The Concepts of Strategic Management - Coursework Example

STRATEGIC MANAGEMENT STRATEGIC MANAGEMENT: AVOIDING BAD STRATEGY Introduction The process of project formulation and implementation is very tricky as indicated by many literature. Some organization might be working on a bad strategy without knowing, which might be as a result of not no clearly defining their strategy. It is for this reason that Professor Richard Rumelt wrote the book entitled ‘Good Strategy/Bad strategy’ clear the air and give an accord of the true meaning of strategy. Rumelt (2012) can be relied upon any convictions regarding strategic management since he has a long and prosperous career in strategic management like been the founding member of Strategic Management Society, and serving as the president from 1995-1998. The statement, "Good strategy almost always looks this simple and obvious and does not take a thick deck of PowerPoint slides to explain. It does not pop out of some strategic management tool, matrix, chart, triangle, or fill-in-the-blank scheme. Instead, a talented leader identifies the one or two critical issues in the situation- the pivot point that can multiply the effectiveness of effort- and then focuses and concentrates action and resources on them" (Rumelt, 2012: 2) Is a clear indication that the book aims to help any reader understand without reasonable doubt the processes behind using good strategy and the action taken to try avoid forming a bad strategy. This paper therefore aims to critically analyse strategic management concept from Rumelt’s view point, and critic the same from other literature. Aims of Strategic Management Strategy, as indicated by Rumelt might look simple but in the real sense it requires critical decision making to avoid coming up with a bad strategy. Johnson et al (2008:10) defines strategy as “the direction and scope of an organization over the long term, which achieves advantage in a changing environment though its configuration of resources and competences with the aim of fulfilling stakeholder expectation.” Strategic management is aimed to make sound decisions that will culminate to the success of a business organization. Strategic decisions are long-term direction of an organization; scope of an organization’s activities; attaining advantage over competitors; addressing changes in business environment; expectations and value of stakeholders; and building on resources and competences (capability) (Johnson et al., 2008). Strategic management should make leaders in an organization make good strategy and instill them with capabilities of avoiding a bad strategy. For this reason strategic management decisions are not trivial since they can be engulfed with considerable change, can be complex in nature, integrated approach is needed (both outside and inside an organization), can be made in situations of uncertainty, and they can affect operational decisions. Strategic management manager should therefore be talented and have impeccable leadership skills to make sound decisions that are not solely dependent on strategic management concepts and theories. The Concepts of Strategic Management Strategic management is used by organizations in order to successfully execute their plans of becoming market leaders and maximizing their profits. It is a very important methodology in business and handling it entirely requires sufficient time and effort. In order to be successful in their strategic management, businesses need to understand key concepts as they form part of the good strategy process (Chahal, 2012). Goal Setting A good strategy starts with goal setting. This depends with the goals of an organization such as to sustain its market share, increase revenue, become a market leader, enhance sustainable development or maximize profits. Goals setting in strategic management involves setting the specific targets that an organization seeks to achieve by making major decisions. This helps in the development of strategic management. Managers should understand the goals set and make plans to reach those goals as well as making communication with the employees in order for them to understand what is required of them in line with meeting the set goals. Organizations then need to plan the steps they need to take in order to reach their goal by utilizing strategic decisions such as what they need to do to improve their marketing skills, policy-strategy, employee willing and preparation for advertisement. It is imperative to note that goals setting is a very crucial part in strategic management and in the formulation of a good strategy as it is the building block of a strategy sustainability in the future of an organization. Managers have the responsibility of setting plans for achievement of the goals while the employees know their responsibilities towards making the organization achieve its overall aims. Analysis Strategy Formation Analysis Strategy Formation in strategic management is very vital as it helps an organization understand the business environment clearly. When an organization has already identified the strategy goals that need to be reached, it is important to evaluate the environment by conducting sufficient research on it. The most effective tool for this research is the SWOT analysis. SWOT analysis is utilized as it gives clear insights into the strengths of an organization based on its power in the industry and in the market; its weaknesses in