Strategic Development and Management - Essay Example

?Introduction: The following essay explores the processes within the area of Strategic Development and Management from a critical perspective whilst endeavouring to produce meaningful conclusions and future recommendations in application to Information Systems as a means of achieving strategic advantage. The terms ‘strategy’ and ‘strategic management’ will be described and discussed in detail followed by studying the stages of strategic management and application to information systems as a strategic tool. The role of strategy has been evolving over the years from something that just used to be a corporate function to other areas of management within an organisation. Strategy is that function of an organisation where decisions and plans are made, which reflect the long-term objectives of the organisation, and is independent from decisions made on a daily level (Stahl and Grigsby, 1997). Other definitions include, “the pursuit of superior performance by using a plan that ensures a better or stronger matching of corporate strengths to customer needs than is provided by competitors” (Ohmae, 1982 cited by Joyce and Woods, 2002, p8). It can be argued that the above definitions may be interdependent because attaining competitive advantage may sometimes be seen as a long-term objective by organisations, depending upon the market environment they operate in (Johnson et al, 2008). The definitions also show that there are internal and external implications to strategy, where the internal factors may include the structure of the organisation, the kind of corporate governance (leadership) that exists within the organisation, and the function of Human Resources Management. The external factors may include the Political, Economic, Sociological, Technological, Environmental, and Legal (PESTEL) issues associated within a given market environment where the organisation operates. There are other methods of internal and external analyses that influence strategy like the SWOT (Strengths, weaknesses, opportunities and threats) analysis and Porter’s five forces, which are all helpful for the organisation to make strategic decisions in order to attain competitive advantage (Porter, 1995; Drummond et al, 2001; Kotler, 2003; Johnson et al, 2008). These methods will be discussed in detail in later stages of the study. To delve further into the study it is important to establish the definition for the terms ‘strategic management’. David (2009) defines strategic management as the “art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organisation to achieve its objectives” (p. 36). As the definition suggests, there are different functions within an organisation like management, marketing, finance/accounting, production/operations, research and development, and computer information systems (David, 2009; Johnson et al, 2008), but not necessarily restricted to these, and the job of strategic management is to integrate all these functions towards the common goal of achieving organisational success. Stages of Strategic Management: The strategy formulation stage normally involves assessing the organisation’s resources and determining what market(s) to enter and which ones to abandon. This is also the stage where visions and missions of the company are developed and long-term objectives are established. Top managers take up the responsibilities to assess the advantages of expansion or reduction, and/or entering international markets, resource allocation, product diversification, mergers/ takeovers etc. This is also where companies assess the opportunities and threats in particular markets and internal strengths and weaknesses in order to create contingent strategies (SWOT). Analysis is also done on what markets to invest in and what political, economical, socio-cultural, technological, environmental and legal (PESTEL) issues may arise in said market. Decisions made during this stage commit an organisation to specific products, resources, markets and technologies for set periods of time, and will determine long-term competitive advantages within these boundaries (David, 2009; Johnson et al, 2008; Kotler, 2003). SWOT: This refers to strengths, weaknesses, opportunities and threats an organisation may have to contend with when making strategic decisions in terms of entering a new market, diversifying existing product/service market, or expanding operations into international markets. The strengths and weaknesses relate to internal factors whilst the opportunities and threats relate to external ones. Strengths could be innovative and unique products or services, specialist expertise within an organisation like advertising, marketing, finances etc, strategic location of business operation and/or any aspect of the organisation’s business that adds value to its products or services; Weaknesses could be lack of specialist expertise, bad reputation, narrow product range in relation to competitors, poor quality products or services, rigid organisational culture, too many levels of operation within the organisation hence disrupting the flow of information etc; Opportunities include developing and new markets to exploit, strategic alliances like mergers or joint ventures that could boost resources and productivity, new market segments that offer improved benefits, an existing market vacated by an unsuccessful competitor etc; Threats are normally warning signals associated with new competitor(s) entry into home market, tax regulations on products, new and innovative products introduced by competitors, better channels of distribution for competitors and price wars with competitors (Kotler, 2003). PESTEL: This is the most commonly used tool for external analysis, standing for: Political factors that may