Economy: Strategic Management Process - Essay Example

Introduction The main of writing this paper is to discuss the strategic management process that is followed by a reputed company which in our case is Gillette. The paper gives a brief overview about Strategic Management, perspectives given out various researchers and strategic management authorities. The concept of strategic fit is also discussed as part of this paper. After all these discussions, the process of strategic management followed at Gillette is discussed in detail throwing light on various issues involved in the field of strategic management. Strategic Management - An overview Strategic management can be defined as the set of decisions and actions resulting in formulation and implementation of strategies designed to achieve the objective of an organization. It involves taking decisions about products, location, and the organization's structure - these determine the survival of the organization in the short and long term. Strategic management is a comprehensive procedure and starts with a strategic diagnosis. It continues with a series of additional steps, culminating in new products, markets, technologies and capabilities. The strategist's work is to challenge the prevailing setup with a single question: "Why", and to ask the same question as many times as necessary to make the future as clear as the present for managers at all levels. Gary Hamel1 estimated that American senior managers generally spend about 3npercent of their time thinking and planning for the future. While 3 percent may be enough for a start-up Internet company, whose leader's mission is an Initial Public Offer (IPO), cash in and early exit, it is not good enough if the senior management's principle aim is to build an enduring company like Gillette. Perspectives of different Strategic Management researchers Ansoff's Strategic Success Paradigm The systematic study of strategic management was pioneered by Ansoff. Igor Ansoff2 conducted extensive research on acquisitions by American companies between 1948 and 1968. He found that acquisitions based on a rational strategy fared far better than those that were based on opportunistic decisions. Ansoff's strategic success paradigm identifies the conditions that optimize profitability. The key elements of this paradigm are as follows: There is no universal success formula for all firms. The level of turbulence in the environment determines the strategy required for the success of a firm. The aggressiveness of the strategy should be aligned with the turbulence in the environment to optimize the firm's success. The management's capabilities should be aligned with the environment to optimize the firm's success Internal capability variables i.e. cognitive, psychological, political, anthropological and sociological variables, all jointly determine the firm's success. Mintzberg: Strategy as a Craft The next most influential thinker in the field of strategic management after Ansoff was Henry Mintzberg3. Mintzberg added a new dimension to strategic management by bringing the personal side of the manager into the picture. He proposed an intuitive view of strategic management, and attacked the rationalism of his contemporaries with regard to the subject. In his first book, The Nature of Managerial Work which was written in the year 1973, he advocated a more humane approach to strategy formulation as a deliberate, and coined the term "crafting strategy." He saw strategy formulation as a deliberate, delicate and dangerous process. Mintzberg also identified five types of "ideal" organization structures: simple structure, machine bureaucracy, professional bureaucracy, divisionalized form and 'ad hoc' racy (ICFAI Center for Management Research, 2003). Michael Porter: Strategy and Competitive Advantage Michael Porter4 introduced generic strategies like focus, cost leadership, cost differentiation to reduce the uncertainties of the competitive environment. He also suggested the study of different components of strategic management such as the environment, in which the company operates, through his 'five forces' theory. The effective formulation of a strategy needs a clear understanding of competition. Competition in an industry is determined not only by existing competitors but also by other market forces such as customers, suppliers, potential entrants, and the existence of substitute products. Understanding the level of competition is important because the level of profits depends to a large extent upon the level of competition. Understanding the sources of competition can help the firm to gauge its own strengths and weaknesses, and to perceive the trends in the industry so that it can position itself optimally for the best returns ((ICMR), 2004). Michael E. Porter of the Harvard Business School has developed a framework known as the 'Five forces Model' to help analyze the business environment. The Five Forces as described by Porter are discussed below in the context of Gillette. Threat of New Entrants - The threat of new entrants rises as the barrier to entry is reduced in a marketplace (Mullins, 2005). As more firms enter a market, you will see rivalry increase, and profitability will fall to the point where there is no incentive for new firms to enter the industry. Fortunately Gillette has not got much of this threat. Bargaining Power of Buyers - Buyer power also acts to force prices down. If certain varieties of Gillette are too expensive, buyers will exercise their power and move to Colgate or some other competitor. Bargaining Power of Suppliers - The power of suppliers is the suppliers demanding that retailers pay a certain price for their goods. Gillette's market share gives them immense power over suppliers and other retailers. Growing evidence indicates that Gillette's success is partly based on trading practices that are having serious consequences for suppliers, overseas workers, local shops and the environment. The rivalry among existing players - Degree of Rivalry is the central force, which involves all the other forces. Classical economics predicts that rivalry between companies should drive profits to zero. This is part of the threat of substitutes. For instance, Gillette has competition from brands like Colgate that can provide substitutes for their goods. This drives the prices down in both brands. The threat of substitute products - Fortunately for Gillette, there are few other large brands which act as competitors. This means the market is disciplined - the other existing brands in the market have a disciplined approach to price set. "Gillette's recipe for offering products in new markets is an evolutionary or "Stone Age" strategy. In the razor market, the strategy revolved around the principle that Gillette will always offer double-edged blades that would highlight Gillette's quality over those of the local products and will upgrade their customers to use higher quality products over time. This strategy has relied on the existence of a sizeable affluent segment in every country. This upgrading strategy is not new to many companies, but what is interesting to note is that Gillette expects to continue with this simple strategy for the foreseeable future (echeat, 2006)." Environment and Corporate strategy at Gillette PESTLE analysis is a useful tool for understanding the "big picture" of the environment, in which you are operating, and the opportunities and threats that lie within it. By understanding the environment in which you operate (external to your company or department), you can take advantage of the opportunities and minimize the threats (RAPIDBI, 2001). Specifically the PEST or PESTLE analysis is a useful tool for understanding risks associated with market growth or decline, and as such the position, potential and direction for a business or organization. Leadership and Culture Leadership is probably the most widely researched area of organizational behavior. This could be because of the crucial role it plays in influencing organizational dynamics. According to Warren G. Bennis, the founding Chairman of the Leadership Institute at the University of Southern California, "Failing organizations are usually over-managed and under-led." Even if an organization is bestowed with sufficient resources, in the absence of effective leadership, it will not be able to function smoothly. Inefficient leadership lowers employee morale, promotes dissatisfaction among employees and affects organizational productivity and efficiency (Mullins, 2005). Several theorists have attempted to define leaders and leadership. A leader may be defined as a person who establishes vision, sets goal, motivates people and obtains their commitment to achieve the goals and realize the vision. All theorists do agree that leaders influence people and that leadership involves influencing people to work toward desired goals. Organizations are increasingly focusing on improving the knowledge and skills of employees because of the continuous advancement in the technology and changes in the business environment. Organization culture refers to a pattern of learned behaviors that is shared and passed on among the members of an organization (Drucker, 1993). It comprises of the various assumptions, values, beliefs, norms, rituals, language, etc, that people in an organization share. Organizational culture can be thought of as an evolutionary process that has been established, accepted and internalized over a period of time, by a majority of members of the organization. Fred Luthans defined culture as "the acquired knowledge that people use to interpret experience and generate social behavior." Culture helps people to interact and communicate with other members of the society. Cultural traits are acquired gradually over a period of time. The differences in values and beliefs held by people all over the world make adjustments and interaction with people belonging to other cultures very difficult for some. To be successful in the global economy, it is important for all managers to be sensitive to the differences between them. People orientation is one of the characteristics of Organization culture. This is one thing that is lacking at Camford University. People orientation refers to the degree, to which the management takes into consideration, the effect of decisions made and the outcomes of these decisions on the people in the organization. People orientation is often reflected in the degree of people participation in decision making in the organization (Gerry Jhonson, 2002). Whenever new employees are recruited, organizations need to conduct and induction followed by continuous training about different changes in the system and at the same time review the training to find out how effective was it. The need for people orientation is being increasingly felt in most modern organizations. For example, after it realized that pressure of work was making it difficult for its employees to balance work and their personal life (Keerti). Organizational change Organizations comprise of human beings who are highly complex and unpredictable in nature. The management of organizations is therefore a challenging task. Increasing diversity, knowledge and information explosion, strategic partnership, global competition and emphasis on total quality management are the other challenges confronting managers in the modern times ((ICMR), 2003). To meet these challenges, managers require cooperation from individual employees and their work groups who often resist change. So, for an effective management of organizations, an in-depth study of the behaviour of individuals within workgroups, including an analysis of the nature of workgroups is required. One such study is "organizational behaviour." The dynamic nature of the external environment in which organizations operate, necessitates a proactive approach to change. Change is inevitable in the business world. The survival of the organizations depends on their adaptability. It becomes necessary for them to be able to predict change and be prepared for it. Organizational change programs require a great deal of planning before implementation. People's reluctance to change their style of working or to learn a new method of performing tasks makes them oppose change. Organizational change implies a change in the employees' manner of working and behaviour (judge, 2006). The change may sometimes increase the workload of employees drastically and put undue pressure on them, leading to stress. Under severe stress, performance of employees' declines and this in turn affects performance of the organization. Organizational change implies a change in the employees' manner of working and behaviour. The change may sometimes increase the workload of employees drastically