Strategy Is the Direction of an Organization - Essay Example

13-11-2006 Corporate Strategy The last five years in general and the period since 2002 in particular have been tumultuous for corporations all over the world. Greatly admired companies bit the dust while those were closely written off, staged a splendid recovery. Clearly what works and what does not in business remains an unpredictable as ever. Understanding the process by which existing business/companies become obsolete and new business/companies evolve is what we are likely to discuss so that we can decide in which direction companies may change strategically to grow and perform. Strategy is the direction and scope of an organization over the long term, which achieves advantage for the organization through its configuration of resources within a changing environment and to fulfill stakeholders’ expectations. So strategic decisions are likely to be complex in nature and may be made in situation of uncertainty i.e. they may involve taking decisions with views of the future. It demands an integrated approach to managing the organization. Strategic decisions will very often involves change in organization, which may prove difficult because of heritage of resources and culture. They have to manage perhaps change relationship and network outside of the organization. So strategic decision-making requires special qualities of skills and knowledge. Strategies exist at a number of levels of the organization. It is possible to distinguish at least three different level of organizational strategy i.e. i) Corporate level strategy is concerned with the over all-purpose and scope of an organization. This could include issues of geographical coverage, diversity of products/services or business units and how resources are to be allocated between different parts of the organization. ii) Business unit strategy is about how to compete successfully in particular markets. The concerns are therefore about how advantage over competitors can be achieved; what new opportunities can be identified or created in the markets; which products or services should be developed in which markets; and the extent to which these meet customer needs in such a way as to achieve the objectives of the organization perhaps long term profitability or market share growth. So, whereas corporate strategy involves decisions about the organization as a whole, strategic decisions here need to be related to a strategic business unit (SBU). iii) Operational strategies is at the operating end of an organization, which are concerned with how the component parts of an organization deliver effectively the corporate and business level strategies in terms of resources, processes and people. Strategic management is the management of the process strategic decision-making. Strategic management is concerned with complexity arising out of ambiguous and non-routine situations with organization wide rather than operation specific implications. Strategic management includes understanding the strategic position of an organization, Strategic choices for the future and turning strategy into action. Before implementing any strategy in business it is proper to evaluate/analyze as well as understand strategic position. It is concerned with the external environment, internal resources, competences, expectations and influence of stakeholders’ impact on strategy. The organization exists in the context of a complex commercial, political, economic, social, technological, environmental and legal world. The environmental changes are more complex for some organizations than for others. Many of these variables give rise to opportunity for some and threats for others or both. In the era of globalization where speed of change increases with the speed of global communications the PESTEL framework, has been framed, which analyze how the Political, Economic, Socio-culture, technology, environment and legal factors affects the organization and always tries to destabilize the equilibrium. Due to globalization, numbers of structural drivers of change are likely to affect the organization. Globalization increases the convergence of markets worldwide. Due to convergence of market, homogeneity of consumer taste has increased. This provides opportunity for transference of marketing across countries. Marketing policies, brand names, identities, and advertising may all be developed globally. Country specific costs increase the cost war. This encourages technical standardization of products. Global competition is therefore becoming increasingly evident and as it encourages further globalization. Impact of environmental influences leads to more intense competition. In business competitiveness is about gaining advantage over competitors. The five forces, a threat of entry, threats of substitute, the power of buyers and suppliers and the competitive rivalry increases competitiveness. The second important factor in strategic positioning is the resources and the competences of the organization to make up its strategic capability. Just as there are outside influences on the organization and its choice of strategies, so there are internal influences. Internal influences could be gauged through SWOT Analysis. It analyses its core competencies, competitive advantage or disadvantages, constraints or strategic choices. Cultural influence within the organization and from the world around also influences the organization strategy. Together, a consideration of the environment, strategic capabilities, expectations and the purpose within the cultural and political framework of the organization provides a basis of understanding of strategic position in an organization. After strategic positioning, strategic choices could be sorted out. Strategic choices involve understanding bases for future strategy at both corporate and business unit level. At the highest level in an organization there are issues of corporate level strategy, which are concerned with the scope of an organizations strategy, the relationship between the separate parts of the business and how the corporate center adds value to these various parts. There is no best corporate strategy. What matters is the consistency with which a corporate strategy developed in terms of: a) Clarity of the rational of the corporate parents in seeking to add value to business units, b) The logic of the corporate portfolio; c) The nature and extent of the diversity of the portfolio and d) The nature of corporate control exercised by the corporate parent. Different roles of the corporate parent could include portfolio mangers, restructurers, synergy managers and parental developers. Diversity in business should also be considered as corporate strategy whereas corporate control is the way in which