Strategic Management - Essay Example

Strategic Management Name Institution Introduction Many firms experience varying levels of success despite working in the same economic environment and having access to the same market. In some cases, some firms succeed where others have failed. This is normally due to the strategic management of such firms. Some firms have exemplary strategic management that allows them to exploit their strengths and the opportunities found in the market for economic success (Hill & Jones 2012, p.23). There are various areas of strategic management that a firm must address in order to achieve the desired success. However, there are those areas of strategic management which are critical to the strategic success of a contemporary organization. These areas are environmental analysis, strategy formulation, strategy implementation, and evaluation and control. Environmental analysis involves determining the opportunities and threats to a company that are available in the external environment. This is normally with respect to a company’s situation. Factors such as regulations, economy, competition, societal changes, technological advances, and customer preference changes all form part of the external environment to a company (Rothaermel 2015, p.17). The success of any business organization relies on its abilities to have knowledge about the external environment and how it is affected by the environment. Since a business organization has no control over the external environment, the only thing it can do is to look for ways to adapt to it. However, this can be done only if the organization has knowledge about the factors that exist in the environment. Environmental analysis involves carrying out a number of things. One of them is determining the type of market that is available to an organization. This is in terms of demographic composition of the market, the level of demand for a company’s product, the socio-cultural factors existence in the market, and the financial capability of the targeted consumers. Knowledge about the demographic composition is crucial to a business organization because it allows the organization to determine the potential size of the market that is available for its product (Fleisher & Bensoussan 2007, p.45). For instance, if a company deals with children products, it is paramount to determine the population of children in the targeted market to determine whether the market is viable for investment. A market can have the right kind of demographic composition in terms of the targeted group in the population. However, such a market can only be viable if the demand for the intended product has a high demand among the targeted group. Demand for a product in the targeted market ensures that a business makes the desired sales and thereby profit. Socio-cultural factors existing in a community determine the level of demand for a certain product. Although a market might have the right proportion of the targeted population, there might exist socio-cultural factors in that community that might hinder the sale of the product (Griffin 2010, p.56). For instance, Islam forbids the consumption of pork. It is therefore a cultural as well as a religious requirement among Muslims not to consume pork. Therefore, although a Muslim community might have all the factors of a desirable or viable market, such a religious and cultural factor can make it hard for a business organization to sell pork or pork-related products. Financial ability of a targeted market is very crucial for any business organization. This is because it determines the likelihood of people in such a market to buy the intended product. A market might have the right population, a high demand for a product, and favorable socio-cultural factors. However, financial inability on the part of consumers can make it hard for them to purchase the product making a business organization to fail in such a market. Therefore, as part of environmental analysis, thorough market analysis in terms of its demographic composition, the socio-cultural factors present in such a market, the level of demand, and the financial ability of the people in the market is crucial for any company’s strategic management. A company carrying out environmental analysis should also determine the government regulations present. Government regulations determine how business organizations conduct their businesses. Some government regulations are too stringent to allow for a company to carry out its business activities in a good way and a way that will result to making of profits. In some cases, the regulations involve a lot of red tape making it hard and costly for companies to enter into a market. For instance, before China eventually allowed for foreign investment in its economic reforms, there were stringent regulations in place which were meant to discourage foreign firms from investing in China. As such, most foreign kept out of China. Therefore, although a market segment might have the favorable characteristics in terms of demand and financial ability of the targeted consumers, harsh government can make it hard for an organization to conduct business in such an environment. Therefore understanding the regulations in place in an identified market is crucial to a business organization because it allows it to come up with strategies that help it to negotiate around such regulations. On the other hand, if the regulations are too stringent, an organization can decide abandon such a market. Knowledge about the regulations existing in a region can therefore also help a business organization to avoid carrying unviable investments. In any market, there must be competition. This competition can be direct or indirect. Direct competition involves competition from firms selling similar products while indirect competition comes from selling different products that serve the same purpose otherwise known as substitutes. Analysis of the competition available in the market is crucial in to any company because it allows it to determine how to counter the competition. In the increasing competitive world economy, there is hardly any company which enjoys the monopoly of a market. The existence of a monopoly has been made even harder by the removal of trade restrictions