Strategic Planning Based on Knowledge Management - Essay Example

Strategic planning based on knowledge management Strategic management is now emerging as a major factor in the global business environment. The global business scenario has changed substantially in the last few decades with companies growing beyond national boundaries. Today's business is more related to global factors than domestic issues. Conventional management and strategies have give way to new models and techniques. Companies are compelled to look at a broader perspective than local issues and characters. Even small firms are more worried about increasing flow of capital from one destination to another and emergence of wider market. The new business scenario opens new vista for growth for all corporates. There are deeper challenges before them. The task before entrepreneurs is to make use of the wider growth potential and face challenges more comprehensively. In this scenario, companies have to devise a new approach for growth and give shape global strategy to face the competition and face challenges ahead. Knowledge management, risk management, strategic management, and resource management are some of the new terms in this global business scenario. Companies need to taken into consideration market information in other parts of the country and purchasing and behaving patterns of people in potential markets before devising strategies and roadmaps for growth. Before going to the finer points of strategic management, it is necessary to discuss on the global business scenario. International trade is termed as exchange of products and services across boundaries of countries and continents. From the beginning of human history there had been some kind of trade between individuals and communities. Exchange of service and trade had been a voluntary action among individuals and communities in the beginning. They first communities shared their excess resources and additional services to co habitants without expecting any monitory benefits. At that resources were abundant and majority of people were involved in agriculture. But as the civilizations emerged and people have settled in particular area, some kind of economics introduced to the exchange of good and services. People have traveled around the world searching better prospects. Europeans and Chinese travelers had sailed and find out new routes and destinations. They sourced products from Asia, Northern America and Europe and sell in other markets. This can be considered as the first step of cross continent and national trade. Later trade has emerged as a major area for most of the countries around the world. Most of the wars fought were on the trade interest. Emperors sailed and traveled world over searching of larger trade prospective. It was in the colonial period that globalization in its actual concept was evolved. The Europeans had conquered countries in Asia, Africa and North America with larger trade interest. They find it easy to source products and human power to improve trade prospects. The companies in Europe had entered into these markets and expanded their products and services. Later the colonialists could not carry the huge burden of this undeveloped area and population as the freedom struggle got intensified. So they left these colonies and most of them got independence. Western companies had also left these newly independent countries. The trade policies of these newly formed countries were more inward looking and there were some kind of xenophobia. But in the second half of the 20th century, many of these countries realized the necessity of technology, new products and services. The cold war had seen some kind of polarization even in the trade scenario. The so called socialist countries had grouped with former United States of Socialist Republic or Soviet Union. Europeans countries and United States had formed another alliance of developed countries. The international trade during that time was also highly polarized. It was British, European and Americans, who had started the trend of entering overseas markets seeking better fortunes. But developing nations had actually closed their boundaries to restrict entry of foreign goods and companies to protect their domestic industry. Before the period of Globalisation, Liberalisation and Privatisation, (LPG) most of the developing economies have viewed entry of foreign companies and products into their markets suspiciously. There was general fear that the multi national companies in developed countries would try to bring colonial rule again. This attitude of governments had actually denied people in developing countries access to new technologies, quality products and services. The acute causalities were in sectors such as education, health, technology, manufacturing, science and technology, communication and trade. The attitude of countries to shut doors towards international trade had actually blocked free flow of expertise, technology, products, fund and money among the different countries. While people in developed countries enjoyed higher lifestyle due to their prowess in technology and money, the population in developing countries did not have access to better life style even if they have enough money with them. But with the opening up of economies world over, this situation changed substantially. The opening up has changed the total structure of international trade. In the last one and half decade three words, globalisation, liberalization and privatization have