Formulation of Strategy and Its Effects on Organizational Structure - Essay Example

?Formulation of Strategy and Its Effects on Organizational Structure Strategy is the determination of the long term aims and goals of an entity by aligning its vision, mission, short term goals and operations in a systematic manner. It is the strategy of the entity that determines its overall success. If the strategy is effective, it would result in an efficient organizational structure and the organization would be able to achieve its goals successfully. Therefore, the following discussion takes into account the fact that the formulation of strategy takes precedence over the determination of structure of the organization. FORMULATION OF STRATEGY Formulation of strategy is highly important for the success of an organization. If an organization puts the right effort in the process of formulation of strategy, it would be able to design an effective strategy and thus the organization would reap long term benefits on the basis of that strategy. According to Lamb (1984), strategic management is a continuous process that controls and evaluates the business undertaken by the organization, evaluates the potential of its competitors of the organization, and it specifies goals and strategies for the organization in order to enable it to face the threats posed by the competitors, and then re-evaluates the efficiency and effectiveness of the strategy on a periodic basis. Strategic management also assumes the responsibility of determining whether the strategy requires any modification due the change in the external environment of the entity. The initial stage of strategy formulation is the determination of a mission statement for the organization. Mission statement of an organization is highly important as it determines the strategy of an organization, its goals and the structure of the organization. Every aspect of the organization needs to be perfectly aligned in order for it to be consistent with the mission statement and the strategy. Everything from the vision and mission of the organization to the culture of the organization should be aligned on the same set of guidelines as determined in the strategy. For the determination of the strategy for an organization, the management of the organization conducts an internal and external analysis of the entity in order to assess the threats posed to the organization by its environment and the opportunities that the organization possesses. One of such analyses is known as SWOT analysis which considers the strengths, weaknesses, opportunities and threats of the organization. SWOT analysis is used to assess the effectiveness of an already implemented strategy as well (Armstrong et al 2009). This analysis is highly important for the strategic core of an organization as it provides critical information regarding the environment in which the organization operates. By having such information, the management would be able to design such competitive strategy that would help the organization survive in the industry amidst the competition posed by its competitors. Internal analysis of an organization includes the evaluation of the resources possessed by the organization and the internal processes of an organization. The management evaluates the resources possessed by the organization as compared to other organizations in the industry. If the organization possesses a resource that is available to that and that organization only, it can be given the status of the competitive advantage of the organization. Competitive advantage of an organization is a resource or a quality acquired by an organization that helps it survive in the industry notwithstanding the size and potential of its competitors. If the competitive advantage of an organization is identified, the strategic core of the organization can design the strategy in such a manner that it capitalizes over the potential of the organization’s competitive advantage. Competitive advantage of an organization may be the distinct quality of its products, a technology developed internally by the organization, a uniquely trained human resource or the goodwill of the organization among the consumers (Greasley 1999). Through the internal analysis, the organization can also identify its weaknesses along with its strengths. By identifying the strengths, the organization can modify the strategy in such a manner that it capitalizes over its strengths; and by identifying its weaknesses, the organization may be able to make policies and processes that aim at removing those weaknesses from the system of the organization. For example; an organization may identify its hierarchical structure as a weakness because it hinders the flow of communication within the organization therefore the organization may design a strategy that includes the change in organizational structure. This also shows that formulation of strategy takes precedence over the determination of structure of the organization (Tichy, 1983). The external analysis of an organization includes the assessment of the competitors of an organization, laws and regulations of the region in which the organization operates, the size of the market and the scope of the business undertaken by the organization and the social trends and demand for the products made by the organization. External analysis is highly important for the determination of a successful strategy because an organization cannot survive in an industry without acclimatizing with the trends of the industry (Brown 2005). Initially, the competitors of an organization are evaluated. The factors that might threaten the very existence of an organization may be the potential of the competitors of the organization and the market share captured by the competitors. If the competitors are too strong and the organization does not have the ability to divert the customer base from the competitors to its own business, it may be really hard to survive in the market and the organization should discontinue such business instead of wasting its resources over excessive marketing. An organization can design its strategy in such a manner that it fights back the competition posed by its competitors effectively and efficiently. This can be done by using an efficient mix of pricing and marketing. For example; an organization can market its products as of more quality than its competitors and it should market them at a less price. In another example, an organization can keep the competition at bay by designing a strategy for optimum utilization of its resources and for gaining goodwill among the customers. Apart from competitors there are other external factors as well that effect an organization’s strategy. One of those factors is the regulations under which the organization operates. An organization is not independent in all aspects. There are certain rules and regulations imposed by the authorities of the region in which the organization operates. Therefore, an organization is not free to conduct any business it wants. This limitation also affects the organization’s strategy determination process. In order to design an effective strategy, an organization considers whether the strategy is consistent with the rules and regulations of the region. The rules and regulations also need to be assessed regularly and the strategy should be designed in a flexible manner because the authorities might change the rules and regulations at any time. For example; a ban might be imposed on a specific kind of business and if that business is being conducted by an organization, the organization would be bound to discontinue operating. Therefore, for such circumstances, an organization should keep assessing the prospects of the rules and regulations and it should also provide for the changes while designing its strategy. Other external aspects that should be taken into account by an organization are the social trend of