What is strategy? Strategy means consciously choosing to be clear about your company’s direction in relation to what’s happening in the dynamic environment.
With this knowledge, you’re in a much better position to respond proactively to the changing environment. The fine points of strategy are as follows: _ Establishes unique value proposition compared to your competitors _ Executed through operations that provide different and tailored value to customers _ Identifies clear tradeoffs and clarifies what not to do Focuses on activities that fit together and reinforce each other _ Drives continual improvement within the organization and moves it toward its vision A strategy provides the vehicle and answers the question “How are we going to get there with the resources we have? ” A good strategy focuses on efficiency through: _ Achieving performance targets _ Out-performing your competition _ Achieving sustainable competitive advantage _ Growing your revenue and maintaining or shrinking your expenses _ Satisfying customers _ Respond to changing market conditions What is a strategic plan?Simply put, a strategic plan is the formalized roadmap that describes how your company executes the chosen strategy. A plan spells out where an organization is going over the next year or more and how it’s going to get there. Typically, the plan is organization-wide or focused on a major function such as a division or a department. A strategic plan is a management tool that serves the purpose of helping an organization do a better job, because a plan focuses the energy, resources, and time of everyone in the organization in the same direction.
A strategic plan Is for established businesses and business owners who are serious about growth _ Helps build your competitive advantage _ Communicates your strategy to staff _ Prioritizes your financial needs _ Provides focus and direction to move from plan to action A business plan, on the other hand, _ Is for new businesses, projects, or entrepreneurs who are serious about starting up a business _ Helps define the purpose of your business _ Helps plan human resources and operational needs _ Is critical if you’re seeking funding _ Assesses business opportunities _ Provides structure to ideasWhat is the strategic planning process? In order to create your strategic plan, you have to go through the strategic planning process. The planning process typically includes several major activities or steps. People often have different names for these major activities. What are the components of a strategic plan? There are several different frameworks to think about and use while you’re developing your strategic plan. Think of the frameworks as different lenses through which to view the strategic planning process. You don’t always look through two or three lenses at once.
Normally you use one at a time, and often you may not know that you’re using certain frameworks that are embedded in your process. If you’re trying to explain to your planning team how pieces of the puzzle fit together, first you must understand the following components of the strategic plan: _ Strategy and culture: Your organization’s culture is made up of people, processes, experiences, ideas, and attitudes. Your strategy is where your organization is headed, what path it takes, and how it gets there.
You can’t have strategy without culture or vice versa.Your culture is like your house, and if it’s not in order, the best strategy in the world can’t take your company anywhere. _ Internal and external: Similar to the strategy and culture framework (previous bullet), you have an internal and external framework. The strategy is external. You gather information from your customers, competitors, industry, and environment to identify your opportunities and threats. Through employee surveys, board assessments, and financial statements, you identify your company’s strengths and weaknesses, which are internal. The Balanced Scorecard perspectives: The Balanced Scorecard is a framework used to develop goals and objectives in four areas (instead of departments): financial, customers, internal business processes, and people.
The financial, internal business processes, and people areas are internal. The customer area is external. Chapter 12 elaborates on this framework and the Balanced Scorecard. _ Market focus: Growth comes from focusing on your customers and delivering superior value to them consistently year after year. Built into your strategic plan is a market-focus framework because of how critical this is to your organizational growth.Who uses strategic plans? Everyone — or at least every company and organization that wants to be successful. Companies in every industry, in every part of the country, and in most of the Fortune 500 use strategic plans. Organizations within the nonprofit, government, and small to big business sectors also have strategic plans.
Just exactly what is strategic planning? The term strategic planning refers to a coordinated and systematic process for developing a plan for the overall direction of your endeavor for the purpose of optimizing future potential.For a profit-making business, this process involves many questions: _ What is the mission and purpose of the business? _ Where do we want to take the business? _ What do we sell currently? What could we sell in the future? _ To whom shall we sell it? _ What do we do that is unique? _ How shall we beat or avoid competition? The central purpose of this process is to ensure that the course and direction is well thought out, sound, and appropriate. In addition, the process provides reassurance that the limited resources of the enterprise (time and capital) are sharply focused in support of that course and direction.The process encompasses both strategy formulation and implementation.
