Posts

How to Evaluate Environment For Running a Successful Business

It is a fact that accurate and timely information is the foundation for running a business. It has become necessary for an organization to scan the external environment to identify possible opportunities and traits and their internal environment for strengths and weaknesses. Environmental scanning is the monitoring the evaluation and dissemination of information fix in the external and internal environment to key people within the corporation. A corporation uses these tools to avoid strategic surprise and to ensure its long-time health.

However, information about the environment is not always readily available thereby making it difficult for managers to understand, predict and monitor the future.

Organizations need a good deal of time and money to monitor the environment to understand and predict changes opportunities, and threats in it. Managers need to be exposed to scenario developments, forecasting, and benchmarking as tools for monitoring and evaluating the environment.

1. Benchmarking: This means identifying and comparing the best practices of various firms to a firm’s processes to understand the other firms’ sources of competitive advantage. Normally, a benchmarking team of an organization would collect information on the organization’s operations and those of other firms to identify and learn the underlying causes of performance differences. The organization would then map out a set of best practices that would lead to world-class performance.

2. Scenario Development: Managers determine the effect of environmental forces on their organizations through developing scenarios of the future. These scenarios here may be regarded as to represent alternative combinations of different factors into a total picture of the environment and the firm. Most often, organizations develop three scenarios, a best-case scenario (if events that are favorable to the firm occur), a worst-case scenario (if events that are unfavorable to the firm occur) and some middle ground scenario (if average events occur). The benefit of scenario development is that it assists managers to develop contingency plans to cope with different outcome situations.

3. Forecasting: It is used to predict future changes in the variables of the environment. In making capital investment decisions, firms normally forecast how interest rates will change. Several publications help predict the environment of organizations in the future. Managers must be warned that forecasts are based on past data and the predicted future may not exactly reflect the past.

Management of the Environment

Management of the environment involves responding to the environment. Managers of organizations can manage their business environments by adapting to the environment, influencing the environment and lastly selecting a new environment.

1. Adapting to the Environment: The organization adapts to cope with the environment. Its processes and people are made to adjust to the reality of the environment confronting the organization. This can be achieved through buffering, smoothing, and flexible processes. Buffering entails creating supply and demand for excess resources in cases of unpredictable needs. Smoothing involves leveling off fluctuations in demand like clearance sales in anticipation of incoming inventories. Flexible processes involve changing technical methods to adapt to changes in the environment.

2. Influencing the Environment: This approach of management of the environment entails anticipating and taking actions to change the environment. An organization can act on its own to change the environment or corporate with other organizations to influence the environment. Through reduced prices, public relations, social responsibility, competitive advantage, and political actions, an organization can influence its alliances, partnership, joint ventures, and mergers organizations can influence environmental uncertainties. The cooperation may be necessary if it can reduce the organization’s cost and risk and also increase its power to accomplish the changes they desire.

3. Selecting a New Environment: This approach involves organizations changing or getting out of their current environment into another environment. Through this approach, organizations can maneuver around potential threats and capitalize on arising opportunities. Organizations can seek new products and markets, diversify their products and markets, merge and acquire new enterprises to change the environment they are operating.

In selecting a response approach, organizations should attempt to change appropriate levels of the environment by choosing responses that focus on relevant elements of the environment and offer the highest benefits at the lowest cost.

Theories of Organizational Adaptation

Globalization and electronic commerce present real challenges to the strategic management of business corporations. How can anyone, the company keep track of all the changing technological, economic political-legal, and socio-cultural trends around the world and make the necessary adjustments? This is not an easy task.

Various theories have been proposed to account for how organizations obtain fit with their environment, the theory of population ecology, for example, proposes that once an organization is successfully established in a particular environmental niche, it is unable to adapt to changing conditions. Inertia prevents the organization from changing.

The company is thus replaced (is bought out or goes bankrupt) by other organizations more suited to the new environment. Although it is popular in sociology, research fails to support the arguments of population ecology.

Institution theory, in contrast, proposes that organizations can and do adapt to changing conditions by imitating other successful organizations. To its credit, many examples can be found of companies that have adapted to changing circumstances by imitating an admired firm’s strategies and management techniques. The theory does not, however, explain how or by whom successful new strategies are developed in the first place.

The strategic choice perspective goes one step further by proposing that not only do organizations adapt to a changing environment, they also have the opportunity and power to reshape their environment. This perspective is supported by research indicating that the decisions of a firm’s management have at least as great an impact on firm performance as overall industry factors. Because of its emphasis on managers making rational strategic decisions, the strategic choice perspective is the dominant one taken in strategic management.

Its argument that adaptation is a dynamic process fits with the view of organizational learning theory which says that an organization adjusts defensively to a changing environment and uses knowledge offensively to improve the fit between itself and its environment. This perspective expands the strategic choice perspective to include people at all levels becoming involved in providing input into strategic decisions.

In agreement with the concepts of organizational learning theory, an increasing number of companies are realizing that they must shift from a vertically organized, top-down type of organization to a more horizontally managed, interactive organization. They are attempting to adapt more quickly to changing conditions by becoming “learning organizations”.

Creating a Learning Organization

Strategic management has now evolved to the point that its primary value is in helping an organization operate successfully in a dynamic, complex environment. Some big companies are now using strategic planning as a tool to drive organizational change.

Managers at all levels are expected to continually analyze the changing steel industry to create or modify strategic plans throughout the year. To be competitive in dynamic environments, corporations are becoming less bureaucratic and more flexible.

In stable environments such as those that existed in years past, a competitive strategy simply involved defining a competitive position and then defending it as it takes less and less time for one product or technology to replace another, companies are finding that there is no such thing as a permanent competitive advantage. This means corporations must develop strategic flexibility, the ability to shift from one dominant strategy to another.

Strategic flexibility demands a long-term commitment to the development and nurturing of critical resources. It also demands that the company become a learning organization, an organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights.

Organizational learning is a critical component of competitiveness in a dynamic environment. It is particularly important to innovation and new product development. For example, Hewlett-Packard uses an extensive network of informal committees to transfer knowledge among its cross-functional teams and to help spread new sources of knowledge quickly.

Learning organizations are skilled at four main activities:

  1. Learning from their own experiences and history as well as from the experiences of others.
  2. Transferring knowledge quickly and efficiently throughout the organization.
  3. Solving problems systematically.
  4. Experimenting with new approaches.

Business historian Alfred Chandler proposes that high-technology industries are defined by “paths of learning” in which organizational strengths derive from (earned capabilities.

According to Chandler, companies spring from an individual entrepreneur’s knowledge which then evolves into organizational knowledge.

This organizational knowledge is composed of three basic strengths:

  1. Technical skills mainly in research;
  2. Functional knowledge, such as production and marketing; and
  3. Managerial expertise.

This knowledge leads to new businesses where the company can succeed and creates an entry barrier to new competitors. Chandler points out that once a corporation has built its learning base to the point where it has become a core company in its industry, entrepreneurial startups are rarely – able to successfully enter. Thus, organizational knowledge becomes a competitive advantage.

Strategic management is essential for learning organizations to avoid stagnation through continuous self-examination and experimentation. People at all levels not just top management; participate in strategic management helping to scan the environment for critical information, suggesting changes to strategies and programs to take advantage of environmental shifts, and working with others to continuously improve work methods, procedures, and evaluation techniques. For example, Motorola developed an action learning format in which people from marketing, product development, and manufacturing meet to argue and reach an agreement about the needs of the market, the best new product and the schedules of each group producing it.

This action learning approach overcame the problems that arose previously when the three departments met and formally agreed on plans but continued with their work as if nothing had happened. Research indicates that involving more people in the strategy process results in people not only viewing the process more positively but also acting in ways that make the process more effective.

Organizations that are willing to experiment and can learn from their experiences are more successful than those that do not. For example, the most successful firms were those that improved products sold in the United States by incorporating some of what they had learned from their manufacturing and sales experiences in other nations. The less successful firms used foreign operations primarily as sales outlets not as important sources of technical knowledge.

Strategic management consists of four basic elements:

Environmental Scanning

Environmental scanning is the monitoring, evaluating, arid disseminating of information from the external and internal environments to key people within the corporation. Its purpose is to identify strategic factors – external and internal elements that will determine the future of the corporation.

The simplest way to conduct environmental scanning is through SWOT analysis. SWOT is an acronym used to describe the particular strengths, weaknesses, opportunities, and threats that are strategic factors for a specific company.

The external environment consists of variables (opportunities and threats) that are outside the organization and not typically within the short-run control of top management. These variables form the context within which the corporation exists. They may be general forces and trends within the overall societal environment or specific factors that operate within an organization’s specific task environment often called its industry.

The internal environment of a corporation consists of variables (strengths and weaknesses) that are within the organization itself and are not usually within the short-run control of top management.

These variables form the context in which work is done. They include the corporation’s structure culture and resources. Key strengths form a set of core competencies that the corporation can use to gain a competitive advantage.

Strategy Formulation

Strategy formulation is the development of long-range plans for the effective management of environmental opportunities and threats, in light of corporate strengths and weaknesses (SWOT). It includes defining the corporate mission, specifying achievable objectives, developing strategies, and setting policy guidelines.

 

Don’t forget to share this post!

Published by

Approaches and Techniques Used For Environmental Scanning in Organization

Approaches To Environmental Scanning

The various approaches used by strategy managers for environment scanning can be summarized under three broad categories.

1. Ad Hoc Approach

In this approach, some companies collect specific information on selected environmental factors by conducting special studies. Such studies are usually conducted when a company wants to launch a special project. The impact of a project on various environmental factors is studied within the framework of a specially designed study program and results are obtained through analysis using computer software or changes and developments may be studied using pilot projects and results extrapolated for use by strategy managers.

Usually, organizations use various kinds of approaches for evaluation of the environment. Further, they choose a highly systematic complex process of evaluation or just settle for an informal assessment.

Generally, during an emergency, an informal assessment is made. However, information and pattern of changes already studied may be used to arrive at a strategic decision. A systematic approach is a proactive approach where a system may be designed to convert threats into opportunities.

An informal approach is a reactive approach where unless the companies have good flexibility in their structures and business processes it may be difficult for them to plan strategies accordingly. Practically, it is not possible to stick on to exclusively one type of approach. Depending on the various issues faced, the company chooses its mode or approach. Results based on correct data are important for strategy managers to formulate workable strategies.

2. Systematic Approach

Formats for various issues are developed and scanning systematically in a step-by-step fashion in this approach. The information related to various factors viz regulatory, social, economic, technological resources, etc is collected which has a direct bearing on the working of a company.

Data on various factors are continuously collected and updated and their effect on various elements relevant to the organization is studied.

The variance of various factors is analyzed and their swing is worked out to estimate the impact of the changes. A system of assessment of the environment is prepared by the strategy manager followed by all the line managers in the organization.

3. Process Information Approach

Information on the environment and its various factors are available from trade papers, trade magazines, etc. Many organizations prepare a summary of relevant information to keep themselves updated. The processed data are made available to the strategic management group for processing and drawing inferences based on which connective actions may be taken by a company.

Sources of Information

A company can obtain information from different sources, but it should be ensured that the information is correct. The correct source should be tapped for specific information for more accuracy.

Information received from secondary sources may sometimes even misguide strategy managers. Hence, information must be verified for correctness before it is processed and decisions are taken based on it.

Sources are:

  • External agencies like customers, share agencies, advertisers, associations unions, government agencies.
  • Market research reports educational institutions testing laboratories etc.
  • Spying is considered a powerful way of extracting information from other companies.
  • Trade directories journals magazines newspapers books, newsletters, government publications annual reports of companies case studies, etc.
  • Radio, news, television, the internet, etc.
  • Internal documents viz files, records, management information systems, employee standards drawings charts, etc.

It is found that the chronological order of information is also important for strategy managers. Usually, information received from government agencies is quite stale since processing takes more time. Information received from competitors is expensive but it is usually fresh and is quite useful.

Techniques Used For Environmental Scanning

The techniques may be either very systematic to intuitive. The selection of a technique is based on data required, source of data, decisions to be taken, timelines of information, relevance, cost of information, quantity, quality and availability of information, etc.