captured mind of every governments all over the world. It necessitated a new sense among the companies to increase their exposure in the international trade. Competition is the buzzword in today's market economy. Now it is the price and quality of service and products, which decide competitive advantage of companies. In the last one and half decade, World has seen tremendous growth in international trade and movement of wealth. The multi national companies are going beyond boundaries to find out cheapest markets to produce service and products in most competitive way. For centuries, there was domination of developed nations in the international trade. But with the advent of World Trade Organisation, there has been some substantial rethinking among developing and less developed countries. Meanwhile multinational companies are aggressively entering into developing markets to increase their competitive advantage. Most of the emerging economies have good competitive and cost advantage in manufacturing and service sector due to huge availability of human resources and raw material. It also helps them to evade tariffs and quotas, which exist in the destination where they want to sell the products. It is also considered as a means to cut their production cost by hiring cheaper labour and material. This has helped in bundling together of financial capital technology and flow of foreign direct investment to another country. (Gordon K Douglass, The globalization of economic life, Challenge to the church, Semper Reformanda, World Alliance of Reformed Churches, March 25 2003) In today global scenario, companies are devising new ways of growth. They are more serious of facing challenges of the trade in an innovative way. Innovation is playing a major role, which decides the competitive advantage of an organisation. There should be focused approach for growth. Globalization is demanding has brought in an ultra ordinary situation in international trade. "A global attitude with a local strategy" is the new term among corporates. The market conditions they are familiar with in the western space quite different from that of the developing countries. But market potential in countries such as China, India and Brazil are tremendous. The purchasing habit, mode of consumption, expectation and cost factor are all different from the scenario existed in developed world. This is a major challenge for companies entering into developing markets. While they should have a clear global attitude, the product and services should be restructured to suit the expectations of the people in the South. A well thought strategy could help them to attain the goal. Strategic management is now emerging as a major area among corporates. Mintzberg has put forward ten schools of thoughts on strategic management. His first school of thought is design school. It views strategy formation as a process of conception. In this approach corporates need to form a clear and unique strategy by assessing the internal situation of the organization and external situation of market. Here the organization should have an understanding of its strength and weakness. If an organization has no experience for competing at global level, it should not develop a strategy presuming that it could match with its competitors. In that scenario, they have to consider their inexperience as stumbling block and devise strategies to overcome that weakness. While entering to alien markets, organization needs to evaluate its internal strength comparing with that particular market. This assessment should in the mind before devising strategies for that market. In this school of thought architecture of the organization is an important factor. It demands comprehensiveness for developing strategy. It is a simple process and works only in stable environments. Here Strength, Weakness, Opportunity Challenge Analysis plays a crucial role in strategic management. It is the leadership, which formulate clear and simple strategies after a comprehensive thought process. They are imposing this process or strategy to lower level. Before 1970's this process had more followers. But major drawback of the process is its simplicity and internal inertia. (http://www.1000ventures.com/business_guide/mgmt_inex_stategy_10schools.html) In organizations following these kind strategies, the internal inertia will be high. They won't change easily to fast changing market conditions. Every time management has to devise to new strategies and communicated it to the lower levels. It's a time consuming affair. Another school of thought is Planning school, which takes strategy formation as a formal process. It's a kind of mechanical process formation. Management is taking bold steps after the analysis of the situation and imposed for execution. This strategy will have a clear direction and enable enough resource allocation. The decisions are taken by analysts and they presume things for granted. This strategy is considered as an inelastic one and is taken by top management, who are not familiar with the ground facts. In strategic formation is more prevalent in service sectors. According to positioning school, strategic formation is based on analytical process. It's more industry specific and strategies devised taking into consideration particular context of the industry. Economics and discipline are the major factors deciding the course of strategy. It's based pure facts and figures. This school of thought views strategic management as a scientific process. They