affect the operation of a business depending upon the extent to which they are involved in the economy of any location. These may include political unrest; government laws concerning business operations; local employment laws and regulations; quality of the economy’s infrastructure like road and railways (important when considering transfer of resources) etc (see Kotler, 2003; Drummond et al, 2001). Economic factors include issues like interest rates, foreign exchange, changes in taxation, inflation etc. Higher interest rates may mean it would cost more to borrow towards a business; A stronger currency may make exporting difficult due to higher foreign prices; Inflation may result in workforce demands for increase in wages; But a good national income growth may boost demand for a firm’s products (Kotler, 2003; Kotler & Armstrong, 2003; Drummond et al, 2001). For example, the current credit crunch has resulted in the closure of many firms due to poor national income depleting demand for their products, and in some cases businesses closed certain units of their business which were deemed unprofitable. Social factors include issues like culture, language, etc which determine the very structure and leadership style of an organisation in a given environment. Hence strategies in this context would be to educate personnel on these social factors that may prove strategic to the organisation’s goals (Schullion, 1995) and/or invest in recruiting and training host country nationals for the organisation’s overseas operations which would reduce the possibilities of misunderstandings and contempt, whilst putting the organisation on the road towards competitive advantage (Keeley, 2001). This is especially important for today’s multi-nationals due to globalisation. Technological Factors: Technology is evolutionary and as it evolves so does business. New technology gives rise to new products and new ways of doing business. So depending on the nature of a business, product wise, it is beneficial for a company to keep abreast of changing technology (Wilson & Gilligan, 2005; Kotler, 2003). One of the most prominent aspects of technological advancement is the concept of online shopping, which has been embraced by most consumers and has more and more companies conducting their businesses online, and this can also be seen as a race for competitive advantage. Environmental factors refer to changes in weather and climate conditions. Growing concerns on global warming has led to many companies following environmentally friendly procedures in conducting their businesses. Also, changes in weather can effect industries like tourism, farming, insurance etc (Kotler, 2003). Hence the strategy for operating in an environmentally high risk location would be to increase the insurance prices. Legal factors are an extension of the political (governmental) factors, in that they address issues related to laws passed by the government in relation to many aspects of business. These may include: Consumer laws, which protect buyers from unfair business practices (example displaying wrong prices), and misleading description of products; Competition laws, which are in place to protect smaller firms from being monopolised and bullied by larger firms, and ensuring customers are not exploited by the bigger firms; Employment laws, which address issues like redundancy, minimum wages, working hours, dismissals etc basically aimed at protecting employees from exploitation by firms; Health and Safety legislation, which is concerned with making sure the workplace is as safe as is reasonably possible, and that adequate training is given to employees on health and safety issues (Kotler & Armstrong, 2003; Proctor, 2000). Porter’s Five Forces Model: Porter designed his five forces model to illustrate where power lies in a given business situation (1985; 1992; 1995). It was designed to help a business understand its strength in its current competitive position and also the strength of a position that the business wants to move into. Most businesses use this model as a tool to study the competitive environment of a market they plan to enter. Below is a pictorial representation of Porter’s model: (Source: http://www.mindtools.com/pages/article/newTMC_08.htm) With the help of Porter’s model, a business can take fair advantage of a situation of strength or improve in an area of weakness. Supplier Power: Porter’s model suggests that the more suppliers there are available for a business’ products, the less power suppliers may have on the business because of the availability of a range of options. Buyer Power: This refers to the extent to which buyers can affect pricing of a business’ products. Porter suggests that if a business’ customer base is primarily limited, the customer has more power in dictating terms. Competitive Rivalry: This is an important component as the number of competitors, especially those who provide similar services or products as a business in question pose the threat of customers having more options to buy their products. Threat of Substitution: This is where the products or services offered by a business can be easily duplicated by other businesses or sometimes even by customers. Threat of New Entry: This is possibly the only significant threat to the retailer selling to the plus sizes market. This is where new businesses may enter the market offering similar services or products as the business in question. This is ultimately dependent on entry costs into the market, economies of scale, time taken to enter and how easily technology is available. The implementation stage involves establishing short-term objectives in-order to execute formulated strategies. It also includes creating an effective organisational structure, establishing annual goals and