Many theoretical models for extrapolation of information have been developed, depending on the kind of information required.

Some of the methods widely used can be categorized as follows:

  • Field-force analysis;
  • The field normally relationship theoretical limit envelopes;
  • Scenario writing;
  • Simulation;
  • Single variable extrapolation;
  • Morphological analysis;
  • Cross-impact analysis;
  • Dynamic mode mapping game theory, etc.

The techniques are either statistical or mathematical. However, judgmental and institutive techniques are also widely used.

The entire process consists of the following steps.

  • Diagrams showing interrelationships amongst various factors are prepared and an attempt is made to quantify the results.
  • The study is reviewed by a group of experts who deliberate on each aspect and on the possible strategies that may be made.
  • Major events and trends in the environment are studied.
  • A cause and effect relationship is established about events and trends for long and short terms. This is done through brainstorming in a group.

The information gathered needs to be structured so that it may be easily understood and assimilated. The information generated is classified and structured to study emerging threats and opportunities.

Environmental Issues

Environmental scanning generates a vast amount of information that is not completely purified. The information should be rearranged to draw meaningful inferences from it. Also, each piece of information may vary concerning its value and priority.

Hence, it is prioritized based on the amount of impact it can make on strategies. A qualitative assessment can be made with a little effort if a matrix is attempted to be created with a probability of its intensity on various aspects of the business. It would be possible to rank critical and high items and not so critical and low priority items. It must be remembered that low or high priority is a variation that may change with time and a low priority item may become most critical with time.

A corporation’s external strategic factors are the key environmental trends that are judged to have both a medium to the high probability of occurrence and a medium to the high probability of impact on the corporation.

The issues priority matrix can then be used to help managers decide which environmental trends should be merely scanned (low priority) and which should be monitored as strategic factors (high priority). Those environmental trends judged to be a corporation’s strategic factors are then categorized as opportunities and threats and are included in strategy formulation.

Internal and External Environment

The environment of business is made up of all the elements that are relevant to an organization’s operations through outside its control. This means that to survive in the business environment, organizations must anticipate, interact, act and react to the environment to utilize the opportunities and turn away the threats that exist in the environment. Also, it is to take advantage of the opportunities and turn away the threats of the environment. Organizations must have an understanding and appreciation of the elements or factors of the environment. The business environment is made up of internal environmental variables and external environmental factors.

Internal Environment

The internal environment refers to the factors that immediately influence how work is done and goals achieved.

Factors that make up the internal environment are employees, shareholders, and boards of directors.

  • Employees: These are the people that implement and execute the operations of an organization. The nature and structure of employees of most organizations have changed primarily as a result of changes in demographic factors. Organizations need highly trained, motivated and skilled employees to achieve organizational goals. In an organization, where the required employees are lacking management effectiveness may be constrained.
  • Shareholders and Boards of Directors: Through voting rights, shareholders have the capacity and capability to influence the organizational direction and thrust. Shareholders and Boards of Directors through their decisions have enhanced the effectiveness of organizations while some have seen the collapse of some organizations. The nature and structure of the shareholders and board of directors in an organization can affect the effectiveness or otherwise of organizations.

External Environment

The external environment is made up of those factors or variables that can directly or indirectly affect an organization significantly.

Direct Action Environment

A direct action environment is made up of external stakeholders and internal stakeholders that are directly or indirectly affected by the operations of an organization.

Internal Stakeholders: They have the capacity and capability to influence the organizational direction and thrust, this has been previously discussed under the internal environment above.

External Stakeholders: They affect the organization’s activities from outside and include customers, suppliers, governments, media, labor unions financial institutions and competitors.

  • Labor Unions: Employees are members of labor unions. There may be no labor union in an organization, yet the employees may be members of a larger labor union and so affected by the activities of labor unions. Labour unions may call on their members to embark on industrial actions to present their grievances, change policies, protest economic measures seek an increase in welfare and economic benefits for members, etc. These will certainly affect the operations of organizations and the effectiveness of management hence the need for a good grasp of the activities of labor unions by management is recommended.
  • Media: The media serve as a medium between organizations and society. Information about organizations is provided to the public through the media. In the same vein, organizations receive information from the public most of the time through the media. The role of the media is therefore very critical in the operations of organizations.
  • Competitors: Organizations operate in a competitive world, where they are seeking the attention of the same customers just like their competitors. The practices of competitors affect an organization’s practices. Where competitors offer superior quality products at low prices, an organization has to do better than the competitor if it intends to draw and retain the attention of customers. The ability or inability to respond to the competition may impact on the effectiveness of organizations and so management should be conscious of the activities of competitors.
  • Customers: Customers buy the products of the organization and value to the operations of an organization. The satisfaction of the customers is a key to successful management and so organizations need to interact with and respond to the needs of the customers. A customer can be an individual, an institution or a firm. An understanding of the customers will assist the organization in tailoring its marketing efforts (product, price, place, and promotion) to satisfy the customers and achieve its goals.
  • Suppliers: These are the suppliers of the input (resources) used by organizations for production. Organizations depend on suppliers to meet their requirements for material and labor needs. They prefer suppliers that offer low prices and supply high-quality inputs. The inputs supplied to determine the quality and quantity of products that the organization can produce (output). Most organizations have established good business relationships with their suppliers to have a constant supply of inputs needed for production.
  • Government: In the normal course of activities the government is expected not to interfere with business. However, in today’s world, the government does and must interfere and intervene in business. This could be due to economic as well as political reasoning. Government through rules, regulations, and policies, influences and affects the operations of organizations. The government has created agencies to monitor and regulate the operations of organizations. Thus, awareness of the government rules and regulations will assist management in adapting the organization to its environment.

Indirect Action Environment

Every organization in a particular industry is exposed to or affected by the indirect environment. It affects organizations indirectly and is made factors such as laws, competition, technology, social-cultural trends, and ecology. These are the variables that indirectly affect the management of organizations.

1. Technological Environment

Technology is the totality of the means used by people to provide comfort and sustain human existence. Technology is neutral and natural and is not the problem or reason for problems occurring in the world. Rather, it has touched on almost every aspect of human life and made possible so many possibilities.

To the credit of technology, there are varieties of products low-cost production, safer and efficient methods of production more leisure time for workers, improved human life and affluence.

Technological improvements and discoveries are made as a result of research effort and it takes a lot of finance to embark on research. It creates opportunities and threats to organizations and affects management practices.

Technology can result in changes in taste and demand, insolvency of the product. It creates new competitions redefines organizations’ and customers’ relationships, etc. An understanding of the technological environment will assist managers in improving products, seek new customers, lower cost of operations, generate more profits to achieve organizational goals and hasten the introduction of new products.

2. Political-Legal Environment

This consists of government rules and regulations that apply to organizations. Governments make rules and regulations to ensure the smooth operations of organizations and to control organizations’ activities.

The rules and regulations affect organizations in a variety of ways, it can support organizations through government subsidies contracts research and promotion. Government subsidy directs the flow of resources to preferred users (organizations). It also promotes business through tariffs that restrict foreign competition with local industries.

Government awards contracts for production, service, and construction to the organization and this stimulates business operations. The government also supports most of the research efforts in the form of research grants to research institutions and organizations.

The rules and regulations of government can also serve to control organizations through investigation and direct control. By investigating and publishing findings of organizational practices the government has been able to influence public opinion about an industry, company, or product.

The government prescribes standards of conduct, operation, or service for organizations, which are designed to protect consumers’ employees, competitors and investors, control entry into specific industries and protect health morals, and safety.

Managers must pay attention to the political-legal environment and its variables, to respond appropriately to the opportunities and threats that arise as a result of government support or control of organizations’ activities.

3. Ecological Environment

The ecological environment is made up of our natural surroundings and the need for harmony between living things and their environment. There is increased concern to protect preserve and conserve the environment for human existence. This has implications for management and organizations.

Organizations must assess and control pollution as it is a problem for the environment and must also minimize organizations’ operations that have negative impacts on the natural environment. Ecological issues include energy, pollution, deforestation, species loss, soil erosion, etc that affect the environment negatively.

Managers and organizations have responded to the ecological environment by making decisions that resulted in minimal pollution of the environment, producing environment-friendly products, and production methods, recycling materials, and effective waste disposal systems. The ecological issues may be opportunities or threats to organizations and so managers need to be conversant with the ecological environment to respond to its influences appropriately.

4. The Social-Cultural Environment

This environment includes institutions’ people and their values and the norms of behavior that are learned and shared. It can be classified into demographics, lifestyles social values and culture. Demographics are the characteristics of the population in terms of age, sex, family size, etc. They tend to affect organizations in terms of demand for product profit level and survival labor force etc.

Lifestyles: This is all about people’s attitudes and values. For most people these days as a result of the dynamics of the environment, their lifestyles change and are affected by changes. The changes in lifestyles do affect the products offered by organizations the marketing message reward package, leadership, and organizational culture. This presents problems and prospects for organizations.

Social Values: This refers to accepted social behavior norms and beliefs. Social values vary from one environment to another. The social values of an environment affect leadership style, management practices, economic goals, labor-management relationship, social responsibility, etc of an organization. This may present problems or prospects for organizations. Some social behaviors are frowned at as unethical business practices in certain environments and that tends to constrain management practices in such environments.

Culture: This is the distinctive way members of a particular society interact with one another and with outsiders and how they achieve what they do. Culture determines the benchmark for perceiving behavior and also how problems are understood and solved by its members. Culture impinges on the day-to-day behavior and decision-making of employees and directs their actions towards the achievement of organizational goals. Culture has an impact on the effectiveness of organizations in the area of employment, discipline, reward system, finance and achievement of goals. Culture affects organizations and organizational culture affects employee’s effectiveness and organizational goals. It affects the very survival of the organization and could be an opportunity or a threat to organizations. So, management needs to be aware of the critical importance of culture to respond appropriately and harness its potentials.

5. The Economic Environment

The economic environment directly affects the economic activities of organizations. It consists of price demand, supply, gross national product, gross domestic product, per capita income and other economic indices like the exchange rate stock exchange indexes under-employment, etc. These economic issues and problems can and do affect management decision-making and planning. So an understanding of the economic variables will aid management in planning and decision-making as the opportunities and threats posed by the economic environment can be discerned.

Prices charged by organizations for goods and services, cost of operations, demand for products, the supply of input for production, reward systems, etc are some of the issues that hinge on the economic environment.

 

Don’t forget to share this post!

Published by

Effect of Environmental Factors That Affect Both Suppliers and Creditors

Suppliers’ and Creditors’ Environment

The relationship existing among the suppliers, creditors, and companies is crucial for the company’s long-term survival and growth. The relationship must base on faith and commitment and should be long-lasting.

The suppliers and creditors should be dependable during times of difficulty because the company should have a continued supply of needed inputs. A company depends on its suppliers not only for the timely delivery of materials but also for financial support and services.

During emergency conditions, the company may have to demand quick delivery of soft credit terms. The deliveries of items and material deferred or a lot may be broken into sub-lots. Only if the company is competent enough and it’s able to address some of the following aspects will it be continued support from its suppliers.

  • Whether suppliers offer desired services.
  • Whether suppliers have the ability reputation, reciprocal dependency, etc, and share value engineering benefits and benefits accrue due to other cost-reduction programs.
  • Whether suppliers offer the right quality of materials and whether the cost is low.
  • Whether prices offered by suppliers are competitive concerning the quality of products offered.

Business Environment Faced by Suppliers

  • The continued supply (as per the schedule of deliveries) of raw materials, components, consumables, parts, tools, tackles, etc at competitive prices.
  • Availability of finance for the implementation of strategies, plans and projects as per schedule.
  • Availability of energy at costs compatible with the profitability of the company.
  • Perception of creditor company’s past payments working capital management, etc.

Specifically addressing the above issues a company can make forecasts about its position in the market and implement the needed strategies to sustain itself.

It is only rarely that a company can process all the ideal factors quality, quantity, price, and human and material resources. However, an accurate evaluation of suppliers and creditors is crucial for a company to gauge its business environment.

It has come into the understanding that youngsters are highly ambitious; therefore, it has become necessary for companies to pay marginally higher salaries to attract employees of other companies.

