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Strategic Business Plan in Organisations S. Sredharran – M.C.A, M.B.A, M.Phil, M.Sc(Psychology) Strategy "Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations". Strategy and Operations Strategic Management Operational Management Organisation-wide, holistic Routinised Conceptualisation of issues Techniques and actions Creating new directions Managing existing resources Developing new resources Operating within existing strategy Ambiguous/uncertain Operationally specific Long term Day to day issues Strategy is about ? * Where is the business trying to get to in the long-term (direction) * Which markets should a business compete in and what kind of activities are involved in such markets? (markets; scope) * How can the business perform better than the competition in those markets? (advantage)? * What resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete? (resources)? * What external, environmental factors affect the businesses' ability to compete? (environment)? * What are the values and expectations of those who have power in and around the business? (stakeholders) Concepts of Strategy Process is Sequence of events, actions and activities unfolding over time in a context. Content is matter dealt in a field of study Content Answers question “ what” Process Answers question “how and why” Resource: is an asset, competency, process, skill or knowledge over which control is maintained. Strategy at Diff. levels of a Business Strategies exist at several levels in any organisation - ranging from the overall business (or group of businesses) through to individuals working in it. Corporate Strategy - is concerned with the overall purpose and scope of the business to meet stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decisionmaking throughout the business. Corporate strategy is often stated explicitly in a "mission statement". Business Unit Strategy - is concerned more with how a business competes successfully in a particular market. It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc. Operational Strategy - is concerned with how each part of the business is organised to deliver the corporate and business-unit level strategic direction. Operational strategy therefore focuses on issues of resources, processes, people etc. Strategic Management In its broadest sense, strategic management is about taking "strategic decisions" - decisions that answer the questions above. Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives. Strategic Management is Gaining and Maintaining Competitive Advantage. Anything that a firm does especially well compared to rival firms. Nature of Strategic Management Organizations usually employ one of the three general decision-making processes: Managers want to resolve current problems. Firms often face problems resulting from falling sales, low profit rates, or production inefficiencies. Managers try to identify the sources of those problems and resolve them as best they can. Managers want to solve current problems and prevent future problems. For example, faced with rising production costs, managers may apply statistical techniques to create an optimal solution. Managers want to design or create a better relationship between the firm and its operating and general environments. That involves the firm in strategic decision making. Strategic Management Process Strategic management focuses on the total enterprise. It involves the planning, directing, organizing, and controlling of the strategy-related decisions and actions of the business. In practice, a thorough strategic management process has three main components, shown in the next slide : Significance of Strategic Management It provides a way to anticipate future problems and opportunities. It provides employees with clear objectives and directions for the future of the organization. It results in more effective and better performance compared to non-strategic management organizations. It increases employee satisfaction and motivation. It results in faster and better decision making and It results on cost savings. SM – Intent It allows for identification, prioritization, and exploitation of opportunities. It provides an objective view of management problems. It represents a framework for improved coordination and control of activities. It minimizes the effects of adverse conditions and changes. It allows major decisions to better support established objectives. It allows more effective allocation of time and resources to identified opportunities. It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions. SM - Intent It creates a framework for internal communication among personnel. It helps to integrate the behavior of individuals into a total effort. It provides a basis for the clarification of individual responsibilities. It gives encouragement to forward thinking. It provides a cooperative, integrated, and enthusiastic approach to tackling problems and opportunities. It encourages a favorable attitude towards change. It gives a degree of discipline and formality to the management of a business. Components of Strategy Context (why/where?) Process (how?) Content (what?) Scope of Strategic management Management process. Management process as relate to how strategies are created and changed. * Management decisions. The decisions must relate clearly to a solution of perceived problems (how to avoid a threat; how to capitalize on an