terms of lacks of important resources or skills; opportunities based on the chances that are available for the organization; and threats based on the risks taken by undertaking strategic management. In order to effectively use strategic management as a method, a chain style is highly relevant as it allows for some kind of analysis to be performed in order to make informed plans in alignment with the goals set. Forecasting Forecasting involves the prediction of what might happen to the strategic management process by evaluating the possibilities likely to be faced in terms of opportunities and challenges. This helps in case there is need for some changes in the strategy process to be made. Strategic Planning Planning is the formulation of the process that will turn theoretical insights into practical work. Planning is the core of strategic management as good planning ensures a good strategy. In order to achieve the set goals, a good plan has to be followed. Strategy Formation Strategy Formation involves making informed decisions regarding strategic management process. It is about the decision making process, way of working as well as the way of thinking. This helps an organization to increase its competitive advantage in order to achieve the organization’s aims. Strategy Implementation This is the core concept as it entails the actualization of the strategic management process in order to reach the goals of the organization. This is the point where resources are allocated to different tasks and employees assigned tasks according to the goals set. Strategy Monitoring This entails controlling the process in order to make any changes and interference that is necessary for effective completion of the process. It involves action and reaction. If the process is deviating from the goal, revisions are made to implement necessary changes. Concept of Good and Bad Strategy as Proposed By Rumelt It is important to understand the term strategy before looking what Rumelt understand by the term strategy. Many prominent scholars have different views regarding the term strategy, which is the same case from different individuals. Rumelt (2012: 4) describes a good strategy as the act of honestly admitting the challenges being faced and providing an approach to overcome them. “The essence of strategy is choosing to perform activities differently than rivals do” (Porter, 1996:61. In his quest to explain ‘what is strategy’ he stated that strategy is the formation of an exceptional and valuable position, which involves various set of activities (Porter, 1996). Johnson et al (2008:3) explained the term strategy as “the direction and scope of an organization the long term, which achieves the advantage in changing through its configuration of resources and competences with the aim of fulfilling stakeholders expectations.” These three definitions of the term strategy show how it can be difficult and complicated when organization leaders are finding a good strategy to use as they all differ. According to Rumelt a good strategy is supposed to propel the strategy implementer towards a particular goal and vision. A good strategy will also acknowledge any challenges that might be faced and provide an impeccable solution on how they can be overcome. In situations where the challenge is great, a good strategy will focus on ensuring that there is coordination of efforts to solve the problems. Today most organizational leaders think that they have good strategy while in the real sense they are working on a bad strategy. According to Rumelt what this organizational leaders are espousing is “bad strategy,” which is achieved as a result of skipping vexatious details like problems. The power of focus and strength is ignored in bad strategy, and a multitude of conflicting interests and demands are accommodated in bad strategy. The Role of Strategic Management in Organization All organization have a strategy and an internal action plan on how to successfully execute it. While some organizations have clearly defined strategic plans, others remain implicit in the decisions of the management. Furthermore, the courses of action can either be decided upon after exhaustive analysis while others come into being by chance occurrence haphazardly depending on the historical trends of the organization. Regardless of the form taken in the strategic management process of an organization, there are common roles that are inherent in the process. When an organization is duly committed to a good strategic management process and strategic thinking, it derives the benefits of a guidance platform that covers the whole management hierarchy based on the goals set to be achieved. The process also plays a huge contribution in analysis and reaction to new challenges, threats and opportunities in the environment. This provides the rationale for management to evaluate their competitive advantages in relation to that of the market so as to determine the most plausible undertakings to invest their staff, resources and investment capital. Strategic management process is also insightful in the coordination of the decision making process as well as the evaluation of the proactive posture posed as opposed to the reactive posture given to the organization. Organizations utilize their expertise and knowledge with a view of initiating, leading, reacting and defending their strategies by coming up with action plans that push performance levels