The ability of a company to sustain its efficient employees is necessary for its success. In the business environment, the reputation of a company and the total pay package that it offers are the main considerations of personnel.

From an employee, a good company is one which has long-term ability to meet the personal needs of employees is stable and permanent, pays reasonable salaries to its employees, looks into the welfare of employees, is valued for its product quality and service rendered and has a good reputation for the social behavior of its employees.

Offshore Workers

The wage pattern in all countries is different and this fact has been well utilized by many companies around the globe. The data processing and back-office work are shifting to countries where facilities in computerization and trained people are available to handle the information.

Technological Environment

Technology has been rapidly changing in recent years. Likewise, obsolescence is also fast-changing. The advent of computers has shortened distances and virtually there has been an explosion of information. This technology boom has even changed the nature of competition. By innovating technology and streamlining operations, companies have expanded their operations and have raised customer’s expectations. Thus, the customer’s satisfaction transforms into a customer’s delight and customer’ success.

The technological changes also result in shrinking the product life cycles from years to months. A product introduced today may become obsolete the next day. The time to develop new products and services and to introduce new concepts has greatly reduced.

Some of the key factors which influence operations in a technological environment are as follows:

  • The technological developments are vital for a company as they decide its competence. The rate of change in technology, cost of change, and time to assimilate and install a new technology are some of the important factors to be considered.
  • While going in for new technologies the companies are responsible for taking care of the social environment and man-machine systems. The effects of technology, the health of employees, and the social environment should also be taken into consideration.
  • The fields of information technology and management have taken quantum leaps in the recent past. Businesses have tramped new rules and companies have gone into the introspection of their operations. The business processes have been redesigned to avoid arbitrary fragmentation of natural business processes which causes extensive information exchange data redundancy and rekeying of desired information. The system slackness which was unable to cope with uncertainty causing the piling of inventories, buffers and other assets is being made more adaptable and responsive. The high ratio of checking and control to value additions are being reduced. The technology has involves the know-how and know-why which refer to ways of designing, manufacturing or using things and which transform into tine products, processes, and services rendered or delivered to customers. Furthermore, technology is strategic as it has far-reaching confluences on the future of a company. It has become a major stimulus for change resulting in economic progress. Countries that dominate are technologically advanced in the global scene today. Developments in agriculture, transportation, health, communication, etc are all dependent on technology. Every pillar of human civilization is affected by technology.
  • The source of technology is important for any company competing in a market. Several companies develop their technology through in-house research whereas others depend on collaborations. However, technology becomes old by the time it is imbibed. Small improvements are made on the existing technology using techniques like value engineering. These modify the material flow processes and other design features. The cost of technology is an important factor and must be considered during its sourcing.

Environment Scanning

Companies need to comprehend, identify and classify the environment and its factors to draw meaningful conclusions. Although these environmental factors discussed above encompass all the relevant dimensions, it should not be forgotten that the environment is highly dynamic and it is humanly impossible to be accurate about these factors and their interrelationships.

All the elements act together in a coordinated fashion and no single element can be exclusive of the others. A change in the environment triggers off a series of reactions. The effect of a rising in petroleum prices on the business environment of a company, the effect of education on product preference, the effect of adulteration of edible oil on its sales, etc can be cited as examples.

Since the changes in the environment affect various factors that are vital to a company, to varying degrees at various times, it is difficult to evaluate these influences. Probable cause and effect relationships can be drawn between various factors and their impact on the environment.

The environmental uncertainties cause strategy managers to go for short-term plans. They operate with flexibility, focusing on speeding up operations to be in tune with the fast changes in the environment. Therefore, companies tend to become reactive rather than being proactive and hence face the risk of losing leadership in business.

It may be true that some strategies are successful. But it may be very difficult to anticipate the impact of changes in the remote and operational environments of a company. The impact of changes on other alternative strategies also cannot be easily evaluated. Hence, a lot of data should be collected, classified and analyzed.

In spite of the inaccuracies in predictions, it is worthwhile to study the effect of various changes on the environment as it helps to narrow down the alternatives and avoid unwanted options.

Assessment of the environment does not lead to the best strategy but it leads to the elimination of all non-promising alternatives. The cost effort and time spent on environmental scanning helps in justifying the efforts that go into the entire exercise.

 

Don’t forget to share this post!

Published by

Types and Characteristics of Business Environment

Types of Environment

The remote environment consists of forces that are not in the company’s direct operating environment. Normally, the remote environment is not affected by the operating environmental forces of a single company.

A multinational company has its headquarters in the USA does not get affected by the competition faced by its subsidiary company in Nigeria. However, a change in the legislature that affects the industry as a whole in which the said company operates for example ban on certain raw material may substantially affect its business.

Characteristics of the Environment

The business environment has several characteristics and each of these characteristics is to be clearly understood by strategy managers.

1. The Environment is Not Static

Around the business world, changes are either fast or slow. The changes occur continuously. In the present business scenario, these are more frequent and rapid changes. Changes may occur in any scope of the environment and consequently affect other factors. The dynamism of the environment brings in many threats as well as opportunities for an organization. Hence, organizations should be more alert to changes and be more adaptable. This is necessary for their survival.

2. Environment Affects Business Strategies

Since the environment has a direct effect on companies organizations have to formulate their objectives keeping the environment in focus. Hence, the formulation of policies should essentially be in true with these objectives. A strategy that is adopted by a company may fail miserably if environmental factors are not correctly perceived and addressed while formulating the strategies.

3. The Environment is Only Partially Controllable

The environment within a company can be controlled to some extent whereas the environment outside an organization is not under our control and hence has to be assessed. The environment can only be partially influenced by one company since there are other companies in an environment. These companies have varying interests that may clash with the interest of the company attempting to influence the environment.

4. Environment is Complex

The environment has many dimensions for a particular business. The events, conditions, and influences arise from various sources that are present in the environment. All these factors interact with each other to produce changes in the business environment. An example is the leakage of poisonous gases from the crude oil-producing state in Nigeria, which caused a long legal battle affecting the business of the company and led to the closing down of some plants.

It is quite difficult to understand the interactions of all the factors present environment. However, strategy managers try to comprehend the various factors and their influences.

5. Environment Has Multi-dimensions

When a change is triggered off in a business environment, it may influence some factors and may not influence others. Change in the environment is perceived by different people in different ways. For some companies, amendment of law may be useful while for others it may prove to be fatal.

Opportunities present in an environment may be a threat to some companies. The dimensions available to define an environment are multitudinous and often strategy managers find it difficult to identify all the factors.

Influence of the Environment

The environment affects current strategies as well as the decisions on the future course of strategies. The various influences of the environment may be summarized as follows.

1. Strength

Certain companies have inherent strengths that they build over the year’s viz research and development based information, trained manpower, distribution network, widespread infrastructure, etc which enable them to be highly competitive and to create a niche for the company in a highly competitive environment due to these core competencies.

2. Weakness

Some companies have inherent weaknesses, limitation or constraints which prove to be strategically disadvantageous. Some companies may depend solely on a single source for raw materials or they may be doing only seasonal business and if a season is not favorable; their profits run into rough weather.

3. Opportunity

An event in the environment that may be favorable to a company may be suitably exploited by it for the overall benefit of the organization. A business opportunity may arrive due to changes in tax structure, natural or climatic changes, changes in the competitor’s product designs, change in some regulation, etc.

4. Threat

Some events in an environment may create situations where the profit company may be reduced or its very existence may be threatened. The emergence of stiff competition, obsolescence due to new products and design brain drain of technical experts due to lucrative offers from competitors, etc are some of the examples of threats

Checklist for Strengths and Weaknesses

Marketing

  • Market expansion potential
  • Distribution channels
  • An effective mechanism for the organization for marketing
  • An effective mechanism for obtaining customer feedback, imaginative, effective and result-oriented sales promotion and advertising
  • Effective pricing strategy
  • After-sales service
  • Follow up of product performance
  • Product differentiation
  • Customer goodwill
  • Brand loyalty
  • Product features
  • Range of products
  • Timely delivery
  • Quality
  • Reliability
  • Life cycle cost of the product
  • Ability to gather information about markets
  • Market share
  • Product mix

Finance and Accounting

  • The high cost of entry
  • Financial leverage
  • Follow of financial strategies
  • Budget control
  • Working capital management
  • Effective cost control
  • Cost reduction progress
  • Size of financial operations
  • Effective accounting systems
  • Profit planning
  • Cost-effective systems
  • Cost structures
  • Flexibility in financial operations
  • Ability to raise short-term capital
  • Ability to raise long-term capital
  • Shared resources at the corporate level
  • Lower cost of capital
  • Tax benefits
  • Financial relations with investors stockholders etc.
  • Barriers to entry

Technical

  • Location facilities
  • Improved material handling
  • Layouts
  • Effective make or buy decisions
  • High-value addition
  • Degree of vertical integration
  • Cost/benefit ratios analysis
  • Patents
  • Effective scheduling purchasing, etc.
  • Cost of quality
  • Waste management
  • Clearly defined business processes
  • Use of computers in manufacturing, processing design, etc.
  • Easy availability of raw materials
  • Cost-effective designs
  • Lower weights
  • Better quality at lower costs
  • Innovation
  • Latest cost-effective technology
  • Lower inventory costs

Personnel and General Management

Components of Environment

Several economic factors present in the environment affect the demand-supply, services price availability, etc of products. The economic state of a company can be affected by various factors of the environment and these factors also drive the companies to change their strategies.

While studying the environment a company would like to have information on certain specific aspects of the environment relevant to the company.

Some of these factors can be summarized as follows.

  • Structure of industry
  • Economic plans such as five-year plan annual plans etc.
  • Economic policies viz monetary, industrial fiscal policies etc.
  • Economic indices viz. growth of GNP, per capita income, rate of interest balance of payments, etc.
  • Policies of financial institutions, World Bank, local banks, national banks private banks, etc.
  • Modes of transport and communication, electricity tariffs, energy sources. Inflationary or deflationary situations etc.
  • The economic condition existing in a country or state, relevant to the company
  • Stage of the business cycle.
  • Economic system adopted viz capitalistic socialistic mixed economy, etc.

Each of the above factors can be either helpful or may create hindrances in accomplishing their company’s objectives depending on the situation such as the use of the intonation to study the behavior of markets and frame their strategies accordingly. Some well-known conclusions are also used to frame policies and strategies.

Some factors like recession which lead to retrenchments resulting in poor sales, lowered interest rates leading to lowered fund requirements for investments and similar other axioms of business are deployed for framing strategies.

Market Environment

The marketplace environment where the product is sold to the consumer has a great impact on a company. In a market, some competitors offer better services to gain an edge. The competition may even turn out to be unhealthy when customers are carried away by untrue stories about a product or the company.

Relevant Factors that Influence the Business

  • The market is usually charged with competition in the present day. New competitors may be entering the market every day. There may be major competitors and smaller ones too. The nature of competition in some of the products may be very fierce whereas in others it may be mild. Various competitors may have different strategies to maintain a competitive edge. All these factors affect market situations and must be studied the business managers formulating suitable strategies that will not only enable the company to withstand the onslaught of competition but will also help them to achieve coveted positions in the business.
  • It is very rare for products to reach consumers directly from manufactures. There is usually a chain of dealers, sub-dealers, local dealers, middlemen, etc before a product reaches a consumer. Further logistics, costs, delivery systems, packaging transporting, displaying, etc are involved which are also to be considered since all these finally go into selling of a product.
  • Customers have needs, demands, choices, preferences, attitudes, values, habits, buying behavior, etc with these traits a customer goes to the market to satisfy his needs. The satisfaction level about the quality of performance and appearance of a product may become a driving force for business. Some customers may be price-conscious whereas others may bother more about status services offered brand name etc.
  • Products available in the market have a certain pattern of demand. Product image, its features, life cycle cost-utility finish, ergonomics, design, functions that it performs, etc are some of the important aspects that a customer expects from products. The functions, whether secondary or primary satisfy some needs of the customer. This drives him to buy a product and thus a business exists. How well the needs are satisfied decides how strongly a business is being driven. As a product is launched in the market, competitors come up with even better features at lower costs. They may also offer additional functions at a lower price or may offer an improved version of service or product. Customers evaluate features and then decide to buy or not.