What is the difference between strategic planning and long-range planning? The major difference between strategic planning and long-range planning is in emphasis. Long-range planning is generally considered to mean the development of a plan of action to accomplish a goal or set of goals over a period of several years. The major assumption in long range planning is that current knowledge about future conditions is sufficiently reliable to enable the development of these plans.Because the environment is assumed to be predictable,the emphasis is on the articulation of internally focused plans to accomplish agreed-on goals. The major assumption in strategic planning, however, is that an organization must be responsive to a dynamic, changing environment. Therefore, the emphasis in strategic planning is on understanding how the environment is changing and will change and on developing organizational decisions that are responsive to these changes. What is strategic thinking? Strategic thinking means asking yourself, “Are we doing the right thing? It requires three major components: _ Purpose or end vision _ Understanding the environment, particularly of the competition affecting and/or blocking achievement of these ends _ Creativity in developing effective responses to the competitive forces.
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freemba. in/articlesread. php? artcode=167&stcode=8&substcode=12The Strategic Planning Process In today’s highly competitive business environment, budget-oriented planning or forecast-based planning methods are insufficient for a large corporation to survive and prosper. The firm must engage in strategic planning that clearly defines objectives and assesses both the internal and external situation to formulate strategy, implement the strategy, evaluate the progress, and make adjustments as necessary to stay on track. A simplified view of the strategic planning process is shown by the following diagram: [pic] Mission and ObjectivesThe mission statement describes the company’s business vision, including the unchanging values and purpose of the firm and forward-looking visionary goals that guide the pursuit of future opportunities. Guided by the business vision, the firm’s leaders can define measurable financial and strategic objectives. Financial objectives involve measures such as sales targets and earnings growth.
Strategic objectives are related to the firm’s business position, and may include measures such as market share and reputation. Environmental Scan The environmental scan includes the following components: Internal analysis of the firm ? Analysis of the firm’s industry (task environment) ? External macroenvironment (PEST analysis) The internal analysis can identify the firm’s strengths and weaknesses and the external analysis reveals opportunities and threats. A profile of the strengths, weaknesses, opportunities, and threats is generated by means of a SWOT analysis An industry analysis can be performed using a framework developed by Michael Porter known as Porter’s five forces.
This framework evaluates entry barriers, suppliers, customers, substitute products, and industry rivalry.Strategy Formulation Given the information from the environmental scan, the firm should match its strengths to the opportunities that it has identified, while addressing its weaknesses and external threats. To attain superior profitability, the firm seeks to develop a competitive advantage over its rivals. A competitive advantage can be based on cost or differentiation. Michael Porter identified three industry-independent generic strategies from which the firm can choose. Strategy Implementation The selected strategy is implemented by means of programs, budgets, and procedures.Implementation involves organization of the firm’s resources and motivation of the staff to achieve objectives. The way in which the strategy is implemented can have a significant impact on whether it will be successful.
In a large company, those who implement the strategy likely will be different people from those who formulated it. For this reason, care must be taken to communicate the strategy and the reasoning behind it. Otherwise, the implementation might not succeed if the strategy is misunderstood or if lower- level managers resist its implementation because they do not understand why the particular strategy was selected.Evaluation & Control The implementation of the strategy must be monitored and adjustments made as needed. Evaluation and control consists of the following steps: 1. Define parameters to be measured 2. Define target values for those parameters 3. Perform measurements 4.
Compare measured results to the pre-defined standard 5. Make necessary changes Growth Strategies Strategy is an essential ingredient of management of all enterprises. The term ‘strategy’ has been adapted from war and has been applied to a wide range of administrative thinking.
It is the means by which an organisation plans to achieve its objective to grow in volume and turnover. Four broad growth strategies are available – market penetration, product development, market development and diversification. According to Chandler. “Strategy is the determination of the basic long-term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary to carry out these objectives”. Strategy is a firm’s planned course of action to fight competition and to increase its market share. It is implemented by he direction of operations for fulfillment of the strategic plans.
