Factors that a Strategist Needs to Consider while Implementing a Strategy - Coursework Example

?Strategy 0 Introduction Strategy refers to the determination of long-term objectives of the firm. Decisions regarding of action to be adopted to achieve these objectives and allocation of organizational resources also falls under the preview of strategic management. The three phases of strategic management; strategic analysis, strategic formation and strategic implementation should not be considered as water tight compartments. Strategy formation and implementation, or for that matter strategic analysis are not one-time exercises. In fact the strategic management process is a continuing, integrated process that requires constant consideration. The internal and external factors that impact the working of an organisation are considered during the environmental scanning process. This scrutiny paves the way for strategy formulation. The final step of strategy implementation entails reassessing all aspects since the business environment is really dynamic. This paper discusses the various factors that a strategist needs to consider while implementing a strategy. The paper follows the sequential order of strategic management. It dwells on the Michael Porter’s Five Forces Model and highlights the importance of SWOT Analysis. It refers to the importance of organisational structure in the implementation of strategy. An attempt has been made in the paper to figure out which resources and capabilities are employed in implementing strategy and achieving competitive advantage. 2.0 Five Forces Framework There are five competitive forces in an industry that play a role in shaping strategy. A careful analysis and evaluation of these forces enables a strategist to create a position for the organisation that makes it less vulnerable to attack. Porter (1979) suggests that the attractiveness and profit potential of the industry depends on threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute products and intensity of rivalry among existing firms in the industry referred to as jockeying among current contestants.  The quantum of profit that an organisation can eek out will depend on the collective strength of these five forces. A strategist needs to consider these forces, understand how they impact business and chalk out a way to grow business even if some of these forces are not favorable. If, in a particular industry, all these forces are extremely favorable, it will attract many players and, in the ultimate analysis, it would be very difficult to earn profits in this industry. If these forces are collectively weak, it provides an opportunity for a particular firm to provide superior performance and thrive in the industry. A strategist cannot assign equal weight to all these forces. These forces, which determine the ultimate profit potential, impact different industries in varying degrees. In the steel industry, the threat of substitutes plays a key role. For example, the steel industry may jostle with the aluminum industry and the plastic manufacturers to provide raw material to the packaging material industry.   2.1 Political-Legal Forces During the implementation stage, the strategist must consider the ease of entry into a particular industry. The ease or difficulty in entering a particular industry is contingent on the entry barriers prevalent in the industry and the likely reaction from the existing players. The strategist would think twice before venturing into an industry with deeply entrenched players who would be hostile to any new firm attempting to enter the industry.  The barriers to entry may also arise due to the following; economies of scale, product differentiation, capital requirements, cost disadvantages independent of size, access to distribution channels and government policy (Porter, 1979). The government can exert a lot of control over the functioning of organisations. It can, from time to time, frame rules and regulations and provide a regulatory framework within which organisations have to operate. Some of the industries like liquor retailing may be directly regulated while entry barriers may be created for the pharmaceutical, automobiles and carbonated drinks industry by passing strictures regarding air and water pollution standards. 2.2 Vertical Integration Suppliers can exert pressure on the profitability of an industry by increasing prices. The cost of raw material for the industry would increase in such a scenario. Alternatively, in some cases, the buyers may be in a position to negotiate prices downwards or demand better quality from the suppliers.  The bargaining power of the suppliers rests on how concentrated the industry is. If there are few suppliers selling to a large number of buyers, the bargaining power of the former increases tremendously. If the sellers are marketing a differentiated product as opposed to a standardized product, they can exercise more clout on the buying industry. In some cases, buyers have to pay switching costs in case they opt for alternative suppliers thus increasing the bargaining power of the latter.  These considerations lead the strategist to evaluate ‘make’ or ‘buy’ decisions. As a strategic tool, a firm may choose to integrate vertically (Chandler, 1962). This integration may be backward vertical integration for forward vertical integration. If the firm goes in for backward integration, the bargaining power of suppliers is reduced as the firm becomes its own supplier of raw material. On the other hand, if the firm follows a policy of forward integration, the bargaining power of buyers is reduced. In such cases, the firm does its own wholesaling and/or retailing. A rigorous analysis of the five forces delineates the link between the industry structure and the opportunities available to a company. At the same time, this scrutiny uncovers the various threats that a company may encounter in the industry. Chandler (1962) avers that the strategist has to consider the long term sustainability of the company while trying to pursue the available opportunities. While implementing the strategy, the strategist has to ensure that the external threats are neutralized. 3.0 SWOT Analysis While it is important for the strategist to look at the industry dynamics and analyse the overall macro environment, it is equally vital to take note of the company's internal strengths and weaknesses.  