In the case of the manufacture of control panels, generators, transformers, switch gears, etc., competition may not be as severe as in the case of consumer products. Here, the market environment may be governed by a service lifecycle cost, image, etc. Some sectors may be protected by the government viz petrol, cooking gas power equipment, electricity water, etc although in recent years these fields are also being opened up for competition.

Rapidly changing business environment both at the national and international levels caused the different markets to react accordingly.

Companies have also geared up themselves and have brought in new systems, strategies, policies, etc to meet new challenges. Today, companies spend a sizeable amount of money to understand the market environment which directly or indirectly affects them.

Executives of companies visit markets to get firsthand information about their products and products of competitors. In earlier times, the edible oil companies rarely cared about their consumers but today, companies making different brands of oil conduct surveys to get data consumer satisfaction. The same is the case with the automobile industry wherein companies having unsold stocks resort to various methods of sales promotion. Even in the case of personal computers, companies are trying to reach out to homes of people to dramatically expand their markets.

It has now become a practice for companies to study the competitor’s profile and benchmark their operations for improvements.

Factors Involved in a Situational Study of the Competitors Profile

It is not an easy task to gather all the required data. However, executives make continued efforts to get more accurate details relating to these factors. A company ranks these factors to give more weight to the more important factors.

The customer profile also has to be worked out in a similar way of gathering all the vital information. The profile for the most prospective customers would necessitate knowing their complete details viz geographic, demographic, and psychographic aspects and their buying behavior.

Now let us discuss each of these dimensions of the customer profile.

1. Geographic Location: Strategic managers need to know their customers’ geographic locations. Since each location has its own culture, environment, and background. It becomes easy to assess the customer’s preferences.

For example, a person longing in Africa has a different pattern of preferences compared to China. The food habits, festivals living styles dressing hobbies, etc vary from region to region and companies operating in different states must be able to match their products and services to their customer’s delight.

Political leaders make themselves more acceptable to the masses belonging to a particular state by wearing local outfits and using the local language. Similarly, companies make use or festival seasons to persuade their customers with hoardings of new arrivals and discount sales.

2. Demographic Characteristics: The demographic information refers to information on age, sex, marital status, income, etc which is comparatively easier for collection and processing. This information helps to create customer groups and segments for which separate strategies may be worked out by business managers. The product designs, their features, and prices vary according to the buying capacity of the customers. This is the reason why a single company offers different varieties of detergents, cars, magazines, etc with different features and prices.

3. Psychographic Aspect: The personality, lifestyle, tastes, and social movements of customers are some of the factors which influence their selection and preference of products. Certain classes of clothing, vehicles, toys, furnishings, etc are owned only by a definite class of people.

4. Buyer Behavior: There exists a definite buying behavior that is based on several indices viz usage rate, benefits desired, preference for price-quality, service, life, life cycle cost, ownership cost, etc. Today, buyers have more awareness about their rights and demand very good product performance. This poses a challenge for manufacturers. Buyers have also joined hands and have legal forums where their grievances regarding products are being heard. Strategy managers have to consider these factors while making their strategies.

 

Don’t forget to share this post!

Published by

How to Develop Corporate Strategy in Your Organization?

The business strategy focuses on improving the competitive position of a company’s or business unit’s products or services within the specific industry or market segment that the company or business unit serves.

Business strategy asks how the company or its units should compete or cooperate in each industry.

Business strategy can be competitive (contending against all competitors for advantage) and for cooperative (working with one or more companies to gain an advantage against other competitors).

Developing Corporate Strategy

Corporate strategy is the management of a firm and its environment. The strategy is different from functional management because it is the Chief Executive’s position that requires a manager to react to any environmental problem that would impact on the firm.

Corporate strategy and corporate policies are interchangeable. This area of study had existed long before any attempt was made to study it systematically. It has to do with power and politics within and outside the enterprise.

The development of the corporate strategy has been associated first with somewhat larger firms having a separation of ownership and control and then larger firms having diverse interests coupled with long lead times on new products where capital investment is involved.

Corporate strategy by definition encompasses the totality of the firm and its interaction with the environment. This is because it involves the determination of major outside interest, assessing organizational internal strengths and weakness weighing outside opportunities and threats and, in synthesis crafting out organizational objectives and resource deployment paradigm in the light of existing and perceived environmental influences.

In essence corporate strategy involves constant planning and re-planning as soon as a known plan becomes unplanned. Its perspective is in the firm although it can be employed in the management of the macroeconomy.

The problem with using it in the development plan of a nation is that in a developing economy, plans are normally five-yearly whereas budgets are a yearly exercise. This would make re-planning more difficult than it would be in a firm.

The above scenario in addition to the lack of capital in developing countries has given rise to the government going into business to do what private firms would otherwise do. Besides, developing countries are concerned with passing on welfare packages to their citizens.

Costs and benefits are assessed with shadow pricing techniques to account for the unquantifiable benefits that would accrue to the population. Also, planning is constantly distorted because of political instability, which is almost always prevalent in these countries.

To have a feel of the way some developing countries have performed in the face of their development plans, and there has been made survey the economies of some countries. From examining a few published case studies on developing economies, it would seem evident that most of them face the same pattern of policy problems in their state-owned enterprise.

The plans for parastatals or corporations are forwarded to the Ministry of Finance and Planning, for incorporation into the central plans which are finally presented to the parliament for approval. The conclusion was that planning in state-owned enterprises was far from optimum. Symptoms of problematic performance such as the constrained flow of goods uncoordinated investments, and liquidity constraints (with the visible absence of long-term objectives) were easily identifiable.

Environmental Scanning

Firstly before an organization can begin strategy formulation it must scan the external environment to identify possible opportunities and threats and its internal environment for strengths and weaknesses.

Environmental scanning is the monitoring evaluation and dissemination of information from the external and internal environments to key people within the corporation. A corporation uses this tool to avoid strategic surprise and to ensure the attainment of its long-term health. Research has found a positive relationship between environmental scanning and profit.

The environment means the surrounding, external objects influences, or circumstances under which someone or something exists.

Environmental Scanning and Analysis

The changes taking place in the present day make us aware that it is the learners who inherit the future because they continue the process of learning. The learned, on the other hand, find themselves at a loss and if they do not march in tune with the changing times, they face obsolescence. The same logic holds good for companies also.

The changes are so frequent and fundamental unless companies keep pace with the changes taking place around them, they may become outdated. It is not only important for a company to evaluate its current strategy but it is also vital for it to know how its strategy will work in the future environment.

Why Environmental Analysis?

The strategy that a company may adopt is influenced by the environment. An organization cannot operate itself isolated from the environment. It cannot take decisions on policies and performance, independent of the happenings in the environment around it.

An analysis of the environment and its behavior gives sufficient scope for companies to foresee various opportunities and threats and be proactive towards them. This implies that organizations can turn them to their maximum advantage.

If companies lack direction, focus, and perception of the changing business scenario, they may not be able to withstand challenges and competition. Many companies went out of business due to their myopic approach towards the changing environment. They considered themselves unbeatable and that nothing in the environment could deter their progress. Today, we do not see some of those brand names which enjoyed supremacy in the sixties, seventies, and eighties.

Managers need to scan the environment to know the following:

  1. The various factors and their interactions that would generate new opportunities for the company to grow and accomplish stretched goals.
  2. Targets that a company would like to formulate for itself which would not only realistic but would also pose a challenge to motivate the workforce.
  3. The various factors or variables and their interactions taking place in the environment, which would be conducive to the strategies of the company, to know how far they would help accomplish the objectives set for the company.
  4. The various factors and their interactions that would threaten the survival and growth of a company and the evolution of alternatives that would possibly turn threats into opportunities.

What are the Strategic Factors and Their Effect?

  • Technological Changes: Raise risk of obsolescence is fact
  • Capital: High capital requirement make investment decisions difficult. Vertical integration raises requirement of capital.
  • Economies of Scale: Increase of volumes and increased market share for being cost-competitive.
  • Innovation: Reduce the life cycle and increase risk.
  • Factors: Behavioural pattern.
  • Market Size: Big markets attract big and new entry, weak competitors are sidelined.
  • Surplus Capacity: Surpluses lead to the downfall of price and profits.
  • Entry or Exit Barriers: Strong barriers result in the protection of profits and competition.
  • Price: More buyers buy at lower prices.
  • Standard Products: Buyer chances the seller.

Managers are usually bogged down by their routine work according to agreed schedules since the timely completion of many interrelated tasks is very important for a company. Hence, it would be unfair to expect more responsibility from these managers.

Managers who analyze the environment find themselves better equipped to take up challenges in the changing environment and hence they are more effective. They do better analysis and to the required degree of accuracy to meet the challenges of the environment.

There is every possibility of doing incorrect environmental scanning and drawing wrong conclusions. A company may underestimate the environment and overestimate its capacity. Some others may overestimate the environment and may pump in resources to carry out vigorous strategic changes. This eventually may not be required and may end in very costly investments for the company

The business unit is imperative. A coordinated effort within the business unit or group is necessary to draw meaningful inferences from the analysis. The important characteristics that emerge from the basic behavior of an environment may be broadly categorized as predictable and partially unpredictable.

Considering the partially predictable environment, one may like to examine the controllable. Partially controllable and uncontrollable elements in the environment which would constitute a particular behavior of the environment. In this context, we can consider the effects of demand and supply. We know that when the supply of a commodity increases its price falls. The demand may go down or may arise due to some change in environmental situations like war, famine, change in law, etc which may be considered as uncontrollable.

The response of an organization to an environmental change that has taken place may be proactive or reactive. Inactiveness refers to total unresponsiveness from a company. Reactive responses are reactions of a company certain stimulus. The pre-active approach refers to constantly adjusting to changes or positively bringing changes in the environment favoring the company.

 

Don’t forget to share this post!

Published by

What are the Benefits and Phases of Strategic Management?

Organizations that engage in strategic management generally outperform those that do not. The attainment of an appropriate fit between an organization’s environment and its strategy, structure, and processes; and has positive effects on the organization’s performance.

The benefits are:

To be effective, however strategic management needs not always be a formal process. It can begin with a few simple questions:

  • Where is the organization now? (Not where do we hope it is?)
  • If no changes are made, where will the organization be in 1 year? 3 years? 6years? 12 years? Are the answers acceptable?
  • If the answers are not acceptable, what specific actions should management undertake?

Phases of Strategic Management

Many of the concepts and techniques that deal with strategic management have been developed and used successfully by some business corporations. Over time, business practitioners and academic researchers have expanded and refined these concepts.

Initially, strategic management was of most use to large corporations operating in multiple industries. Increasing risks of error, costly mistakes, and even economic ruin are causing today’s professional managers in all organizations to take strategic management seriously to keep their companies competitive in an increasingly volatile environment.

As managers attempt to better deal with their changing world, a firm generally evolves through the following four phases of strategic management.

Basic Financial Planning

Phase 1-Basic Financial Planning: Managers initiate serious planning when they are requested to propose the following year’s budget. Projects are proposed based on very little analysis, with most information coming from within the firm.

The salesforce usually provides a small amount of environmental information. Such simplistic operational planning only pretends to be strategic management, yet it is quite time-consuming. Normal company activities are often suspended for weeks while managers try to cram ideas into the proposed budget. The time horizon is usually one year.

Forecast Based Planning


Phase 2-Forecast-Based Planning: As annual budgets become less useful at stimulating long-term planning managers to attempt to propose five-year plans. At this point, they, consider projects that may take more than one year. In addition to internal information, managers gather any available environmental data (usually on an ad-hoc basis) and extrapolate current trends five years into the future.

This phase is also time-consuming, often involving a full month of managerial activity to make sure all the proposed budgets fit together. The process gets very political as managers compete for larger shares of funds. Endless meetings take place to evaluate proposals and justify the assumption. The time horizon is usually three to five years.

Externally Oriented (Strategic) Planning

Phase 3-Externally Oriented (Strategic) Planning: Frustrated with highly political yet ineffectual five-year plans, top management takes control of the planning process by initiating strategic planning. The company seeks to increase its responsiveness to changing markets and competition by thinking strategically.

