What are the ways strategies can be developed? Approaches to understanding strategy: + Rational – based on a model in which the conception and execution of strategy are treated as discrete, sequential activities. Chandler (1962) defined strategies as a straightforward process made up of two chronological activities. The following steps are typical of the method employed in this approach: 1 . The establishment of clear strategic objectives 2.
The analysis of an organization’s strategic situation, its external environment, and its internal resources and capabilities. . The generation, evaluation and choice of strategic options based on their potential to optimism the achievement of the established objectives 4. Implementation of the chosen strategic option, which is usually expressed in a strategic plan. Michael Porter’s (1980) five forces model is an example of the rational approach. This approach has an external focus. + Processors – this approach view strategy formulation and implementation as entangled activities, and not separate stages.
Processionals, because of their belief that external markets and environments are unpredictable and imperfect, Ochs more on competencies of the organization in a concern to build the requisite internal skills and resources. + Evolutionary – this approach argues that market forces, rather than managerial actions, will determine which organizations will survive and prosper and which will fail. The ‘environment’ will select organizations for either success or failure as markets are too unpredictable and uncontrollable for planned strategies to be effective.
Therefore, an organization’s leaders should work on achieving competitive advantage by improving operational efficiencies in he short term, and also focus on creating a range of innovative products and services, improving the odds that the market will ‘select’ at lease one of these. + Systemic – this perspective builds on the importance of culture and politics in the strategy process, arguing that strategy is embedded in the cultural values, norms and rules of the organization and the society in which it operates.
Strategy can therefore be understood as an outcome of an organization’s Couture and traditional values, or the ways in which organizational members think that they should be operating and the types of goals they should be aiming for. In summary, this view argues that in order to understand strategy we need to understand the social and economic context in which strategy takes place. 1. 15 Leadership 1. 17 – 1. 21 The strategy process Steps: + Defining organizational purpose (Where are we going? Understanding and analyzing the external environment outside the organization + Understanding and analyzing the internal environment inside the organization (What is the gap between where we are now and where we want to be? ) + Formulating and implementing strategy (How do we get there? And what are the financial aspects of value creation? ) 1 . 27 Levels of strategy + Corporate – this embraces all of a diversified company’s businesses and determines how the scope of these businesses is managed and coordinated to contribute to corporate performance. Business – for a single business or company, corporate and business strategy are one and the same. The distinction is relevant only for diversified firms. Business strategy aims to build and strengthen the long-term competitive position in the marketplace. Functional – this strategy operates at the level of the department or functional activity within the business (e. G. Marketing, finance, operations, R, HER) and adds detail to the overall business strategy. 1. 29 – 1. 0 Leadership style and approaches + Traits – this approach argues that there is a biological basis for leadership i. E. Natural born leaders. + Behavioral – this approach suggests that leaders can be trained, as apposed to the traits approach. + Situational – this approach argues that there is no universally appropriate style of leadership. But that a particular style will be effective in some circumstances. Transformational – these leaders provide individualized consideration, intellectual stimulation and possess charisma.
Transactional – these leaders guide and motivate their followers in the direction of established goals by clarifying role and task requirements. See Figure 1. 4 in study guide 1. 31 for Styles of managing strategic change. 1. 34 How does ethics and corporate social responsibility influence strategy? Leadership and ethics + The classical view of ethics This view holds that for an organization to pursue values other than profit mastication poses a threat to survival and unjustly subverts the intentions of its owners. The socio-economic view This view argues that the leaders of organizations have a responsibility to the society that creates and sustains them. This responsibility goes beyond the profit imperative to include protecting and improving society s welfare; i. E. Leaders should instill values in their organizations which ensure they comply not only with the law but also with the morality of society. MODULE 2 UNDERSTANDING THE EXTERNAL ENVIRONMENT 2. External environment analysis – Analyzing an industry – Aim: to determine how attractive the industry will be in the future (and the factors that affect the expected growth and profitability) – This assessment is made on the basis of industry growth, profitability, and competitiveness, a recess that include an understanding of: + the definition of the ‘industry’ to be analyses, its value chain and its various segments + the life cycle stage of the industry (value chain) how the industry has evolved to its cue rent state and the key factors driving historical growth and profitability how the factors may change and their impact on future growth and profitability + what drives customer demand for the products and services offered by the industry the industry critical success factors and how competitors in the industry compete 2. 6 Gathering data for industry external environment analysis – sources (see study dude) i. Defining the industry for analysis To ensure that the industry analysis is consistent, it’s important to begin by defining the industry being dealt with.