the region in which the organization operates and the scope of the market. These are also very important factors as the consumers are the ultimate users of the products of an organization and it is consumers who create demand for any product in the market. Therefore, the trends related to consumers and the demand for the products should be taken into account before determination of a strategy for an organization. If there is no demand for a product in the market and an organization invests in the mass production of that product, it would be nothing but a huge crash for the organization. Therefore, taking into consideration the market trends and the consumer demands is highly important for the formulation of an effective strategy for an organization. ISSUES OF STRATEGY The basic issues in formulation of strategy may be the non-availability of the required information. As mentioned above, the information like the customer trends, market information, industry information and the data regarding the regulatory authorities is highly important for an organization to determine its strategy. If such data is not present or it is inadequate, the organization might not be able to design an effective strategy (Dallas 2006). Another issue that an organization might face in the implementation of the strategy is that of the alignment of the strategy with overall processes of the organization. If the organization has been in existence for a long time and the strategic core is designing a new strategy, it might require a lot of realignment which can create issues for the organization (Balogun 2007). Implementation of a new strategy means a change in the organizational structure and a change is perceived as good by some of the organizational personnel and it is perceived as bad by some. There are always some driving forces and some restraining forces whenever a change is implemented. The restraining forces within the organization might create an issue for the strategic core for timely implementation of the newly designed strategy (Balogun 2008). An organization must strengthen its driving forces and it must weaken the restraining forces in order to ensure the effective implementation of the strategy (Whipp 2003). GOOGLE’S STRATEGY, ORGANIZATIONAL CULTURE AND STRUCTURE Google Inc. is one of the biggest organizations in the world and it is a perfect example for describing the relationship between the strategy of an organization and its structure. Google started off as a simple web search engine and it has grown to be one of the biggest companies in the world with the main objective or providing web related products. The success of the organization can be traced to its marketing strategy, organizational culture and values. The mission of the company is to organize the world’s information and make it universally accessible and useful (Google, 2011). The philosophy of the company is clearly apparent from the mission statement of the company which is to provide right information to the people who seek for it. This mission and philosophy has driven the company to be innovative in designing its strategies, therefore the company has become a dynamic organization which keeps changing and expanding. This continuous change and innovation is keeping Google in the spotlight among the users. Innovation is apparent from every aspect of the organization. From the layout of the workplace to the organizational structure, everything represents innovation. Employees are free to communicate to anyone at any level of the organization because it is the belief of the organization that each employee is an important contributor to the success of the organization. Employees are provided an environment where they can work comfortably and playfully. There are a number of facilities like; gyms, gourmet cafes etc. for the employees (Google, 2011). Therefore, it can be said that the strategy of an organization plays an important role in sculpting the culture of the organization. Due to innovative organizational culture, the communication takes place without any significant barriers that are normally observed in other organization. In other organizations where there is a hierarchical structure, the communication takes place in a structured manner. If an employee from a lower level wants to communicate to a person in a higher level of the organization, he will have to communicate through a specific set of channels. Sometimes, the actual effectiveness of the communication is lost on its way to higher levels of the management therefore hierarchical structure of an organization can be categorized as one of the barriers to the effective communication within an organization. In case of Google, it can be seen that the strategy is in conformity with the enacted values in their entirety. The alignment is highly important as it becomes the basis for the perception for an organization and its culture. It is also important for the success of an organization because the strategies of an organization are effective only when every other process of an organization is perfectly aligned with it. Therefore, it can be concluded that Google has a highly innovative organizational culture which plays an important part in the growth and success of the organization. The culture at Google was created as a result of the strategy of the organization to be innovative and dynamic in each aspect. The organization gives high importance to its employees because it considers its employees its most important assets. It is the employees of the organization that generate innovative ideas and keep the dynamic nature of the organization going. Organizational culture at Google has made the flow of communication within the organization much simpler therefore the ideas are communication to strategic core of the organization soon after they are primarily generated. There is competition among employees which creates a conflict of opinion and Google capitalizes over this conflict as every employee presents more and more rational arguments to back his opinion. In this manner, it is the organizational culture of Google that has driven the organization to such heights of success. CONCLUSION Therefore, it can be concluded that the strategy of an organization is highly important for its survival in a competitive environment. It is the strategy of an organization that determines the success of an organization in an industry. If the strategy is designed efficiently, the organization would be able to reap long term benefits. Since the strategy requires realignment of all the organizational processes therefore it can be concluded that the formulation of strategy always takes precedence over the determining of structure. REFERENCES Armstrong, G., Harket, M., Kotler, P., Brennan, R. (2009). Marketing: An Introduction. Financial Times Prentice Hall. Brown, S. (2005). Strategic Operations Management, 2nd Edition. Oxford, UK: Butterworth-Heinemann Balogun, J. and Hailey, V. (2008) Exploring strategic change, New York: FT Prentice Hall Financial Times. Dallas, M. (2006). Value and Risk Management. Oxford, UK:Wiley-Blackwell Google. (2011). The Google Culture. Available from http://www.google.com/about/corporate/company/culture.html [July 15, 2011] Google. (2011). Corporate Information – Company. Available from http://www.google.com/about/corporate/company/ [July 14, 2011] Greasley, A. (1999). Operations Management in Business. Cheltenham, UK: Nelson Thornes Balogun, J.; Jarzabkowski, P. and Seidl, D. (2007) ‘Strategizing: The challenges of a practice perspective’, Human Relation, vol. 60 no. 1 5-27. Lamb, R. (1984). Competitive strategic management. Englewood Cliffs, NJ: Prentice-Hall. Tichy, N. (1983) Managing Strategic Change: Technical, political, and cultural dynamics. New York: John Wiley. Whipp, R. (2003) ‘Managing strategic change’ in Faulkner and Campwell (eds) The Oxford Handbook of Strategy, Oxford, Oxford University Press. Read More