in many countries and the enactment of free trade and markets. As such, companies can access a market in any economy they wish to invest in. lack of restrictions to entry into a market has increased the level of competition to a tremendous level making it paramount that firms have to understand their competitors. Understanding competitors involves learning about their strengths and weaknesses and the strategies they employ to gain customers. Understanding the strengths and weaknesses of competitors allows a company to come up with strategies to counter the strengths and ways in which to exploit in order to gain a competitive advantage. Since companies continuously change their strategies, studies competition in the market has to be a continuous process. This is the only way in which a company can also come up with strategies which can ensure that they survive in the market. Society is normally dynamic. It is never static but undergoes continuous change. Although there are some social and cultural values which have endured over time, there are others which have been discarded and others adopted. One of the obvious examples that can be cited is the mode of wearing among people in different periods. The types of clothes that have been preferred by people have been different in different generational periods. This indicates a change in society in terms of social values. A company must always be knowledgeable about such changes in society so that it can also change its strategies in order to take care of these changes. The strategic management of a company can be effective if it addresses the societal changes existing in the market. There has been much technological advancement since the turn of the 20th century. Consequently, there have been many changes in society due to these technological changes. For instance, advances in technology have resulted to greater improvement in communication. As such, people in the world today can communicate with others over all distances. Advances in technology has allowed easy movement and sharing of information. An event happening in one part of the world can be known in others within a few minutes because of technology. This has reduced the world into a global village. Greater advancement in communication technology has made consumers to be more informed and enlightened. The advent of the internet has enabled to get information about anything at any moment. This has made consumers to be informed about products being offered to them by companies. Technological advancement has also affected the manner in which production is carried. Today many companies apply technology in production. This has resulted to increased efficiency and quality of products offered to consumers. In order to produce the right quality of products that can be appealing to consumers, firms have also to understand the latest technology in their area of production so that they can apply it in producing more quality products. Knowledge about technologies available in communication can also help a company to apply such technologies in promoting its products resulting to increased sales. Environmental analysis is key to strategy formulation. Strategy formulation involves the process developing a plan that would help an organization to achieve its goals and objectives. There are three aspects of strategy formulation. They are corporate level strategy, competitive strategy otherwise known as business level strategy, and functional strategy. Corporate level strategy involves the grand strategy that encompasses the whole corporation. It involves four types of initiatives. The first initiative is for a company to make the necessary moves that will help it to establish positions in various businesses in order to achieve the appropriate amount and type of diversification. A crucial part of corporate level strategy involves making decisions on what types, how many, and the specific line of business a company should be involved with. This may involve the decision to increase or reduce the amount and width of diversification. It can also involve discarding some lines of business, adding others, and changing emphasis on others. Another initiative involves putting in place actions that boost the performance of the company. This may involve pursuing rapid growth strategies in some lines of business, initiating reviving efforts in weak performing lines of business, dropping the lines of business which are no longer attractive. It may also involve providing financial and managerial support to an existing line of business, or acquiring or merging another company with a line of business. The third initiative is to pursue the ways of capturing valuable cross-business fits and turn the fits into competitive advantages especially sharing and transferring related technology, operating facilities, procurement leverage, customers, and distribution channels. The last initiative involves establishing investment priorities in a company and moving the company resources into more attractive lines of business. In the competitive or business strategy, the focus is normally on how to successfully compete in the lines of business chosen a company. The main point here is on how the company can build and improve its competitive position in each of the selected lines of business. A firm gains competitive advantage when it attracts customers and defends itself against competitive forces in a better way as compared to its competitors in the market. Firms normally want to develop a competitive advantage that is sustainable. Successful competitive strategies involve building distinctive and uniquely strong competencies in areas that are crucial to the success of the business as well as using the competencies to gain and sustain a competitive edge over business rivals. Examples of unique competencies that a firm can possess include superior product features, superior technology, superior sales and distribution abilities, better manufacturing technologies and skills, and better customer service. Functional strategies involve short-term activities carried out by each functional area in a business organization in order the broader and long-term business level and corporate level strategies. Each functional area in an organization must have