will brain storm on the growth and industry parameters before giving shaping for a specific strategy. In manufacturing sectors, this is termed as a good process. But they are least bothered of external factors, which may directly or indirectly have a bearing on the working of the organization. It will give companies some kind of strength in cost and industrial out put. The Entrepreneurial School sees strategy formation as a visionary process. The strategy here is formed by a visionary leader. It may be entrepreneur or top executive of the organization, who has highly impeccable leadership quality. He will take decisions in highly matured manure. This man should have high degree of judgment, intuition, experience, wisdom, vision and after all influential. Most of them time this method is adopted by proprietary firms and partnership firms, which have a strong decision maker as its leader. He can take his organization on his shoulders single hand even in most difficult condition. He won't be liable to any one on the merits of his decisions. Being the one and only leader in the organization, it is his sole responsibility. But there are lots of risks associated with it. A collective decision making process could not be replaced by a centralized or individual course of action. If the decision goes well the organization would benefit immensely. But there are chances that external factors could mar its prospects and there may be factors he could not even think of. (Strategy Safari: The Complete Guide Through The Wilds Of Strategic Management, Mintzberg, Henry, Lampel, Joseph, Ahlstrand, Bruce, Pearson Education India, September, 1998) Cognitive School explains strategy as a mental process. It is a psychological way of approach and presumes things. The strategist would have some process and pattern in his minds and try to implement. It emerges from concepts, maps, schemes and frames of reality. This is more creative than practical. In this global scenario, this is not much of use. In the learning school, strategies are devised after given enough attention to the process and nature of the work. It demands learning of past and devise new methods for moving ahead. They are following 'learn and execute' approach. They are considering complex and unpredictable situation. It's a collective process. Decisions are taken considering the emergent view. This is a good process in complex business scenarios. But the risk is that decision making process may take long time. In the Power School approach, decisions are taken a strong process of negotiation. The decision makers would have long discussions with external stakeholders such as consumers. It's a democratic process of strategy formulation. This is based on strongest will survive. Some kind of domination and lobbying needed to implement and formation of strategies. As most of the stake holders are part of the decision making, there won't be much resistance to this approach. It is easy to implement. While going for inorganic growth, this approach of strategic management is more useful. This is considered as a more realistic approach especially in the globalization scenario. This can satisfy the governments and investors demands of corporate governance practices. But there are dangers that some time there may standstill situation in the decision making. Cultural School of thought is another major way of strategy management. This is a collective decision making process. Here decisions are taken after consulting with various departments and groups in the organization. The strategy will reflect the corporate culture of the organization. This can be considered as a collective, scientific, democratic and practical way of decision making. It recognizes role of all the people associated with an organization before taking strategy. There would a systematic approach in such decision making. It will induct more responsibility for internal departments and taken together all of them. But there is a risk misusing these kinds of platforms if there are some unhealthy elements in side organization. People can predict strategy easily and competitors will easily pre conceive counter strategies. The challenges and opportunities offered by the external environment have a role in the strategy planning. This is addressed in Environmental School of thought. It's a reactive decision making. They consider external environment as a live actor than a factor. But it is not an instantaneous process. There won't be many choices before the strategist in such a process. It's a biological way of approach. According to Configuration School the strategy formation is a process of transformation. It aims at changing the structure of organization to a new and innovative one. It takes each and every issue in detail and gives shape for separate strategies. Here it is believed that strategy and organizational role are relative. They are integrating both these factors. They consider an organization as a group of several configurations. It wants to sustain stability and wanted to adapt strategic changes. It undergoes continuous transformation process. (Strategy Safari: The Complete Guide Through The Wilds Of Strategic Management, Mintzberg, Henry, Lampel, Joseph, Ahlstrand, Bruce, Pearson Education India, September, 1998) But Whittington has put forward four schools of thought such as classical, revolutionary, processual and systemic. He is says that there are in this process - strategic goals and strategic processes. Classical form of strategy says that highest