DEPARTMENT OF CLINICAL MEDICINE

COURSE CODE: BBM4117

COURSE TITLE: STRATEGIC

MANAGEMENT
COURSE CONTENT

Strategic management – definition, theories, practices and

concepts; Strategic Analysis; Strategic Formulation: creating
and sustaining competitive advantages. Strategy
Implementation: strategic control and corporate governance,
creating effective organizational designs. Strategy Evaluation:
strategy review, evaluation and control.
Strategic planning process: vision, mission, values internal
strengths and weaknesses, external opportunities and threats.
Table of Contents
...................................................................................................................................................................... 1

CHAPTER 1: STRATEGIC MANAGEMENT ............................................................................................................................. 4

1.1 Strategy ......................................................................................................................................... 4

1.2 Strategic Management Process : Meaning, Steps and Components ........................................... 5
CHAPTER TWO: INTRODUCTION ............................................................................................................... 8
2.1 General Approaches to Strategic Management..................................................................................... 8
2.2 Strategic management techniques ..................................................................................................... 9
2.3 The strategy hierarchy ........................................................................................................................ 9
2.4 The psychology of strategic management ........................................................................................28
2.5 Reasons why strategic plans fail ....................................................................................................... 29
2.6 Criticisms of strategic management ................................................................................................. 30
CHAPTER THREE: Strategy Formulation...................................................................................................... 31
3.1 INTRODUCTION...........................................................................................................................31
3.2 THREE ASPECTS OF STRATEGY FORMULATION........................................................................... 33
CHAPTER FOUR: Strategy Implementation ............................................................................................55
CHAPTER FIVE: STRATEGIC PLANNING....................................................................................................... 58
5.1 HISTORY ...................................................................................................................................... 58
5.2 STRATEGY FORMULATION .......................................................................................................... 58
5.3 ENVIRONMENTAL SCANNING ..................................................................................................... 59
5.4 CONTINUOUS IMPLEMENTATION...............................................................................................60
5.5 VALUES ASSESSMENT..................................................................................................................60
5.6 VISION AND MISSION FORMULATION ........................................................................................61
5.7 STRATEGY DESIGN.......................................................................................................................62
CHAPTER SIX: PERFORMANCE AUDIT ANALYSIS .........................................................................................64
6.1 GAP ANALYSIS .............................................................................................................................65
6.2 ACTION PLAN DEVELOPMENT..................................................................................................... 66
6.3 CONTINGENCY PLANNING .......................................................................................................... 67
6.4 IMPLEMENTATION ......................................................................................................................67
CHAPTER SEVEN: HOSHIN PLANNING ..................................................................................................... 68
7.1 HISTORY OF HOSHIN PLANNING ................................................................................................. 68
7.2 THE CONTEXT FOR HOSHIN PLANNING ......................................................................................69
 7.3 STEPS OF POLICY DEPLOYMENT.................................................................................................. 70
7.4 EXECUTION.................................................................................................................................. 72
7.5 AUDITING THE PLAN. ..................................................................................................................72
CHAPTER EIGHT: EVALUATION ...............................................................................................................73
CONTINOUS ASSESSMENT 1( CAT 1)....................................................................................................... 74
REFERENCES:............................................................................................................................................... 80

CHAPTER 1: STRATEGIC MANAGEMENT

AN OVERVIEW
1.0 Definition

Strategic management is the process of specifying an organization's objectives,

developing policies and plans to achieve these objectives, and allocating resources so
as to implement the plans.

It is the highest level of managerial activity, usually performed by the company's

Chief Executive Officer (CEO) and executive team. It provides overall direction to the
whole enterprise.

An organization’s strategy must be appropriate for its resources, circumstances, and

objectives. The process involves matching the companies' strategic advantages to the
business environment the organization faces.

One objective of an overall corporate strategy is to put the organization into a

position to carry out its mission effectively and efficiently.

A good corporate strategy should integrate an organization’s goals, policies, and

action sequences (tactics) into a cohesive whole.

