Aspects of Strategic Management and Its Implementation with Regards to a Company - Coursework Example

Strategic Management – A preamble Every company whether at national or international level is always concerned with three important facets of its operations; one is the present standing of the company both internally in terms of its financial structure as well as externally in terms of its market reputation (Porter M. E., 1996, pp.65-67), second is the future of where it wants to see itself after some years down the line; and third, the processes and methods which it will adopt in order to fulfill the company’s future plans. These processes and methods constitute strategy through which it charts out a roadmap to compete successfully with its rivals in the industry, to attract and win over customers, to grow and achieve its long term goals and objectives (Thompson Jr., et al., 2006, pp.3). In this paper, an attempt has been made to analyze and study this wide concept of ‘Strategic Management’ with a macroscopic view of it. A scan of all the theories and contexts which encapsulate strategic management along with a nexus which these theoretical concepts have with the practical sphere is achieved. Every strategy principle has a certain application in particular company situations which has also been illustrated here. Strategic Management – The Theory The strategy aspect of a company generally is a top-down approach where a corporate strategy generated at the topmost level orchestrated by the CEO and other senior executives percolates down to the functional and operational level strategies. Strategy planning and then its execution require an in-depth understanding of the concepts of strategy. Business Environment Fundamentally, an external analysis of the company’s environment is a must to understand. At a macro/global level, certain factors such as the economic conditions, legislative policies, population demographics, societal lifestyle and technology related innovation affect a company. At a national level, the local market, labor supply, fiscal policies, regulatory environment and competition impact a company. At an immediate company level, a tool to diagnose the competitive environment is ‘The Five Forces Model’ (Porter M. E., 1979, pp.137-145). First, the ‘Threat of new entrants’ to bring up new capacity and product range pose a significant challenge and the severity increases with the size of this new entrant. They put pressures on the profitability of existing players and limit the prices. Second, the ‘Threat from bargaining power of Buyers’, the customers might significantly affect a company in case they form groups or cartels especially in industrial products. Third, the ‘Threat from bargaining power of Suppliers’ who have specialized offering with a limited number of them can impact the raw material and procurement cost and thus, the cost structure of a company can be significantly affected. A giant cost leader like ‘Wal-Mart’ has been able to achieve its current leadership because it has excellent relations and understanding with its suppliers and distributers who help them procure raw materials at the cheapest of prices (Fortune Magazine, 1989). Next, the ‘Threat from existing competition’ is essential because competitors directly influence the market and thus the prices as well as cost of competing in the industry, production facilities, product development, advertizing, sales force, etc. Finally, the ‘Threat from Substitute products’ are latent source of competition which offer price benefits and product improvement and generally all of a sudden, For instance, handicrafts industry suffered at the hands of Synthetic textile industry. Figure 1: The Five Forces Model Strategic Analysis Strategic Analysis is a tool which involves a basic evaluation of present standing of the company. It encompasses a SWOT (Strengths, Weakness/ problems/ constrains/ uncertainties, Opportunities and Threats). In SWOT, strength refers to the innate capacity of an organization which enables it to gain strategic edge over its competitor. Weakness refers to the intrinsic limitations or constraints of an organization creating strategic disadvantage for it. Opportunity refers to advantageous organization’s environment which makes it possible for the company to strengthen its position. On the other hand, Threats are those unfavorable conditions which damages or risks an organization’s position. SWOT is generally carried in the form of External Analysis (gives us a measure of the company’s opportunities and threats) and Internal Analysis (gives us a measure of its strengths and weaknesses). External Analysis consists of (a) Customer analysis where the different motivations for the purchase of a product are studied along with the unfulfilled needs; (b) Competitor analysis where the rivals are analyzed on the parameters of their performance, image, culture, cost structure, strengths and weaknesses; (c) Market analysis markets are evaluated on their size, potential growth, profitability, entry barriers, etc; and (d) Environmental analysis which is a study of technological, government, economic, cultural, demographic scenarios. Internal analysis consists of (a) Performance analysis where the company assesses its profitability, sales, shareholder value analysis, customer satisfaction, product quality and brand identity, costs, innovations, employee strength and product portfolio estimate; and (b) Determinates analysis such as past and present strategies, organizational resource constraints and capacity, financial soundness. Figure 2: SWOT Matrix Portfolio