and put undue pressure on them, leading to stress. Under severe stress, performance of employees' declines and this in turn affects performance of the organization ((ICMR), 2003). Forces of Change In the context of business, Curtis W. Cook, Phillip L. Hunsaker and Robert E. Coffey define change as "the coping process of moving from the present state to the desired state that individuals, groups, and organizations undertake in response to dynamic internal and external factors." Change, in general, indicates any act of making something different. Given the rate at which competition is increasing in business, organizations have learnt that change is necessary not only to compete, but to survive in the business (Colenso, 2000). There are many factors that propel change in organizations. These factors may be broadly categorized under people, technology, information processing and communication, and competition. The Change Process Organizational change is a complex process which involves various stages. These stages must follow a certain sequence. The sequences of stages in which the change process must take place are listed below: Problem recognition Identifying the causes Implementing the change Generating motivation for change Managing the transition state Supporting the change Evaluating the change Models of Change Lewin's Three-Step Model - The model proposed by Kurt Lewin, the founder of modern social psychology, suggests that organizations should use three steps to introduce permanent change - unfreeze, movement to a new state and refreeze. Unfreeze - In this step, employees are educated about the external and internal factors that make change imperative. Sometimes, people are content with the existing work environment, organization rules and procedures and therefore are unwilling to change. Such people or groups should be told about the benefits that change can bring so that their level of satisfaction increases and level of satisfaction with existing condition decreases (Hayes, 2002). This will motivate employees to welcome change to enjoy the new benefits. Movement to change - After the resisting employees are convinced or prepared for change, the actual change process begins. This involves doing away with old practices and adopting new methods. For example, as part of the change program, advanced equipments are installed, production process or layouts are changed, or job duties are redefined. This stage involves implementing the change. Refreeze - After change has been implemented, it has to be assimilated into the organizational process. The third step involves reinforcing change so that the organization does not revert to old state of things. For example, if the change process involved acquiring new skills, the new skills and behaviours have to be made a permanent part of the organization. To achieve this, employees are asked to demonstrate their new skills before they return to their jobs. They may also be asked to do role play and show how they would apply their new skills at the workplace. Burke-Litwin Change Model Another useful model for understanding the organizational change process is the Burke-Litwin Change Model published by George H Litwin and W Warner Burke in 1992 (Mind Tools, 2004). This model shows the causal effects of change between 12 key areas of organizational design. Using the model, it is possible for the managers and the other members of the organization to learn which organizational variables to change and why. Such learning can then be further used to analyze, diagnose and even predict the effects of change throughout an organization. This model includes several key features which go beyond many other organizational change models (Falletta, 2005): - includes twelve theoretical constructs (i.e., organizational variables) - distinguishes between the culture and the climate of an organization - distinguishes between transformational and transactional dynamics - specifies the nature and direction of influence of organizational variables - is based on previous models, empirical studies, and OD practice The twelve organizational variables in the B-L Model are external environment, mission and strategy, leadership, organizational culture, structure, management practices, systems, work unit climate, task requirements and individual skills, motivation, individual needs and values, and individual and organizational performance. With the representation of the external environment as a variable, it is evident that open systems theory underlies the B-L Model (Falletta, 2005). Change Management at Gillette The Gillette Company is a leading division of Proctor and Gamble specialized in personal care and household products. In this company, creative management consists of new ideas, new directions, new methods, and new modes of operation (Gillette, 2008). Innovative management is much the same as the second element of creative and innovative activities--better results. Innovative management is involved with those innovation processes that implement creative ideas and move successfully in new directions. The concepts "planned change" and "managed change" refer to changes that are deliberately shaped by the organization members ((ICMR), 2003). Managing Planned Change Change is concerned with changing status quo or making things different. The changes that occur in organizations suddenly without any significant effort or involvement on the part of the employees or management are called unplanned changes. On the other hand, when organizations initiate change activities deliberately and consciously in order to accomplish certain organizational goals, it is known as planned change or managed change (McCalman, 2000). The type of change that is being discussed as part of this paper is a planned or managed change as the organization is planning a major change initiative which involves an acquisition of another organization and a major restructure. There are two basic goals of any such planned change of an organization. They are: To enhance the ability of organization to adapt themselves to the changes in the external environment: For example, if competitors introduce innovative products, organizations may respond by initiating a competing project. This initiation of a competing project may be supported by other activities like encouraging employees to think creatively and introducing team culture and