1.1 Strategy
The word “strategy” is derived from the Greek word “stratçgos”; stratus (meaning
army) and “ago” (meaning leading/moving).
Strategy is an action that managers take to attain one or more of the organization’s
goals. Strategy can also be defined as “A general direction set for the company and its
various components to achieve a desired state in the future. Strategy results from the
detailed strategic planning process”.
A strategy is all about integrating organizational activities and utilizing and allocating
the scarce resources within the organizational environment so as to meet the present
objectives. While planning a strategy, it is essential to consider that decisions are not
taken in a vacuum and that any act taken by a firm is likely to be met by a reaction
from those affected, competitors, customers, employees or suppliers.
Strategy can also be defined as knowledge of the goals, the uncertainty of events and
the need to take into consideration the likely or actual behaviour of others. Strategy
is the blueprint of decisions in an organization that shows its objectives and goals,
reduces the key policies, and plans for achieving these goals, and defines the business
the company is to carry on, the type of economic and human organization it wants to
be, and the contribution it plans to make to its shareholders, customers and society at
large.

Therefore:
Strategic management can be used to determine mission, vision, values, goals,
objectives, roles and responsibilities, timelines, etc.

1.2 Strategic Management Process : Meaning, Steps and Components

The strategic management process means defining the organization’s strategy. It is
also defined as the process by which managers make a choice of a set of strategies for
the organization that will enable it to achieve better performance.

Strategic management is a continuous process that appraises the business and

industries in which the organization is involved; appraises its competitors; and fixes
goals to meet the entire present and future competitor’s and then reassesses each
strategy.

1.2.1 Strategic management process has the following four steps:

a. Environmental Scanning

Environmental scanning refers to a process of collecting, scrutinizing and providing

information for strategic purposes. It helps in analysing the internal and external
factors influencing an organization. After executing the environmental analysis
process, management should evaluate it on a continuous basis and strive to improve
it.

b. Strategy Formulation- Strategy formulation is the process of deciding best course

of action for accomplishing organizational objectives and hence achieving
organizational purpose. After conducting environment scanning, managers formulate
corporate, business and functional strategies.

c. Strategy Implementation- Strategy implementation implies making the strategy

work as intended or putting the organization’s chosen strategy into action. Strategy
implementation includes designing the organization’s structure, distributing
resources, developing decision making process, and managing human resources.

d. Strategy Evaluation- Strategy evaluation is the final step of strategy management

process. The key strategy evaluation activities are: appraising internal and external
factors that are the root of present strategies, measuring performance, and taking
remedial / corrective actions. Evaluation makes sure that the organizational strategy
as well as its implementation meets the organizational objectives.

These components are steps that are carried, in chronological order, when creating a
new strategic management plan.

Businesses/ organisations that have already created a strategic management plan will
revert to these steps as per the situation’s requirement, so as to make essential
changes.

1.2.2 Components of Strategic Management Process

Strategic management is an on-going process. Therefore, it must be realized that

each component interacts with the other components and that this interaction often
happens in chorus.

Environmental Scanning - Internal & External Analysis of Environment

Organizational environment consists of both external and internal factors.

Environment must be scanned so as to determine development and forecasts of
factors that will influence organizational success. Environmental scanning refers to
possession and utilization of information about occasions, patterns, trends, and
relationships within an organization’s internal and external environment. It helps the
managers to decide the future path of the organization. Scanning must identify the
threats and opportunities existing in the environment. While strategy formulation, an
organization must take advantage of the opportunities and minimize the threats. A
threat for one organization may be an opportunity for another.

a. Internal analysis
Internal analysis of the environment is the first step of environment scanning.
Organizations should observe the internal organizational environment. This
includes employee interaction with other employees, employee interaction
 with management, manager interaction with other managers, and management
interaction with shareholders, access to natural resources, brand awareness,
organizational structure, main staff, operational potential, etc.

Also, discussions, interviews, and surveys can be used to assess the internal
environment. Analysis of internal environment helps in identifying strengths
and weaknesses of an organization.

