capacity of innovation is required rather than conservative aspect. Now strategic planning is considered as a focal point for gaining a sustainable competitive advantage over others. Scenario planning is one tool that many of the organizations are implementing in their overall strategic planning process (OShannassy, 2003). Unlike emergent planning, scenario planning does not deal with the predictions about the current situation of the organization but rather on critically examine the learning and insights through challenging assumptions. The goal is to think creatively about the future of the whole industry dynamics. In fact, they use narratives and stories as a way breaking down the new ground into strategic thinking (Morgan & Hunt, 2002). DIFFERENCE BETWEEN VALUE INNOVATION (BOS) AND RED OCEAN AND IMPORTANCE OF STRATEGY Value innovation is the prominent factor that organizations use to establish Blue oceans (Kim & Mauborgne, 2007). In Red Ocean, organizations are trying to prevail in the market they are operating in. This is not the aim of value innovation. The value innovation can be achieved when the whole organization processes, price and structure are arranged in a proper manner. Through value innovation factor, the organizations are trying to find out new and better way to deliver superior value to their customers (Leavy, 2005). Value innovation focuses on the elements of innovation and value. Focusing just on the value can leads to short-term profitability and value creation but in the long run both has to be mingled in such a way that it could lead to long term advantage and a superior value deliverance (Yang & Yang, 2011). On the other hand, the customers cannot appreciate innovation without value as a customer will not be willing to pay. It is very rare that organizations create blue ocean strategy just by right entrance in the marker (Leavy, 2005). In the red ocean strategy, the companies continuously try to beat or outperform their competitors in order to get a larger market share. As the market become crowded, profits start declining. All the competitors will try to eat out the market share. Thus, cutthroat competition will be the result. In contrast, blue ocean strategy refers to demand creation, analyzing untapped markets and opportunities for high potential growth. In blue ocean strategy, the scope of the market boundaries broadens (Yang & Yang, 2011). In this strategy, the competition is irrelevant. Therefore, the adopters of the blue ocean do not assume competition as a benchmark platform and follows logical views that are called value innovation. Instead of creating tactics to beat, the competitors make a unique fit approach to create value to the customer, thereby focusing on new markets and opportunity (Yang & Yang, 2011). IMPORTANCE OF IDENTIFYING CORE COMPETENCY & CAPABILITIES The core competencies are primary competencies of an organization that the firm has to compete. Other defines core competencies as building blocks of corporate strategy of the organization (Wang, Lo, & Yang, 2004). Core competencies are collaborative form of learning for the organization especially when creating a diversified portfolio and streamlined technologies. A company if able to find their core competencies they are able to deliver superior value to their end customers (Lei, Hitt, & Bettis, 1996). A core competency encompasses the following characteristics (Wang, Lo, & Yang, 2004): They provide an established set of combined principles for the organization. They provide an approach to a variety of potential market places. They are difficult to imitate. Having proficient and dynamic people in the key areas and using the competencies is essential in building a sustainable competitive advantage. Capabilities refer to set of activities in which an organization has certain proficiency. These practices are grounded on the daily operations and production side. Thus, it is defined as the ability of an organization to execute a task repetitively and efficiently over a period. Most of the established companies fewer competencies than capabilities (Boyatzis, 2008). They have significantly developed ability to perform repetitive tasks in many different functional areas. On the other side, contrastingly new companies in the market have more competencies in relation to capabilities. Their entire portfolio depends upon some of the elements that they can do differently to deliver differentiated products to their customers (Eisenhardt & Martin, 2000). Allocating specific resources and capabilities allow an organization to apply those in an efficient manner. These may lead to continuous production and operational activities without any hindrance. Improvement in the existing infrastructure, model, processes and alliances are part of capabilities because they are referred to as an incremental improvement to existing activities and procedures. A competency is the ability of seeing a product differently (Eisenhardt & Martin, 2000). CONCLUSION Role of strategy in the business environment today needs no assertion. However, this critical aspect that provides direction to the business in order to achieve set objective successfully has itself failed to determine the single direction for its self. From the assessment, it has been found that there are different views regarding the strategy and different schools of thoughts have defined their own perspectives. Hence, the contrasting views on strategy begin from identifying strategy as a science, art or the dimension of humanity. With the difference on this core pillar, the discussion has evolved into wide ranges. The reason for this difference, as can be concluded from the above review, is fact that each of the polar view on strategy has offered a set of benefits to different business while also having its own limitations. Hence, businesses and consultants in defining and crafting strategy for business are directed by the success probabilities offered by strategy than focusing on unifying its direction and definition. Consequently, it can be concluded that strategy will continue to evolve in a similar pattern while retaining its differences. List of References Bromiley, P. 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