Planning is taken out of the hands of lower-level managers and concentrated in a planning staff whose task is to develop strategic plans for the corporation. Consultants often provide sophisticated and innovative techniques that the planning staff uses to gather information and forecast future trends.

Ex-military experts develop competitive intelligence units. Upper-level managers meet once a year at a resort “retreat” led by key members of the personnel to evaluate and update the current strategic plan. Such top-down planning emphasizes formal strategy formulation and leaves the implementation issues to lower management levels. Top management typically develops five-year plans with help from consultants but minimal input from lower levels.

Strategic Management

Phase 4-Strategic Management: Realizing that even the best strategic plans are worthless without the input and commitment of lower-level managers, top management forms planning groups of managers and key employees at many levels, from various departments and workgroups.

They develop and integrate a series of strategic plans aimed at achieving the company’s primary objects. Strategic plans at this point detail the implementation, evaluation, and control issues. Rather than attempting to perfectly forecast the future, the plans emphasize probable scenarios and contingency strategies. The sophisticated annual five-year strategic plan is replaced with strategic thinking at all levels of the organization throughout the year.

Strategic information, previously available only centrally to top management is available via local area networks and intranets to people throughout the organization. Instead of a large centralized planning staff, internal and external planning consultants are available to help guide group strategy discussions.

Although top management may still initiate the strategic planning process, the resulting strategies may come from anywhere in the organization. Planning is typically interactive across levels and is no longer top-down. People at all levels are now involved.

Globalization and Electronic Commerce: Challenges to Strategic Management

A business corporation could be successful by focusing only on making and selling goods and services within its national boundaries. International considerations were minimal. Profits earned from exporting products to foreign lands were considered frosting on the cake but not essential to corporate success.

During the 1990s, for example, most Nigerian companies organized themselves around several product divisions that made and sold goods only in the country. All manufacturing and sales outside the country were typically managed through one international division that made and sold goods only in the country.

All manufacturing and sales outside the country were typically managed through one international division. An international assignment was usually considered a message that the person was no longer promotable and should be looking for another job.

Similarly, until the late 1990s, a business firm could be very successful without using the internet for anything more than as a public relations web site. Most of the businesses were done through a sales force and a network of distributors, with the eventual sale to the consumer being made through retail outlets. Few executives used personal computers, let alone surfing the World Wide Web. The internet may have been useful for research, but until recently it was not seriously viewed as a means to conduct normal business transactions.

Electronic Commerce

Electronic commerce refers to the use of the internet to conduct business transactions. The internet is reshaping the global marketplace, and it will continue to do so for many more years not only is the internet reshaping the way customers suppliers, and companies interact, it is changing the way companies work internally.

Since its introduction, it has deeply affected the basis of competition in many industries instead of the traditional focus on product features and costs; the internet is shifting the basis for the competition to a more strategic level in which the traditional value chain of an industry is drastically altered.

The internet either causes or accelerates seven current world-wide trends:

  • The pace of business is increasing drastically. Planning horizons, information needs, and customer/supplier expectations are reflecting the immediacy of the internet.
  • The internet is pushing corporations out of their traditional boundaries. The traditional separation between suppliers, manufacturers, and customers is becoming blurred with the development and expansion of extranets in which cooperating firms have access to each other’s internal operating plans and processes.
  • Knowledge is becoming a key asset and a source of competitive advantage.
  • The internet is forcing companies to transform themselves. The concept of electronically networking customers, suppliers and partners is now a reality.
  • New channels are changing market access and branding causing the breakdown of traditional distribution channels. By working directly with customers companies can avoid the usual distributors thus forming closer relationships with the end-users, improving service and reducing costs.
  • The balance of power is shifting to the consumer. Now having unlimited access to information on the internet, customers are much more demanding than their “non-wired” predecessors.
  • Competition is changing. New technology-driven firms plus older traditional competitors are exploiting the internet to become more innovative and efficient.

 

Don’t forget to share this post!

Published by

How to Develop a Strategy in an Organization?

In any organization, there are laid down rules, procedures, and processes that are usually involved when it comes to developing a strategy in an organization.

First, you design a vision statement of the organization which will lead us to a mission statement, goals and objectives. It also involves the use of a strategic model which includes environmental scanning, strategy formulation, strategy implementation evaluation, and control.

Developing Strategies Vision and Mission

  • A vision statement is a permanent statement of a company that communicates the mission of a company, identities its major Strategic Business Units (SBUs) and their interaction, and its corporate philosophy.
  • It defines the very purpose of the existence of a company in terms of its corporate objectives, business scope, competitive leadership, and provides a framework for the operation of relationships amongst stakeholders, customers, suppliers, competitors and other driving forces of business and the company itself.
  • It also includes and enlists the board objectives of a firm. It essentially emerges from the CEO of the company and is an expression of a unifying thread for different organizational units.
  • It offers vital challenges, communicates sense of accomplishment of objectives, and serves as a fountain of inspiration to members of an organization it has an altogether magnetic effect and is motivating, driving and guiding force for people of an organization who work to achieve the targets envisioned, keeping in focus the ethics and values cherished by the organization.

It is quite difficult to articulate a vision statement. Many companies find it extremely difficult to define a vision statement due to their nature of work or near-total absence of a vision. They are bogged down with routine activities and do not have focused growth direction. In such organizations, employees do not share corporate objectives and do not work in a unified direction for accomplishing the company’s vision.

It is good to view the vision statement of a company. A vision statement of a company is a direction for action for an individual employee. It gives him a defined path on which he must act in a manner that would reinforce his personal view towards meeting the objectives of the vision of the company.

He must become an active collaborator in pursuit of strategic purposes and be comfortable with the vision of the company. He must understand the implications of the company’s vision and must develop an understanding of it at the operating level, keeping in mind the prevalent traditions and values of the organization.

To develop the vision of a company, one must first understand the segmentation or business of that company which is done in terms of strategic business units.

Strategic Business Units (SBUs) can be defined as an operational entity of unit or a planning focus that offers a set of a distinct set of products or services to a definite group of customers, which can be termed as a segment due to their identifiable traits in comparison with a well-defined set or competitors. SBU is a level at which an analysis of a business is done. The strategic planning effort is centered on it.

Characteristics of SBUs

For a product or service to be classified as a SBU it must have the following characteristics.

  • It can be a single business or collection of the related businesses (backward or forward integrated) which can be planned for profits and, independent of the rest of the company.
  • It has its group of competitors competing with the business.
  • The unit has a CEO who is responsible for strategically managing the business and for creating profits.

A business mission helps to evolve an executive action. As the company mission includes the fundamental and unique purpose for which the business in question is set apart from similar business units or firms of its type it tends to create a separate identity for the business or the company in question. However, the business is defined as covering the scope of operations that follow the path of execution as envisaged in the mission statement. It is a build-up of the business philosophy of strategic decision-making about products, markets, and technological areas that need to be emphasized.

Need For a Mission Statement

Defining the mission of a business is entirely an internal agenda of a company. No external agency can probably help in this regard because it is the way a specific company would like to conduct its business to attain a certain desired objective. It is a very painful, tedious and time-consuming exercise but is vital for any company or business. It contains a few specific areas of trust broadly carved-out goals and strategies. It is a statement reflecting the attitude outlook, thinking-pattern orientation, and direction of the company.

The following are reasons for evolving a mission statement.

  • The mission statement gives a unified direction to the company’s growth.
  • The utilization of the company’s resources is also unified and people get motivated to exploit these resources in a specific direction for the company’s growth.
  • The allocation of resources is based on the mission statement. Company executives get an idea for the allocation of resources as a directed mission statement.
  • The mission statement while giving a direction for growth also tends to build up a professional climate for maintenance and improvement of the company’s status in any organization.
  • The mission statement vividly brings forth the purpose and growth direction in the prevailing cultural climate of an organization, thus bringing into focus the style of management and functioning of the organization. This approach draws support from people who wish to grow with the organization.
  • The mission statement outlines a framework for organizational planning and assigning definite tasks and responsibilities to each business unit.
  • The mission statement helps to set up and develops a control mechanism for the achievement of objectives.
  • Defining the mission of an organization brings forth the hidden talents amongst the workforce who take up challenges to meet the company’s strategic objectives.

Characteristics of a Mission Statement

For a mission statement to be effective it should have certain characteristics as discussed below.

  1. Motivation: The mission statement should be a source of inspiration for members of an organization. Members of the organization should take pride in associating themselves with their through the mission statement and they should get motivated to accept and accomplish the mission. Customers and society associated with the company should also feel good about its mission.
  2. Distinctiveness: The mission statement of an organization should be distinct. There may be many organizations manufacturing washing machines, refrigerators, scooters, cars, etc but each one of them defines its mission differently because each of them is pursuing a specific mission that exclusively belongs to.

The mission statement should be unique for an organization as it makes it different from the crowd, and makes an impact on the minds of people associated with the organization. The mission statements of any two companies are rarely similar. Each company, depending on its resources environment, purpose and various other conditions evolve its mission statement.

  1. Feasibility: The mission statement should be feasible. So the company can afford to have a mission statement that would not be achievable. It should, no doubt, reflect stressed goals but must be credible and realistic.

The feasibility of the mission statement depends on various resources that are available or which can be made available. The CEO of a company should make a correct assessment of resources and come out with a mission statement that may be possible to accomplish.

  1. Precision: Using too many or too few words in a mission statement may lead to ambiguity. If too many words embody a mission statement it may not be clearly understood by people at the functional and operating levels. On the contrary, if less than the necessary numbers of words are used in a mission statement, the employees at the operating level may derive different meanings out of it.

Similarly, the mission statement should not have a narrow focus or a very broad view for preparing mission statement strategy managers have to create an abstraction ladder and choose appropriate words to define the mission. Defining mission as manufacturing refrigerators may be too narrow a focus. Likewise, defining the mission as just taking health care may appear very non-specific.

  1. Clarity: The mission statement should culminate in an action program and hence brevity is the essential requirement of a mission statement. It should not contain high-sounding words which eventually do not convey any action.

The mission statement should be clear to employees of the company because all of them would be guided by this statement. It should be made clear to those who do not understand it through training workshops leaflets or other forms of communication.

Reflection of Major Strategy

An organization may have different strategies but its mission statement should speak of the major strategy being followed by the company. The company should highlight potential strengths and requirements, that is, stability, growth, leadership, business volume and so on, such that the requirements are elastic in the minds of the employees and for giving them a unified direction of growth.

The major strategy along with the purpose of an organization gives an insight to a reader about the organization. The major strategy should also be reflected in the mission statement to bind the organization in a unidirectional effort to meet objectives. Stating the major strategy in the mission statement gives an insight to the employees regarding the course of action that they have to jointly take.

Company’s Objective and Goals

Objectives and goals that are being pursued presently are for the future of the company and hence must be carefully defined. Companies set their objectives and translate them into short and long-term goals.

An effort is usually made to set measurable goals such that the performance of the company can be objectively worked out. Any company doing business has a will to secure its survival through continuous growth and profitability.

The survival of a firm is the priority as it exists to satisfy the needs of the stakeholders, customers and other driving forces of business. Very often, strategic managers neglect this aspect of goal-setting in a hurry to emphasize growth and creation of surplus.

The company then faces the danger of being myopic as its focus is on short-term gains. The short-term gains are usually at the expense of long-term benefits. There appears urgency in a company for quick hits or bargains at the cost or long-term benefits. This further leads to unplanned investments changes detours etc. The synergic exploitation of resources is also ignored and thus survival itself becomes quite difficult.

The profitability of a company is the most important and sought after goal. Various companies have different ways of measuring profits. However, the measurement of profits over a long period gives a clear idea of the performance of the company. The method, therefore, evolved to find better acceptance with employees and stakeholders.

The short-term profits may endanger the existence of a company and we may call it its strategy myopia. Some companies may decide to reap short term profits as part of their strategy

In an environment, which is charged with the competition, the growth of a company is tied to its survival and profits.

