Selecting a strategy

SELECTING A STRATEGY

Originally, strategy literally meant the art and science of directing military forces. Today, the term is used in business to describe the steps taken by an organization in achieving its objectives and mission. Most organizations have several options available to them. Strategy is concerned with deciding which option is to be used. Strategy is the determination and evaluation of alternatives available to an organization in achieving its objectives and mission and the selection of the alternative to be pursued.

Identifying a Strategy

One approach to identifying the presence of a strategy is summarized below.

An organization that has no explicit strategy is relatively easy to identify. Its activities usually don`t have a common thread, and executives leap at every opportunity as equally attractive or turn down all new ideas as equally risky. Lack of strategy does not always show up on the bottom line, especially in the short run. However, the probabilities of long-term success are greatly reduced without a consciously developed strategy.

Strategy may exist even when it is not formally developed and explicitly communicated. Entrepreneurs, for example, may have an intuitive understanding, which they have never really recorded or even verbalized, of how their company can successfully compete. Similarly, larger organizations may develop a strategy through a trial-and-error process without really articulating why they are able to exploit certain products and markets and are not able be successfully with others. The process of identifying strategy in the entrepreneurial or adaptive mode is similar to a detective process. The clues are provided by key decisions made over time. Similarities in these decisions allow the analyst to find patterns. These patterns constitute strategy.

If the strategy has been developed but not written, it becomes necessary to look for evidence (or components) of strategy, rather than for a statement of the strategy itself. The evidence is then used to construct a strategy statement. This may occur when an organization is in the early phases of the planning mode.

In this situation, a formally developed, written strategy makes identification simply a process of locating the statement of strategy or an individual who can divulge it. The situation usually occurs when an organization is in the later phases of planning.

Hierarchy of Strategy

Strategies exist at different levels in an organization; they are classified according to the scope of what they are intended to accomplish. Most organizations can be segmented into business units (or strategic business units as they are frequently called.) Strategic business units (SBUs) are described in more detail later in this chapter. The typical large, multidivisional business firm has three levels of strategy: (1) corporate, (2) business, and (3) functional.

Corporate strategy describes a company`s overall direction in terms of its general attitude toward growth and the management of its various businesses and product lines to achieve a balanced portfolio of products and services. Additionally, it is (a) the pattern of decisions regarding the types of businesses in which a firm should be involved, (b) the flow of financial and other resources to and from its divisions, and (c) the relationship of the corporation to key groups in its environment. Corporate strategy may be one of stability, growth, or retrenchment.

Business strategy, sometimes called competitive strategy, usually is developed at the divisional level, and emphasizes improvement of the competitive position of a corporation`s products or services in the specific industry or market segment served by that division. A division`s business strategy probably would stress increasing its profit margin in the production and sales of its products and services. Business strategies also should integrate various functional activities to achieve divisional objectives. Business (competitive) strategy may be one of overall cost leadership or differentiation.

Functional strategy is concerned primarily with maximizing resource productivity. Within the constraints of the corporate and business strategies around them, functional departments develop strategies to pull together their various activities and competencies to improve performance. For example, a typical strategy of a marketing department might center on developing ways to increase the current year`s sales over those of the previous year. Under a market development functional strategy, the department would attempt to sell current products to different customers in the current market or to new customers in a new geographical area. Examples of R&D functional strategies are technological followership (imitate the products of other companies) and technological leadership (pioneer an innovation).

The three levels of strategy-corporate, business, and functional-form a hierarchy of strategy within a large corporation. They interact closely and constantly and must be well integrated for corporate success. A division`s external environment, for example, includes not only those task and societal variables of special importance to the division, but also the corporate mission, objectives, strategies, and policies. Similarly, both corporate and divisional constraints form a large part of the external environment of a functional department. Therefore the strategic plan for each lower level is constrained by the strategic plan(s) of the next higher level(s).

Exhibit 2 illustrates the Hierarchical relationships between purpose, vision, mission, objectives, corporate strategy, business (competitive) strategies, and functional strategies.

EXHIBIT 2

HIERARCHY OF STRATEGIES

The specific operation of the hierarchy of strategy may vary from one corporation to another. In top-down strategic planning, corporate-level management initiates the strategy formulation process and calls on divisions and functional units to formulate their own strategies as ways of implementing corporate-level strategies. Another approach is bottom-up strategic planning, in which the strategic proposals from divisional or functional units initiate the strategy formulation process. Strategy formulation leads from the functional level to the divisional level and from the divisional to the corporate level. A third means of strategic planning, the interactive approach, emphasizes the fact that in most companies the origin of the strategy formulation process isn`t as important as the resultant interaction between levels. This approach involves a lot of negotiation between levels in the hierarchy so that the various objectives, strategies, policies, programs, budgets, and procedures fit and reinforce each other. It represents a continuous process of adjustment between the formulation and implementation of each level of strategy.

Note: If a global company is to function successfully, strategies at different levels need to inter-relate. The strategy at corporate level must build upon the strategies at lower levels in the hierarchy (the bottom-up element of strategy). However, at the same time, all parts of the business have to work to accommodate the overriding corporate goals (the top-down approach).

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