Dev't PPA (Chap-Three)
Dev't PPA (Chap-Three)
Dev't PPA (Chap-Three)
Strategy is a “military” term. It was Peter Drucker who pointed out the importance of
strategic decision in 1955 in his book, “The Practice of Management”. Here he defined
strategic decision as “all decision on business objectives and on the means to reach
them.”
However the importance of the concept was fully realized when pioneers like Alfred
Chandler and Michael Porter have developed the work strategic, which is regarded as
the Classical Approach. It involved the use of formal and systematic design techniques.
It concentrated on long-term plans and not concerned with implementation.
More or less it ignores the human element. It is also based on quantitative aspect and
focused externally. On the other hand, later writers emphasized on human and
qualitative aspect of strategy. They saw “strategy” as evolutionary. It showed that
“organizational behavior” as part of organizational processes.
Strategic planning means planning for strategies and implementing them to achieve
organizational goals. It starts by asking oneself simple questions like- What are we
doing? Should we continue to do it or change our product line or the way of working?
What is the impact of social, political, technological and other environmental factors on
our operations? Are we prepared to accept these changes etc.?
Strategic planning helps in knowing what we are and where we want to go so that
environmental threats and opportunities can be exploited, given the strengths
and weaknesses of the organization. Strategic planning is “a thorough self- examination
regarding the goals and means of their accomplishment so that the enterprise is given
both direction and cohesion.”
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It is “a process through which managers formulate and implement strategies geared
to optimizing strategic goal achievement, given available environmental and internal
conditions.” Strategic planning is formalization of planning where plans are made for
long periods of time for effective and efficient attainment of organizational goals.
Strategic planning is based on extensive environmental scanning. It is a projection into
environmental threats and opportunities and an effort to match them with
organization's strengths and weaknesses.
The company’s strategic plan is the starting point for planning. It serves as a guide to
the development of sound sub-plans to accomplish the organizational objectives. The
aim of strategic planning is to help a company select and organize its businesses in a
way that would keep the company healthy in spite of unexpected changes in the
environment. It purports to shape or reshape the company’s businesses and products so
that they yield target profits and growth.
Strategic planning is the process of determining a company’s long-term goals and then
identifying the best approach for achieving those goals. It is an organization’s process
of defining its strategy or direction and making decisions on allocating its resources to
pursue this strategy, including its capital and people.
Strategic planning is a process to determine or re-assess the vision, mission and goals of
an organization and then map out objective (measurable) ways to accomplish the
identified goals. It is systematic, formally documented process for deciding what are
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the handfuls of key decisions that an organization, viewed as a corporate whole must
get right in order to thrive over the next few years.
Strategic planning is a continuous and systematic process where people make decisions
about intended future outcomes, how outcomes are to be accomplished, and how
success is measured and evaluated.
Effective strategic planning articulates not only where an organization is going and the
actions needed to make progress, but also how it will know if it is successful.
There are many different frameworks and methodologies for strategic planning and
management, however one should note that there is no fixed rules regarding the right
framework most follow a similar pattern and have common attributes. Many
frameworks cycle through some variation on some very basic phases:
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Evaluation or sustainment/ management phase: where ongoing refinement
and evaluation of performance, culture, communications, data reporting, and
other strategic management issues occurs.
3.1.2. Categories of strategic planning
There are three types of strategic planning that are essential to every organization:
corporate, business and functional. The word strategy is ambiguous in many ways, not
the least which is the distinction of corporate-level strategy, contrasted to business-level
strategy, and functional strategy.
When you are leading a strategic initiative for executing a functional level
strategy, you are optimizing one or more of the elements of a business model.
Corporate strategy- Corporate strategy deals with the overall firm. This kind of strategy
is concerned with market definition: what businesses and markets do we want to be in?
A strategic initiative might be launched to answer that question, or more likely to
realize the strategic intent of a new chosen business or market.
These strategic decisions cannot be made at a lower level without risking sub-
optimization of resources. The first task is to conduct an environmental scan (study the
business environment) in order to identify strengths and weaknesses. Next would be to
scrutinize the firm's mission, the segmentation of its businesses and the integration of
those businesses. Completion of these tasks yields answers to the questions corporate
strategy must answer: What are the corporate performance objectives? How should the firm's
resources be allocated to satisfy corporate, business and functional requirements? Should the
design of the managerial infrastructure and the selection, promotion and motivation of key
personnel change? The Red-Ocean-Blue-Ocean metaphor(way of expression) has been
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popular over the last few years. A red ocean is a market where competitors bloody each
other up fighting for market share. A blue ocean is an emerging, growing business
arena; potential competitors have not yet identified it and the opportunity for success is
large.