high, put more competitive pressure on competitors, boost the market share, enhance the competitive advantage, effectively attract buyers and achieve the desired market share (Barney &Hesterly, 2006). Strategic Formulation Process in Organization The strategic management process is a constant process that is utilized by organizations to continuously achieve their objectives based on their environment, constraints and capabilities. There are three phases that are entailed in the process; diagnosis, formulation, and implementation. Diagnosis Diagnosis involves conducting an internal analysis of the organization by making assessment to its weaknesses, strengths, results, strategies, strategic objectives as well as the current mission. Organization’s external environment is also conducted in relation to the threats and opportunities that may require attention by the management (Williams, 2002). Formulation This is the second phase and it involves production of precisely set recommendations with the rationale for such recommendations. This phase is also involved with the revision of the strategic objectives and mission of the organization as well as the plan for their execution. Formulation requires adjusting and modification of the mission and objectives of the organization in order to ensure that they are effective and aligned for successful accomplishment of the goals of the organization. An effective recommendation in this case should be able to solve the problems in the process, be practical in terms of alignment with the available resources, acceptable to key stakeholders, non-disruptive, cost –effective, feasible given the timeframe available and offers a fit between opportunities with competencies and resources (Williams, 2002). Implementation Implementation entails action plans that sets the theoretical works into ground practice. It a strategic management process is not implemented effectively, it is useless to the company. As such, a plausible plan needs to be formulated in order to make the process operational and effective in the achievement of the aims of the organization (Williams, 2002). Viewpoints Contradicting/Rejecting Rumelt’s Thesis, and Synthesis of Diverse Viewpoints and Concepts Strategic planning systems are very important tool since they can be fundamentals of forming a good strategy. Rumelt (2012) in this regard identified what he terms as “template style” systems whereby an individual or a business organization believes they can vividly communicate their strategies in the form of mission, vision, objectives, goals and strategies. According to Rumelt assertions this model that is referred to as the Pyramid of Purpose (Mindtools, 2012a) or ‘The Strategy Process’ (Harvard Business Review Press, 2005: xvii), is often a mechanism used by businesses to avoid the tedious work of analyzing the true opportunities and challenges experienced by customers. His assertions overlooked the fact that this mechanism is a crucial strategy planning tool that should not be dismissed without taking it to consideration (Johnson et al, 2008). There are various occasions where Rumelt questions some traditional strategic planning style, nevertheless in contrast some of his findings concur with others. Michael Porter Five Force Model (Porter, 1979) is greatly supported when Rumelt analyses the rise of Apple Inc., with Steve Jobs focusing on “the sources of and barriers to success in his industry” (Rumelt, 2011:14). Bad strategy is brought upon as a result of setting goals without solving the problems first, and instead focus is shifted to the three elements of good strategy which Rumelt (2012) calls the ‘kernel.’ The ‘kernel comprises of coherent action, guiding policy and diagnosis. These three elements have had numerous reference by Rumelt. Coherent actions according to Rumelt is to do something in a coordinated and concentrated actions that seek to realize the strategic concept and focus the energies of the business. Diagnosis is supposed to make a strategist understand the situation, so as to evaluate the rest of the strategy to make informed decisions. Guiding policy helps to overcome any obstacles that might be highlighted during diagnosis. Other strategic management scholar made similar assertions regarding strategy development process but in the form of intended, emergent and realized strategy (Johnson et al., 2008; Haberberg et al., 2008). This ‘kernel’ model by Rumelt can be compared with Johnson et al (2008) model since it comprises of three elements namely strategic position, strategic choices and strategic in action. A business example of Starbucks, Ford and IBM can be used to understand this model in a more detail manner. This paper will give an in-depth analysis on Starbucks as a business example in the final chapter. Rumelt’s consultancy has an in depth analysis the strategic approach to business across diverse industries, which is in contrast with academic approach to strategy theory (Johnson et al, 2008) and Chandlers research (Economist, 2008b). Real political, international and business based case studies are used as examples such as the U.S cold war guiding policy, HP against Dell and Kmart been surpassed by Wal-Mart. The major problem with this analysis is the fact that it can be viewed as narrow minded, since it lacks a reference to strategic tools and concepts to support the hypothesis. Rumelt has also discussed in great length the importance for