This paper discusses mainly about strategic management and its implications especially in the organization. The paper aims to develop an understanding of the role of strategic management in the proper allocation of business resources on businesses today especially in the global business environment. This study’s objective is to present the importance of having the right organization that fits to the strategy of a company. It aims to determine the effect of the organization to the implementation of a strategy especially a global strategy that can bring changes to the production process, distribution and marketing channel that will demand new ways of organization.
In the world of business today, a company must be able to have some strategies that are aligned with its core business, its people, its technology, its leadership and the processes it undertakes. Basically, the alignment of all these elements is what we call strategic management. Strategic management answers three big questions of a business: where are we now; where do we want to go; and how will we get there ( 1995) depending on the resources available for the company. To answer all these means that a business must be able to analyze first its environment, both internal and external, to be able to formulate effective strategies like strategic alliances, international diversification, innovation and acquisition especially when it wants to compete in a global level. These strategies will not ensure competitive advantage unless align with the business itself. Strategic management helps a company operate successfully in a dynamic and complex global business environment.
Effective strategic management of a firm aims to achieve strategic competitiveness and sustained competitive advantage. Strategic competitiveness is said to be achieved when a firm has successfully formulates and implements a value-creating strategy while sustained competitive advantage occurs when a firm develops strategy that competitors are not simultaneously implementing, providing benefits which current and potential competitors are unable to duplicate ( 2000).
Defining strategic management, it is the set of managerial decisions and actions that determines the long-run performance of a corporation (2006). It involves allocation of resources so as to implement the decisions. It includes environmental analysis like as mentioned above, external and internal, strategy formulation, strategy implementation, evaluation and control. Therefore, strategic management emphasizes the monitoring and evaluating of external opportunities and threats with a corporation’s strengths and weaknesses.
It is stated above that strategic management is a set of managerial decisions. Therefore, it is the managers’ role to formulate strategies, implement them and evaluate and control to be able to achieve the objectives of strategies. Usually, these managerial decisions due to strategy involve and require little or major changes in the organizational structure of a company. Organizational structure and strategy are essential elements in the formula of sustainable business performance. Sound organizational structure usually means a certain mix and interaction of talented individuals, working in relevant functions and areas of responsibility, sharing knowledge and related assets, behaving responsively and constructively (2003). When a structure’s elements are properly aligned with one another, that structure facilitates effective implementation of the firm’s strategies (2003). Thus, organizational structure is a critical component of effective strategy implementation processes ( 2002).
Effective organizational structure provides the stability of the firm to successfully implement its strategies and maintain its current competitive advantages that will be needed for its future strategies (2003). A firm’s structure specifies the work to be done and how to do it, given the firm’s strategy or strategies (1997). Thus organizational structure influences how managers work and the decisions resulting from that work (2001).
Selection of new strategy calls for changes to an organizational structure especially when inefficiencies force it to do so. ( 1962). Some top-level managers hesitate to conclude that there are problems with the firm’s structure or strategy. Because of these inertial tendencies, structural change is often induced by the actions of stakeholders who are no longer willing to tolerate the firm’s performance
Every business differs from each other; each one has its own characteristics and so differs in strategies and ways to manage these, but the basic process involves in every strategic management, whatever kind of business it is, is just the same.
The first step to effective strategic management is to answer the first of the three big questions: where are we now. It is to analyze the business itself and focus on its goals that it wants to pursue. In other words, a company should first have a situational analysis based on its internal environment to determine its strengths as well as its weaknesses. It is impossible for a firm to know where it wants to go if does not know where it is currently at in relation to itself, its products and other business which effect it.
An internal analysis is basically determining the strengths and weaknesses of the business. Its strength or weakness includes its resources which are its people, its product, its technology, its financial situation or its current marketing position and should be the basis of its goals and mission.
Once the strengths and weaknesses are known, a company can now establish its mission by deciding on the business that will guide and characterize the business. Mission is what a company’s reason for existence. For example, a clothing store’s mission is to provide branded apparel at the lowest possible cost. If the store can not sell a Gap shirt at a cost lower than its price at the mall, then the mission of the company is not achieved and there is no reason for its existence. A firm should not establish a mission that is not obtainable based on the firm’s strengths and weaknesses that is why it is important to first have an internal situational analysis.
Next to be analyzed is the firm’s external environment. Analysis of external environment is as important as internal situation analysis for it will be the basis of a firm’s long-run decisions (2006). External environment includes the economic forces, technological forces, political-legal forces and the socio-cultural forces outside the firm and beyond its control. Analysis of these forces is necessary especially in a global business where a little change can have a great impact on the business for it includes the customers, the competition, the trends in the industry it belongs and the power relationship existing. It is during the external environment analysis when opportunities and threats for the firm can be determined.
Opportunity is defined as any factor arising outside business environment that has potential to move a firm closer or more quickly toward its goals. Threat, on the other hand, is any factor arising outside business environment that may limit, restrict, or impede a firm in the pursuit of its goals. Therefore no firm can formulate and develop strategies and allocate properly the resources without undergoing thorough analysis of its current internal and external environments.
After the analysis of both the external and internal environment, a firm can now answer the second of the three big questions: where do we want to go. As mentioned earlier, it is necessary for a firm to established attainable goals that are based on its current situation and on the available resources of the company. These goals will be the basis and the focus of the strategies that are to be formulated and planned. These strategies answer the last big question on strategic management: how will we get there.