As business becomes more competitive, and there are rapid changes in the
external environment, information from external environment adds crucial
elements to the effectiveness of long-term plans. As environment is dynamic, it
becomes essential to identify competitors’ moves and actions. Organizations
have also to update the core competencies and internal environment as per
external environment. Environmental factors are infinite, hence, organization
should be agile and vigil to accept and adjust to the environmental changes.
For instance - Monitoring might indicate that an original forecast of the prices
of the raw materials that are involved in the product are no more credible,
which could imply the requirement for more focused scanning, forecasting and
analysis to create a more trustworthy prediction about the input costs. In a
similar manner, there can be changes in factors such as competitor’s activities,
technology, market tastes and preferences.

b. External analysis

In external analysis, three correlated environment should be studied and analysed

—

 Immediate/industry environment

 National environment

 Broader socio-economic environment / macro-environment

Examining the industry environment needs an appraisal of the competitive

structure of the organization’s industry, including the competitive position of a
particular organization and its main rivals.

Also, an assessment of the nature, stage, dynamics and history of the industry is
essential. It also implies evaluating the effect of globalization on competition
within the industry.

Analysing the national environment needs an appraisal of whether the national

framework helps in achieving competitive advantage in the globalized
environment. Analysis of macro-environment includes exploring macro-economic,
 social, government, legal, technological and international factors that may
influence the environment.

The analysis of organization’s external environment reveals opportunities and

threats for an organization.

Strategic managers must not only recognize the present state of the environment
and their industry but also be able to predict its future positions.

CHAPTER TWO: INTRODUCTION

2.1 General Approaches to Strategic Management

In general terms, there are two approaches to strategic management:

a) The Industrial Organization Approach

 based on economic theory — deals with issues like competitive rivalry,

resource allocation, economies of scale

 assumptions — rationality, self-interested behaviour, profit maximization

b) The Sociological Approach

 deals primarily with human interactions

 assumptions — bounded rationality, satisfying behaviour, profit sub-

optimality. An example of a company that currently operate this way is
Google

Strategic management theories can also be divided into those that concentrate mainly
on efficiency and those that concentrate mainly on effectiveness.

Efficiency is about doing things the right way. It involves eliminating waste and
optimizing processes.

Effectiveness is about doing the right things. There is no point in acting efficiently if
what you are doing will not have the desired effect. A good strategy will blend both
efficiency and effectiveness. This distinction is linked to the
formulation/implementation distinction.
2.2 Strategic management techniques
Strategic management techniques can be viewed as either bottom-up, top-down, or
collaborative processes.

In the bottom-up approach, employees submit proposals to their managers who, in

turn, funnel the best ideas further up the organization. This is often accomplished by
a capital budgeting process. Proposals are assessed using financial criteria such as
return on investment or cost-benefit analysis. The proposals that are approved form
the substance of a new strategy, all of which is done without a grand strategic design
or a strategic architect.

The top-down approach is the most common by far. In it, the CEO, possibly with the
assistance of a strategic planning team, decides on the overall direction the company
should take.

Some organizations are starting to experiment with collaborative strategic planning

techniques that recognize the emergent nature of strategic decisions.

2.3 The strategy hierarchy

In most (large) corporations there are several levels of strategy.

a) Strategic management

Strategic management is the highest in the sense that it is the broadest, applying to
all parts of the firm. It gives direction to corporate values, corporate culture,
corporate goals, and corporate missions. Under this broad corporate strategy there
are often functional or business unit strategies.

b) Functional strategies

Functional strategies include marketing strategies, new product development

strategies, human resource strategies, financial strategies, legal strategies, and
information technology management strategies. The emphasis is on short and medium
term plans and is limited to the domain of each department’s functional
responsibility. Each functional department attempts to do its part in meeting overall
corporate objectives, and hence to some extent their strategies are derived from
broader corporate strategies.

c) Strategic business units (SBUs)

Many companies feel that a functional organizational structure is not an efficient way
to organize activities so they have reengineered according to processes or strategic
business units (called SBUs). A strategic business unit is a semi-autonomous unit
within an organization. It is usually responsible for its own budgeting, new product
decisions, hiring decisions, and price setting. An SBU is treated as an internal profit
centre by corporate headquarters. Each SBU is responsible for developing its business
strategies, strategies that must be in tune with broader corporate strategies.

d) Operational strategy

The “lowest” level of strategy is operational strategy. It is very narrow in focus and
deals with day-to-day operational activities such as scheduling criteria. It must
operate within a budget but is not at liberty to adjust or create that budget.
Operational level strategy was encouraged by Peter Drucker in his theory of
management by objectives (MBO). Operational level strategies are informed by
business level strategies which, in turn, are informed by corporate level strategies.