There are four key aspects of corporate strategy. The first has to do with the strategic
management of the current set of businesses in the company’s portfolio and the allocation of
resources among them. The second related aspect is the creation of shareholder value
through corporate strategy. The third aspect has to do with the realization of synergies
across businesses and the identification and management of direct linkages between
businesses. The fourth aspect is the strategy of diversification, whether through
acquisition or internal development.
Business managers should run the business in a way that is in alignment with overall
corporate strategy. The framework for building a business strategy includes developing
the mission of the business, once again conducting an environmental scan and
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examining the key activities of the value chain. The action plan that results directs the
business strategy, programs and budget.
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3.2. Strategic planning and management process
3.2.1. The strategic planning Process
Unfortunately, strategic planning is also one of the most misunderstood and poorly
used tools in many organizations. Strategic plans are often large documents with
detailed plans created arduously over months at great effort...only to gather dust and
languish after they have been duly acknowledged and then filed away.
There are several reasons why strategic plans are not developed properly, or not
implemented properly. Among the most common are:
Senior management does not follow a defined process to accomplish this task.
As a consequence, months of effort are wasted in creating reams of paper that
do not have strategic import.
Senior management does not set aside the time to develop the strategic plan as
a collective team work product.
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The plan is developed but there is no process to communicate it throughout
the organization and build organization-wide alignment to its implementation.
Strategic plans can be developed in an efficient and timely manner as long as the senior
management team of an organization is committed to meeting and working together
over a period of several months to develop it.
The general scope of work is a series of dedicated sessions for one day each conducted
with the senior management team once a month for 3-5 months. The number of work
sessions may vary, depending on the complexity of the organization and the shifts in
the business environment. The process can also be conducted in a series of half day
sessions once every two weeks. In either case, once the process has begun it must be
applied with consistency and dedication by the senior team...as a team. In addition,
members of the senor team should be prepared to spend an amount of time equal to the
length of each session for follow-up work from each session. Members of their
individual organizations may be required to provide some staff input as well.
The work product (the strategic plan) is a tightly developed, concise document that can
then be shared with the employees of an organization. This work product (without the
high level implementation plan) should generally consist of the following:
Vision
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Assignment of strategic responsibilities
In addition to the Strategic Plan described above, the following additional supplemental
work products may be developed:
High level tactical implementation plan for each strategy – to include major tasks, high
level schedule, resource requirements, and responsible personnel
Visions are not created by the masses. They are not created by a committee. They are
created by the leadership of an organization.
The core strategies that the organization will follow to achieve that vision
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3.2.1.3. Translating the Vision into strategic direction
Once the vision has been articulated and agreed by the senior team, it must be
converted into the core strategies that will be deployed to turn the vision into reality.
This step is often omitted by leadership teams. Instead, the vision is converted into
specific goals which are divided into functional areas and assigned to the different
members of the senior team for implementation. Unfortunately, different members of
this team – even though they agree on the vision – may have profoundly different
perspectives regarding the best ways to achieve that vision. The result is disagreement,
conflict and organizational confusion as the organization attempts to execute to its
vision.
The process of developing this strategy document must include the articulation of the
core strategies. It may also include the measures to use as the benchmark of
performance and progress against this strategy. It may even include the assignment of
specific members of the senior leadership team as champions of specific strategies. This
step is especially useful if the strategies require cross-functional integration and
implementation.
The following questions can help guide the strategy development process.
o Capital requirements
In order for a strategic plan to achieve its potential, it must be translated into
determined execution. For this reason the final session(s) of the work with the senior
team include the construction of the execution plan.
Clarity – employees must clearly know the strategic direction, goals and
priorities
Enabling – Employees must have the proper structure, tools, resources and
freedom to do their job well
Synergy – Employees must work well together to create results greater than
the sum of their individual contributions
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The drivers are satisfied through four key disciplines of execution. The four disciplines
are:
o The 20% of the activities that will generate the 80% of the results
o Compelling, visible, accessibly scoreboard for the strategic plan and its
crucial goals
o The scoreboard makes clear from what-to-what – by whom – by when – for
how much
Translate lofty goals into specific actions
o Establish the difference between the stated strategy and the reality of
today’s work environment. The stated strategy is what is communicated
and expected. The current reality is what people are doing every day. Build
the bridge through a specific action plan that moves the organization from
today’s reality to tomorrow’s strategic future.
o Everyone must know exactly what they are supposed to do to implement
the strategy and achieve the results being measured on the scoreboard.