a certain number of strategy choices which interact with and are consistent with the general company strategies. Strategy formulation has to be in line with the factors that exist in the market. The strategies formulated should be aimed at tackling the weaknesses of the company as compared to the factors found in the market as well as utilize its strengths to realize increased profitability. Strategy implementation involves putting into action the formulated strategies. Like all the other areas strategy implementation is a very important of strategic management because it is the practical part of the whole process. For an organization to successfully its strategies, it has to manage six key factors. The factors are action planning, organization structure, the annual business plan, monitoring and control, and linkage. Action planning involves putting in place the list of actions which are supposed to be carried out in order to successfully implement a strategy. Although a company can have an exemplary strategy, the failure to implement it well can easily result to failure. Failure to implement is normally determined by put in place the right types of actions that should be carried out in order to ensure that the formulated strategies are fully implemented. Action planning therefore provides a means through a company will determine the kind of actions that should be carried out. Since strategy implementation is a process, the actions should be listed in a chronological order so the implementation process is smooth. This is to avoid confusion, clashing, and duplication of tasks. For successful implementation of a strategy to take place, there is need to consider the organization structure of a company. The organization structure of a firm might make it hard for a certain strategy to be implemented. The organization structure of a company must therefore be appropriate for a certain strategy for it to be implemented. For example, there was a company which was experiencing problems implementing a strategy which aimed at developing new products. The strategy was good and action planning had been carried out well. However, the strategy could be implemented well in the company and in the end the company was unable to develop new products. An analysis of the company’s organizational structure revealed the reason as to why the implementation of the strategy failed. The first reason was that the company was never really organized to carry out product development. The second reason is that the management had not established an R&D group. It assigned the role of developing the new products to a group of engineers. However, the engineers did not experience in the development of new products and it made it virtually impossible for the company to develop new products. The strategy implementation process cannot be possible with the human resource. The human resource in a company is the one responsible for carrying out the activities outlined in the implementation process. There is therefore need for a company to determine if it has the right workforce to ensure successful implementation of the formulated. Having the right workforce involves having workers with the needed skills to carry out the intended actions which will in turn result to successful implementation of a strategy. If the workers do not have the right skills then the company might be forced to train them. Implementation of a strategy has also the financial aspect of it. For a company to successful implement a strategy, there is need for funds. The financial requirements have to be indicated in the annual business plan. A company has to analyze the financial requirements of a strategy and include them into the annual business plan. This helps in avoiding issues of delay due to lack of funds. After carrying out all the activities of implementing a strategy, there is need to monitor. This helps to determine whether a firm is on the right course in its implementation process. The linkage factor involves tying all the activities together. This ensures that all the parts of the implementation process are aimed at achieving the set objectives. After implementing a strategy, there is need to evaluate and control it. Evaluation helps in determining whether a certain formulated strategy achieved the desired outcomes. Controlling, on the other hand, helps in putting the implementation process on the right track to ensure that it does not veer away from the originally intended goal and objective. Conclusion Generally, strategic management is a very crucial for any organization because it helps it to come up with ways of exploiting its strengths and weaknesses for its financial success. The critical areas of strategic management are environmental analysis, strategy formulation, strategy implementation, and evaluation and control. These areas help a firm to have the right knowledge about the market, come up with the right strategy for the market, look for the right kind of actions during the implementation process, and determine whether the strategy is working in that situation. This helps in ensuring financial success for a firm. Bibliography Hill, C. W. L., & Jones, G. R. (2012). Strategic Management, Boston, Cengage Learning. Rothaermel, F. T. (2015). Strategic management, New York, NY , McGraw-Hill Education Fleisher, C. S., & Bensoussan, B. E. (2007). Business and competitive analysis: effective application of new and classic methods, Philadelphia, Pa, Wharton School. Griffin, D. (2010). Business with a purpose: starting, building, managing and protecting your new business, Denver, Colo, Outskirts Press. Simerson, B. K. (2011). Strategic planning: a practical guide to strategy formulation and execution. Santa Barbara, Calif, Praeger. Karami, A. (2007). Strategy formulation in entrepreneurial firms. Aldershot, England, Ashgate Huber, A. J. (2011). Effective strategy implementation conceptualizing firms' strategy implementation capabilities and assessing their impact on firm performance. Wiesbaden, Gabler Smit, P. J., Palmer, P. N., & Van Der Merwe, M. A. (2000). Strategy implementation: readings. Kenwyn, Juta. Alkhafaji, A & Nelson, R.A. 2013. Strategic management: Formulation, implementation, and control in a dynamic environment, London, Routledge. Read More