Strategic Analysis and Choice - Essay Example

Strategic Analysis and Choice Organizations exist to survive, prosper; in an ever changing dynamic world managers need to make decisions now to guide organization's future direction. Prosperity is linked not only with profitability but also the long term growth. It's like steering a ship in the ocean with the danger that pirates may take over, or it might become the victim of the deadly waves. The ship here refers to the company itself and the challenged here include the competitors, the environment etc. Thus, there is a strong need for the managers to make a strategy that works as an action plan to achieve the aimed objectives. The objectives may be both financial such as higher revenues, lower costs, high profits or non-financial just to be the top in the industry, largest market share, or to be place the product in the top minds of the customers. Thus, the need arises to have a blue print that tells how to go about it Companies need to diverse, differentiate, integrate backward or forwards, and manage business portfolio balanced. And hence they need to plan - develop a vision, set the mission, develop long term plans and further break them into objectives to achieve the desired goal. But it is important that the strategy is to be consistent with the organizational goals and policies, it should be flexible enough to respond to the faster changing environment in which it is operating, and it should add value to the organization and become a source of advantage over its competitors, and lastly, it should be feasible and practical enough to get through. Strategic management can be defined as the art and science of formulating, implementing, ad evaluating cross-functional decisions that enable an organization to achieve its objectives (David F.R., Strategic Management). The process of strategic management involves three stages, viz. formulation of a strategy, implementing a strategy and lastly, evaluating the strategy. Since, organizations have limited resources thus they need to choose from amongst the alternatives available. Setting a strategy starts with developing a strategic vision so as to provide long term direction, and provide a purpose to the organization. The strategic vision is then converted into specific performance objectives for the company to achieve. And then forming strategies to achieve the desired outcomes that have been developed in the form of objectives. This all was the planning portion of the process; no strategy is useful until it is implemented and executed effectively and efficiently. In the end, evaluation stage begins which requires comparing actual i.e. the reality with the planned. But as companies prosper and grow they need to diversify into new areas. Companies have to balance their portfolios well enough with cash cows, stars, dogs and question marks so that cash needs growth needs all are being fulfilled by the company. Strategy analysis requires companies to understand their markets, their cost structure, and also the capabilities underlying the firm i.e. any of the core competencies or the distinctive competencies that the company possesses. Companies need creativity and new ideas to identify any potential gaps in the strategy, the markets etc. which will lead them to make and implement a solid strategic plan to serve the new and existing markets. Source: http://www.netmba.com/strategy/matrix/bcg/ Huge businesses are normally divided into the strategic business units. These strategic business units are the individual planning units contained within one large and diversified business serving either the external or the internal market. They make independent decisions for themselves and have a control over their own destiny. They have competitors and are profit centers for the company but still independent. Companies already have so many products and services have many other growth initiatives because of the factors such as globalization, services, quality and the emerging e-businesses. Globalization is not only letting companies to enhance their revenue side by entering the untapped markets but has also opened doors for companies by globalizing all the activities such as production, buying of raw material and especially has facilitated in obtaining the best human capital form the around the world. Source: FACT SHEET Strategic Management Product Development Matrices Thus, the strategies available to the firm include market penetration, market development, product development, and product diversification. To decide how to take advantage of growth and grow further organizations should analyze its customers, competencies and the competition. They need to clearly know who their existing customers are, which segments are and can be their potential customers, what are they interested in, what kind of product needs do they have, and also who are the profitable customers. To serve these customers better organizations should have an insight of their own skills, knowledge and relationships. And need to know what they are good, how do they manage their costs, how and where to generate revenue and make money etc. The competition in the market and the basis of competition should be evaluated which includes the regulated and also the real competition, threats from the competition. As mentioned at the onset of strategic analysis is the know how of the customer and the target market. This begins with knowing what they do and what they value; knowing this can make the organizations serve them better. Thus after the