a company to attain a sustainable competitive advantage. Sustainable competitive can be describe as a situation where a business at a lower cost than competitors, or it delivers a mores perceived value than its competitors, or in some instances a business can attain the two scenarios, then it has competitive advantage (Rumelt, 2012). This point of view regarding competitive advantage concurs with other authors works. Both Bowman’s generic strategies (Haberberg, 2008) and Porter’s generic strategies (Mindtools, 2013b) analyses competitive advantage as well as the value perceived by the user. They technique used to measure this factors are similar Rumelt’s, those being leadership, differentiation and cost. There are various published studies on managing strategic change such as Kotters eight steps of change (KotterInternational, 2012) and Lewin’s Model of change (change-management-coach, 2013). These two models of change are bonded by change transition but they don’t take into consideration the root cause of what causes the change. On the other hand, Rumelt (2012) suggests that one has to seek underneath the surface to ascertain the vital forces at work. This led to what Rumelt identified as Entropy and Inertia as key barriers. These are respectively, the intensity of disorder existing at the company, and the business’s inability and unwillingness to adapt to change. This viewpoint is validated sufficiently by Rumelt use of AT&T as a working example and his barriers to change have a direct relationship to the resisting and pushing forces at work acknowledged during a force-field analysis. Case Study: Strategic Management of Starbucks Evaluation of the effectiveness of a good strategy can be analyzed by considering Starbucks as a case study. Howard Schultz, the then marketing manager, also in charge of operations did a market research on the strengths and weaknesses of the Starbucks when it was still a tiny retail chain. His research showed that there was a huge difference between how the coffee shops run by the Americans and those run by the Italians. Italians coffee shops had the advantage of high turnover despite their charging of relatively higher prices compared to others. Furthermore, they also offered an upbeat social environment to their customers. Howard Schultz then presented the strategic hypothesis to the owners of Starbucks in order to adopt the Italian coffee experience but they refused. This was an expression of bad strategy as they failed to evaluate effectively the strengths and weaknesses of the business. They did not see the value of an espresso bar as they considered retailing, roasting and buying coffee beans their strength. Howard Schultz later showed good strategy when he opened a small espresso shop based on his Italian espresso hypothesis and his business became very popular to an extent of buying Starbucks from its owners (Rumelt, 2012). Conclusion A good strategy does not have to be the most complicated one in order to address simple business challenges, however, it should offer a timely, feasible, cost-effective, acceptable and viable solution that can offers a good fit between resources and capabilities. Conducting internal and external analysis of the business environment is paramount to having the most effective strategy plan to ensure accomplishment of the organization’s objectives and mission. It is also imperative to note that a good strategic management process should be an ongoing process. References Barney, J.B. and Hesterly, W.S. (2006), Strategic Management and Competitive Advantage: Concepts and Cases, Pearson Prentice Hall. Chahal R., (2012), ‘Concepts and Process of Strategic Management’, Institute of Management Technology - Centre for Distance Learning, Ghaziabad, The University of North Carolina at Chapel Hill. Change-management-coach. (2013) Kurt Lewin Change management Model. http://www.change-management-coach.com/kurt_lwin.html [Accessed: 24 March, 2015] Haberberg, A. & Rieple, A. (2008) Strategic Management. New York: Oxford University Press. Harvard Business Review Press. (2005) Harvard business Essentials: strategy. Boston: Harvard Business School Publishing Corporation. Johnson, G., Scholes, K., Whittington, R. (2008) Exploring Corporate Strategy. 8th edn. Harlow. Prentice Hall KotterInternational, 2012. The 8-Step Process for Leading Change. Available at: http://www.kotterinternational.com/our-principle/changesteps/changesteps [Accessed: 24 March, 2015] Mindtools. (2012a). The Pyramid of Purpose. Available at: http://www.mindtools.com/pages/newPPM_93.htm [Accessed: 24 March, 2015] Mindtools. (2012b) porters Generic Strategic. Available at: http://www.mindtools.com/pages/newSTR_82.htm [Accessed: 24 March, 2015] Porter, M.E. (1979) How Competitive Forces Shaped Strategy. Available at: http://prolog.univie.ac.at/teaching/LVAs/KFK-LM/WS07/Porter.pdf [Accessed: 24 March, 2015] Porter, M.E. (2004) Competitive strategy. New York: Free press Rumelt, R. (2012) Good Strategy/Bad Strategy. London: Profile Books Ltd. The Economist. (2008a) Richard Rumelt. Available at: http://www.economist.com/node/12677012 [Accessed: 24 March, 2015] The Economist. (2008b) Alfred Chandler. Available at: http://www.economist.com/node/13474552 [Accessed: 24 March, 2015] Williams, Steve W. (2002). Making better business decisions: Understanding and improving critical thinking and problem solving skills. Thousand Oaks, CA: Sage Publications. Read More