opportunity). * Time scales. The strategic time horizon is long. However, it for company in real trouble can be very short. * Structure of the organization. An organization is managed by people within a structure. The decisions which result from the way that managers work together within the structure can result in strategic change. * Activities of the organization. This is a potentially limitless area of study and we normally shall centre upon all activities which affect the organization. Strategic Management Strategic Analysis This is all about the analysing the strength of businesses' position and understanding the important external factors that may influence that position. The process of Strategic Analysis can be assisted by a number of tools, including: Strategic Choice & Implementation Strategic Choice This process involves understanding the nature of stakeholder expectations (the "ground rules"), identifying strategic options, and then evaluating and selecting strategic options. Strategy Implementation Often the hardest part. When a strategy has been analysed and selected, the task is then to translate it into organisational action. Benefits of Strategic Management Nonfinancial Benefits of SM Enhanced awareness of threats Improved understanding of competitors’ strategies Increased employee productivity Reduced resistance to change Clearer understanding of performance-reward relationship Enhanced problem-prevention capabilities Ch 1 -19 Mission A strategic plan starts with a clearly defined business mission. Mintzberg defines a mission as follows: “A mission describes the organisation’s basic function in society, in terms of the products and services it produces for its customers”. A clear business mission should have each of the following elements: What should a good mission contain ? (1) A Purpose Why does the business exist? Is it to create wealth for shareholders? Does it exist to satisfy the needs of all stakeholders (including employees, and society at large?) (2) A Strategy and Strategic Scope A mission statement provides the commercial logic for the business and so defines two things: - The products or services it offers (and therefore its competitive position) - The competences through which it tries to succeed and its method of competing A business’ strategic scope defines the boundaries of its operations. These are set by management. For example, these boundaries may be set in terms of geography, market, business method, product etc. The decisions management make about strategic scope define the nature of the business. What should a good mission contain ? (3) Policies and Standards of Behaviour A mission needs to be translated into everyday actions. For example, if the business mission includes delivering “outstanding customer service”, then policies and standards should be created and monitored that test delivery. These might include monitoring the speed with which telephone calls are answered in the sales call centre, the number of complaints received from customers, or the extent of positive customer feedback via questionnaires. (4) Values and Culture The values of a business are the basic, often un-stated, beliefs of the people who work in the business. These would include: • Business principles (e.g. social policy, commitments to customers) • Loyalty and commitment (e.g. are employees inspired to sacrifice their personal goals for the good of the business as a whole? And does the business demonstrate a high level of commitment and loyalty to its staff?) • Guidance on expected behaviour – a strong sense of mission helps create a work environment where there is a common purpose Vision, Mission, Objectives, Goals Objectives A good definition is: "Objectives are statements of specific outcomes that are to be achieved" As we shall see, objectives are set at various levels in a business - from the top (corporate) and through the layers underneath (functional and unit). Objectives Objectives are often set in financial terms. That means that the objective is expressed in terms of a financial outcome that is to be achieved. Those could include: Desired sales or profit levels Rates of growth Amount of cash generated Value of the business or dividends paid to shareholders However, it is incorrect to say that objectives have to be expressed in money terms, or that they have to be able to be measured. Some objectives are hard to measure, but are often important. For example, an objective to be: An innovative player in the market A leader in the quality of customer service Strategy Hierarchy A popular way to look at objectives is to see them as part of a hierarchy of forward-looking terms which help set and shape the strategy of a business. That hierarchy can be summarised as follows: Strategy Hierarchy Profit Organization A business or other organization whose primary goal is making money (a profit), as opposed to a non profit organization which focuses a goal such as helping the community and is concerned with money only as much as necessary to keep the organization operating. Most companies considered to be businesses are for profit organizations; this includes anything from retail stores to restaurants to insurance companies to real estate companies. Not for Profit Orgn. A nonprofit organization (US and UK) or not-for-profit organization (UK and others), often called an NPO or simply a nonprofit, also non-commercial organization (Russia and CIS) often called an