Hold one another accountable all the time
o Collective, shared and individual responsibilities and accountability
o Triage reporting in a team environment
o Finding third alternatives to overcome obstacles
o Clearing the path – removing roadblocks to success
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3.2.2. Strategic management
Strategic Management can be defined as an ongoing the process Dess, Lumpkin and
Taylor, (2005) Indicates that strategic management of an organization entails three
ongoing processes: analysis, decisions, and actions. That is, strategic management is
concerned with the analysis of strategic goals (vision, mission, and strategic
objectives) along with the analysis of the internal and external environment of the
organization. In essence strategic management consists of the analysis, decisions, and
actions an organization undertakes in order to create and sustain competitive
advantages. In essence strategic management is centered around businesses world
and respond to the questions of “where do you want your business to go” (goals), “how is
your business going to get there” (strategy) and “how will you know when you get there”
(evaluation) (Hofstrand, 2007:1)
Furthermore according to Johnson, Scholes and Whittington (2008: 11-12) point out that
Strategic management includes understanding the strategic position of an organization,
making strategic choices for the future and managing strategy in action. Strategic
management therefore defined as the process by which organization analyze the
internal and external environments for the purpose of formulating strategies and
allocating resources to develop a competitive advantage in an industry that allows for
the successful achievement of organizational goals (Cox, Daspit, McLaughlin. and Jones
III, 2012: 27-28). Most importantly to be noted that strategic management is not about
predicting the future, but about preparing for it and knowing what exact steps the
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organization will have to take to implement its strategic plan and achieve a competitive
advantage (Blatstein, 2012: 32).
The following figure presents the relevant key concepts for strategic management
process.
Goal Setting: At the core of the strategic management process is the creation of goals, a
mission statement, values and organizational objectives. Organizational goals, the
mission statement, values and objectives guide the organization in its pursuit of
strategic opportunities. It is also through goal setting that managers make strategic
decisions such as how to meet targets and higher revenue generation. Through goal
setting, organizations plan how to compete in an increasingly competitive and global
business arena.
Strategy Formation: it is a concept that entails developing specific actions that will
enable an organization to meet its goals. Strategy formation entails using the
information from the analyses, prioritizing and making decisions on how to address
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key issues facing the organization. Additionally, through strategy formulation an
organization seeks to find ways of maximizing profitability and maintaining a
competitive advantage.
Market segments are distinct groups of customers within a market that can be
differentiated from each other based on individual attributes and specific
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demands. Market segments can be separated by characteristics such as
geography, demography, and behavior.
The external analysis examines opportunities and that exist in the environment. Both
opportunities and threats exist independently of the firm. The way to differentiate
between a strength and weakness from an opportunity or threat is to ask: Would this
issue exist if the company did not exist? If the answer is yes, it should be considered
external to the firm. Opportunities refer to favorable conditions in the environment that
could produce rewards for the organization if acted upon properly. That is,
opportunities are situations that exist but must be acted on if the firm is to benefit from
them. Threats refer to conditions or barriers that may prevent the firm from reaching its
objectives.
The following area analyses are used to look at all external factors affecting a company:
Internal analysis focuses on evaluating the inherent traits of the organization at hand,
without taking into account the performance of external organizations. Here’s another
way to think about internal analysis: if your organization was the only one that existed
— meaning your organization had no competition — and your business environment
was entirely neutral — meaning it didn’t in any way affect your organization — then
what factors would you consider when analyzing your organization?
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The Internal Analysis of strengths and weaknesses focuses on internal factors that give
an organization certain advantages and disadvantages in meeting the needs of its target
market. Strengths refer to core competencies that give the firm an advantage in meeting
the needs of its target markets. Any analysis of company strengths should be market
oriented/customer focused because strengths are only meaningful when they assist the
firm in meeting customer needs. Weaknesses refer to any limitations a company faces in
developing or implementing a strategy (?). Weaknesses should also be examined from a
customer perspective because customers often perceive weaknesses that a company
cannot see. Being market focused when analyzing strengths and weaknesses does not
mean that non-market oriented strengths and weaknesses should be forgotten. Rather,
it suggests that all firms should tie their strengths and weaknesses to customer
requirements. Only those strengths that relate to satisfying a customer need should be
considered true core competencies.
The following area analyses are used to look at all internal factors affecting a
company:
Resources: Profitability, sales, product quality brand associations, existing overall
brand, relative cost of this new product, employee capability, product portfolio
analysis
Capabilities: Goal: To identify internal strategic strengths, weaknesses, problems,
constraints and uncertainties.
3.2.5. SWOT Analysis
So a SWOT analysis is a technique for assessing these four aspects of your business.
