Strategic management in uncertain and complex situations
Strategic management is about the management in ambiguous, uncertain and complex situations where the objective of the organisation may be explicitly defined but the ways & means to achieve these objectives may not be clear. Thus strategic management involves a proper insight into all functions of the management as a whole for example finance, accounts, marketing, human resource etc. So that by keeping an overview of all, strategy can be developed. Strategies should be carefully designed as they have got long-term implications and provides a sense of direction to the organisation.
Strategic Analysis
An effective international strategy can be derived from strategic analysis of organisation’s position in the global world i.e. by assessing the environment, competitors, internal competence and resources, customers and the purpose of the organisation.
Assessing the environment in which the organisation exists is vital for its strategic management. The PESTEL framework can be used to assess the environment.
The framework consists of six main types of environmental influences; they are political, economic, social, technological, environmental and legal. Political influence comprises of the standing of the government in the country, the policies and rules for governing business in the country, its domestic and foreign trade regulations, taxation and other licensing requirements etc. Economic influence includes the market and interest rates of any particular country, inflation and employment policies, business and product life cycle etc. Social factors on the other hand includes the demographics, attitudes of the people in the country, education levels etc. Technological influence consists of pace of research and development in the country, innovations, rate of obsolescence, etc. Environmental Influence mainly refers to the social laws of the community around for instance disposal of the waste, protection of the environment around etc. Legal influence comprises of the health and safety rules of any country, essential quality standards, regulation of monopolies etc. Thus PESTEL framework is particularly important for any organisation for its international strategic management. In fact it is not necessary that all the environmental forces are vital for all organisations. For instance, a multinational bank will give more emphasis on political and economic factors of a country since bank rates and political stability directly affects their business. Whereas an international junk food chain will consider political, social and legal factors more than other things.
Second aspect of strategic analysis is assessment of competition in the market. Porter’s Five Forces model can be used to get an insight into the competitiveness of the market. The logic behind this model is that there are five forces in an industry that influences the profitability of the firm. Thus through effective strategic management, the firm can influence the forces and achieve its objectives.
Porter’s Five Forces model
Threat of Entry refers to the ease of new firms entering the market. Thus if it is very easy to get entry into the market then it will surely influence the demand and the profitability of the existing firms in the industry. Threat of substitutes on the other hand refers to the threats caused to the particular class of products as the customer can switch to the substitutes. Power of buyers implies to the sweeping away of the profits and revenues from the firms in the market by the buyers as they have the bargaining power through which they can extract the benefits out of the firm. Power of suppliers refers to the suppliers of the essential resources who can dominate the market upon their own terms. Competitive rivalry is the competition arising amongst the competitive rivals. They are the organisation targeting at the same customers and with the same goods and services.
Thus weakness in any of the five forces will result into more favourable competitiveness to any firm in global market.
Third aspect of the strategic analysis is assessing organisation’s customers. The driving force for any strategic plan is that what the customer desires form the organisation as a supplier. So the strategy should be designed only after considering the customer’s buying & prioritising criteria, customer believes and values, segmenting the market, etc.
Fourth aspect of Strategic analysis is Organisation’s internal resources and competence. For any organisation to survive in global world, it is very important to analyse its strategic capability. For that the organisation must follow that what product features and critical success factors does the customer values. The organisation must make a clear assessment of the resources and competence it possess. Resources can be financial, human, physical, intellectual etc. To work upon this, an organisation can undertake SWOT analysis. It refers to Strength, weakness, opportunities and weakness.
Fifth aspect of strategic analysis is about Organisation’s purpose and expectations of the stakeholders who have their interest in the organisation. To effectively survive in a global competitive world it is vital for any organisation to determine its stakeholders and the extent to which they can influence it. The purpose of the organisation should be clear and should fall into the lines of corporate social responsibility and ethical considerations for that region. The purpose of the organisation should be prioritised and the cultural context of the country should be followed.
Strategic choices
Strategic choices are related to the choices of alternatives and decisions for an organisation and the channel it needs to follow in the future, as it needs to respond to many pressures and influences arising out of strategic analysis. The rationale behind these choices could be creating value, outperform competition, satisfy the expectations of the stakeholders involved and above all, survive successfully in the competitive global world. There are three dimensions of Strategic choices. They are Corporate Strategy, Business strategy, Directions of development i.e. strategic alliances.
Corporate strategy refers to the strategy made at the corporate level of the organisations. These decisions are about the key strategic issues like what should be the line of business, how the resources are to be allocated between different business units etc. It is basically for a diversified multi-business organisation structure. The level of management above the business unit is referred to as corporate management. A corporate strategy could be aimed at different things. For example, for adding value to some business unit through its own expertise, investment& competence building, resource sharing, setting standards, etc.
A corporate has to manage a number of strategic business units, so it has to create and manage its portfolio. A portfolio of all business in their respective positions is created and different strategies are used to manage each of them. For this assessment Growth Share Matrix developed by Boston Consulting group can be used. In this, all the businesses are evaluated under two aspects, Market share and market growth.
Corporate strategy refers to the strategy made at the corporate level of the organisations. These decisions are about the key strategic issues like what should be the line of business, how the resources are to be allocated between different business units etc. It is basically for a diversified multi-business organisation structure. The level of management above the business unit is referred to as corporate management. A corporate strategy could be aimed at different things. For example, for adding value to some business unit through its own expertise, investment& competence building, resource sharing, setting standards, etc.
A corporate has to manage a number of strategic business units, so it has to create and manage its portfolio. A portfolio of all business in their respective positions is created and different strategies are used to manage each of them. For this assessment Growth Share Matrix developed by Boston Consulting group can be used. In this, all the businesses are evaluated under two aspects, Market share and market growth.
Stars are business unit that is growing fastly with high market share. So here the corporate strategy could be to invest more in this business unit or spend more on advertising etc. Cash cows are business unit where market share is high but the growth is low. So here a strategy in a matured market could be to generate investment, build upon etc. Question marks on the other hand are a business unit with high growth but low market share. So heavy investments are required to increase the market share and gain dominance or should be liquidated completely. Dogs refer to those business units who are functioning in declining markets and have very low share. Thus the corporate strategy here could be to divest and use these funds in other business units.
Thus in this way the corporate strategies are devised to manage business units within the portfolio of the corporate.
The other dimension of Strategic choice is Business level strategy. These are the strategies formulated at business level to survive in the global world. These are basically aimed towards how effectively the organisation can compete in the global market. It determines the competitive advantage of the organisation over others and the image of the organisation in the minds of its stakeholders. To capitalise on the competitive advantage several competitive strategies like price based, differentiation and focus strategies are adopted.
The third dimension of strategic choices is that what directions and methods of development are open to an organisation. For any organisation to succeed, continuous development is vital. Directions of development can be exercised with a present or a new product, with a present or a new market, or through diversification. It is basically dependant of the organisation’s environment, its resources and competence. For example if any organisation has significant critical success factor than it may need to enter a new market with the same product.
Thus to develop in any particular direction some methods of development are even needed to follow. There can be three methods of development. First method could be internal development of organisation. Second method could be through mergers and acquisitions of organisations. And lastly, development can take place in form of some strategic alliances like joint ventures, consortia, sub-contracting, franchising, etc.
Tags: business organisation structure, corporate strategy, human resource, investment competence, line of business, stakeholders, strategic alliances, strategic management, strategy business
