The word strategy is derived from an ancient Greek word that means to guide or to move. For almost 40 years strategic planning is used as a formalized business process. However, majority of organizations still does not know how to do strategic planning effectively. Because of which most strategic plans fails to accomplish what it was developed for and have no effect on organization and its operations. Due to the recent studies and researches made, awareness has been created among large as well as small organizations towards the development of strategy for effectively achieving the objectives.
Strategy is developed to formulate, implement and evaluate the decisions, which enables the organization to achieve its objectives. The success of companies such as Yahoo, eBay and Google are the example of pursuing a clear positioning-based or resource-based strategy with conviction and excelled by changing to keep in tune with the demands of shifting markets and flourishing despite of operating in markets previously considered difficult. The success of the above mentioned organizations also emphasized the need to develop a sound strategy in order to survive in the competitive business environment today.
Strategy making determines the long term goals and objectives of the organization and adoption of a course of action to efffectively allocate the resources to achieve such goals and objective. In order to make this process of strategic development smooth and effective the commitment from highest organizational hierarchy is required and also the strategic-planning team should be composed of top-level managers who can represent the interests, concerns and opinion of all member of the organization.
Failure to obtain senior management involved right from the start may lead to failure to obtain sufficient company resources for accomplishing task. It is strategy that enables a company to reach its maximum potential by adapting with its environment effectively and answers the three basic questions that every organization faces: What to do? For whom to do? How to do? The answer to above three questions are determined by a three phased strategy development process which involves assessment of situation, setting organization’s objectives and planning the details to achieve the objectives.
Assessment involves performance of both external and internal situational analysis, self evaluation and competitor analysis at micro-environmental and macro-environmental level. All business decisions taken are based on organizational and personal values, therefore the strategy should be developed after analysing the organizational and personal values. It allows the strategy development team to have a broader view of organization and its functioning and also includes the analysis of organization’s structure and culture, operating philosophy , personal and organizational values and stake holders.
This value assessment is also important because if the strategy plan is not based on the functioning of organization and any party in the organization feels that their values have been neglected they will not adopt the strategy and thus the potential benefits will not be obtained. Moreover, at this phase, an indept analysis of organization’s internal strengths and weaknesses alongwith the external opportunities and threats are made, which is also known as swot analysis.
Understanding of strengths and weaknesses of organization’s resources allows the development team allocate the resources effectively and effeciently and enables them to strengthen the organizations resource base for future. Within the organization there are many key areas that need to be analyzed and addressed. It includes the identification of existing line of business as well as the unused resources, effectiveness of controls over the operations.
The external investigation should be made towards current and future state of affairs of the competitors, suppliers, markets and customers, economic trends and regulatory bodies. Furthermore, analysis of competitors will enable the strategy development team to define the basis on which business will compete. Such competition depends on company’s capabilities, strengths, and weaknesses in market as compared to that of their competitors.
According to Michael Porter, a Harvard Business School professor, competition within an industry is driven by five basic factors such as: Threat of new entrants that probably reduces the high profits, Threat of substitute products or services that can reduce the demand of the organizations product significantly, Bargaining power of suppliers can increase the cost of production, Bargaining power of buyers may force the organization to cut down the prices to maintain their market share and Rivalry among existing firms may result in wastage of resources.
Porter also indicates that, in response to these five factors, competitive strategy can take one of the three generic forms: Focus, Differentiation and Cost leadership. The reason why strategic plans fail at this stage is failure of strategy development team to understand their customers that what their needs are and the reason why they buy and inadequate marketing research. Another reason for such failure is the inability of strategy development team or management to predict their competitor’s counter strategies such as price wars and fighting brands and actions taken by government in such circumstances .
The second phase of the strategy development process involves the setting of goals and objectives for the organization. Goals are the desired future state of organization , which are derived from from the vision and mission statements and are consistent with oranizational culture, ethics and regulatory requirements. Goals are quantifiable and are to be achieved within a specified time period, there should be no confusions regarding the goals and ideally there should be one well defined goal. Objectives are the short term intermediate/secondary goals that are achieved in order to achieve the primary goals.
In order to set the objectives effectively objectives are needed to be categorized, prioritized, balanced, limited, quantified and must be challenging and attainable as well. In order to clarify what the management targets are strategy development team will categorize the objectives and targets will be based on the categories made. Some broad categories where an organization wishes to set their business strategy could be: Financial, Operations, Sales and Marketing, Human resource, Community. Financial objective may be set to measure profitability like: gross profit, operating profits or return on investments.
Operational objectives might measure efficiency, productivity or cost reductions . Sales and Marketing objectives may be in terms of sales volume, sales growth or market share. Human resource objectives might be the measure of employee benefits, employee satisfaction or employee turnover. Finallly the social or community objective might be the compliance with laws rearding environmental hazards, equal opportunity employment. The order in which managers generally prioritize their objectives is based on the hierarchy of objectives, that is it is the order in which they care about things.