Analysis It is a tool to evaluate the various businesses which make up the company. A business portfolio is a collection of businesses and products of a company. Product life Cycle It is an S-shaped curve which shows the relationship of a product’s sales growth with the passage of time through four major stages: Introduction (slow sales growth), Growth (rapid market acceptance), Maturity (slow down in growth rate) and Decline (sharp downfall). Through this, it is possible to diagnose at which stage does a product lie and hence, appropriate strategic choices can be made using this diagnosis. Figure 3: Product life Cycle Boston consulting group (BCG) growth-share matrix It is a simplified way to analyze company’s investments. It is used by diversified companies for resource allocation. It represents a 2-D matrix (see Fig. 4) between Market growth rate (showing market attractiveness) and Relative market share. Thus, identification of four types of products or strategic business unit is possible using this matrix where, Stars represent rapid growth product requiring heavy investment to maintain their position and thus, also have maximum potential for expansion; Cash cows are low growth but large market share products generating money at low cost; Question marks are problem children with low market share in high growth markets. They have less potential to generate money, although require heavy investment; and Dogs are low growth, low share products with no future. Once the classification is done the strategies that can be applied to above classified products are: Build, which means to increase market share through focusing on future and foregoing short term earnings; Hold, which aims to preserve market share; Harvest, which is to let go long term plans and derive maximum short term benefits; and Divest, which means to sell off or liquidate for re-allocation of tied up resources. Figure 4: BCG Growth-Share Matrix Similar to BCG matrix there is a 3x3 matrix known as GE model to business position and the various strategies to adopt is indicated in Fig. 5 below. Some of the criteria assigned to evaluate Business position could be size, growth, share by segment, customer loyalty, margins, technology, marketing, etc. and for market attractiveness could be size, growth, customer satisfaction levels, competition, price, profitability, government regulations, sensitivity to economic trends etc. High Medium Low High Medium Low Figure 5: The GE Matrix Value Chain Analysis This is an analysis tool for various activities within an organization in terms of their value added. Fig. 6 shows the Value Chain of a company Figure 6: Company Value Chain (Cooper R. & Kaplan R. S., 1988, pp.96-103) The combined costs of all the various activities in a company’s value chain define the company’s internal cost structure. For comparison purposes, a company’s relative cost position is a function of how the overall costs of the activities it performs in conducting business compare to the overall costs of the activities performed by rivals. An evolution of a unique business and internal operations, strategy, approaches to execution of these strategy, manner of performing each activity and the economics such activities is reflected from the value chain (Porter M. E., 1985, pp.36). Strategic Management – Planning and Implementation A company should ideally have an integration of strategic vision, objectives and strategy merging it into a strategic plan. To convert the strategic plan into actions requires considerable effort on the part of a manager and there are certain areas on which he needs to concentrate while implementing strategic plans such as staffing the organization with needed skills and expertise; allocating budgets to resources critical to the implementation of a strategic plan; facilitating strategy execution through appropriate policies and procedures; using benchmarks and continuous improvements to already executed plans; technology and systems’ upgrade; motivating workforce towards strategy execution and consequently rewarding and incentivizing them according to performance; focus on conducive company culture for successful strategy implementation and a strong internal leadership in place to drive the implementation. In the implementation process, there are various aspects which require inclusion and implementation. Strategic Management Model It represents a clear and practical approach for formulating, implementing and evaluating strategies. Fig. 7 illustrates this model and explains the relationships between the major components of strategic management. The start point of every strategy formulation is conscious or subconscious setup of the organization’s vision, mission, objectives which gives a direction of movement to it. The process of strategic management is dynamic and continuous which indicates that change in any one component of the model demands a change in the other components too. For instance, a change in economic conditions poses new opportunity and thus, to tap it requires an adjustment in long-term strategies and objectives or a major change in competitor’s strategy could require a change in the firm’s mission. Hence, the importance of a continuous review of the strategies annually or semi-annually is evident which also tells us that this process of strategy formulation, evaluation and implementation is a never ending process. Figure 7: Strategic Management Model Alternative and Competitive Strategies After employing the basic strategies in an organization, it needs to evaluate strategies to employ so as to gain competitive advantage and other