Thus, strategy is the action element of business operations. Strategic planning is concerned with overall planning of operations for effective implementation of policy and attainment of enterprise goals. Strategic planning is inherent in both the firms long-range planning for future operations. In the words of Koontz, O’ Donnell and Weihrich. “ Strategies most often denote a general programme of action and deployment of emphasis and resources to attain comprehensive objectives. “Strategies are plans made in the light of the plans of the competitors because a modern business institution operates in a competitive environment.They are a useful framework of guiding enterprise thinking and action. For instance, a company may follow a strategy of charging a lower price or using more sales force than competitors or advertising more heavily than competitors.
Significance of growth strategy Every business should have a strategy or an overall plan of action to meet the challenges of environment in future. Moreover, a strategy must be accompanied by the use of proper tactics or it will fail. An effective strategy would enhance the like hood of business survival. It would be able to meet aspirations of employees for opportunities of advancement in the company.Creation of effective business strategy requires a basic knowledge of economic theory, management principles, and administrative practices. A knowledge of the tools of analysis like accounting, statistics and finance is also necessary. The strategic planner should understand the significance of business strategy in clear terms. Strategy is important as it makes possible the implementation of policy and long-range plans for achieving organizational goals.
It is also important in defining the kind of business in which the organisation engages itself and its reliance on ethical business practices.Types of growth strategies There are there types of growth strategies which may be followed by the business firms. These include 1. Intensive growth strategy. 2. Diversification strategy. 3.
Integrative growth strategy. The strategies represent strategic decision of the management regarding the growth of the firm. They provide answer to question like what rate of growth, how fast and slow ? The first two strategies represent internal growth of business. Intensive growth strategy It is a strategy of “aggregation” or expansion under which growth is achieved by expanding the scale of operations.This strategy involves expansion of firm’s product range and market. Three alternative strategies in this regard are as follows: (a) Market Penetration: This strategy aims to seek increased sales of the present products in the present markets through more aggressive promotion and distribution. The firms tries to penetrate deeper into the market to increase its market share. More money is spent on advertising and sale promotion to increase sale volume.
(b) Market Development: This strategy aims to increase sales volume by selling the present products into new markets.For example, Pepsi Cola has achieved growth by capturing foreign markets. The existing product is pushed into new markets by changing its packaging, or band name, etc. (c) Product Development: Under this strategy, a business seeks to grow by developing improved products for the present markets. The current product may be replaced or the new products may be introduced in addition to the existing products. The introduction of “Colgate-gel” by Colgate-Palmolive (India) Ltd. is an example in this regard.
To sum up, the intensive growth strategy involves the internal growth of the concern within its existing corporate structure.It is also known as growth through aggregation. The management of a firm may decide to grow through expansion of scale of operations in order to attain optimum size.
The firm will achieve many economies in purchasing, production, financing, marketing and management. Advantages of Intensive growth strategy The advantages of intensive growth strategy are as under (i) The growth is gradual and it is easier to handle growth. The working of the organisation is smooth. (ii) Intensive growth is possible through internal financing. Profit of the firm may be reinvested for improving and expanding product range. iii) The existing resources of the firm are fully utilised.
(iv) The existing resources of the firm are full utilised. (v) Economies of large scale operations are achieved. Limitations of Intensive growth strategy The limitations of intensive growth strategy are as under (i) It takes a ling time to achieve the target rt of growth and it is a very slow growth strategy. (ii) The business firm may not be able to exploit present opportunities in the market if it is to grow gradually. (iii) The scope for expansion of product and market may be limited. Diversification strategyUnder this growth strategy, the company seeks increased sales by developing new products for new products for new markets. The diversification does not add variety in any one product but introduces entirely different types of products. Products added may be complementary i.
e. , they fit in the product mix. Such expansion will permit greater utilisation of special talents and know-how, of common overheads, of the marketing organisation, of the research programme and staff, of the brand name or of other facilities. For examples, a manufacturer may diversify his activities by manufacturing, VCPS and VCRS along with TV sets.Such an expansion is known as Concentric diversification as it is related to existing products and facilities. It may also happen that the new product is in no way related to the existing product line. Such type of growth is called conglomerate diversification. For example, a cement manufacturer may enter into the production of sugar.