NCO, is an organization that uses surplus revenues to achieve its goals rather than distributing them as profit or dividends. While not-for-profit organizations are permitted to generate surplus revenues, they must be retained by the organization for its self-preservation, expansion, or plans. NPOs have controlling members or boards. Many have paid staff including management, while others employ unpaid volunteers and even executives who work with or without compensation (occasionally nominal).Where there is a token fee, in general, it is used to meet legal requirements for establishing a contract between the executive and the organization. Strategy Concepts Comparative advantage Superior features of a country that provide it with unique benefits in global competition – derived from either national endowments or deliberate national policies Competitive advantage Distinctive assets or competencies of a firm – derived from cost, size, or innovation strengths that are difficult for competitors to replicate or imitate 31 International Business: Strategy, Management, and the New Realities National Comparative Advantage Abundant, low-cost labor in China Mass of IT workers in India Huge reserves of bauxite in Australia Abundant agricultural land in the USA Oil in Saudi Arabia 32 International Business: Strategy, Management, and the New Realities International Competitive Advantage Dell’s prowess in global supply chain management Procter & Gamble’s skill in marketing Samsung’s leadership in flat-panel TV Apple’s design leadership in cell phones and personal music players 33 International Business: Strategy, Management, and the New Realities Classical Theories of SM 34 Mercantilism: the belief that national prosperity is the result of a positive balance of trade – maximize exports and minimize imports Absolute advantage principle: a country should produce only those products in which it has absolute advantage or can produce using fewer resources than another country. Comparative advantage principle: it is beneficial for two countries to trade even if one has absolute advantage in the production of all products; what matters is not the absolute cost of production but the relative efficiency with which it can produce the product. International Business: Strategy, Management, and the New Realities Classical Theories: Factor Proportions Theory 35 Factor proportions (endowments) theory: each country should produce and export products that intensively use relatively abundant factors of production, and import goods that intensively use relatively scarce factors of production Examples: China and labor USA and pharmaceuticals Canada and electric power International Business: Strategy, Management, and the New Realities Classical Theories: International Product Cycle Theory 36 International product cycle theory: each product and its associated manufacturing technologies go through three stages of evolution: introduction, growth, and maturity. Think of cars, TVs. In the introduction stage, the inventor country enjoys a monopoly both in manufacturing and exports As the product’s manufacturing becomes more standard, other countries will enter the global marketplace When the product reaches maturity, the original innovator country will become a net importer of the product Applicability to the contemporary global economy: Today, the cycle from innovation to maturity is much shorter making it harder for the innovator country to sustain its lead in a particular product International Business: Strategy, Management, and the New Realities Industrial Clusters Strategy A concentration of suppliers and supporting firms from the same industry located within the same geographic area Examples include: the Silicon Valley, fashion cluster in northern Italy, pharma cluster in Switzerland, (footwear industry in Pusan, South Korea, Chaebol concept)and the IT industry in Bangalore, India Can serve as a nation’s export platform 37 International Business: Strategy, Management, and the New Realities Contemporary Strategy Themes Internationalisation Size of market Range of competitors Relationships overseas Institutional/cultural orientation to strategy and profit orientation E-Commerce Speed and direction of technology change Expectations about how to do business E-commerce capability Service small markets Emergent Theories Changing purposes Change from pure profit driven Corporate scandals Corporate social responsibility AND drive for shareholder value Public sector more “business-like” – target setting and service orientation Knowledge and Learning Innovation Generate and integrate knowledge/promot e learning New ways of doing business People interactions Tools of Strategy PEST Analysis - a technique for understanding the "environment" in which a business operates Scenario Planning - a technique that builds various plausible views of possible futures for a business Five Forces Analysis - a technique for identifying the forces which affect the level of competition in an industry Market Segmentation - a technique which seeks to identify similarities and differences between groups of customers or users Directional Policy Matrix - a technique which summarises the competitive strength of a businesses operations in specific markets Competitor Analysis - a wide range of techniques and analysis that seeks to summarise a businesses' overall competitive position Critical Success Factor Analysis - a technique to identify those areas