analysis, the process of choosing includes what existing customer does the company have and what customers can be attracted in the future to enter the untapped markets. Evaluating the existing customer requires going through company records and database where the company maintains the list of accounts of all the customers and their financial support data. This provides information about the most valuable customers i.e. according to the 80-20 rule the 20% of the customers that account for larger amounts of sales. Furthermore, other opportunities can be identified and the possible ways of grouping the customers into segments based on their similar needs and requirements or the reason why they value a certain product. Analyzing new markets requires searching for who can be your customers. For this secondary as well as the primary data is needed, the process requires market testing techniques etc. Some times manager are faced with a sales-view bias where they tend to ask and survey to gather information from the people who are already interested in your product, hence it leads to a too overly optimistic future rather than a real true future that is likely to come ahead. Competencies require looking at what the company currently offers with respect to the competition, its strengths and weaknesses also. It should be know what is the company best at and how it can be used to capitalize on the opportunities by utilizing their strengths. For analysis firms can use Mc Kinsey's 7s model which reflects the skills, structure, style, shared values, strategy, systems and staff. Besides it also simply involves evaluating the tangible resources such as availability of finance, physical assets and also intangible such as human resources. Another way of evaluating also involves using a variation of Porter's value chain analysis; this means looking at the product and service the customer receives in terms of what and who provides development/technical skills, procurement/production skills, sales/communication skills, distribution/logistics skills, service/support skills. Using marketing intelligence the five forces of the Michael Porter's Diamond Model should be evaluated that includes the bargaining power of buyers, bargaining power of suppliers, threat of substitute products, threat of new entrants, and the level of the existing competition. After the above mentioned analysis for a multi business company the managers need to evaluate the company and decide on the strategy to be selected. Source: http://www.planningskills.com/slides/unit13overview_files/v3_document.htm After strategy analysis the companies should select on the strategy; the process of selection is as under: For a multi business the options includes moving into new businesses or markets adopting one of the strategies such as internal development, acquisition, contractual arrangements, strategic alliances and partnerships etc. Internal development involves itself development of the necessary skills, and resources required for a new business venturing; but it requires a longer time period and resources from scratch to be useful or fully facilitative for the company. Acquisition is a more feasible option since acquiring already established business can help capitalize on areas such as already existing customer or supplier relationships, an existing name in the market. Takeovers and mergers is a viable option because they also result in a synergistic effect. Acquisitions bind the companies for a total future period but this can be limited by having contractual arrangements rather than the acquisitions. Contractual arrangements can be a result of forming of consortium, licensing, franchising, having agents etc. These are especially beneficial when a company has decided to move into foreign markets. Strategic alliances and partnerships are more beneficial than contracts when moving into other markets. It is a kind of contractual arrangement but requires companies to be involved at a more strategic level, it requires sharing of almost all information, and work together in a way that goes beyond contractual arrangement. Operating in a multi business also leads to some cross business synergies; some of these involve benefits from economies of scope, market power, internal business governance advantages, and recombinative processes. An example of a successful multi business company is that of General Electric. GE's businesses includes Aircraft Engines, Appliances, Aviation Services, Capital Services, Commercial Equipment, Financing, Commercial Finance, Employers Reinsurance Corporation, GE Equity, Industrial Systems, Lighting, Medical Systems, Mortgage Insurance, NBC, Plastics, Power Systems, Real Estate, GE Supply, Structured Finance Group, Transportation Systems, and Vendor Financial Services. References Power, D, (2001) Strategic Analysis and Choice in Multi business Companies Thompson, J, Marin, F, Strategic Management: Awareness, Analysis and Change Strategic Analysis http://www.dobney.com/Strategies/strategic_analysis.htm Morden, T, Principles of Strategic Management Martin, J, Eisenhardt, K, (2002) Cross Business Synergy: Sources, processes and the capture of corporate value Kjellberg R, (2001) Rapid and Dynamic Strategy Development. Available from: http://www.esmmoderators.com/rk_2001.html Carr, A., Durant, R., Downs A, (2004) Emergent strategy development, abduction, and pragmatism: New lessons for corporations. Human Systems Management, [online] 23 (2) Thompson, A., Strickland. J, (2003) Strategic Management Concepts and Cases. 13th ed Read More