Strategic Management - The Planned and Incremental Approaches - Essay Example

Strategic Management Table of Contents Advantages 6 Disadvantages 6 Conclusion 7 The emergent or the incremental approach 8 Case study 9 Case study on Hyundai 10 Advantages 11 Disadvantages 11 Recommendations & Conclusions 12 Bibliography 16 Introduction In this ever changing global environment sustainability is the key word that managers need to address in order to survive the competitive environment. Gone are those days when managers used to develop a long term strategy and wait back to reap the benefits out of it. In these ever changing surroundings, managers need to constantly analyse and decide on the actions that would increase the efficiency of a firm’s operations and enable it to survive the competition. This is where strategic management play a vital role in the organisation’s survival. The main focus of strategic management is to achieve the organisation’s goal by taking the external and internal factors into consideration. Positioning of the organisation through strategy, responding to real time issues through strategic management and managing the resistance offered by the competitors through systematic planning are some of the broader aims of strategic management (Ayanda, M., n.d.). There are a few key attributes that strategic management addresses. It helps the organisation to move towards its goal and achieve its objectives. It helps the stake holders to be a part of the decision making body. The need of incorporating short term and long term goals can be identified. It also helps in understanding the trade off between efficiency and effectiveness in order to achieve the goals of the organisation. Some theorist do believe that the traditional approach is the standard approach to strategic management however it can no longer cope up with the complexities of the new demands (Dess, et.al., n.d). Brinkerhoff had a very simple way of defining strategic management. He defined strategic management as ‘looking out’, ‘looking in’ and ‘looking ahead’. According to Brinkerhoff looking out means, evaluating the environment in order to set organisational goals and also recognise the potential stakeholders. By looking in he means to identify the strengths that the firm possesses meaning the resources like finance and the man power. Looking ahead points out at formulating strategies and allocating resources to set targets and evaluate performance. Strategic management mainly consists of the following five factors. They are setting goals, analysing, strategy formation, strategy implementation and evaluating the strategy. These factors need continuous interaction and feedback between them (Susan. n.d.). The Balance Scorecard is an effective tool by which organisations can evaluate its performance which in turn helps to accomplish the vision. Similarly to assess the environment tools like the SWOT analysis, Michael Porter’s 5 force model, internal and external factor evaluation matrix, Critical success factor are useful. Managers should keep in mind that these are just analytical tools which do not help in framing strategy. In the past thirty years a lot of research has gone into strategic management. In the year 1965 Andrew and Ansoff were the first to recognise Strategic Management as a separate stream. From then onward strategic management has gained importance. There are conventionally two approaches to strategic management. The perspective or the planned approach It states that a logical, rational and systematic approach is the correct way of formulating and implementing strategic management. The goals and the objective of the organisation is first set and depending upon it the strategies are formulated to achieve them. Depending upon the analysis of the organisation and its environment the strategists accordingly define the corporate goals and formulate strategies for achieving its objectives. The analysis of the environment of the organisation can be done by using tools like the SWOT analysis. To organise complex activities, information and unify the business objectives it is believed that the systematic approach is the best suited. By setting targets and evaluating performance the degree of control over the operations of a business can be enhanced. For example in the health care industry it is very difficult for managers to understand the relationship between the environment and the organisation. Often the functions of the internal departments are conflicting. In order to achieve the goal and the desired results there should be one unified purpose. Thus for managers in the health care industry it is important that they develop their organisation in such a manner that it is able to cope up with the external management (Swayne, et.al., 2006.) These are organisation operating in a more stable kind of an environment as a result of which the planned approach can be adopted in order to develop the organisation according to the surroundings. Advantages The advantages of this approach are that it since the objective is set clearly the focus remains on the business. The approach is logical and rational. Since targets can be set according to the objectives, the performance can be evaluated and monitored. It also helps to allocate resources and against specific objectives and thus the efficiency of the organisation can also be can also be estimated. Disadvantages The approach has come under heavy criticism from some theorist like Mintzberg, 1987. In this turbulent and chaotic business environment the approach gives rise to a lot of discrepancies between what has been planned and