preparing related budgets, directing marketing efforts, matching employee expectations with organisational performance, and, in effect, creating a strategy-supportive culture (David, 2009, Pg 37). This stage is often thought of as the most difficult within strategic management as things need to get done in-order to make sense of the formulation stage. It involves active effort from all functions involved and sometimes sacrifices from employees and managers alike. “The challenge of implementation is to stimulate managers and employees throughout an organisation to work with pride and enthusiasm toward achieving stated objectives” (David, 2009, Pg 37). The final stage is the strategy evaluation stage, where organisations determine which strategies are working and which ones are not. As with most businesses what works today may not work tomorrow. So during this stage implemented strategies are evaluated and new strategies developed if needed. This process involves reviewing internal and external factors that current strategies are based on, measuring individual and organisational performance, and taking corrective actions. Proactive organisations are careful to constantly evaluate problems or even successes within current strategies and develop new measures without getting complacent. The evaluation stage will require usage of some or all of the methods of analyses of internal and external factors (SWOT, PESTEL and Porter’s theories) on a constant level for the organisation to keep abreast of changing scenarios. Levels of Strategy: According to Johnson et al (2008), strategy is implemented across three levels in an organisation. These are: corporate-level strategy, which refers to a generalised strategy for the organisation as a whole, giving focus to the overall objectives of the organisation; business-level strategy, which refers to how individual business units within the organisation compete within their respective markets thereby creating competitive advantage that is integrated within the corporate-level strategy; operational strategies “which are concerned with how the component parts of an organisation deliver effectively the corporate and business level strategies in terms of resources, processes and people” (Johnson et al, 2008, pg7). Thus it may be asserted that middle managers and other personnel within the operational level (sometimes referred to as local initiative) may have the task of identifying and relaying problems or opportunities for growth, for the benefit of the business and corporate levels, thus enforcing new strategies as a response to the identified problems or opportunities. These strategies are eventually culminated with the overall objectives of the organisation. In effect, the operational level may play a key role for the organisation in conducting internal and external analyses as discussed in earlier sections in order to come up with emergent or reactionary strategies, that make up the strategy evaluation stage. In the words of Christensen and Raynor (2003), when the reliability of a strategy developed through an emergent process is recognised, it can be formalised, improved and exploited, thus transforming an emergent strategy into a deliberate (corporate, business-level) strategy (see pg 216). The writers also argue that emergent strategies also arise when an original and accepted strategy no longer meets the requirements of the overall objectives of an organisation (2003). Other Factors Effecting Strategy: Organisational Structure probably plays the most important role in determining strategy, as it is “the pattern of relationships among positions in the organisation and among members of the organisation” (Mullins, 1999, pg520). Structure also makes it possible to implement managerial decisions by creating a framework of order and command through which the operations of the organisation can be planned, organised, directed and controlled (Mullins, 1999; also see Schein, 2004; and Brooks, 2003). In other words, a good structure is essential for an organisation to communicate its strategic objectives through its different entities, hence giving all its units a commonality of purpose. Strategic decisions are normally involved in the centralisation and decentralisation of structures, where a centralised structure focuses on a central corporate authority that makes the ultimate strategic decisions concerning the organisation as a whole. This allows for stronger control from the centre and more effective implementation of corporate-level strategy by not allowing individual units to become too independent and stray from the overall objectives (Schullion, 1995; Mullins, 1999; Schullion and Starkey, 2000; Schein, 2004). Mullins identifies some disadvantages of a centralised structure where he argues that it would unnecessarily lengthen the structural chain and would also result in a mechanised operation of individual units, where there is no room for change (1999). This may also result in less autonomy for the individual units in making decisions thereby barring opportunities for growth and identifying potential or existing problems (see Mullins, 1999; Robbins, 2003; Brooks, 2003). Decentralisation on the other hand offers a flatter structure with lesser channels of communication, and also offers more power to individual business and operational units to make strategic decisions based on both external factors and internal bureaucratic factors (Mullins, 1999; Robbins, 2003). This kind of structure encourages emergent strategies as opposed to centralised ones. There is also greater flexibility in a decentralised culture and information flows from corporate to operational levels without much hindrance. Corporate Governance on the other hand is intertwined within the concept of organisational