SWOT Analysis is a tool that can help you to analyze what your company does best
now, and to devise a successful strategy for the future.
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The SWOT analysis framework has gained widespread acceptance because it is both
simple and powerful for strategy development. However, like any planning tool, SWOT
is only as good as the information it contains. Thorough market research and accurate
information systems are essential for the SWOT analysis to identify key issues in the
environment.
What is happening externally and internally that will affect our company?
Who are our customers?
What are the strengths and weaknesses of each competitor? (Think Competitive
Advantage)
What are the driving forces behind sales trends?
What are important and potentially important markets?
What is happening in the world that might affect our company?
What does it take to be successful in this market? (List the strengths all
companies need to compete successfully in this market.)
Assess your company:
What do we do best?
What are our company resources – assets, intellectual property, and people?
What are our company capabilities (functions)?
Threat
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o An evaluation needs to be completed drawing conclusions about how the
opportunities and threats may affect the firm.
3.3. Implementing and Evaluating Strategy
3.3.1. Strategy Implementation
On the other hand, strategy implementation is defined as the process that turns
strategies and plans into actions in order to accomplish strategic objectives (John 2005).
According to Kaplan (2005) the concept of successful strategy implementation requires
the input and cooperation of all players in the company. Pearce and Robinson (2007)
describe five critical variables that are usually considered for the successful
implementation of strategy. These are: tasks, people, structures, technologies and
reward systems. Successful strategy implementation calls for effective design and
management in order for these factors to be integrated.
There are a number of different criteria for evaluating strategic alternatives. It would be
very difficult to use all these criteria to get a satisfactory result simultaneously.
However, to make the evaluation practically possible, all the criteria can be classified
into three groups; these are criteria of suitability, criteria of feasibility, and criteria of
acceptability.
I. Criteria of Suitability: these criteria attempt to measure the extent to which the
proposed strategies fit the situation identified in the strategic analysis. The
situation should indicate the list of important opportunities and the threats that
the firm faces and the particular strength and weaknesses of the firm.
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The evaluation of suitability also called the criteria of consistency. The strategy to be
selected should meet the following criteria:
To what extent, the strategy can overcome the difficulties identified in the
strategic analysis? For example , can the strategy increase the market share of the
company?
To what extent the strategy can exploit the environmental opportunities by using
company’s strength?. For example, can the strategy provide the status of leader
in introducing the new product, under stable market condition?
Does the strategy fit in with company’s objectives and values?. For example,
would the strategy fir in the recently signed agreement with the members of the
chamber of Commerce and Industry in the country?
II. Criteria of feasibility: these criteria assess the practical implementation and
working of the strategy. For example, will the strategy of price-cut result in hike
in profits under the competitive environment?
Can the company provide enough financial resources to implement the strategy?.
This can be examined by analyzing future cash flows, company’s commitments,
ability and willingness of the management to budget the funds.
Is the company capable of performing the required level?
Can the necessary market position be achieved? Will the necessary marketing
skills be available?
Can competitive reactions be coped with?
How will the company ensure that the required managerial and operative skills
be available?
Will the technology be available to compete effectively?
Can the necessary materials and services be procured?
III. Criteria of acceptability: the firm should assess the strategy to decide whether
the consequences of proceeding with a strategy acceptable. The strategy should
be acceptable to the strategy decision maker in the company. Therefore,
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acceptability involves not only the consequences of the strategy, but also the
personal considerations like values of the strategy decision maker.
The following factors will help to identify the likely consequences of the strategy
after its implementation:
(i) The first step is a strategic analysis in order to gain a clear understanding of
the circumstances affecting the organization’s strategic situation.
(ii) The second step is to produce a range of strategic options.
(iii) The third step is to develop a basis of comparison. This may be available from
the strategic analysis or may need to be specially developed.
(iv) Preliminary Analysis: It is helpful to establish the underlying rationale for
each strategy by explaining why the strategy might succeed. This is often
done in qualitative terms and by using techniques like scenario building
product portfolio analysis and the assessment of synergy.
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Figure.3.3. Framework for evaluating strategic options.
(v) At this stage, the large number of strategic alternatives may be narrowed
down, before a more detailed analysis is undertaken. Strategic alternatives
may be ranked, based on their relative merits and demerits.
(vi) Suitability of each alternative should be tested. There are a number of
techniques for testing. The specific choice of technique will depend upon the
circumstances.
(vii) The next stage is assessing the feasibility and acceptability of strategies which
appear reasonably suitable based on the analysis. The choice of the technique
should be based on the circumstances of the company.
(viii) Finally, the company will need some system for selecting future strategies as
a result of these evaluations.
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