It is this behaviour that causes goal conflict between two different departments within an organization . For example sales department want to maximize their profit and the usually achieve their targets by raising prices which is in conflict to the objectives of production department, therefore strategy development team must consider the objectives which are confliccting in nature and involve senior management of all departments in order to minimize goal conflict. There should be balance in setting goals, if more attention is given to particular areas only there will be a problem when communicating goals to people in organization.
Those who are not considered in the objectives will be less motivated and for successful achievement of objectives efforts of all the people in organization is required. strategy development team should consider gaining the commitment of employees who might otherwise ask about their benefit. Further more, care is required for not setting to many objectives and quantification. Setting many objective results in wasting time when setting such many objectives and also shifts focus away from high prirority targets, which results in loss of resources.
Objectives should be quantified, that is when objectives are accomplished it should be measurable in order to know whether they are successfully accomplished. More importantly, it should be clear to every one that how much effort is required which is measured when targets are achieved . Quantifying objectives depends on the category of the objective, that is Financial, Sales and Marketing objectives are the easiest to quantify. Whereas, quantifying customer satisfaction is not possible in many cases although number of complaints can be counted or total defective products can be measured .
Finally, objective should be challenging and, at the same time, attainable. Strategy development team must know the capabilities of employees of the organization and this fact must be considered when objective is given to them. People in organization should understand that accomplishment of the objective requires that it should be done but such objective should be achievable. During this phase strategy plans fails because of over estimation of resource competence that the staff and other resources were unable to handle the new strategy or the required level of managerial skills were not developed.
Coordination failure due to inadequate reporting or rigid organization structure is another reason for such failure. Another problem is failure to obtain employee commitment, when strategies are not properly explained to them or new strategy lack incentives given to the customer. The final phase is the implementation of strategic plan after which it is put to work for an organization. The success of the plan is the support of every member of the organization, which is possible due to the involvement of senior management from the beginning of strategy development process .
After acceptance, implementation of the strategic plan into daily activities increases the chances that others will do the same. Strategic plan can be implemented by allocating sufficient resources in the form of financial support, support should also be provided by the higher management personnel in the form of provision of company’s resources that are necessary, proper technical and technological support should be given for successful implementation of the developed strategy.
Structure of the organization should be in accordance with the strategy that is; either there could be chain of command or cross-functional teams in the organization. Resposibilities should be assigned only to the individuals or groups that are qualified for that particular task or process. Each and every process should be controlled effectively which includes monitoring of results, comparing the results with the organization’s as well as industry standards, effective and efficient use of resources must be evaluated and required adjustments should be made to the processes in order to contol the variances.
One tool available for this purpose is making GAP analysis to to identify the methods for closing the performance gap (variations). Such analysis must be done, without making it much complicated, by simply investigating the differences in achieved results and the the desired results. Feasibility of removing the deviations can be made by evaluating the answers of two questions that what is required to be done and what is not required to be done .
Thus for implementing such programs, required resources must be acquired, there should be proper process development and training anlog with their testing and documentation. One another way to successfully implement the strategic plan is advertising. The more the employees hear about the plan, its element and success along with the plan, the greater will be the possibility of adopting it as a part of daily work. It became more significant if the benefits offered are measurable . A sound strategy development process should also prepare a contingency plan and the reason for such planning is to make a reactionary plan for unanticipated high impact events” . Contingency plan identifies the indication that calls for the need to reevaluate the applicability and effectiveness of current strategy. In such events high level of monitoring must be and immediate action should be taken. The reason why strategic plans collapse is a definite redirection from the initial plan, primarily because, as the time passes by there is a major change in direction from the one, which was set at the initiation stage.
Since the implementation is a key to proper supervision, not tracking the progress of plan and no accountability on non-compliance is another reason for such failure. One other reason of not successfully implementing the plan is failure to manage change, as strategy development team did not do proper planning, as there may be inadequate understanding of internal resistance to change and failure to understand the relationship between processes, technology and organization.
Not making the contingency plan is also another reason for the failure to successful achievement of objective because; in case of unforeseen circumstances no body will be able to run the alternative procedures, which would have been available if contingency planning was done. In short strategy is developed to achieve the organization’s objective by formulating and implementing decisions. Strategy determines the long term objectives and goals and also allocates the resources more effectively. Involvement of senior management make process of strategy making more effective and smooth.
Strategy making not only considers the three basic questions regarding the operations of organization but also give answer to these question. Strategy development process is a three phased process in which first the assessment of situation is made considering the environmental, internal and external challenges, then setting objectives by keeping in view the assessed circumstances and the requirements and then finally ways in which such objectives can be achieved by implementing the plans made by strategy department.