corporate parents interacts with and guides the business units. There are strategic choices in terms of how the organization seeks to compete at business level. This requires an identification of bases of competitive advantage arising from an understanding of both markets and customers and special competences that the organization has. These choices could be evaluated by using different decision-making tools. Choices between competitions or collaboration can be made on the basis of organizational resources, capabilities and core competences. Strategy may develop in different directions. Every organization is bound to change itself and different factors compel it. So it cannot fix itself in any specific direction. Organization has to adopt more flexibly approach so that they could make more flexible decisions. Organization has choices of the method of strategy development. The options for development direction and methods are important and need careful consideration. Development directions can be identified in four broad categories i.e. protect and build (current products in current market); Product development (for existing markets); Market development (with existing product); and diversification (away from existing products and markets). Organization competencies and the expectations in and around the organization will also create development directions. The success or failure of strategies have three main criteria i.e. suitability, acceptability and feasibility. Strategies are only blue prints unless put into action. A strategy is good or bad cannot be decided unless implemented. The execution of strategy occurs through structuring, enabling and change. Structuring for success is about an organization configuration. This is built up of related strands: Structures, processes, relationships and boundaries. An inappropriate configuration can impede organizations strategies. However, the reverse is not true- a change of configuration will not guarantee success. There are many stereotypical structures (such as functional, divisional, matrix). It is important to be familiar with the strengths and weaknesses of each structural type and to understand that real organization structures are usually a blend of these pure stereotypes. There is a range of different organizational processes to facilitate strategy. These process range from formal controls (systems, rules and procedures), through social controls to self-controls. These will be more or less appropriate to different circumstances and strategies. Relationships and boundaries are also important to success. Externally there are choices around outsourcing, alliances and networks, which may help or hinder success. Finally in implementing strategy, strategic parents must understand the relationship between resource management and strategic success because managers and individuals lower down in organizations usually control resources, competences and knowledge of changes in business environment. Resource Management and development must support organization strategies. Resources include people, information and money. It is particularly important to understand whether and how business strategies might deliver financial value to shareholders or owners. Most strategic developments need funding, which, in turn, create risk. The resources like technology development also affect the competitive forces of an organization and also its strategic capability. The way technology is developed, exploited, organized and funded will all influence the success or failure of strategy. Presently change is inevitable and the organizations have to formulate strategies to mitigate changes. It is important to preserve skills, capability, capacity and readiness for change and power to make change happen. Managing change includes the importance of changes in structure and control, the need to change organizational routines and symbols and the importance of political processes, communication and other change tactics. The most successful organization is likely to be those whose strategic managers can master the strategic and organizational dilemmas that the modern competitive world creates. Now after going through various aspects and approaches to strategic management we must apply these theoretical aspects of strategic management to the fashion industry of UK. The fashion industry is an international multi billion pound business. Television programs such as Fashion TV run 24 hours a day showing all aspects of the industry. There is entire subculture dedicated to the fashion world. UK designer fashion industry is the fifth largest in the world. It differs from it competitors in that it is largely made up of small companies. UK fashion design has an excellent reputation overseas and is often seen as having a leading edge and taking inspiration from the street. At Ł 6,078 million in 2004, fashion exports have remained reasonably steady over the past few years (5818 million pound in 2002). Industry experts have predicted that UK clothing companies will have to position themselves into one of three categories in order to compete and survive in the world market. Niche manufacturers, supplying low volume, high value products, Balance suppliers, having a UK manufacturing base for sampling and small batch, but sourcing larger orders to oversea manufacturers. Purely sourcing operations, which will mange the design, production and distribution of products manufactured overseas. Although the UK produces some of the most talented fashion designers and technicians in the world, most new UK fashion startup fails and only a very small proportion of successful global clothing brands are British. However, the paradox is that most international luxury fashion houses are powered, at their core, by the talents of British trained designers and technicians. The points of failure for new UK fashion companies are many fold and in some sense mirror that of most industries, the most obvious ones being inadequate source of capital, poor management and inadequate manufacturing facilities underlying these are however, a series of cultural practices inherent to the UK fashion industry, which requires reform. In the second half of the 20th century, much of the manufacturing side of the UK fashion industry moved overseas. Many factors have contributed to this move including: - 1. The low cost of manufacturing in developing countries due to cheap labour 2. Increasing globalization of companies affected the prices, priorities, need, preference etc. 3. Growing importance of branding and marketing Large-scale manufacturers have almost vanished from UK the core business now is the sourcing and supplying of Goods. Today imports account for 95% of the fashion and textile market. The growing globalization of the