Analysis and plain planning methods are insufficient for an organisation to survive and prosper. The firm must engage in strategic thinking and planning. Any organisation, to be capable of sustained success, must be predicated on building and maintaining a competitive advantage.
This section is about how business success and is gained through the use of strategic thinking. In most respects, all the sections of this course are directly related to strategy
Strategy and Tactics Explained
Strategy is about the long term direction and scope of an organisation that will enable it to fulfil its vision and maximise the possibility of its future success. It is the unique and sustainable ways by which organisations create value. Strategies define the goals of the organisation over the long term. It is the process of finding and implementing the optimum sustainable, competitive position in any market.
The closely associated concept of Tactics is the way we implement that strategy in a more immediate situational sense. They provide the detail as to how the organisations executives will achieve the goals and objectives described in the strategy
Specific aspects of the strategy formation process include:
- Searching actively for innovative ways the organisation can improve on what it is already doing.
- Seeking new opportunities for the organisation to pursue.
- Developing ways to increase the firm’s competitive strength and put it in a stronger position to cope with competitive forces.
- Devising ways to build and maintain a competitive advantage.
- Deciding how to meet threatening external developments.
- Motivating individuals throughout the organisation to work more effectively.
- Directing resources away from areas of low or diminishing results toward areas of high or increasing results. (Although just because an offer is having a bad run doesn’t mean we starve it of resources if it’s considered vital to the firm)
- Choosing which value offers to pursue or to abandon.
The critical entrepreneurial skill is making strategic choices that keep the organisation in position to enjoy sustained success.
The Benefits of a Strategic Approach to Management
The advantages of strategic thinking and management process include:
- Providing a communication and co-ordination system – the guidance it provides to people in the organisation, making clear just “what it is we are trying to do and to achieve”; The coordination it gives to all decision making.
- Forcing a wider and longer-range view. The pressures to manage with a short-term focus are strong and frequently lead to decision errors.
- The contribution it makes to recognising and responding to change, (new opportunities, and threats).
- The provision of a management and control system – the basis it provides for evaluating competing requests for investment.
The Key Factors of Strategic Planning
There are a number of key factors to consider with any planning. The areas are as follows:
Focus refers to concentrating limited resources in the areas that will reap the most rewards.
Goals are what we are aiming to achieve from our efforts and investment. All too often that is simply equated with money and does not consider other, more important factors.
Competitive Advantage refers to the fact that we are operating in a competitive environment. If we are not aware of the fact that there are other players competing with us for the same client’s money, then we are likely to lose.
Superior Performance. What is important for the organisation, is to plan a position which takes into account all of the players. Firstly the strategist must achieve superior performance to the competitor. At the same time the strategy must be in line with the strengths and weaknesses of the organisation and must also meet the needs of the market. A successful strategy is one which gives a stronger matching of organisational strengths with market needs than that provided by the competition.
Sustainable Competitive Advantage (SCA), which suggests that there are many possible good ideas, but which one will remain yours (that the competitors cannot take away) and work for the longest time?
Creativity and Innovation. What gives a strategy its competitive impact is the creative element and the will of the mind that conceived it to make it work.
Flexibility – The best strategies are flexible and allow for innovation. They are based on information, which gives us a series of probabilities to work with. Strategy is vulnerable to reality. One cannot totally predict the future. All business decisions are probabilistic. There is always a chance of the plan failing.
Basic Conceptual Simplicity – Complicated, long range plans rarely work and require constant adaptation and change – usually into another detailed long range plan. We must remember that any strategic plan is based partly on historic information and partly on future prediction. Once written it also becomes part of history.
The Ability to be Implemented. A wonderfully conceived and crafted strategy is meaningless unless it can be implemented to achieve the Mission and Goals of the organisation
Determinants of a Business Strategy
Competitive business advantage grows out of the difference in the cost of creating the value offering and what buyers are willing to pay for it. Value represents what buyers are prepared to pay. Superior value comes from offering superior value for prices lower or equal to competitive offerings.
Many, factors need to be considered in formulating strategy. Six broad determinants usually dominate the design of strategy:
1. Market opportunity, industry attractiveness, and competitive forces.
2. The social, political, regulatory, ethical, and economic aspects of the external environment in which the enterprise operates.