self-managed teams to face tough competition. All these are deliberate activities undertaken by organizations to adapt to new changes in the environment. To change the behavior of employees: Sometimes organizations may have to take up change activities aimed at changing attitudes or behavior. For instance, when organizations find that they have lost a business opportunity because of slow decision-making resulting from their centralized structure, they may decentralize the structure and reduce red tapism at various managerial levels. Such a step may also train its lower level managers to improve their decision-making skills and reduce their dependence on superiors (Brezillon, 2005). Planned change can be described in terms of magnitude. The magnitude of change can be large or small i.e. Fast, abrupt, revolutionary or slow i.e. evolutionary. Based on magnitude, planned change can be divided into two types - first-order change and Second - order change. Strategic Fit Strategic Fit can be defined as the matching of both the mission and the strategy of a particular organization to its internal structure and also to the external environment (12Manage, 2007). The company can take certain measure to improve the global scale and also the ageing stores with large portfolio. The customer focused philosophy of the company is believed to be the major strength of the company allows it to explore and make use of all the available opportunities. The company was surprisingly successful all through the years. This was because of its strengths like the national level network, customer focus, brand value and also the multiple store formats. This obviously makes it clear that the company's strengths are surely helping it to take advantage of all the available opportunities and also at the same time reduce the threats. Change and the Leadership Style Most organizations, at some time in their existence, face decline in performance. During a company's lifespan depicted in the firm's lifecycle a stage comes when it may need a turnaround in order to survive. Here, the right kind of leadership makes the difference (Moorhead, 1999). Most often a turnaround situation may demand an outsider to lead the company out of the mess. But sometimes, all it may need is a change in leadership style rather than a change in the leadership. Leadership is as learnable as any other skill. Skills are a manifestation of the personality traits of a person. But, as widely accepted, human beings are exceptionally good at adapting their personality to suit the occasion. So, leadership skills being the output of personality traits, the traits can be varied to the required skills. Leadership is probably the most widely researched area of organizational behavior. This could be because of the crucial role it plays in influencing organizational dynamics. According to Warren G. Bennis, the founding Chairman of the Leadership Institute at the University of Southern California, "Failing organizations are usually over-managed and under-led." Even if an organization is bestowed with sufficient resources, in the absence of effective leadership, it will not be able to function smoothly. Inefficient leadership lowers employee morale, promotes dissatisfaction among employees and affects organizational productivity and efficiency. Several theorists have attempted to define leaders and leadership. A leader may be defined as a person who establishes vision, sets goal, motivates people and obtains their commitment to achieve the goals and realize the vision. All theorists do agree that leaders influence people and that leadership involves influencing people to work toward desired goals. Organizations are increasingly focusing on improving the knowledge and skills of employees because of the continuous advancement in the technology and changes in the business environment. "Gillette's leadership, comprising Zein and then chairman Mockler, stood its ground and continued to invest in quality spring-mounted systems, labelled Flag (Floated Angle Geometry). Sensor went on to far exceed all its goals. The sales figures of the same are 24 million versus the target figure of 18 million razors sold and 350 million in contrast to the target figure of 200 million blade cartridges sold in the first year of launch (echeat, 2006)." These figures clearly depict that the leadership style followed by the management of Gillette is quite good. Companies all over the world are increasingly adopting new marketing strategies to cut costs and expand market share. One strategy to achieve this is to add new marketing channels such as direct sales, direct mail and retail sales to existing distribution channels. Companies, which use both direct and indirect marketing channels, have hybrid marketing channels. The same has happened with Gillette too. The company diversified its product portfolio and achieved tremendous success in almost all the markets it entered. The trend towards hybrid marketing channels began in the 1990s and they are now being extensively used in industries like textiles, office supplies and metal fabricators, apart from computer-related industries (Bass, 1993). The insurance industry too has begun using hybrid marketing channels. Conclusion As part of business strategy, in order to compete with today's cut-throat competition and also in order to mark a presence for them in the market, companies need to adopt new marketing strategies. It is not possible for companies these days to stick to the same old traditional methods of marketing, if they need to project themselves as someone different. As far as Gillette is concerned, the company has brought in a broad number of changes in its strategies in order to survive the tough competition and hence has managed to differentiate itself from its other competitors and hence has stood unique in the market despite having considerable competitors. Bibliography (ICMR) ICFAI Center for Management Research Introduction ot Organizational Behaviour [Book].- Hyderabad: ICFAI Center for Management Research (ICMR), 2003. (ICMR) ICFAI Center for Management Research Marketing Management [Book].- Hyderabad: ICMR, 2004. 12Manage Strategic Fit [Online]// 12 MANAGE - The Executive Fast Track.- 12Manage-Elearning Community, May 21, 2007.- July 30, 2008.- http://www.12manage.com/description_strategic_fit.html. 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