A simple example to illustrate the above point is that there are numerous products/brands available in the marketplace. A customer would buy the ones that fit into the budget and best satisfies an unmet need. It is thus juxtaposing internal resources (money available with the customer) and external opportunities (various brands in the market). Similarly, a strategist will be able to avail of the opportunity only if the internal resources and capabilities of the firm are suitable to pursue that objective. Barney (1995) avers that the internal resources and capabilities can be a source of competitive advantage for the firm. There are numerous examples like Nucor Steel, Wal-Mart and Southwest Airlines where companies have flourished in highly competitive or unattractive business environments primarily by capitalizing on their internal resources and strengths. The resources of an organisation include financial, physical, human and organisational assets. The key role of strategist is to secure resources that referred to as men, money and equipment (Chandler, 1962). It is important for the strategist to gauge the expertise, wisdom, experience and abilities of the firm's human resources while implementing decisions. Aspects like organisational culture, goodwill, relationship with vendors and business partners are extremely important and play a pivotal role in the decision making process of the strategist. It has been seen that a large number of firms may posses large amount of resources. What really sets two firms apart is the characteristics of these resources. One of the fundamental duties of the strategic manager is to evaluate whether the firm's resources are of any value or not (Barney, 1995). This is especially true in an ever changing, dynamic business environment. The context may change, but the firm’s resources need to continuously provide value to the firm. Hunter Fan was a leading player in the industrial cooling equipment industry. The advent of air conditioning led to a decline in sales. Hunter Fan quickly adapted to the situation and used its resources to become a dominant player in the domestic ceiling fan industry. Resources used in different ways also tend to become valuable. In the present day competitive markets, valuable resources provide competitive parity. For example, beverage behemoths like Coke and Pepsi have engaged in the 'cola-wars' as both of them have valuable, though not rare, resources. These resources have given the cola giants a source of competitive parity.  If these resources are rare, they can provide competitive advantage, at least till such time that competitors do not ape these resources. An ideal situation for a firm is that the valuable and rare resources are difficult and costly to imitate by rivals. Any kind of imitation, be it through duplication or substitution, leads to erosion of the competitive advantage (Barney, 1995).  In some cases imitation is costly. Caterpillar, a manufacturer of heavy construction equipment, got tremendous government support during the Second World War because of which it could establish a worldwide network of distribution and customer service. Replicating this model is extremely difficult for any other company howsoever robust its financial position may be.  Put differently, this lack of possibility to imitate acts as an entry barrier. Another perspective put forth by Porter suggests that a firm does not enter a particular industry due to its inability to differentiate its product. A potential new entrant has to find a way around this to enter the industry. That is precisely what Komatsu did and did so by adopting the plank of differentiation.  Komatsu relied on its functional and technical skills to churn out more robust machines that did not break down easily and therefore did not require frequent servicing. Needless to say, Komatsu does not need the kind of infrastructure Caterpillar has built, yet it is competing in the same industry as it decided to play on its strengths. If a strategist uses valuable, rare, and costly to imitate resources in implementing a strategy, the chances of success increase manifold. 4.0 Appropriate Allocation of Resources Many companies, across industries, have started using resources in alternative uses. Instead of meeting competition head on to gain a larger chunk of the market share, Coke launched Diet Coke aimed at a different segment of the society. Pepsi ventured into the restaurant business where Coke has not forayed, at least as of now (Barney, 1995). It is thus best left to the strategist to deploy resources where they are meaningfully used. Chandler (1962) puts forth the proposition that companies divert their resources in response to the changing business demands. These changes may occur due to changes in demographic profile of population, changes in income or due to technological innovation. It is important for the strategist to anticipate change and alter the allocation of resources accordingly. Such dynamic capabilities approach leads to efficiency within the organisation (Williamson, 1991). Koechlin (2006) avers that the advent of globalization has led to blurring of geographic boundaries. The entire world has become a single market and barriers to trade have gone down tremendously. Koechlin’s main argument is that it is the bargaining power of the investor that decides the allocation of resources. He refers to the attractiveness of a given country that attracts capital inflows. In other words, the strategist senses an opportunity; may be a cost advantage, and takes the plunge to get the said benefit. The concept of outsourcing has probably emerged from this thought process. During the last 25 years, there has been a surge in the exports from the developing countries to the rest of the world. At the heart of this trend is a strategic move that diverted the resources to the developing countries and entrusted them with numerous manufacturing and service oriented jobs. This was possible, in part, because the government restrictions which thwarted new entrants were on the wane in these countries. 5.0 Organisational Structure The strategist has to put in place an organisational structure, management control systems and compensation policies to cash in on the internal resources and capabilities (Barney, 1995). Xerox's highly bureaucratic structure proved to be a stumbling block in allowing the company to use some of the most innovative products conceptualized by the research and development team.  Chandler (1962) has accorded utmost importance to the structure of the organisation. According to him, structure follows strategy. Once the strategist delineates a strategy, he needs to put in place an appropriate organisational structure. In case, the organisation has multiple divisions, the strategist appropriates the requisite funds, facilities and employees to all the divisions depending on the overall objectives of firm. This ensures the smooth implementation of the overall strategy. Williamson (1991) is of the opinion that organizing is one of the most vital aspects of implementing a strategy. This helps in economizing and increasing efficiency. Conclusion The aforesaid discussion establishes that the role of a strategist is multifaceted. Numerous aspects need to be considered while implementing strategy. The complexity of the strategic implementation process increases due to the dynamic business environment. The strategist needs to muddle through a maze of information, keep in mind the organisational resources and constraints while implementing the strategy. References Barney, Jay.B. (1995). Looking inside for competitive advantage. Academy of Management Executive, Vol. 9, No.4, p.49-61. Chandler, Alfred. D. Jr (1962). Strategy And Structure. Chapters in the History of the Industrial Enterprise . The M.I.T. Press, Cambridge, Massachusetts . Koechlin, Tim. (2006). U.S. Multinational Corporations and the Mobility of Productive Capital: A Skeptical View. Review of Radical Political Economics, Volume 38, No. 3, p. 374-380. Porter, Michael. E. (1979). How competitive forces shape strategy. Harvard Business Review, March-April,. P. 137-145. Williamson, Oliver. E. (1991). Strategizing, Economizing, and Economic Organization. Strategic Management Journal, Vol. 12, p. 75-94. Read More