3. What an organisations skills, capabilities, and resources allow it to do best.
4. Emerging threats to the organisation’s performance.
5. The organisation’s culture, core beliefs, and business philosophy.
6. The personal values, aspirations, and vision of managers, especially the most senior executive(s).
The Search for a Sustainable Competitive Advantage (SCA)
A strategy that does not last is not effective or optimum. An optimum competitive strategy must be sustainable with regards to either existing or potential competition. The firm’s competitive advantage must be able to resist erosion by competitor action or the evolution of the market.
While an organisation continually adapts to its competitive environment, there are certain core ideals that remain relatively steady and provide guidance in the process of strategic decision-making. These unchanging ideals form the business vision and are expressed in the organisations mission statement.
Establishing Strategic Goals, Objectives and Performance Targets
Goals are the broad, primary results that management seeks to achieve in the plan.
Objectives are the specification and quantification of those goals.
The result of Objectives, Performance targets cannot be set on the basis of whatever management decides would be “nice.” If goals and objectives are to be something other than “pie-in-the-sky wishful thinking,” and if, at the same time, they are to serve as a tool for stretching the enterprise to achieve its full potential, then they must meet the criterion of being challenging but achievable. Satisfying this criterion means setting objectives in the light of several important “inside-outside” considerations.
Criteria of Performance.
Achieving the Set Goals. Obviously the primary criterion is to achieve the goals set by the organisation. Profitability is usually the most important area of performance, however in Not for Profit organisations it is replaced by “positive margins”. Both guarantee the flow of capital necessary for new value offering development and expansion.
Effectiveness. The degree to which our strategies are working. Includes Competitiveness and Efficiency
Competitiveness. Competitive strength is really a substitute measure of long-run success in achieving goals.
Efficiency. To ensure long-term profitability, organisations must maintain certain kinds of short-term efficiencies -usually in terms of cost savings.
Flexibility. Because organisations operate in a very uncertain environment, well-managed organisations should try to protect themselves from significant negative events by remaining flexible, both externally and internally.
Corporate objectives should be developed and performance evaluated in each of these areas. Accordingly, assessing the organisation’s strengths and weaknesses for purposes of strategic planning should identify strengths and weaknesses in each of these areas.
Sun Tzu and the Essential Components of Victory
Sun Tzu is one of the most renowned strategists in history. Although his strategy was about warfare, the principles are still used today in Asia. Sun Tzu said these are the considerations to obtain victory:
1. Know when to fight and when not to fight.
There is a time for everything. Act with forethought and dispassion instead of succumbing to emotion. Superiority of numbers or position is not always necessary for victory. The one who understands the rhythm of the battle and is able to freely utilise other natural advantages can realise victory with a smaller force or inferior position.
2. Obtain the wholehearted support of your troops.
The one who understands how to obtain the unconditional support of his troops by creating a common objective will have a great advantage over his opponent.
3. Be well prepared to seize favourable opportunities.
One must sharpen his intuition in order to recognise favourable opportunities and be prepared to seize them.
4. Free yourself from interference.
If a superior is constantly giving orders to his general (manager), the general cannot fight an effective battle. Freedom from such interference is essential. If a general has been chosen well, he will insist on being given the freedom to win the battle.
5. When the time is right, act swiftly and decisively.
Do not act precipitously, but do not hesitate when the conditions for victory are present.
The highest form of victory is to conquer by strategy
To win a battle by actually fighting is not the most desirable way. To conquer the enemy without resorting to war, conquering the enemy by strategy is the highest, most desirable form of generalship. The next best form of generalship is to conquer the enemy by alliance. The next is to conquer the enemy by battle on open ground, The worst form of generalship is to conquer the enemy by besieging walled cities … those most skilled in warfare are those who conquer the enemy without fighting battles, who capture cities without laying siege to them, and who annex states without prolonged warfare. They can preserve their forces whole and intact while struggling for the mastery of their opponent. They can win a complete victory without as much as wearying their men. -All this is due to the use of strategy.
The Opportunity for Victory is Provided by the Enemy
Sun Tzu says that an army can only make itself secure against defeat; the opportunity for victory must be provided by the enemy. The wise commander cannot achieve victory unless his enemy presents him with an opportunity.