what is achieved. Rigid planning limits flexibility in this volatile environment and sometimes leads to missed business opportunities. It may also lead to unproductivity. Conclusion After taking into account the pros and the cons of this approach a conclusion can be reached that this strategy however is the traditional approach to strategic management is best suited for organisation operating in a stable environment. In stable environment, organisations have the freedom to evaluate its environment and accordingly set their goals and formulate strategies to achieve them. However it is not at all viable in dynamic surroundings. It would be an absolute disaster for an organisation to follow this approach since the changing environment continuously requires the manager to develop and change his strategies to achieve the goals of the organisation. Thus the emergent approach is a better solution in this type of an environment. The emergent or the incremental approach The view is based on the fact that in today’s complex and dynamic environment if organisations are to survive the intense competitive environment it needs to constantly fine tune its strategies and align it’s goals accordingly. The firm can be flexible during turbulent environments. It can help the managers think creatively towards developing strategies rather than work in a rigid environment. It also takes care of the stakeholder’s interaction in developing an emergent strategy. Tools like the Porter’s 5 forces model and the BCG matrix are useful tools in assessing the environment that the organisation is in and thus accordingly formulate its strategies to achieve the goals. The BCG matrix is a tool with the help of which a firm can evaluate where it is in relation to its market share. Accordingly they can take adequate measures for its future plans. It is very difficult for managers to take decision without proper information. This is where the need of strategic analysis lies. There are two main stages of strategic analysis. Internal analysis and external analysis. The internal analysis is about identifying the strengths and weakness of a firm whereas external analysis refers to the identification of threats and opportunities that an organisation might face in the environment. The travel and tourism industry for example is very vulnerable to external shocks that are beyond the control of the managers. The 1990-91 Gulf war served a massive blow to the travel and tourism industry. The 11th September 2001 attacks in New York and Washington is also a live example where the travel industry found itself severely crippled. Case study Survival of Accor after the crisis of September 11. Accor is a Paris based company that runs a network of 3600 hotels in around 90 countries. For Several years the brand ‘Accor Hotels’ has developed a wide range of hotels ranging from budget to luxury class through out Europe, America and Asia. During the summer of 2001 a slowdown in the industry was predicted and but the crisis of September 11 made the scenario all the more grim. The developments gave rise to two major consequences, first being the pshylogical blow and the second being a global slowdown in Europe America and Asia. The Company responded immediately by postponing and cancelling some of their projects. Still they managed to open around 250 new hotels. The company managed come out of the crisis because of their diversified portfolio. They had spread their projects across a large geographical area and also varied it in terms of quality. The luxury hotels in Paris suffered, however the economy hotel is Europe did well. The Sofitel booking in Paris dropped by around 33% whereas Formule 1 and Ibis booking in Europe increased by 3.5% (Campbell, et.al., 2002). This goes on to prove that why the incremental approach to strategic management is so much preferred presently Accord had studied the external factors and accordingly changed their short term goals and strategies in order to survive the crisis period. This is the flexibility that this approach provides the managers with, in order to cope up with the challenges of a dynamic environment. Case study on Hyundai In the following Case study we can study how Hyundai adapted the incremental approach to survive in the market. The American automobile companies were struggling to stay afloat in this recession, whereas Hyundai motors seems to gain market comprehensively. The Company has constantly evolved its strategies to stay ahead. Earlier this year they had launched the ‘Hyundai Assurance programme’ whereby the customer had the option of returning their car in case they lost their jobs. Soon other companies started to adopt this policy. It means that Hyundai had read the market conditions and accordingly changed their strategy that would suit the current market scenario. The year 2008 was bad year for the auto industry, still Hyundai global sales rose by 2% boosting revenues by 5%. During the economic crisis in the year of 1997 in Asia, Hyundai again emerged winners. The South Korean currency sharply declined resulting in Daewoo’s bankruptcy. Hyundai was quick to pounce on the opportunity and acquire the company. Thereby consolidating its position at home. The way Hyundai was able to adapt its strategy with the changing environment, it is a classic example of the emergent approach towards strategic management. (Knowledge@Wharton, 2009). Advantages The advantages of the emergent approach are very distinct and prominent. It gives the managers enough room to gather information, analyse and develop strategies according to the changes in the environment. The approach