structure, as the kind of structure determines the type of leadership. It is asserted that centralised structures mostly tend to have an authoritative leadership whilst decentralised structures encourage more of a democratic leadership where all officials and units of an organisation are given power to make decisions (Mullins, 1999; Robbins, 2003; Schein, 2004), which may sometimes be emergent in nature. In some cases, the leadership and structure of an organisation tend to be dependent on the culture of the geographical area that the business operates in. This is best explained by Hofstede’s model, where he categorises certain countries of operation into certain national cultural clusters thus giving organisations a framework to follow whilst operating in foreign locations (Hofstede and Bond, 1988; Hofstede, 1991, 1994, 1997; Hofstede and Hofstede, 2005). Emergent strategies in this case may again arise through local initiatives or operational levels that can identify local problems or opportunities for growth in their immediate environment. Human Resources Management (HRM) has been classified as a strategic function of an organisation in recent studies as it is involved in policy making in obtaining corporate objectives through HR strategies (Brown, 2003). This becomes especially true strategically for multi-national organisations, where special care needs to be taken through the recruitment process of international managers for an organisation’s overseas operations (Trompenaars, 1993; Schullion, 1995; Hofstede, 1997; Schullion and Linehan, 2005). This process has been classified under International Human Resource Management (IHRM) as expatriation, where corporate country nationals (CCN’s) are recruited, trained and prepared to venture into a foreign operation, which organisations believe is effective in the sense that corporate objectives would be better communicated by CCN’s (Evans et al, 1989; Jackson, 1995; Hofstede, 1997; Schullion and Linhan, 2005). Emergent strategies however, arose from local external factors like local culture(s), governmental laws, language(s) etc by emphasising on the need for host country nationals (HCN’s) to manage local operations (Keeley, 2001). Information Systems in the Strategic Realm: Information systems should be viewed from a strategic point of view, as this function has the power to change entire businesses and how they compete in the present day and age. They should be viewed as important competitive networks, as a means of organisational renewal, and a necessary investment in technologies that help an organisation achieve its strategic objectives (Gant et al, 2009). The strategic role of information systems lies in the ability of information technology in assisting in the development of products, services and capabilities that give a company strategic advantages over the competitors it faces in the global market place. This creates a definition for strategic information systems, where the information systems support or shape the competitive position and strategies of an organisation (Gant et al, 2009; Pearlson and Saunders, 2009). Pearlson and Saunders (2009) suggest that information systems can also help organisations strategically by gaining competitive advantage, reducing an existing competitive disadvantage and by meeting other strategic objectives within the company. When studied in conjunction with earlier discussions on internal and external factors, information systems can be applied within each method of analysis to better understand a market and its underlying issues. In terms of SWOT, information system can be a strength by promoting a healthy flow of information within an organisation through effective technology that binds the different functions of operation. Good technology can be used for effective communication with distributors, manufacturers, partners and other stakeholders that would improve functionality and efficiency in how the business operates. Effective information systems can also be used to communicate with customers in terms of advertisements, marketing campaigns, and also to keep track of customers’ tastes, buying patterns, preferences etc, which are all vital to the study of consumer and market behaviour. Good information systems can also be used to create opportunities in markets with competitors using less effective technology. A firm’s use of superior technology places it in a position of competitive advantage in the midst of its competitors. A threat, of course, would be the emergence of a competitor with better resources. In terms of PESTEL, information systems can be used to access information quickly on the various external factors that may influence an organisation’s objectives to invest in a new market. This may prove vital for organisations especially when considering opening operations internationally, to study the local environment in terms of politics, culture, legal and environmental issues that may play key roles in determining the organisation’s success, or failure. All this is applicable for the components of Porter’s model, where information systems can be used to increase knowledge on suppliers, which in turn increases the choice of suppliers. This would put the organisation in a position of power over suppliers. Also by helping the organisation study consumer behaviour, information systems would help organisations in diversifying and differentiating their products according to consumer demand. In conclusion, information systems help organisations achieve their strategic objectives in terms of the above discussion, as well as reduce the channels of communication within an organisation’s structure by breaking structural barriers, in effect creating decentralised structures. 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