Growth does not merely mean growth in several markets served, but growth in a variety of products and services and so on which lead to improvements in a competitive edge and consequently in the performance of the company. Growth may be reactive or proactive.

A correct balance is to be struck between growth and opportune diversifications, maintaining the parameters that guide various growth decisions. Hence, optimum flexibility has to be built in the structure of the organization to make a quick shift-over wherever required.

The objectives of an organization play a very significant role in creating an environment tor growth in the desired direction.

The role of objectives is as follow:

  • Strategic decision-making processes become more sharply focused due to objectives «and a code of behavior is also set for meeting the targets. The strategic decisions are taken around agreed objectives.
  • Objectives lead to the evolution of standards for performance evaluation and measures to control and guide performance. Standards for individual performance are also generated since it is the individual performance that eventually gets translated to organizational performance.
  • Objectives tend to develop a conducive environment understanding of the business environment, organization, personal development, required knowledge skills, and attitude, etc.
  • The objectives establish a relationship between an organization and the environment in which it exists. The environment consists of various entities, that is, society. Politics, employees, customers, stakeholders, etc. who affect objectives and also the method of achieving defined objectives.
  • Objectives are the driving force for an organization. The employees make a unified effort to accomplish them thereby developing clarity of mission and purpose.

Characteristics of Objectives

  • Objectives must be quantified and specific. Mention of increasing sales turn over, quality, etc does not convey anything. However, mention of increasing sales by 10% increasing turnover by 20% makes them more specific and clear for those who have to act to accomplish them. It implies that these should be achieved in specific terms.
  • Objectives must essentially be related to a time-dimension. The business situations today undergo extremely fast changes, and not relating objectives to a time-dimension may prove to be very costly for companies. Objectives, when related to time, communicate more specific information. Objectives without a time-frame do not yield many results. Objectives should essentially be linked to timeframes in these times of fast change where quick obsolescence of products and concepts has engulfed almost all business activities.
  • Objectives should be defined in a manner in which they can be understood by the concerned people. Vague and hazy ideas cannot be called objectives as they may lead to more confusion. Objectives should be simple and easy to understand by all people in an organization in the same sense as they are meant to be understood. This aspect is to be carefully ensured.

Vision Statement

A vision statement is defined as an inspirational description of an organization. It states what an organization would like to accomplish or achieve midterm or long term future. It is intended to serve as a clear guide to the management of a firm for choosing current or course of action.

A vision statement sometimes is called a picture of your company in the future but it is so much more than that.

A vision statement is your inspiration, the framework for all your strategic planning effort. A vision statement may apply to an entire company or a single division of a company. Whether for all or part of an organization the mission statement answers the question, “where do you want to go?”

Unlike the mission statement, a vision statement is for you and the other members of your company not for your customers or clients.

A vision statement also defines the organization’s purpose, in terms of the organization’s values rather than bottom-line measures (values are guiding beliefs about how things should be done).

The vision statement communicates both the purpose and values of the organization. For employees, it gives directions about how they are expected to behave and inspires them to give their vest best. Shared with customers, it shapes customers’ understanding of the work with the organization.

The creation vision statement can be a great asset to just about any type of organization. Essentially a vision statement takes into account the current status of the organization and serves to point the direction of where the organization wishes to go.

As a means of setting a central goal that the organization will aspire to reach, the vision statement helps to provide a focus for the mission of the corporation business or non-profit entity.

Mission Statement

A mission statement defines the organization’s purpose and primary objectives. Its prime functions are internal to define the key measure or measures of the organization’s success and its prime audience is the leadership team and stakeholders.

The mission statement should be a clear and concise representation of the enterprise’s purpose for existence. It should incorporate socially meaningful and measurable criteria addressing concepts such as moral/ethical. It is the position of the enterprise’s public image, the target market, products/services, the geographic domain and expectations of growth, and profitability.

 

Don’t forget to share this post!

Published by

What are the Basic Considerations in Strategic Management?

In an organization, before setting up a strategy, like every other activity, basic considerations must be made to determine the main concepts and how to apply such concepts in strategic management.

An organization’s top management must identify basic steps that need to be taken before making the strategic decisions required for mission and vision statements. Often an organization must formulate strategies and draw up plans to implement them.

The factors to consider before setting up a strategy are business competitors, business environment, resource identification, operational strategy expectations and results of operations, and value to be added to the company’s operations.

Why Strategy?

The strategy has to be laid down for proper planning, formulation implementation evaluation, control and feedback in every organization. These will lead us to the equation why do business firms operate? They operate to meet up with a particular objective.

Business firms do not operate in a vacuum; they operate in an environment; internal and external. The primary aim of any business is to maximize profit and minimize cost in such a way that it will lead to the improvement of profit and reduction of cost, taking cognizance of the fact that business is a war of conflict of interest.

Thus, if a business is a war there must be a good design of strategy to win the war. We play strategies because we want to achieve a target or objective.

Definitions of Strategy 

  • It involves the deployment of resources for the attainment of objectives.
  • It is the pattern of significant decisions made to fulfill organizational purposes.
  • It relates to long-range objectives.
  • It relates to long-range objectives. It encompasses courses of action necessary to attain the objectives of an organization.
  • It consists of action by management to offset actual or potential actions of competitors.
  • It is a term used to describe how objectives are to be accomplished.
  • It is a unified, comprehensive and integrated plan relating the strategic advantages of the firm to the challenges of the environment. It is designed to ensure that the basic objectives of the enterprise are achieved.

In practice, the strategy can be well understood based on the environment the strategic manager found his or her self. A strategy in a military environment is the design of methods by the use of skills and knowledge to win a war.

Business, the strategy can be defined as the use of skills and knowledge to design a framework of a series of activities that will lead to the achievement of vision, mission, goals, and objectives of an organization. This is a systematic application of skills and knowledge to win a particular issue or situation in favor of you or the company.

The principal effects of strategy can be categorized into two perspectives:

Internal Effects of Strategy

External Effect of Strategy

  • The ability of the organization to cope with externally induced changes through internally generated influences.
  • The reduction of uncertainty.

What is Synergy?

Synergy is the combined effect produced by two or more parts elements or individuals. Positive synergy is sometimes called the 2+2 = 5 effect. Operating independently, each subsystem can produce two units of output. However, by combining their efforts and working together effectively the two subsystems can produce five units of output.

Negative Synergy can be called the 2+2=3 effect. Again individuals operating alone can each produce two units of output. However, with negative synergy, the combination of their efforts results from what they would have achieved if they had each worked alone.

Negative synergy can result from inefficient committees, business units that lack the strategic fit and other poorly functioning joint efforts.

Organizations strive to achieve positive synergy or strategic fit by combining multiple products, business lines or markets. One way to achieve positive synergy is by acquiring related products so that sales representatives can sell numerous products during one sales call.

Negative synergy is also possible at the corporate level, downsizing and the divestiture of businesses in part the result of negative synergy. Managers expect that combining employees into teams or broadening the firm’s product or market mix will result in a higher level of performance. However, the mere outcomes and the resulting lack of harmony or coordination can lead to negative synergy.

Managers expect therefore combing employees into teams or broadening the firm’s product or market mix will result in a higher level of performance. However, the mere combination of people or business elements does not necessarily lead to better outcomes and the resulting lack of harmony or coordination can lead to negative synergy.

Synergy usually refers to the merging of two or more companies to produce a sound, highly effective and efficient company which only one of the merging companies cannot produce.

Two Categories of Synergy

1. Positive Synergy

2. Negative Synergy

Therefore, a positive synergy is the extra energy, power, and success that any organization can achieve by two or more people or companies working together. Simply, a negative synergy is the opposite side of the positive synergy.

Criteria For Effective Strategy

Also, other factors and structural elements that are relevant to the formulation of effective strategies include:

  1. Flexibility: Reserve capabilities, planned maneuverability, and repositioning allow a manager to use minimum resources while keeping competitors at a relative disadvantage. They permit the strategist to reapply the same forces to selected positions at different times.
  2. Coordinated and Committed Leadership: One of the core leadership traits is commitment. Leaders must be committed to sharing goals and their interests must match the interest of their organizations. Successful strategies require commitment, not just acceptance.
  3. Surprise: With surprise and correct timing success can be achieved out of all proportion to the energy exerted and can decisively change strategic positions.
  4. Security: The strategy must secure resource uses and all operating points for the enterprises. By this, we mean that strategy requires effective resource support to succeed.
  5. Clear, Decisive Objectives: The overriding goals of the strategy for all organizational units must remain clear enough to provide continuity and cohesion for tactical choice during the horizon of the strategy. All goals need written down or numerically precise, but they must be understood and decisive.
  6. Maintaining the Initiative: A prolonged reactive posture breeds unrest, lowers morale; and exposes the advantage of timing and other elements to competitors. Any strategy must preserve freedom of action and enhance commitment.
  7. Concentration: Does the strategy concentrate superior power at the place and time likely to be decisive? Has the strategy defined precisely what will make the enterprise to attain a superior power? A distinctive strategic competency yields greater success with fewer resources and is the essential basis for higher gains (or profits).

Strategic Analysis

The strategic management model illustrates that strategy formulation requires developing a company mission, performing an internal and external audit, and establishing objectives and strategies.

The process of establishing objectives and selecting strategic always involves subjective judgment.

Objectives represent the results that are expected from the pursuit of certain strategies. Equally, strategies represent the actions that are being taken to accomplish objectives. The timeframe for objectives and strategies should be consistent, usually from two to five years. Objectives should be quantitative measurable realistic understandable.

Types of Strategic Management

  • Management by Subjectivity: This is done in the absence of the general means of achieving objectives. Managers are left to their own choices in the best way they deem fit.
  • Managing by Hope: This is based on the fact that the future is laden with great uncertainty and that if we try and do not succeed, then we hope that our second attempt will succeed.
  • Managing by Extrapolation: This is the idea of doing things, in the same way, believing that things are going to be well.
  • Managing by Crisis: This is the reliance on the belief that a good, managers’ quality can truly be measured by his ability to solve problems.

The Quantitative Strategic Planning Matrix (QSPM)

The Quantitative Strategic Planning Matrix comprises Stage 3 of the strategy formulation analytical framework. This matrix objectively suggests which strategies are best.

QSPM is the most current of the strategy formulation analytical techniques in the field of strategic management. QSPM utilizes input information from the Stage 1 analysis and matching results from the Stage 2 analysis to objectively “decide” among alternative strategies.

QSPM is a technique that allows strategies to evaluate alternative strategies quantitative based on specific organizational capabilities and limitations.

The Politics of Strategy Formulation

Every human organization is involved in some level of organizational politics. The political factors which affect organizational performance may be internal or external. The emphasis here is on internal politics.

Internal politics affects the choice of strategies of all organizations. The hierarchy of command in all organizations combined with career aspirations of different individuals and the need to allocate scarce resources guarantees the formation of a coalition of individuals who strive to take care of themselves first before taking care of the organization.

Coalitions of individuals often form around key strategic issues, which face an enterprise. The major responsibilities of strategists are to guide the development of coalitions to nurture an overall team concept and gain the support of key individuals and groups of individuals.

Internal support for a firm’s strategies and objectives are of particular importance when the going got tough.

What is Strategic Management?

Strategic management is a set of managerial decisions and actions that determines the long-term performance of a corporation. It includes environmental scanning (both external and internal), strategy formulation (strategic or long-range planning), strategy implementation and evaluation and control.

The study of strategic management, therefore, emphasizes on the monitoring and evaluating of external opportunities and threes in light of a corporation’s strengths and weaknesses originally called business policy, strategic management incorporates such topics as strategic planning, environmental scanning and industry analysis.

Responsibility For Strategic Management

Responsibilities of the Board of Directors

Laws and standards defining the responsibilities of boards of directors vary from organization to organization. There is, nevertheless, a developing worldwide consensus concerning the major responsibilities of aboard.

Role of the Board in Strategic Management

How does a board of directors fulfill their responsibilities? The role of the board of directors in strategic management is to carry out three basic tasks:

  • Evaluate and Influence Management: A board can examine management’s proposals decisions and actions; agree or disagree with them; give advice and offer suggestions’ and outline alternatives. More active boards perform this task in addition to monitoring.
  • Initiate and Determine Strategic Options: A board can outline a corporation’s mission and specify strategic options to its management. Only the most active boards take on this task in addition to the two previous ones.
  • Monitor the Environment: By acting through it, a board can keep abreast of developments inside and outside the corporation, bringing to management’s attention developments it might have overlooked.