form of leadership evaluated how he conquers enemy using strategy. It's based on a traditional way of thinking. The Evolutionary School says that evolutionary changes could not be predicted in advance and there is no need to prepare for an unpredictable future. They rely more day to day functioning. It believes that taking right decisions in right time is enough to survive. It's based on Darwinian principle of natural selection. The natural decision making process would pay way for a long term strategy. According to Processual School, there is no role for man or market on profit making or growth of an organization and strategy is a bi product of internal political activity of the organisation. Whittington argues that "the idea of environmental scanning, portfolio analysis, and other techniques used to arrive at strategic decisions by classical theorists are inappropriate". Whittington's fourth generic approach is called Systemic School. They say that some kind of forward planning needed for good results. They are for separate strategy for working in different cultures. In this school it is argued that managers are not isolated individuals interacting pure economic models, they are part of inter related social systems. The economic reality of people has relation with their living communities, culture, family bonding, religion and ethnicity. Strategy formation should take into consideration these realities. (What is Strategy and Does it Matter, Richard Whittington, Oxford, 1992) In today's highly globalised market economy, strategy management has a major role to play. The Ten Schools of thought of Mintzberg and Whittington's four generic schools of thought are much useful for the corporates in an individual sense. Mintzberg has developed strategy management more on a corporate or social perspective but Whittington's stress is on theoretical aspects. In some context there are positives for both these models. But it is unfortunate that both them have not taken into consideration growth of technology, high competition, complex market scenario, cost factors, flow of jobs and fund from high cost countries to low cost countries and integration of markets world over. The size and money power of organisation and political support of the company's parent countries have now a bearing on strategy formation. Today economics, politics and trade are highly related. In the present business scenario, companies are going through most complex and highly risk business environment. New power equations are emerging. Companies based in USA or Europe are aggressively entering into emerging markets such as India and China. The world is continuously shrinking into a small village. Technology is playing a major role. New technologies are coming at the speed of light. If one corporate failed to cope up with this speed, it can vanish in a matter few hours. At the same time investors have more participation in the day to day operation of the companies. So companies have to give shape for a more solid corporate governance practices. The expectation of investors and governments are very high. Also squeezing margins are demanding more instant decision making. Cost is the most important factor. Companies have to take instant and innovative steps to survive in this context. More over companies from developing world such as India and China have now shown more money power and even taking over their counterparts in the western world. Monopoly situations are emerging. India's large business house Tata's recent acquisition of Europe's large steel company Corus is an example of the course action happening in the global corporate world. At the same time today all markets are more integrated. The crop failure in Philippines, Brazil, India, Srilanka and Chian has a huge bearing on companies in European and USA, who have market presence or who are sourcing products from these economies. A war in West Asia could mar prospects business of companies in West. Also if one company tried to outsource jobs to low cost economies, there could be political protests in the developed markets. So the new challenge before the management is to take into consideration all these factors. Strategic management now demands more knowledge on socio political issues and technological advances all over the world. Companies should include risk analysis in shaping the strategic formulation. Strategies can be devised by proper knowledge management system. There should be more expertise in this regard. Localised strategies for global growth should be the theme for companies looking for prospective future in this global economic condition. The New Corporate Strategy, Ansoff, H. I. (1988) , John Wiley & Sons: New York "Strategy Safari: A Guided Tour Trough the Wilds of Strategic Management", Henry Mintzberg, Bruce Ahlstrand, and Joseph Lampel, 1998 Strategy, Blind Men and the Elephant", Henry Mintzberg, Bruce Ahlstrand, and Joseph Lampel, 2003 Strategic Management - Competitiveness and Globalization", M.A. Hint, R.D. Ireland, and R.E. Hoskisson, 2001 Thompson, A.A. and Strickland, A.J. (1986) Strategy Formulation and Implementation: Task of the General Manager, Business Publications Inc.: Plano, Texas What is Strategy and Does it Matter, Richard Whittington, Oxford, 1992 http://wwwapp.iese.edu/eisb/papers/full/paperEISB53.doc http://www.1000ventures.com/business_guide/mgmt_inex_stategy_10schools.html http://ia.rediff.com/getahead/2005/sep/01strategy.htm http://www.cs.auc.dk/jeremy/pdf%20files/JASS%202000.pdf Read More