is trendy and modernised so a large number of organisation adopts this approach. Disadvantages However in spite of all these advantages of the approach have some major drawbacks. Since the goals and strategies of an organisation keep on changing with the changing environment, there is a possibility that the main objective of the firm gets diverted. This may result in the decline of an organisation as loss of focus means the organisation is heading nowhere. Since there are no clear objectives, the problem of resource allocation arises as a result of which targets cannot be specified. Which in turn give rise to difficulties in evaluating performance (Campbell, et. al., 2002). Recommendations & Conclusions The environment is considered to be a constant in all these approaches. The challenge that the managers faces is that of either changing the strategies to adjust to the environment or change the organisation’s goals. Mintzberg and Waters in 1985 suggested that strategies cannot be formulated before hand and that it comes out instantaneously. In a research carried on by Burgelman it has been proved that a correct strategy can only be formulated by an accurate forecasting, planning and control, as in planning approach. Fredrickson, Mitchell and Mintzberg showed through empirical research that planning during instable environment is not viable because it limits the formulation of new options. On the other hand Johnson in 1988 based on his longitudinal case study suggested that the emergent approach is not logical (Volberda & Elfring, 2001).  After studying the two approaches of strategic management, that is the perspective and the emergent approach a conclusion can be drawn that like the two sides of a coin the approaches also has advantages and disadvantages of their own. However it cannot be pointed out that one particular approach is the best among the two. This is due to the fact that the approaches have their own distinct situations where the can be applied. The perspective approach is more of rigid approach as the organisation goals and targets are set up depending upon the environment and the resources that are internally available to it. Whereas on the other hand the emergent approach is a more of a flexible approach where the organisations strategy and goals are fine tuned time to time with respect to the changing environment so that the organisation can survive in the competitive environment. However both these approaches use the same kind of tools in order to study the environment and evaluate it. The method of assessing the environment is same for both the approaches but the interpretation and the implementation part widely vary. It is considered that the planned approach is the more traditional way of approaching strategic management whereas the emergent way is the modern way of approach which has newly evolved in the changing circumstances. Each approach can thus be said to have its own areas of application. Business that operates in a stable environment can bank on the traditional way whereas those operating in a volatile and rapidly changing environment have to adopt the modern approach. References Ayanda, M., No Date. Enhancing Organisational Performance through Strategic Management: Conceptual and Theoretical Approach. University of Ilorin. [pdf] Avaliable at: http://www.unilorin.edu.ng/unilorin/publications/maaremu/Enhancing%20Organisational%20Performance%20through%20Strategic%20Manag.htm [Accessed 5 July 2009]. Campbell, D., Stonehouse, G. & Houston, B., 2002. Business strategy: an introduction. 2nd Ed. Butterworth-Heinemann. Dess, G. G., Lumpkin, G. T. & Taylor, M. L ., 2004. Strategic Management: Creating Competitive Advantages. 2nd Ed. McGraw Hill Professional. Evans, N., Campbell, D & Stonehouse, G., 2003. Strategic management for travel and tourism. Butterworth-Heinemann. Knowledge@Wharton, 2009. How Hyundai Sells More When Everyone Else Is Selling Less. University of Pennsylvania. [Online] Available at: http://knowledge.wharton.upenn.edu/article.cfm?articleid=2256 [Accessed on 6 July 2009]. Swayne, L. E., Duncan, W. J. & Ginter, P. M., 2006. Strategic management of health care organizations. 5th Ed. Wiley-Blackwell.   Susan, S., No Date. Introduction to Strategic management. Pan American Health Organization. [pdf] Available at: http://www.lachsr.org/documents/introductiontostrategicmanagement-EN.pdf [Accessed on 6th July2009]. Volberda, H.W. & Elfring, T., 2001. Rethinking strategy. SAGE. Bibliography Ateneo Professional Schools Library, 2008. Information Resources Guide on STRATEGIC MANAGEMENT. Ateneo Professional Schools Library. [pdf] Available at: http://apslibrary.ateneo.edu/4WEB/pathfinder/strama05-08.pdf [Accessed on 7 July]. Dess, G. G., Lumpkin, G. T. & Taylor, M. L ., 2005. Defining Strategic Management. University of Central Arkansas. [pdf] Available at: http://www.lachsr.org/documents/introductiontostrategicmanagement-EN.pdf [Accessed on 6 July 2009]. Grant, R.M., 2002. Contemporary strategy analysis: concepts, techniques, applications. 4th Ed. Wiley-Blackwell. Irwin, R. D., 1995. Principles of Strategic Management. California State University. [Online] Available at: http://www.csuchico.edu/mgmt/strategy/module1/ [Accessed on 7 July 2009]. Lowendahl, B., 2005. Strategic management of professional service firms. 3rd Ed. Copenhagen Business School Press DK. Leibold, M., Probst, G. & Gibbert, M., 2005. Strategic Management in the Knowledge Economy: New approaches and BusinessApplications. 2nd Ed. John Wiley and Sons. Pettigrew, A.M., Whittington, R. & Thomas, H., 2006. 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