Since the turn of the millennium, there has been a tendency in some firms to revert
to a simpler strategic structure. This is being driven by information technology. It is
felt that knowledge management systems should be used to share information and
create common goals. Strategic divisions are thought to hamper this process.

2.3.1 HISTORICAL DEVELOPMENT OF STRATEGIC MANAGEMENT

2.3.2 Birth of strategic management

Strategic management as a discipline originated in the 1950s and 1960s. Although

there were numerous early contributors to the literature, the most influential
pioneers were Alfred Chandler, Philip Selznick, Igor Ansoff, and Peter Drucker.

Alfred Chandler recognized the importance of coordinating the various aspects of

management under one all-encompassing strategy. Prior to this time the various
functions of management were separate with little overall coordination or strategy.
Interactions between functions or between departments were typically handled by a
boundary position, that is, there were one or two managers that relayed information
back and forth between two departments. Chandler also stressed the importance of
taking a future looking long term perspective. In his ground-breaking work Strategy
and Structure (1962), Chandler showed that a long term coordinated strategy was
necessary to give a company structure, direction, and focus. He says it concisely,
“structure follows strategy”. Today we recognize that this is only half the story:
strategy also follows from structure (see Tom Peters Liberation Management)

Philip Selznick (1957) introduced the idea of matching the organization's internal
factors with external environmental circumstances. This core idea was developed into
what we now call SWOT analysis by Learned, Andrews, and others at the Harvard
Business School General Management Group. Strengths and weaknesses of the firm are
assessed in light of the opportunities and threats from the business environment.
Igor Ansoff built on Chandler's work by adding a range of strategic concepts and
inventing a whole new vocabulary. He developed a strategy grid that compared
market penetration strategies, product development strategies, market development
strategies and horizontal and vertical integration and diversification strategies. He
felt that management could use these strategies to systematically prepare for future
opportunities and challenges. In his classic Corporate strategy (1965) he developed
the “gap analysis” still used today in which we must understand the gap between
where we are currently and where we would like to be, and then develop what he
called “gap reducing actions”.

Peter Drucker was a prolific strategy theorist, author of dozens of management books,
with a career spanning five decades. His contributions to strategic management were
many but two are most important. Firstly, he stressed the importance of objectives.
An organization without clear objectives is like a ship without a rudder. As early as
1954 he was developing a theory of management based on objectives. This evolved
into his theory of management by objectives (MBO). According to Drucker, the
procedure of setting objectives and monitoring your progress towards them should
permeate the entire organization, top to bottom. His other seminal contribution was
in predicting the importance of what today we would call intellectual capital. He
predicted the rise of what he called the “knowledge worker” and explained the
consequences of this for management. He said that knowledge work is non-
hierarchical. Work would be carried out in teams with the person most knowledgeable
in the task at hand being the temporary leader.

E. Chaffee (1985) summarized what he thought were the main elements of strategic
management theory by the 1970s. They are:

 Strategic management involves adapting the organization to its business

environment.

 Strategic management is fluid and complex. Change creates novel combinations

of circumstances requiring unstructured non-repetitive responses.

 Strategic management affects the entire organization by providing direction.

 Strategic management involves both strategy formation (he called it content)

and also strategy implementation (he called it process).

 Strategic management is partially planned and partially unplanned.

 Strategic management is done at several levels: overall corporate strategy, and

individual business strategies.
  Strategic management involves both conceptual and analytical thought
processes.

2.3.3 Growth and portfolio theory

In the 1970s much of strategic management dealt with size, growth, and portfolio
theory. The PIMS study was a long term study, started in the 1960s and lasted for 19
years, that attempted to understand the Profit Impact of Marketing Strategies (PIMS),
particularly the effect of market share. Started at General Electric, moved to Harvard
in the early 1970s, and then moved to the Strategic Planning Institute in the late
1970s, it now contains decades of information on the relationship between
profitability and strategy. Their initial conclusion was unambiguous: The greater a
company's market share, the greater will be their rate of profit. The high market
share provides volume and economies of scale. It also provides experience and
learning curve advantages. The combined effect is increased profits. (The validity of
the study's conclusions has recently been questioned in Tellis, G. and Golder, P.
(2002)).

