Strategy is important in business organizations of all sizes ranging from commercial for-profit-only businesses to social not-for-profit business organizations.
Business strategy is about making key decision to ensure that a business produces products that add value to customers and bring returns to shareholders. It involves surviving in the short-term, growing in the medium-term and delivering profits in the long-term.
When deciding on the business strategy, the CEO, directors of different departments and middle managers need to think about business ideas and work together on business concepts to make informed decision about the future direction of the entire business organization.
What is Strategic Management?
Strategic Management gathers ideas and integrates concepts from other four business functions in order to analyze, develop and evaluate future long-term strategies for various business situations.
It considers the company’s past, present and future in the wider market context as well as comes up with specific strategies that relate directly to particular business department to maintain the overall effectiveness of the entire firm.
In order to manage the long-term activities of the entire business, Strategic Management focuses on:
- Strategic Analysis. Analyzing where the business is now, and where it aims to be in the future.
- Strategic Choice. Choosing the option to get there from previously identified opportunities.
- Strategic Implementation. Implementing strategies to bring the business where it wants to be in the future by achieving objectives.
Strategic Management often involves managing major changes as the business is going to go through. The job for business managers is to implement strategic change – scrap the old reality, identify choices, put resulting strategies into action, let the new reality to emerge – to ensure that the future direction of an organization is successful.
1. Strategic Analysis
STAGE 1: Analyzing where the business is now, and where it aims to be in the future.
Strategic Analysis involves looking at where the business by analyzing its internal and external situation. The following business tools can be used in order to do so:
1. SWOT Analysis. This is the starting point for strategic analysis. Managers need to undertake and interpret strengths and weaknesses the business in a given situation. The opportunities and threats faced will vary according to the nature of the business. Development of the outcome of SWOT Analysis will be put into strategic objectives.
2. STEEPLE Analysis / PEST Analysis. Conducting STEEPLE Analysis will follow in order to analyze in details social, technological, economic, environmental, political, legal and ethical factors related to the external environment of the business.
3. Vision Statement & Mission Statement. Evaluation of the role of business Vision Statement and Mission Statement and business objectives in strategic analysis is very important. Questions to be considered may include the following:
- Is the business new or well-established?
- Is the business operating for-profit or not-for-profit?
- What is the type of a business organization?
- Who are the main stakeholders?
- What are the objectives of the firm?
- How do Vision Statement and Mission Statement reflect what the organization is doing now and where it is going?
- What are the attitudes of management towards taking risk?
- What is the firm’s present financial situation?
- Should the business expand internally or externally?
4. Ratio Analysis. This includes conducting financial analysis of the entire business organization. Ratio Analysis should be conducted at this stage in order to evaluate the overall financial situation of the firm.
5. Boston Matrix. Analyzing the whole product portfolio of a business will help to judge whether the present product portfolio is adequate and appropriate to meet business objectives. Looking at the resources available to the business will allow business managers to decide whether it is possible or not to invest in selling current products and developing new products, and how much money can be spent.
6. Porter’s Five Forces. Using Porter’s Five Forces market analysis as a framework for business strategy enables managers to determine the competitive forces facing the business in the market. The question here is how the firm can develop its competitive advantage in the industry.
The Strategic Analysis of the present market and the firm’s competitive situation will dictate the nature of future strategy – the aims, objectives and core principles.
2. Strategic Choice
STAGE 2: Choosing the option to get there from previously identified opportunities.
After the business has identified its current position on the market, the business must examine current market opportunities and threats to be able to plan for the future. The following business tools can be used in order to do so:
1. Market Research. Primary Market Research and Secondary Market Research will help to determine which new market opportunities are available and what are the future directions available to the firm. Questions to be considered may include the following:
- How should current product be improved?
- Which new products should be developed?
- Which new technologies could be applied to increase productivity?
- Is the expansion desirable and achievable?
- Which growth methods can and should be selected – Internal Growth or External Growth?
- How can differentiation be achieved?
- How can the core competencies of the business be developed?
- Should the business enter into foreign markets?
- Should E-Commerce be used at all?
- Is there a chance to increase the number of distribution channels?
2. Sales Forecasting. Sales forecasting helps to assess how markets are developing in terms of sales – whether sales are growing, remaining flat or declining. Additionally, Cash-Flow Forecasts, Gearing Ratio, sources of finance and human resource planning should be analyze to decide on the future directions available to the firm.
3. Benchmarking. This will make possible to find out what are competitors doing, and how can their offer be matched or improved upon.
4. Ansoff Matrix. This business tool looks at potential growth strategies in a given situation. It also helps to analyze the link between business strategy and the level of risk.
5. Investment Appraisal. For each growth option, Investment Appraisal will give quantitative answer whether the business should invest in new projects or not.
6. Force Field Analysis (FFA). Scientific decision-making should be used as much as possible to direct the business based on strong numerical evidence rather than unrealistic expectations. Force Field Analysis (FFA) will assist in making strategic choices in a given situation based on facts and data.
7. Decision Tree. Decision Tree should be constructed based on available information. It will help to calculate the expected monetary values for each choice to assist in selecting the most appropriate strategy.
8. Return on Capital Employed (ROCE). Using Return on Capital Employed (ROCE) for each potential future decision can quantitatively measure the success of each opportunity. In addition, gaining market share, improving motivation and increasing labor productivity can also be used to evaluate different choices.
The Strategic Choice of the present opportunities and threats will dictate corporate objectives in the short-term, medium-term and long-term.
3. Strategic Implementation
STAGE 3: Implementing strategies to bring the business where it wants to be in the future by achieving objectives.
After deciding on the future direction of the business, its vision and mission, aims and objectives, the business must now put strategies into action. In order to implement new strategy to achieve its objectives, several actions might be necessary. The following business tools can be used in order to do so:
1. New business plan. It should focus on four business functions (Marketing, Finance, Human Resources (HR) and Production), key features of the business and purpose of corporate plans.
2. New organizational structure. It should consider changes in the size and nature of business operations as new strategy may require major changes to the organizational structure including flattening hierarchies or making the structure taller, centralization or decentralization, and even flexible organization structures.
3. New corporate culture. It should include developing a change culture to allow for effective implementations of new strategies, as well as managing and controlling strategic change. New business culture will most likely emerge such as power culture, entrepreneurial culture or task culture. It is important to have the right corporate culture to carry out strategic implementation in a given situation.
At the final stage of strategic management, developing a change culture is crucial. Business managers should be looking closely at the importance of leading, managing and implementing change successfully in a given situation.
Crisis Management
The truth is that crisis can endanger any business and ruin even the best strategy in the world. So, how can a business plan for a future crisis? How far is it possible to plan for a crisis though? Is it even possible?
The answer is contingency planning. It is the process of developing a plan for dealing with unexpected events or situations. What is contingency planning? The following features of contingency planning for a given business organization or situation include cost, time, risks and safety. It is also important to evaluate the costs and benefits of contingency planning.
When crisis occurs, crisis management needs to happen. The typical factors that affect effective crisis management include transparency, communication, speed and control.