in which a business must outperform the competition in order to succeed SWOT Analysis - a useful summary technique for summarising the key issues arising from an assessment of a businesses "internal" position and "external" environmental influences. Different Contexts for Strategy Small Business Single market. Limited product/service range. Competitive strategy. Strategic capability. Restricted funds. Multinational Diverse products/markets/businesses. Corporation Structure/control/parenting. Competitive strategy. Portfolio management. Resource coordination. Manufacturing / Service Organisations Manufacturing – physical product often augmented with service, brand image for competitive advantage. Services – no physical product, competitive advantage based on intangibles Different Contexts for Strategy Public Sector Ideology. Direct/indirect external influence (e.g. government). Competition for resource inputs. Best value in outputs. Interagency cooperation Voluntary Diverse sources of funds. Values and ideology. and Not-for- Lobbying. Stakeholder management. Profit Transformational Change Transformational change is radical and often drastic, and differs from developmental (small incremental steps) or transitional (dismantling the old state and rebuilding the new in a series of transition steps). It involves discontinuity, a shift in assumptions and a willingness to work with complexity. Transformational change requires a shift in mindset, behaviour and ways of working together. Change management, and cultural change, are inherent parts of a successful transformation process. Transformational change usually stems from pressures in the external environment, and requires a radical shift in behaviour. It must be led by the organisation’s leaders with a focus on leadership, mission, strategy, culture and values. Transformational Change Transformational change requires whole system approaches. This means getting the whole system in the room (that might be employees customers and partners) to make sense of where they are now, generate ideas about how to change, and work together to implement it. Making true transformational change requires a change to four key areas: the organisation and its vision for itself the people who are part of that organisation the services which the organisation delivers; and the processes which are involved in the delivery of the services. Incremental Change Incremental change is usually the result of a rational analysis and planning process. It does not challenge existing assumptions and culture. There is a desired goal with a specific set of steps for reaching it. It is usually limited in scope and is often reversible. If the change does not work out, there is a belief that the organisation can always return to the old way. Incremental change usually does not disrupt past patterns - it is an extension of the past. Management feel that they are in control. Muddling Through Strategy Incrementalism is a planning methodology normally found where a large strategic plan is either unnecessary or has failed to develop and for that reason it is often just called "muddling through". Incrementalism is the antithesis of intrusive central planning, which can create rigid work systems unable to deal with the actual problems faced at the grassroots level. However without a central planning framework incremental working is difficult to support within structured systems and therefore requires a degree of self reliance, skills and experience of those dealing with the problems such as is found in autonomous work groups. Muddling Through Strategy In the 1970s, many countries decided to invest in wind energy. Denmark, a small country of around 5 million people, became a world leader in this technology using an incremental approach while more formal design processes in the US, Germany and the United Kingdom failed to develop competitive machines. The reason for the difference of approach was that the Danish wind industry developed from an agricultural base whilst the American and UK wind industries were based on hitech aerospace companies with significant University involvement. Muddling through Strategy While the Danes built better and better windmills using an incremental approach, those using formal planning techniques believed that they could easily design a superior windmill straight away. In practice, however, windmill design is not very complicated and the biggest problem is the tradeoff between cost and reliability. Although the UK and the U.S.A. designs were technically superior, the lack of experience in the field meant that their machines were less reliable in the field. In contrast, the heavy agricultural windmills produced by the Danes just kept turning, and by 2000 the top three windmill manufacturers in the world were Danish. Strategic Drift Strategic drift is a gradual change that occurs so subtly that it is not noticed until it is too late. Where strategies progressively fail to address the strategic position of the organisation and this is frequently followed by transformational change and demise. In professional services firms, strategic drift occurs because professionals have their own perspectives, independent of what the firm’s leaders may think. Professionals view themselves as running their own businesses. So strategic drift is inherent in the professional service business model. Whether it becomes problematic and costly depends on how it is managed. .