There’s no ‘right’ or ‘wrong’ way to define an industry (i. E. Wide or narrow definition), it simply determines what information is analyses under each particular heading. Under a narrow definition, competing products / services from outside that definition are not ignored, but can be handled as substitutes or new entrants in the industry analysis framework. The important issue is to be consistent throughout the analysis. 2. 8 -2. 12 ii. The industry value chain This comprises of the business processes, people, organizations, technology and physical infrastructure that transform raw materials into finished products to the consumer to satisfy demand (be in goods or services).
It’s important that an organization understand where it is positioned in the value chain, and what activities are taking place both upstream and downstream from where it is positioned. Value is created by taking a resource or set of inputs, providing additional inputs or processes that increase the value of those inputs, and thereby generating a product or service that has greater market value in the next impotent of the value chain. Value chains for different industries take varying amounts of time and investment. Where limited or reducing value is being experienced by any component in the chain, competitors in that component of the chain either go out of business or switch to alternative enterprises if they can (e. G. Offspring). 2. 13 – 2. 14 iii.
Industry segmentation Typically, segments are based on the characteristics of products or services, and there can be several of these within a given industry. When analyzing a segment the type of information needed includes: – segment definition – what it does and doesn’t include total segment size – volume and value broken down where appropriate – average annual growth rate for the past five years (or ten if possible) – this should be real growth (excel. Inflation) – an explanation of the data See Table 2. 1 for examples (2. 14) Product (and service) segmentation = what the industry offers Market segmentation = who the industry offers it to E. G. In airline industry, market segmentation can be based on providing flights to domestic and international destinations.
Product segments would include the different types of fares that are offered, such as economy, business class, and iris class. 2. 17 – 2. 18 iv. The industry life cycle 1 . Start-up stage Typically, at this point of the life cycle, there will be many different visions (from the organizations) as to how the industry will develop and many different approaches to the industry, in terms of product type, features, and performance and target markets. – Issue: how to make it happen – Management by intuition, vision – Single manager 2. Growth stage This is when an industry becomes established and experience rapid growth. Organizations will be primarily concerned with keeping up with current demand, not looking towards the future.
As the industry is growing quickly, competitive differentiation is not of critical importance at this stage as there is ‘enough room for everyone’ in the industry. – Issue: how to grow – Management by conflict, hope – Functional delegation 3. Control stage – IssUe: how to control – Management by financial planning, budgets – Financial orientation 4. Maturity stage This is the stage where a majority of industries stay in for most of their lives. Customers become more knowledgeable and demanding and not all the original products, organizations or strategies will survive. The organizational focus is n efficiency, cost control and market segmentation. Strategic management concepts come to the fore in this stage as it is no longer a case of simply producing to meet ever-increasing demand. Issue: how to manage markets, assets – Management by ROI, marketing – Marketing orientation 5. Shakeout In this stage, growth and profitability are flat or perhaps in slight decline. Some organizations will withdraw because the ROI is unsatisfactory. A small group of organizations begin to dominate the industry, through takeover or dominance of their own products. – Issue: how to manage industry position Industry analysis, competitive advantage – Strategic management 6. Decline or renewal If the industry enters the decline stage, the full use of strategic management concepts becomes even more important in deciding how to maintain a unique position in a win-lose environment.
Sales for one organization can only be achieved at the expense of other organizations in the industry, unless profitable new niche opportunities are found. – Issue: how to avoid decline – Organizational renewal 2. 19 Remote and industry environment analysis The remote environment includes those general influences that affect an industry, for e. . Setting of interest rates, government environmental legislation. Industry environment analysis considers those factors within the industry that affect its profitability and the competitive position of organizations within it. This includes not only the organization and its competitors, but also their buyers and suppliers, substitutes, potential new entrants and many other aspects – see Figure 2. 7 for details 2. 20 – 2. 2 REMOTE ENVIRONMENT ANALYSIS Understanding how an industry has evolved to its current state and being able to explain how it has changed over time is important in helping us anticipate hangs that are likely to happen in the future, including the size and nature of future growth opportunities that exist in the industry. Most industry growth is a combination of population growth and price inflation. A number of factors shape and influence how industries evolve, and they can be broadly grouped under the following areas: – Technological – new development – Economic – economic trends – Market – consumer behavior, demographics – Political – Law – legal trends, regulations – Environmental – sustainability – Society – coloratura trends The TEMPLES model provides an approach to consider and identify the key rivers of historical and future growth in an efficient and systematic way.