industry has led to a trend towards the separation of the various functions that make up the supply chain. An effect of the single European market for goods and services is that European retailers have moved into the UK and UK retailers have in turn expanded into Europe. Not all these ventures have been successful and there have been several notable flops for fashion retailers in both the British and European high streets. Globalization posses a real threat to UK fashion industry because manufacturing in developing country is much cheaper and the key players in this area in China, India and even Bangladesh. The global environment comprise of efficient low cost production, cheap transportation, high class communications technologies and move towards free trade and trade harmonizing legislations, and all the factors are responsible for the global environment in which fashion industry has to compete. Apart from job losses, the threat to the industry is the fact that knowledge and skills transferred from UK to the Far East. This put great pressure the UK fashion companies to continually reinvent or develop new competitive advantage. Western market also becomes fragmented and rapid change in fashion trends increases the problems of the companies. This has been further enhanced by high demand for cheap fashion cloths from consumers with a limited budget. From the producers’ perspective, this trend increases the need for logistic setup. UK fashion industry is facing problem with skills, HR issues, Managerial skills not up to date, Aging of work force, Lack of motivation among SME who often faces difficulties with radical changes in technological, economic and strategic trajectories. The reality is that small companies are forced to focus on day-to-day operations and challenges. They rarely assess skills, needs or spend time collaborating in relations to skills and HR issue. So the fashion industry in UK needs intervention of a well-formulated corporate strategy. The fashion industry in UK seems to be ailing and therefore need strategic decision to regulate and move forward. Most fashion companies in UK started with bank loan, which is one of the worst forms of startup capital because one has to start repaying the interest & loans fairly quickly. The business has to start with venture capital having long grace period so that in between company business and sales stabilizes. Designers themselves, who have only a very elementary grasp of business issues, typically manage most of the Fashion companies and in result poor management of company cost them dearly. Most designers have very little interest in business side, so companies becomes inefficient and not acceptable to outside investment. So designer must only focus on the creative sides of the company and all other aspects must be taken care of by a prudent business manager. One problem that is often mentioned is the decline of manufacturing bases from UK, is the cause of failure of British fashion companies but instead of being fixated on the lack of a domestic manufacturing base, one should focus on the key assets the UK has the ability to develop new intellectual property in terms of innovative fashion design. A recent example where such an artist signed- to- a- label model works in fashion is the designers at Debenhams initiative operated by the UK departmental store. Here, the fashion designer focuses on designing new garments and Debenhams looks after the sourcing of manufacturing materials, quality control and retailing. The designer gets a 7% royalty from sales value of each garment. This has been a very successfully business model for both the designers and for Debenhams which has a growing numbers of well known designers under this scheme including Jasper Conran and John Rocha. The fashion industry, especially at the luxury end has a well-established culture of growth by acquisition and the proposed start-ups would be natural candidates for such acquisition if they build profitable and fast growing brands. UK clothing companies will also need to play to their strengths technical fabrics; dyeing and finishing designer wear, capital intensive manufacturing and branded clothing. On the manufacturing side in the UK, the best opportunities may lie in continued emphasis on high quality and technical clothing. The Department for Trade and Industry (DTI) has highlighted the need for better communication and partnerships between manufacturers, retailers and graduates if the UK fashion and textiles industry is to thrive. Creativity itself is not an issue – this is something for which the UK is renowned – but more training is needed for designers in technical and commercial processes. UK retailers face increasing competition from operations that are established within other countries. Fashion retailers are also facing ongoing and increased competition from supermarket chains. Supermarkets have teamed up with high-volume overseas suppliers to offer food shoppers a range of basic clothing items they might previously have accessed only through high street fashion shops. It is likely that some will begin opening fashion-only stores in the near future. The growth of supermarkets in the clothing industry means that the pressure is firmly on mid-market retailers, who are being squeezed between discount outlets and retailers specializing in premium quality clothing (UK Clothing and Footwear Industry Market Report, Key Note, 2004). Industry analysts have also tried to predict what types of graduate skills will be required within the industry. The following competencies have been identified as important to the success of UK companies: Product initiation: including design, innovation and creativity, computer-aided design (CAD), technological skills and product management. Sourcing skills: including quality systems, communication, critical path analysis, financial and logistics management, technical skills, selecting and auditing suppliers. Warehousing and distribution: distribution management, planning and management of UK processing and logistics. General business skills: business awareness, flexibility, communication and negotiation skills and languages. These are key for all staff across the sector, including ‘creatives’. The above competencies clearly reflect the fact that the future of the UK fashion and textiles industry is as a supplier of products rather than as a manufacturer. Manufacturing is now firmly established offshore and if the economic conditions stay the same, then this is extremely unlikely to alter. However, design, marketing and logistics will remain UK based. ******************************************************************** Reference: Johnson, G. and Scholes, K. (2006), Exploring Corporate Strategy, Pearson Prentice-Hall. Read More