The benefits of high market share naturally lead to an interest in growth strategies.
The relative advantages of horizontal integration, vertical integration, diversification,
franchises, mergers and acquisitions, joint ventures, and organic growth were
discussed. The most appropriate market dominance strategies were assessed given
the competitive and regulatory environment.

There was also research that indicated that a low market share strategy could also be
very profitable. Schumacher (1973), Woo and Cooper (1982), Levenson (1984), and
later Traverso (2002) showed how smaller niche players obtained very high returns.

By the early 1980s the paradoxical conclusion was that high market share and low
market share companies were often very profitable but most of the companies in
between were not. This was sometimes called the “hole in the middle” problem. This
anomaly would be explained by Michael Porter in the 1980s.

The management of diversified organizations required new techniques and new ways
of thinking. The first CEO to address the problem of a multi-divisional company was
Alfred Sloan at General Motors. GM was decentralized into semi-autonomous
“strategic business units” (SBU's), but with centralized support functions.

One of the most valuable concepts in the strategic management of multi-divisional

companies was portfolio theory. In the previous decade Harry Markowitz and other
financial theorists developed the theory of portfolio analysis. It was concluded that a
broad portfolio of financial assets could reduce specific risk. In the 1970s marketers
extended the theory to product portfolio decisions and managerial strategists
extended it to operating division portfolios. Each of a company’s operating divisions
were seen as an element in the corporate portfolio. Each operating division (also
called strategic business units) was treated as a semi-independent profit centre with
its own revenues, costs, objectives, and strategies. Several techniques were
developed to analyse the relationships between elements in a portfolio. B.C.G.
Analysis, for example, was developed by the Boston Consulting Group in the early
1970s. This was the theory that gave us the wonderful image of a CEO sitting on a
stool milking a cash cow. Shortly after that the G.E. multi factoral model was
developed by General Electric. Companies continued to diversify until the 1980s when
it was realized that in many cases a portfolio of operating divisions was worth more as
separate completely independent companies.

2.3.3 The marketing revolution

The 1970s also saw the rise of the marketing oriented firm. From the beginnings of
capitalism it was assumed that the key requirement of business success was a product
of high technical quality. If you produced a product that worked well and was
durable, it was assumed you would have no difficulty selling them at a profit. This
was called the production orientation and it was generally true that good products
could be sold without effort. This was largely due to the growing numbers of affluent
and middle class people that capitalism had created. But after the untapped demand
caused by the Second World War was saturated in the 1950s it became obvious that
products were not selling as easily as they were. The answer was to concentrate on
selling. The 1950s and 1960s is known as the sales era and the guiding philosophy of
business of the time is today called the sales orientation. In the early 1970s Theodore
Levitt and others at Harvard realized that the sales orientation had things backward.
They claimed that instead of producing products then trying to sell them to the
customer, businesses should start with the customer, find out what they wanted, and
then produce it for them. The customer became the driving force behind all strategic
business decisions. This marketing orientation, in the decades since its introduction,
has been reformulated and repackaged under numerous names including customer
orientation, marketing philosophy, customer intimacy, customer focus, customer
driven, and market focused.

2.3.4 The Japanese challenge

By the late 70s people had started to notice how successful Japanese industry had
become. In industry after industry, including steel, watches, ship building, cameras,
autos, and electronics, the Japanese were surpassing American and European
companies. Westerners wanted to know why. Numerous theories purported to explain
the Japanese success including:
  Higher employee morale, dedication, and loyalty;

 Lower cost structure, including wages;

 Effective government industrial policy;

 Modernization after WWII leading to high capital intensity and productivity;

 Economies of scale associated with increased exporting;

 Relatively low value of the Yen leading to low interest rates and capital costs,
low dividend expectations, and inexpensive exports;

 Superior quality control techniques such as Total Quality Management and

other systems introduced by W. Edwards Deming in the 1950s and 60s. (This is
detailed in Schonberger R. (1982).)