When investigating these factors, two questions should be considered: + How has this particular factor contributed to shaping the industry to its current state? + Will this change in the future and if so, what impact will the factor have on industry growth in the future? See Figure 2. 9 for work sheet template on TEMPLES (2. 22). Technological factors Issues that influence how the industry either produces or delivers its goods / services to its customers. A number of changes in technology have contributed o the globalization of markets and production e. G. Microprocessors and telecommunications, internet, and transport. See Figure 2. 10 for details (2. 23) See 2. 24 Study Notes for Checklist: Issues for consideration in Technology 2. 5 Economic factors Those issues that impact the economy as a whole. Some of the economic factors that could affect an industry include changes in GAP, inflation rates, unemployment levels, interest rates, exchange rates, taxation rates and wage rates. See 2. 26 Study Notes for Checklist: Issues for consideration under economic factors 2. 26 Market factors Issues that describe ‘who we are’ and the make-up of population. These are factors associated with geographic markets and trading economies around the world, which can represent both opportunities for growth in an industry, as well as decline. Markets can also be associated with regional economic integration i. E. Agreements among countries in a geographic region to reduce, and ultimately remove, tariff and non-tariff barriers to the free flow of goods, services and factors of production between each other. See 2. 29 Study Notes for Checklist: Issues for consideration under market factors 2. 29 Political factors Those issues derived from political influences such as government policy and party politics. Most political changes result from changes in the economy or in social and cultural shifts. Thus, although tax rates are generally decided by politicians, tax decisions take into account economic considerations such as the state of economy. See 2. 30 Study Notes for Checklist: Issues for consideration under political factors 2. 30 Legal factors Those issues derived from legislative or legal frameworks and precedents.
Regulations and compliance can increase the costs and complexity of doing business. Changes in this area are often in response to public opinion and business’ goal to reduce the risks associated with claims for malpractice. Governments influence not only through legislation but also through government agencies and administrative regulation. For instance, the AC closely monitors industry practices that lead to substantially reducing competitions amount organizations. See 2. 32 Study Notes for Checklist: Issues for consideration under legal factors 2. 33 Environmental factors Increasingly, industries have to come to terms with the unsuitability of business and individual practices that currently exist.
The development of sustainability reporting (which includes information on economic and community measures of performance rather than purely economic ones); the development of ‘green’ investments and investors; and increasing legislation that reflects changing social needs (e. G. Recycling, water preservation and usage, etc) represent a few indicators of substantial change that are just beginning. See 2. 34 Study Notes for Checklist: Issues for consideration under environmental factors 2. 34 Societal factors Issues that describe ‘the way we live’ and value/belief systems. Changes in society re a combination of changes in coloratura and demographic factors. Although coloratura trends change almost undetectably (making them difficult to capture in strategic analysis), identifying trends and understanding new attitudes is important for being able to adapt for future success.
Cultural issues reflect the fact that, as a society becomes more multicultural and more open to external influences through global communications, assumptions about what is ‘normal’ or ‘acceptable’ become less clear e. G. How food around the world are becoming very multicultural with western fast-food chains being present in both developed ND developing world and ‘exotic’ Asian food are now present in western culture. The societal factor of remote environment analysis is relatively new. Like the others (e. G. Economic, political and legal), it can overlap with other elements (e. G. Political), but it provides us with an opportunity to consider sustainable environment issues separately. See 2. 35 Study Notes for Checklist: Issues for consideration under societal factors 2. 6 Summarizing the remote environment analysis This summary analysis helps to integrate the factors that have the potential for industry growth. It also assists in examining the information that is missing or is perceived to be important. See study guide for details on how to carry out a summary analysis. It’s always useful to add a statement of just how positive or negative growth will be i. E. Lower than average, about average or greater than average if positive, or perhaps slightly negative to strongly negative. Also support the conclusion by drawing from the analysis completed using the TEMPLES framework and from analysis of the key industry data. ( What are the major issues you think will influence the future growth of the industry?
Considering all the issues together, is the industry likely to be a high , average-, or low-growth industry in the future? ( What are the implications for an organization within this industry?