Business Strategy — Essentials You Always Wanted To Know
— Book Review
This Self-Learning Management Series gives an understanding of business strategy in a simplified way. It describes the need for strategic management in business place. It includes basic fundamentals, important concepts, standard and well-known principles as well as case studies in almost every chapter.
Here is my understanding of Business Strategy Essentials:
Business Strategy is intelligent decision making. Strategic management comes into play whenever you have to take an intelligent decision. It guides the organization’s future growth using effective and efficient management methods with emphasis on setting appropriate goals.
Strategic Management, consists of decisions around corporate finances, human resources, mission, vision, values etc. Strategic management is a great way to pinpoint the organization’s core competencies and get the most out of them. Understanding the core competencies will help you know what causes your organization’s success.
A well defined strategy is an excellent roadmap for your organization. It details the organization’s mission, vision and values. It demonstrates to others were the organization wants to be in future.
Strategic statement — includes strategic intent, mission, vision and objectives. It shapes the organization’s long term strategic path and overall policy directions.
Strategic intent — is the reason that the organization is in place today and will continue to function in the years to come. It gives big picture about the organization and motivates and inspires employees. It clarifies priorities. It gives clear direction to assist in setting goals. It influences resources and core competencies.
Mission statement — formulated to detail how the organization expects to serve its stakeholders. It gives why, what and who behind an organization. It sets a part one organization from another.A good mission statement is achievable, clearly stated, motivating, precise, original, investigative and credible .
Vision statement — focuses on where the organization plans to be in future. It is what the organization wants to be when it grows up. It describes what the organization will be like if it is successful in achieving the mission. It should be explicit, clear, inline with organization’s culture and values, realistic and less lengthy than the mission statement.
Goal — something that the organization is trying to achieve. What we want to reach in order to achieve the mission and vision.
Objective — a goal we wish to reach over a specific period of time. It helps us plan how we will meet our goals.
At its core, strategic management can be traced to three main theories
- Industrial organization theory — focuses on how the industry environment can affect an organization.
2. Resource based theory — the organization is only as good as how they use their resources.
3. Contingency theory — takes both the above theories into account.
An organization is successful when they make decisions led by their mission, competitive environment and use of resources.
Industry and Industry Life Cycle
Industry is a group of businesses that provide competing goods or services.
Each industry is unique in its products, pricing, distribution and quality requirements. They have developed their own normal. In order to develop strategic plans, managers should be very knowledgeable of the industry they work in. If the market share is not available, they should look at the relative market share. Looking at either of these, gives an idea of where they stand today, so they can determine where they want to be in future. Once this is determined, to reach the end goal, strategies are developed.
Industries are very dynamic. In order to be successful in planning, managers should understand the industry life cycle.
Processes and Phases in Strategy Management
The entire process of strategic management occurs in 4 phases and is also referred to as a strategic cycle as they can recur. The 4 stages are
1. Environmental scanning — collecting data on external and internal factors to see how it may affect the organization.
2. Formulation — determining how the organization wants to proceed in consideration of all information collected. The organization decides what the next steps are in achieving the organization goals and objectives.
3. Implementation — Putting the decision made into action. Breaking down things such as organizational structure, resourcing and decision making.
4. Evaluation — Taking into consideration the internal and external factors that drive the strategies that are in place now. Measure how the organization is performing and course correct.
Environmental scanning is completed with SWOT analysis where Strengths and Weakness analyze the internal aspects of the organization, Threats and Opportunities analyze the external factors that affect the organization negatively and positively.
Internal Analysis
By understanding the resources and abiities of your organization, you can identify and capitalize on competitive advantages. By exploiting the strength and minimizing the exposure on weaknesses, an organization gains an edge on competition.
The organization has found a way to create value for the consumers. Value is the key to above average returns for an organization. Resources, capabilities, core competencies , competitive advantage and strategic competitiveness are all inter related.
Value chain analysis
The ability to identify areas of operation that do and do not add value . Organization’s profit potential increases when the value they create is more than the cost they incur. Value chain is the template used by organizations to clarify their cost position and direct the implementation of a specific business level strategy through primary and support activities. Primary activities in the value chain bring the product to the consumer. Support activities provides assistance to make sure that the primary activity happens.
External Analysis
Determines the organization’s opportunities and threats. Opportunities are used to exploit an external condition that will improve the organization’s strategic competitiveness. A threat is a condition in the general environment that could be detrimental to the organization’s strategic competitiveness.
To better manage and comprehend the current environment, organizations conduct external environment analysis. It is comprised of 4 segments
1. Scanning — What changes or trends in the environment raise a red flag? Helps in early signals of possible changes and identifies any changes happening already.
2. Monitoring — After ongoing observation, what change or trends raise a red flag?
Researches are sifting through the data gathered during scanning to determine what pieces are meaningful. After determining this, they begin to actively monitor the changes and trends to see if something worthwhile that could affect their strategies is happening in the environment.
3. Forecasting- What do we think can happen as a result of changes and trends we have been observing?
Improvement of technology at a rapid rate, expedites the product life cycle which in turn, makes forecasting difficult. Greatest challenge in forecasting is accuracy. If you are unable to forecast close to accurate, your profitability potential could be affected.
4. Assessing — What is the timing and criticality of these changes or tends in the environment? How can we include them in future strategies? The key thing to remember is how the data is interpreted.
Formulation of Strategy
After completing internal and external analysis, organization begins to formulate strategy.
1. Knowing what we know, how do we want to move forward.
2. How can we best succeed in meeting our goals and objectives.
During formulation phase, organization develop strategies on various levels in the organization.
Strategy Levels
In order to disseminate organizational strategies, we need to have few different levels of strategy.
There are 3 levels.
1. Business — The departments strategic plan for helping meet the corporate level strategy.
2. Corporate — organizational level strategy setting the big picture for where the organization is going
3. Team — The individual team’s strategy for how it will add value to corporate and business strategies.
Mergers and Acquisitions help organization quickly grow and achieve above average profitability. It is a great strategy to create value for share holders. It is used to address the uncertainty in the competitive market. The purpose is to increase an organizations competitiveness and value.
I would recommend this book for newbies to Business Strategy. In addition to explaining the building blocks of strategy, it helps to understand how strategy differs at different levels of the organization. It explains the do’s and don’ts of executing strategy. It explains Porter’s Five forces and its effect on strategic development and also the issues with this model. The case studies are based on real world examples identifying the salient points.
The case study on:
1. Walmart helps understand Porter’s five forces.
2. Apple discusses its strength and weaknesses, their opportunity and threat.
3. Pepsico discusses how successful environment scanning helped them to take the right decision at the right time to move with quickly with the industry.
4. Borders explains how poor environmental scanning and not taking any action on the environmental scanning analysis led them to file Bankruptcy.
5. BMW’s acquisition of Rover Company illustrates the reason’s for its failure even though it sounded successful in the initial terms.
