2: Strategy and organisations Flashcards
What is 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 changing environment, to meet the needs of markets and to fulfil stakeholder expectations’
What is corporate strategy?
‘is concerned with an organisation’s basic direction for the future, its purpose, its ambitions, its resources and how it interacts with the world in which it operates’
What are the three levels of strategy?
- Corporate strategy
- Business strategy
- Functional (operational) strategy
What are the features of the rational approach to strategic planning?
- Strategy involves setting goals first and then designing strategies to reach them
- Some prediction of the future is possible
- Outcomes of strategic choices can be predicted and controlled
- Possible to separate the planning and selection of strategies from the implementation of strategies
What are the features of the emergent approach to strategic planning?
- Builds management team with right strategic skills
- Managers of divisions granted significant autonomy
- Empowerment of managers to develop and adapt strategies as circumstances change and opportunities and threats arise
- Strategic choice and implementation happen concurrently
What are the benefits of strategic planning?
- Creates a management process to detect and respond to changes in market and environmental forces and so improve performance.
- Provides a framework for SBUs to produce plans with clear, long term goals thus avoiding short termism.
- Enables derivation of milestones for achievement of goals and monitoring progress by stages.
- Mechanism to ensure harmony of objectives, both between SBUs and over time (‘goal congruence’.)
- Improves stakeholder perceptions, for example a clear strategy may improve the share price.
- Investing in the planning process develops future management potential and can aid continuity planning.
What are Mintzberg‘s criticisms of strategic planning?
- Practical failure - Empirical studies have not proved that formal planning processes contribute to success.
- Routine and regular - Strategic planning often occurs as an annual cycle, but a firm cannot allow itself to wait every year for the month of February (for example) to address its problems.
- Reduce initiative = Formal planning discourages strategic thinking. Once a plan is locked in place, people are unwilling to question it.
- Internal politics - The assumption of ‘objectivity’ in evaluation ignores political battles between different managers and departments.
- Exaggerates power - Managers face limits to the extent to which they can control the behaviour of the organisation. The plans may be ignored by subordinates.
- Impractical - The hierarchy of objectives, budgets, strategies and programmes does not reflect the reality of most organisations who prefer simple, more easy to apply programmes such as capital budgeting.
What are the five main stages in the rational approach to strategic planning?
- Conduct a corporate appraisal - This involves assessing both the present business environment and how it may develop over the planning timescale (typically five + years), and the internal position of the business (such as staffing levels, product quality and financial position).
- Set mission and objectives - Management will assess whether the long-term interests of the business are best met in its present industry and competing in its present way or whether the business needs to strike out in a new direction. This is called its mission. Objectives will be set for the coming years. The job of strategy is to attain them.
- Gap analysis - Involves comparing forecast performance with the strategic objectives set by management. If forecast performance is below the objectives set then this exposes a gap which must be filled by new and better strategy.
- Strategic choice - Management generate new business options for the firm, such as new products or markets, and evaluate these to arrive at a set of potentially successful and affordable strategies to help the firm reach the objectives set.
- Strategy implementation - Management carries out the strategy at corporate, business and functional levels by developing organisational structures, policies and programmes to carry it out.
Define intended strategies.
Are those which are conscious plans imposed by management. If they are implemented, they are referred to as deliberate strategies.
Define emergent strategies.
Are those behaviours which are adopted and which have a strategic impact.
Emergent strategies adapt to human needs and evolve continuously.
What are key features of emergent strategies?
- Identity of decision and action - The managers that create and choose the strategies are also responsible for carrying them out.
- Learning process - The choice of strategies interacts with implementation. Rather than having a grand scheme for the next five years management tries something out this year, learns lessons from where it succeeds and fails, and develops new initiatives for next year.
What are five types of strategy that Mintzberg identified?
- Intended - The result of a deliberate planning process
- Deliberate - Where the intended plans have been put into action
- Unrealised - Not all planned strategies are implemented
- Emergent - Strategies are created by force of circumstances
- Realised - The final realised strategy results from a balance of forces of the other types of strategies
What are the characteristics of the positioning approach?
- A focus on customer needs and adapting products, and the process of making them, to any changes in these needs.
- The gaining of a superior position against rivals through analysis of the industry and marking and adopting strategies to gain relative market share or reduce relative costs.
- The assessment of relations with stakeholders such as government, shareholders, suppliers and distributors to use better relationships as a source of advantage.
- Seeking to gain preferential access to resources such as materials, low cost labour and scarce skills.
The significant feature is the belief that successful strategy involves the business adapting to its environment
What are criticisms of the positioning approach?
- Product life-cycle means particular products will become obsolete so today’s successful market position will become a liability in the future.
- Stakeholder groups, such as political parties, will decline in influence so relations with them will not sustain the firm.
- Long-term technological changes will eliminate cost advantages or technical superiority of a given product.
What is the resource-based approach?
The resource-based view is an inside-out view of strategy. Firms do not look for strategies external to them. They develop or acquire resources and competences, create new markets and exploit them.
- Fit - Resources must be available to fit with the current product-market demands and current needs.
- Stretch - This means being at the leading/shaping edge of new strategic developments in the industry. This suggests that the organisation’s ambitions cannot be met with current resources and competences. Ambition should outpace resources.
- Leverage - Existing resources are used in many different ways, so that extra value is extracted from them.