Strategy formulation is actually one of the elements that comprise strategic management. The first of which is environmental scanning which is discussed above. The second is strategy formulation, the third is strategy implementation and the last element is evaluation and control.
Strategy formulation is defined as the development of long-range plans for the effective management of environmental opportunities and threats, taking into consideration corporate strengths and weaknesses. It includes defining the corporate mission, specifying achievable objectives, developing strategies and setting policy guidelines ( 2005).
In strategy formulation, a firm must also take into considerations current competitive landscape especially the global business environment. At present, fundamental nature of competition is changing due to rapid technological changes, rapid technology diffusions; dramatic changes in information and communication technologies; and increasing importance of knowledge driven by innovations. The global economy is also changing; people, goods, services and ideas move freely across geographic boundaries; new opportunities emerge in multiple global markets while markets and industry become more internationalized. Because of the current competitive landscape, traditional sources of competitive advantage no longer guarantee success but new keys to success include flexibility, innovation, speed and integration (2000).
With the present competitive landscape, strategies to be formulated must be reactive to the changing circumstances and should go well the resources of the company. For example, a pharmaceutical company wants to enter the global market and doing so would require a strategy to standardized information system within the company. Then this company should see to it that its human resources have the capability and the knowledge in adapting to a standardized information system and if the company has enough resources such as computers and systems or if their financial status permit the company in doing so.
The long-run future of a firm greatly depends on its strategic decisions and formulation. Generally, strategic decision making is what characterized strategic management. As a firm becomes complex and grow bigger, decision making also becomes more complicated. Strategic decision has three important characteristics: rare which means it is uncommon and have no precedents; consequential which involves committing substantial resources of the company and hence a high degree of commitment from persons at all levels; and directive which means it serves as precedents from less important decisions and future actions of the firm ( 2006).
Through strategic decision making, strategy is then developed. According to strategy is the determination of the basic-long term goals and objectives of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out these goals ( 2006). Strategies can be categorized as corporate strategy which includes decisions regarding the flow of financial and other resources to and from a company’s product lines and business units; and directional strategy which is the strategy used to improve its competitive position which is composed of three orientations: growth strategy that expands the company’s activity, stability strategy that makes no change to the company’s current activities and the retrenchment strategy that reduces the company’s level of activities ( 2006). This
With regards to allocation of resources, more companies now become engaged in growth strategies which include strategic alliances, international diversification and innovation, and acquisition especially when a company has limited resources.
A good strategy being adopted by companies today is strategic alliance which is a relationship between two or more independent firms involving the sharing or pooling of resources to create mechanism for undertaking a business activity or activities of strategic importance to partners for their mutual economic gain (2003). A good example of strategic alliance to be able to stay in a business is the case of Rover and Honda. In 1979, Rover, being owned then by British Leyland Motor Corporation, suffered from major losses, declining market share, reluctance by the state to increase financial support and established reputation of poor quality products aside from below capacity factories. Honda at that time had established a solid reputation for sound engineering, high quality and high productivity. It had aspired to be global player but was still primarily perceived as a motorcycle manufacturer with a small presence in the car sector and a limited European presence. Both Rover and Honda has problem but on 1978, strategic alliance between them has formed which solved each company’s problem. Rover shared its knowledge to European taste of cars and so Honda has improved Rover’s understanding of quality products. By 1990, the alliance partners were more involved in integrated development and production, while retaining their separate brand identities. Rover had achieved a profitable operation while Honda had achieved a substantial increase in its share of the European market. With the acquisition of Rover by BMW led to gradual dissolution of the alliance. BMW disposed off Rover in 2001 (1999 , 2003) and is currently under Ford Motor Co. today.
In this case study, each company lacks of certain resource: Honda lacked knowledge on European taste while Rover lacked understanding of quality products. Both shared their resources and through this strategy, they had managed to achieve their goals.
Conclusion
The study has covered a lot of topics in strategic management to come up to a conclusion that before arriving to a strategy, a firm must be able to first clearly assessed the current situation of the company through internal and external analysis of the company’s environment concurrent with the resources available. A firm can not also formulate a strategy without looking at the current competitive landscape which is driven by technological advancements and increasing importance of knowledge.
Generally, firms are faced by challenges such as gaining identity in the industry, gaining financial stability and preserving competitive position. To address all these challenges, strategies should be implemented by a complete strategic management team. Strong strategic management leadership is what really makes a company different from the others. It is a resource of a company that can never be imitated by rival companies.
A strategy designed to achieve growth will be ineffective without the appropriate organization of a company’s talent and resources. As a company grows or implements a strategy that causes change to the company, it has to evolve its organizational structure to ensure optimal performance and to deal with changing priorities and business complexity. However, reorganization is a high-risk activity that represents a shock to the corporation, is personal to employees and can result in an erosion of performance. To address the risks associated with reorganization, companies need to be aware of key success factors when implementing reorganization initiatives and to initiate systematic communications plan to influence perceptions ay all levels and stakeholders within the organization ( 2002).
The ideas on this study has a great impact on the work of a manager by giving him idea of putting right people at a position where he can be at the best possible effectiveness for the good of the company and effectiveness of a strategy. Having the right people in place allows a company to face changes and growth. Management needs to attract right people, train them properly if necessary and position them at the right position that can help the company pursue its purpose and meets the reasonable expectations of stakeholders. From the formulation of strategies up to evaluation, managers play key roles and without good management, a strategy can be expected to fail.
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