Degrees of Board of Directors’ Involvement in the Organization

The board of directors participates in the management of the corporation in different degrees. According to some scholars, the degrees of involvement are phantom degree, rubber stamp degree, minimal nominal participation active participation, and catalyst participation.

  1. Phantom Participation: The director who practices phantom participation never knows what to do and does not get involved in anything.
  2. Rubber Stamp: This permits officers to make all decisions. It votes as the officers recommend on issues.
  3. Minimal Review: Formally reviews selected issues that officers bring to their attention.
  4. Nominal Participation: This involves to a limited degree in the making or review of selected key decisions, and programs of management.
  5. Active: This approves questions and makes final decisions on mission strategy, policies and objectives. Has an active role in board committees. Performs fiscal and management audits are involved vibrantly in every aspect of the decision processes and actions.
  6. Catalyst: This takes the leading role in establishing and modifying the mission, objectives, strategy, and policies. It has a very active role in the strategy committee.

 

Don’t forget to share this post!

Published by

What is Strategic Management and Organization?

Strategic management and organization should be carried out in such a manner that will improve the organizational objectives and goals. Structures and policies have to be put in place to achieve such organizational goals and objectives, to ascertained organizational objectives and goals there should be a sound vision and mission statement.

For any organization to take a strategic decision, it is necessary and important to have an overview of the organizational system and process. This will enable the organization to take a sound strategic decision that will lead to the improvement of organizational performance.

Organization as a system, organization as a process, strategic management, corporate objective, goal setting, mission, and vision.

Organization as a System

Systems Approach

The systems approach attempts to look at the organization as a unified focused open system composed of interrelated parts. An organization, therefore, is made up of various segments like production, marketing, and finance.

However, a manager using the systems approach deals with the organization as a whole and not separately with the various sections that make up the organization.

Management as a system may be viewed using the three basic elements of any system.

That is,

  • Input;
  • Processing; and
  • Output.

The input of management entails the resources of the organization, men, money, materials, and machines. Processing is the performance of the functions of management like planning, organizing, directing and controlling.

It is the conversion of the resources of the organization through the performance of management functions. The output is the attainment of the goals of the organization which can be profit growth size and quality leadership.

Organization as a Process

The most logical way to think of a process is to consider it as an outcome of the enterprise production process. In the system’s language, inputs are transformed into outputs aimed at meeting deserved standards.

Each element input-process-outputs can be broken down into specific characteristics for analytical purposes. Input involves, for instance, personnel, space, capital, assets, and expenses, the process may refer to procedures, schedules, layout, management, and whereas output (results) evolves, timeliness, satisfaction, quality of goods produced, the number of goods, level of productivity, etc.

In any organization, the input is converted to outputs and matched with standards (or expectations of results) to determine whether the process should continue and what improvements might be made.

If outputs do not meet standards specify attributes can be revised under the elements of input and throughput (process) or standards can be changed. To control the process, ratios can be used that are in several staff that did the job or amount of money put into the production or the space used per employee and observe the trends over time.

Those numbers determine the input. For the process, it refers to the set of activities performed to convert the input to output, such as the act of putting the raw materials into the machine to produce finished goods. The finished goods are known as productivity outcomes or results.

Definition of Strategic Management

Strategic management is the set of managerial decisions and actions that determines the long-run performance of a corporation. This includes environmental scanning (both external and internal), strategy formulation (strategic or long-range planning), strategy implementation, and evaluation and control.

The study of strategic management, therefore, emphasizes the monitoring and evaluating of external opportunities and threats in light of a corporation’s strengths and weaknesses originally called business policy. Strategic management incorporates such topics as strategic planning environmental scanning and industry analysis.

Strategic management, therefore, is the game plans’ management has for positioning the company in its chosen markets arena, competing successfully and achieving long-term objectives and good business performance. Strategic management is, therefore, the development, implementation, and control of agreed strategies.

Objectives of Strategic Management

There are five objectives of strategic management in any corporation:

  • Establishment of information feedback to enable management to read strategic vision and long term goals.
  • Formulation of the strategic vision of the company’s future business position. Specifically to determine where the company will be said in five or ten years. The essence is to provide a long-term direction and focus for the company.
  • Long-term goals for the company by converting the strategic vision into specific actions that lead to performance.
  • Set up strategy and monitor to ensure that they fall in line with the set of strategies initially crafted out. The monitoring process and evaluation of strategic performance enable the company’s management to initiate corrective measures in vision and refocus the direction of the company in the area of competition customer’s satisfaction and profit outlook.
  • Scan the environment for threats and opportunities.

Strategy Development

Strategy in any organization is developed by top management. This involves sets of decisions that craft out the long-term objectives of the organization. It involves a long-term plan of where the company will be in the future within the specific period, what business lines to introduce, how to satisfy customers, how to survive within the intense competitive environment and to chart a course for the organization’s image and market share.

Five steps are enlisted to develop a set of strategies for the form.

  • Develop a vision and mission for the firm.
  • Set goals or objectives to attain.
  • Set the strategy for achieving the goals.
  • Implementation or execution of the strategy.
  • Monitoring/evaluation of performance for adjustment of strategy and feedback.

Goalsetting

The term goal is often used interchangeably with the term objective. In this post, we prefer to distinguish the two terms.

In contrast to an objective, we consider a goal as an open-ended statement of what one wants to accomplish, with no quantification of what is to be achieved and no time criteria for completion. For example, a simple statement of “increased profitability” is, therefore, a goal not an objective because it does not state how much profit the firm wants to make or when.

A good objective should be action-oriented and begin with the word to. An example of an objective is “to, increase the firm’s profitability in 2020 by 10% over 2019”.

Some of the areas in which a corporation might establish its goals and objectives are:

  • Growth (increase in total assets, sales, etc.).
  • Shareholder wealth (dividends plus stock price appreciation).
  • Profitability (net profits).
  • Efficiency (low costs, etc.).
  • Utilization of resources (ROE or ROI).
  • Deputation (being considered a “top” firm).
  • Contributions to employees (employment security, wages, diversity).
  • Contributions to society (taxes paid, participation in charities, provision of a needed product or service).
  • Technological leadership (innovations, creativity) which lead to survival (avoiding bankruptcy).
  • Personal needs of top management (using the firm for personal purposes such as providing jobs for relatives).
  • Market leadership (market share).

Cooperate Objective, Mission, and Visions

1. Objective

Objectives are the results of the planned activity. They should be stated as action verbs and tell what is to be accomplished by when and quantified if possible.

The achievement of corporate objectives should result in the fulfillment of a corporation’s mission. In effect, this is what society gives back to the corporation when the corporation does a good job of fulfilling its mission. For example, by providing society with office supplies of every kind for home and work at better quality, price and location than its competitors.

2. Mission Statement

A mission statement defines the organization’s purpose and primary objectives. Its prime functions are internal, that is, to define the key measure or measures of the organization’s success and its prime audience is the leadership team and stakeholders.

The basic organization’s function is described in terms of the product or services it provides to the society, the reason for its existence, and roles in the socio-and-economic development of the nation.

A mission statement of a firm must consist of purpose, strategy firm’s culture, policies and standard of behavior of workers.

The mission helps the firm to set standards and consistency of purpose. Mission determines the quality of services rendered to customers in terms of the mode of the employees and the acceptable culture of the firm.

Some questions considered in the mission statement are:

  • Is the organization committed to supplies and respect agreements and payment plans?
  • Is the firm socially responsible for the host community?
  • Are there acceptable values and cultures the employees are aware of and adhere to such beliefs and a sense of patriotism and loyalty to the company?
  • Does staff knowledgeable, aware and sensitive to the firm’s focus and direction?
  • Are the employees polite to customers arid dedicated?

A mission statement provides instructional, research and public service programs appropriate to a university of high standing that guarantees academic excellence and to operate a strong and virile distance learning component that ensures equal educational access to a large constituent.

The mission statement should be a clear and succinct representation of the enterprise’s purpose for existence. It should incorporate socially meaningful and measurable criteria addressing concepts such as the moral/ethical position of the enterprise, public image the target market, products/services, the geographic domain and expectations of growth and profitability. The followings bellows are examples of mission and vision statements of some selected companies.

3. Vision Statement

A vision statement is defined as an inspirational description of an organization. It states what an organization would like to achieve in the long-term future. It is intended to serve as a clear guide for choosing the current course of action.

A vision statement sometimes is called a picture of your company’s future but it’s so much more than that because a vision is futuristic and connotes so many complexities and uncertain dynamism in the business environment.

A vision statement is your inspiration, the framework, for all your strategic planning. A vision statement may apply to an entire company or a single division of a company. Whether for all or part an organization, the vision statement answers the question,

  • Where do you want to so?”
  • How will the firm reach there?”
  • When and how can the firm be there?

A vision statement is for management and the other members of the company, and not for your customers or clients. It is the main vehicle for mobilizing the psychological and physical elements of the employees to be aware of the direction of the company and get together their loyalty and commitment to the organizational goals and activities.

The vision statement also defines the organization’s purpose, but this time they do so in terms of organizations’ values rather than bottom-line measures (values are guiding beliefs about how things should be done).

The vision statement communicates both the purpose and values of the organizations. For employees, it’s gives directions about how they are expected to behave and inspires them to give their best. Shared with customers, it shapes customers’ understanding of why they work with the organization.

The creation of a vision statement can be a great asset to just about any type of organization. Fundamentally, a vision statement takes into account the current status of the organization and serves to point the direction of where the organization wishes to go. As a means of setting a central goal that the organization will aspire to reach, the vision statement helps to provide a focus for the mission of the corporation business or non-profit entity.

The corporate objective, mission, and vision are the main components of a cooperation ingredient for survival, direction and the focus of the future in business.

Needs for Strategic Management

Strategic management is the set of managerial decisions and actions that determines the long-run performance of a corporation. It includes environmental scanning (both external and internal), strategy formulation (strategic or long-range planning), strategy implementation and evaluation and control.

The study of strategic management, therefore, emphasizes the monitoring and evaluating of external opportunities and threats in light of a corporation’s strengths and weakness originally called business policy, strategic management incorporates such topics as strategic planning, environmental scanning and industry analysis.

Policies

A policy is a broad guideline for decision-making that links the formulation of a strategy with its implementation. Companies use policies to make sure that employees throughout the firm make decisions and take actions that support the corporation’s mission, objectives, and strategies.

Programs

A program is a statement of the activities or steps needed to accomplish a single-use plan. It makes a strategy action-oriented. It may involve restructuring the corporation, changing the company’s internal culture, or beginning a new research effort.

Budgets

A budget is a statement of a corporation’s programs in terms of currency (dollars, pounds, naira, etc). Used in planning and control, a budget lists the detailed cost of each program. Many corporations demand a certain percentage return on investment, often called a “hurdle rate” before management will approve a new program.

This ensures that the new program will significantly add to the corporation’s profit performance and thus build shareholder value. The budget thus not only serves as a detailed plan of the new strategy in action, but it also specifies through pro forma financial statements the expected impact on the firm’s financial future.

Procedures

This is sometimes termed Standard Operating Procedures (SOP), a system of sequential steps or techniques that describe in detail how a particular task or job is to be done. They typically detail the various activities that must be carried out to complete the corporation’s program.

Strategy Implementation

Strategy implementation is a process by which strategies and policies are put into action through the development of programs budgets and procedures. This process might involve changes within the overall culture, structure, and management system of the entire organization except when such drastic corporate-wide changes are needed.

However, the implementation of the strategy is typically conducted by middle and lower-level managers with review by top management. Many times referred to as operational planning, strategy implementation often involves day-to-day decisions in resource allocation.

Management Audits

A systematic assessment of methods and policies of an organization’s management in the administration and the use of resources tactical and strategic planning, and employee and organizational improvement.

The objectives of a management audit are:

  • To establish the current level of effectiveness;
  • To suggest improvements; and
  • To lay down standards for future performance.