alternative strategies like alliances and collaborations. The competitive strategies (Porter M. E., 1985, pp.37-43) basically consist of five types: (a) Low cost provider strategy which refers to a company’s leadership in a particular industry by managing its cost structure such that the prices of its products are lowest and thus attractive as against its competitors. For this, a company can control its cost drivers so as to achieve economies of scale and thus generate volumes or revamp its value chain to upgrade technologies, using direct marketing approaches, simplify products, and streamline processes; (b) Broad Differentiation strategy which refers to a company achieving advantage over its competitor by differentiating its product or service offering which is unique in itself and valuable to a wide range of customers; (c) Best cost provider strategy which refers to providing value for money to the customers by integrating good product attributes at a cost lower than the competitors aiming towards best (lower) costs and prices compared to rival’s offering products of comparable attributes; (d) Focused (or market niche) low-cost strategy which refers to concentrating on narrow segment of customers (niche) and providing lower cost products and outcompeting rivals; and (e) Focused (or market niche) differentiation strategy which refers to concentrating on narrow segment of customers (niche) and providing customized products and thereby, outcompeting rivals. Strategy supportive corporate culture Execution of strategy has a significant dependence on the culture of a corporate which determines the behavior, tradition, beliefs and values of the employees of the company (Kotter, J. P. & Heskett, J. L., 1992, pp.5). A culture which is out of sync with the company’s mission, direction and objectives can act as a major deterrent and even make a theoretically sound strategy useless due to problems it poses in its implementation. Ethics and social responsibility While implementing a strategy, it is also equally important to evaluate its impact on the society at large and thus, its implications on ethical and socially responsible grounds. If a particular strategy how much ever profitable to a company has adverse effects on various stakeholders of the company like employees, customers, suppliers, distributers etc. will have to be foregone or modified to minimize its harmful effect. For instance, Microsoft has once been accused of immoral monopoly practices which bundled its products while selling leading to the exit of other players in the market. Although, it was a profitable strategy for the company, it was a negative for the society and to the spirits of free competition. Tailoring strategies The generic strategies need to be tailored to fit a company situation which changes with it as its environment changes. For example, a company competing in emerging industries is in formative stage and thus requires bold entrepreneurship and willingness to take risks whereas for turbulent (Kotler, 1984, pp.366), high-velocity markets, a range from offensive to defensive strategies is required (Markides, C., 2001, pp. 1-10). For maturing industries, a need to prune product lines, improve efficiency of value chain, trim costs and strengthen capabilities arises. Similarly, for several different markets like rapid growth ones, crisis struck markets, fragmented industries etc, variation in the strategies and their intensity while implementation is called for. Functional Strategies While implementation of corporate strategies, they need to be broken down in smaller units of functional strategies for feasible and effective implementation. Thus, marketing strategy (For example, the marketing mix), financial strategy (forecasting strategies etc.), production and logistics strategies (supply chain implementation) and human resource strategies (for example, retrenchment, re-organization etc.) are the functional area strategies in the bottom-line level. Conclusion This paper contains a description of the various theoretical aspects of strategic management and the various facets of its implementation with regards to a company. However, the matter to be paid attention to is that any particular vision, objective, strategy or an approach to strategy execution can never be final and requires a continuous revision owing to a strategy’s dependence on external environment of a company also as much as it depends on its internal environment. Rather, how speedily and effectively does a company readjust to the changing externalities is what will determine the competitive advantage to it many-a-times in the form of a ‘First mover advantage’. This warrants a periodic assessment and review of the different strategies vigilantly searching for methods to continuously improve and make corrective adjustments (Covin, J. G., & Miles, M. P., 1999, pp. 47-63). This post-strategy implementation stage can focus on several approaches like Business process re-engineering, which is redesigning workflows within and between organization and is fundamentally a complete overhaul of existing company operations; benchmarking, which in simple terms means evaluating a strategy to the best practices in the industry; TQM (Total Quality Management), which is a tool to increase customer satisfaction and lower costs while being people-oriented; and Six Sigma controls, which maintains a desired quality of products and processes and is customer-oriented. Conclusively, a company’s competitiveness is derived from its proficiency in formulation and execution of strategy and hence, strategy management. Read More