The distinction between intensive growth strategy and diversification strategy must be carefully noted. In the case of intensive growth, the firm increases the product in and sale of its existing products.But in case of diversification, there is addition of new products and new markets. A firm may choose the strategy of diversification under the following situations: (a) When the firm cannot meet its growth target by the strategy of intensive growth only. (b) When diversification promises a greater profitability than expansion. (c) When the firm has huge funds at its disposal which can be utilised for expansion of products and market.
A firm may also choose both the intensive growth strategy and diversification strategy simultaneously if it has adequate capital to finance growth and human resources to handle growth.Ansorff has designed the following matrix to decide the choice between intensive growth strategy and diversification strategy. |Market/Product |Present |New | |Present |Market Penetration |Product Development | |New |Market Development |Diversification |Advantages of Diversification strategy The advantages of diversification strategy are as under (1) diversification offers greater scope for growth and probability as compared to intensive growth strategy. (ii) Because of diversification, the business risks are scattered. New Products are added.
Loss in one product is made good by profit in other products. (iii) The existing facilities such as machines overheads, marketing organisation, etc. are fully utilised. (iv) The firm producing a large number of products can absorb the shocks of business cycles.
For instance, if there is a depression in the sale of a product, the firm will survive if it is doing good business in other products. (v) The growth is systematic and does not affect the normal functioning of the firm. Limitations of Diversification strategy The limitations of diversification are as given below (i) Adequate funds are required for diversification. The internal savings of the business may not be sufficient to finance growth. (ii) Diversification may involve new technology and new markets.
The existing staff may experience problems in adapting to this growth pattern. (iii) The tasks and responsibilities of top executives increase because of need to handle new product, technology and markets. Integrative growth strategy (growth by combination) It is strategy of growth by combination.
Two or more firms may decide to combine or merge to form a bigger enterprise. When one firm takes over another firm, it is called merger or absorption. But if a new firm is created by combining (or merging) two existing firms, it is called amalgamation.The alternatives of integrative growth strategy are as discussed below: (a) Backward Integration: A company engaged in production of a product may integrate, backward upto the sources of raw materials.
This would ensure continuous supply of raw materials for the production processes of the company. The acquisition of a textile mill by a ready-made garments manufacturer is a case of backward integration. (b) Forward Integration: A company may decide to grow through forward integration with the distribution channels of its products.It may acquire certain distribution channels to have a greater control over the distribution of its products.
The manufacturer of ready made garments may take over certain retail shops to ensure ready market for his products. (c) Horizontal Integration: It takes place by merging of units engaged in manufacturing similar products or rendering similar services. That means competing firms are brought together under single ownership and management. For instance, if two or more sugar mills are combined under the same ownership, it will be a case of horizontal integration.The benefits of its type of integration are economies of large scale operations and evasion of unnecessary competition. (d) Conglomerative Growth: A company is said to follow the conglomerative growth strategy if is acquires another firm which is engaged in altogether different line business and is using different trade channels.
In other words, it seeks its future growth through entering lines of business unrelated to its present market channels or technology. For instance a textile company may take over units engaged in chemicals, fertilizers, sugar, electrical equipments, etc.Advantages of Integrative growth strategy (growth by combination) The merits of integrative growth strategy are as under (i) It ensures acquisition of running manufacturing units. The problems of promotion are not be faced.
(ii) Business growth is quick because running units are acquired. (iii) The business takes over sources of raw materials. Some sort of self sufficiency is achieved as far as raw materials are concerned.
(iv) Acquisition of established market channels facilitate the marketability of the products.Limitations of Integrative growth strategy (growth by combination) The limitations of integrative growth strategy are as under (i) Integrative growth strategy can be implemented only if huge capital is available with the business firm. (ii) Competent and professional executives are needed to handle the affairs of new units. The existing staff of acquired units may not be able to adjust with the new management. (iii) There is a need of overall revision of the organisation structure to meet new challenges. If it is not done, there will be problems of coordination in the working of acquired units.