Management auditors (employees of the company or independent consultants) do not appraise individual performance but may critically evaluate the senior executives as a management team.

Over time many companies are confronted with the question of whether the present management team meets the business requirements of the future and is prepared to successfully manage the challenges of increasing business and competition.

Without a doubt, the top management has been a valuable experience as to the performance of the executives of the company over many years. However, usually, there is a distinct in-house and subjective appraisal of the individual managers.

Furthermore, each company has been creating its own specific culture over many years which makes judgment sometimes difficult. State-of-the-art top executives have realized the relevance of management audits to display the track records of their core team members. The accomplishment of systematic management audits is very often caused by major changes in businesses.

1. Mergers and Acquisitions

The accomplishment of management audits represents the objective as well as a credible tool to identify the best-qualified managers out of competing management teams.

2. Succession Planning

Both internal and external candidates are audited to choose “the best”.

3. Change in Top Management

It is most useful for the Managing Director or CEO joining a company to get the objective and qualified picture as to the strengths, chances, and risks of his management team.

4. Restructuring and Strategic Alignment

Drastic dynamics in business bring about vital risks and chances the success of the corporation does depend on the performance and potential of the complete executive team.

By using the tool management audit risks will be minimized and changes exploited.

Normally the Management Audit Team consists of two Executive Search Consultants. It is a prerequisite to the success of the process that the consultants involved are industry and management- as well as executive search experienced.

They must be capable to understand the client’s business and strategy and the need to have a good view as to the market and competitive scenario. It is important to give clients and candidates confidence and trust in process and people.

If these preconditions are met, Management Audits will bring remarkable added value to companies.

Management Audit is the systematic recognition, analysis, and assessment of competencies and the actual behavior of both individual executives as well as complete executive teams, particularly about the business’s strategic requirements.

The basis of Management Audit is structured interviews and reference checks conducted by external experts to be documented in expert opinions. It focuses on personal attributes and business skills.

Personal attributes can be subdivided into:

Business skills can be subdivided into:

As psychological tests cannot adequately cope with the above-mentioned criteria the Management Audit should be conducted by experienced and well-trained interviewers. It is the objective of the process not to assess the individual manager in isolation but context to their competitors and comparable roles outside the company. This benchmark information is most valuable and delivers conclusions as to the effectiveness of the management team.

Defined, the management audit is a comprehensive and thorough examination of an organization or one of its components. The audit is implemented to identify problems or significant weaknesses in the organization or corporation, thus providing management with a tool to address and repair the problem area.

The management audit is defined by its scope and objectives. The scope is broad generally includes all functions of the organization, including objectives and strategy, corporate structure, organizational planning, the budgeting process human and financial resources management, decision-making research and development, marketing, equipment and operations, and management information systems. This breadth extends to recent, present, and future operations and covers external issues as well as internal concerns.

The objectives of the management audit include the development of recommendations and improvements, as well as increased awareness of the credibility and acceptance of the audit’s results. The process is more an audit of management, to enhance corporate profits and financial stability.

The audit follows a logical step-by-step format, including initial interviews with key managers. A study team uses the interview process to define the scope of the audit, including the areas or functions to be studied.

Next, the team requests various forms of documentation, including budgets, planning documents, corporate reports, financial statements, policy and procedure manuals- biographical material, and various other documents.

Following this stage, the study team then prepares a schedule and detailed plan of study, all aimed at proceeding to the internal fact-finding step. Fact-finding relies once again on interview documentation and personal observation of facilities and organizational work patterns. By the time these steps are completed, the study team develops a thorough understanding of organizational structure and operations.

The team generally turns next to an external review, using interviews to determine the opinions and attitudes key people outside the organization have about its operations. Examples of those interviewed are customers, representatives of financial institutions, and employees of federal agencies having contact with the audited organization.

These interviews provide the team with more objective evaluations and lead to an analysis of all the information and data now gathered. Organizational performance is profiled, and then efficiency effectiveness is evaluated and compared against industry norms. Although many criteria can be measured quantitatively, team members have to use sound judgment and objectivity when evaluating issues that cannot be measured. In turn, the organization’s management has to be receptive to the audit process and demonstrate a clear acceptance of audit findings.

The study team then develops conclusions and recommendations which are communicated to the organization’s management. These final two stages-conclusions/recommendations and communication are essential to the management audit process.

The audit is expected to identify corporate strengths and weaknesses, sources of problems, and potential problem areas. Recommendations for correction are presented to top management. The final report comes in the form of an overall plan of action which includes prioritized recommendations; the specific units and individuals expected to carry out the recommendations a schedule for action and expected results. When conducted with thoroughness objectivity and timeliness the management audit becomes a powerful tool for corporate and organizational executives who seek to improve effectiveness and efficiency.

An important aspect of the management audit is the composition of the study team. Both internal and external analysis is frequently used on audit teams; the composition depends on several factors, including the need for an independent appraisal, the lack of human or financial resources to conduct the audit, and the need to provide an external audit to contrast against internal findings. In some instances, associations such as the American Institute of Management (AIM) provide audit teams.

The AIM has developed ten categories of the management audit, and many audits apply these same categories.

They include:

Management audits are not limited to business corporations but also to nonprofit organizations which including educational institutions, hospitals, and churches often use the management audit to attempt to improve operations.

When conducted effectively, and when recommendations are applied properly, the management audit has proved its usefulness as a management technique and is one of the key tools used in evaluating corporate performances.

 

Don’t forget to share this post!

Published by

Strategic and Policy Formulation: Meaning, Process, Approaches and Challenges

A proper policy formulation in strategy management comes as an outcome of environmental scanning, that is, gathering information about external factors (opportunities and threats), societal environment and internal factors (strengths and weaknesses).

This variable gives the firsthand information to the strategic manager, on how strategically to formulate policies, developing a long-range, which normally lead to developing vision mission objective strategies and policies.

Strategy Formulation

Strategy formulation is the development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses (SWOT). It includes defining the corporate mission, specifying achievable objectives, developing strategies, and setting policy guidelines.

Mission

An organization’s mission tells what the company is providing to society either a service such as a courier delivery service or a product such as house furniture. An organization’s mission is the purpose or reason for the organization’s existence.

A well-conceived mission statement defines the fundamental unique purpose that sets a company apart from other firms of its type and identifies the scope of the company’s operations in terms of products (including services) offered and markets served.

It may also include the firm’s values and philosophy about how the firm does its business activities treats its employees and customers. It puts into words not only what the company is now but what it wants to become in the future.

The mission statement promotes a sense of shared expectations in employees and communicates a public image to important stakeholder groups in the company’s task environment. Some people like to consider vision and mission as two different concepts.

A mission statement describes what the organization is known as a vision statement that describes what the organization would like to become. We prefer to combine these ideas into a jingle mission statement.

Some companies prefer to list their values and philosophy of doing business in a separate publication called a Value Statement.

Review of Mission and Objectives


The examination of an organization’s current mission and objectives must be made before alternative strategies can be generated and evaluated. Even when formulating strategy decision-makers tend to concentrate on the alternatives the action possibilities rather than on a mission to be fulfilled and objectives to believe.

This tendency is so attractive because it is much easier to deal with alternative courses of action that exist right here and now than to think about what you want to accomplish in the future. The result is that we often strategies that set our objectives for us rather than having our choices incorporate clear objectives and a mission statement.

Problems in performance can derive from an inappropriate statement of mission which may be too narrow or too broad. If the mission does not provide a common thread (a unifying theme) for a corporation’s businesses, managers may be unclear about where the company is heading. Objectives and strategies might conflict with each other. Divisions might be competing against one another rather than against outside competition to the detriment of the corporation as a whole.

A company’s objectives can also be unsuitably stated. They can either focus too much on short-term operational goals or be so general that they provide little real guidance. There may be a gap between planned and achieved objectives. When such a gap occurs, either the strategies have to be changed to improve performance or the objectives need to be adjusted downward to be more realistic. Consequently, objectives should be constantly reviewed to ensure their usefulness.

Decision – Making Model

Management as a process involves planning, organizing, directing and controlling to achieve goals. This means that decisions are inherent in management practice.

Decision making is the process of identifying and selecting a course of action to deal with a specific problem or take advantage of an opportunity. This means that decision-making is a process of a theory while decisions are the outcome of the process.

Natures of Decision 

  • Programmed decisions
  • Non-programmed decisions
  • Proactive decisions
  • Reactive decisions
  • System decisions

Decisions Making Process

  • Investigate the situation
  • Generate alternative solutions
  • Evaluate alternatives
  • Select alternatives
  • Implement the decision
  • Evaluate the decision

The Theories of Decision Making

Several theories explain how decisions are made or ought to be made by managers. The theories explain what, how and when the personality of individuals, groups and the environment affect or do not affect organizational decision making.

There are two major views on the theory of decision making.

  • The Behavioral Model of Decision Making.
  • Rational Model.
  • The Rational Model of Decision Making.

It postulates how decisions ought to or should be made.

The model expresses that a decision is rational when it is aimed or directed at achieving some objectives. It means that if a decision is aimed at achieving no objective then such u decision is not a rational decision. This model has some basic assumptions and they are:

  • That is there is a clear linkage between the means and the end. That is, this means it will lead to this goal.
  • Existence and clarity of goals which means all organizations have objectives and that the objectives are very clear and unambiguous. That the goals of the organizations can be identified and understood.
  • That there are clear means for the achievement of the goals.
  • Organizations or decision-makers seek complete information before making decisions. It implies that if there is any information that you are not clear about, you shouldn’t decide because that decision is not likely to be rational. Decision-makers have to get complete information about that issue before making a decision.
  • The decision-maker is a passive element in the decision-making process. That is, the decision-maker does not bring his value judgment to bear on the decision making process.

In other words, the value, behavior and personal experience of the decision-maker do not affect or influence the decisions he makes.

If a decision possesses all or any of these assumptions then such a decision made can be safely referred to as a rational decision. Otherwise, it is an irrational decision.

Policy Formulation and Developing Policy

The selection of the best strategic alternative is not the end of strategy formulation. The organization must then engage in developing policies. Policies define the broad guidelines for implementation. Flowing from the selected strategy, policies guide decision making and actions throughout the organization. They are the principles under which the corporation operates on a day-to-day basis.

When crafted correctly, an effective policy accomplishes three things:

  • It sets clear boundaries within which employees must operate while granting them the freedom to experiment within those constraints.
  • It forces trade-offs between competing for resource demands.
  • It tests the strategic soundness of a particular action.

Policies tend to be rather long-lived and can even outlast the particular strategy that created them. These general policies, such as, “The customer is always right” or “Low prices, every day” can become, in time, part of a corporation’s culture.

Such policies can make the implementation of specific strategies easier. They can also restrict top management’s strategic options in the future. Thus, a change in strategy should be followed quickly by a change in policies. Managing policy is one way to manage corporate culture.

Strategic Information Systems

Before performance measures can have any impact on strategic management, they must first be communicated to the people responsible for formulating and implementing strategic plans. Strategic information systems can perform this function. They can be computer-based or manual, formal or informal. One of the key reasons given for the bankruptcy of some organizations is the inability of the organization’s top management to precisely determine its income by major of similar products.

In contrast, one of the key reasons for the successful organization’s sophisticated information system to control purchasing decisions and another decision-making process. The information system allows all reordering to be done automatically by computers, without any managerial input.

Organizational Strategy

Know Where You Are Going?

Organizational strategy is concerned with envisioning a future for your family business, creating value in the eyes of your customers, and building and sustaining a strong position in the marketplace.

As a result of the current market conditions continued success for many family businesses will be determined by how they can adapt to change – and to be able to do it quickly.

Organizational Strategy – Vision, Mission, Competitive Advantage

The first critical strategy element is Vision, Mission and Competitive Advantage which describes the business a company is in, it’s current and long term market objectives and how it differentiates itself from the competition.

Focused Purpose

Future Perspective

  • Clearly defining long-term outlook.
  • Appealing to the long-term interests of the company’s stakeholder.
  • Providing a foundation for decision-making.

Strategic Advantage

 

Don’t forget to share this post!

Published by