Although there was some truth to all these potential explanations, there was clearly
something missing. In fact by 1980 the Japanese cost structure was higher than the
American. And post WWII reconstruction was nearly 40 years in the past. The first
management theorist to suggest an explanation was Richard Pascale.

In 1981 Richard Pascale and Anthony Athos in The Art of Japanese Management
claimed that the main reason for Japanese success was their superior management
techniques. They divided management into 7 aspects: Strategy, Structure, Systems,
Skills, Staff, Style, and Subordinate goals (which we would now call shared values).
The first three of the 7 S's were called hard factors and this is where American
companies excelled. The remaining four factors (skills, staff, style, and shared values)
were called soft factors and were not well understood by American businesses of the
time. (For details on the role of soft and hard factors see Wickens P.D. (1995).
Americans had not yet understood the role of corporate culture, shared values and
beliefs, and social cohesion in the workplace. In Japan the task of management was
seen as managing the whole complex of human needs, economic, social,
psychological, and spiritual. In America work was seen as something that was separate
from the rest of one's life. It was quite common for Americans to exhibit a very
different personality at work compared to the rest of their lives. Pascale also
highlighted the difference between decision making styles; hierarchical in America,
and consensus in Japan. He also claimed that American business lacked long term
vision, preferring instead to apply management fads and theories in a piecemeal
fashion.

One year later The Mind of the Strategist was released in America by Kenichi Ohmae.
(It was originally published in Japan in 1975.) He claimed that strategy in America was
too analytical. Strategy should be a creative art: It is a frame of mind that requires
intuition and intellectual flexibility. He claimed that Americans constrained their
strategic options by thinking in terms of analytical techniques, rote formula, and
step-by-step processes. He compared the culture of Japan in which vagueness,
ambiguity, and tentative decisions were acceptable, to American culture that valued
fast decisions.

Also in 1982 Tom Peters and Robert Waterman released a study that would respond to
the Japanese challenge head on. Peters and Waterman, who had several years earlier
collaborated with Pascale and Athos at McKinsey & Co., asked “What makes an
excellent company?” They looked at 62 companies that they thought were fairly
successful. Each was subject to six performance criteria. To be classified as an
excellent company, it had to be above the 50th percentile in 4 of the 6 performance
metrics for 20 consecutive years. Forty-three companies passed the test. They then
studied these successful companies and interviewed key executives. They concluded
in In Search of Excellence that there were 8 keys to excellence that were shared by
all 43 firms. They are:

 A bias for action — Do it. Try it. Don’t waste time studying it with multiple
reports and committees.

 Customer focus — Get close to the customer. Know your customer.

 Entrepreneurship — even big companies act and think small by giving people
the authority to take initiatives.

 Productivity through people — Treat your people with respect and they will
reward you with productivity.

 Value oriented CEOs — The CEO should actively propagate corporate values
throughout the organization.

 Stick to the knitting — Do what you know well.

 Keep things simple and lean — Complexity encourages waste and confusion.

 Simultaneously centralized and decentralized — Have tight centralized control

while also allowing maximum individual autonomy.

The basic blueprint on how to compete against the Japanese had been drawn. But as
J.E. Rehfeld (1994) explains it is not a straight forward task due to differences in
culture. A certain type of alchemy was required to transform knowledge from various
cultures into a management style that allows us to compete in a globally diverse
world. He says, for example, that Japanese style kaizen (continuous improvement)
techniques, although suitable for people socialized in Japanese culture, have not
been successful when implemented in the U.S. unless they are modified significantly.

2.3.5 Gaining competitive advantage

The Japanese challenge shook the confidence of the western business elite, but
detailed comparisons of the two management styles and examinations of successful
businesses convinced westerners that they could overcome the challenge. The 1980s
and early 1990s saw a plethora of theories explaining exactly how this could be done.
They cannot all be detailed here, but some of the more important strategic advances
of the decade are explained below.

Gary Hamel and C. K. Prahalad declared that strategy needs to be more active and
interactive; less “arm-chair planning” was needed. They introduced terms like
strategic intent and strategic architecture (See Hamel, G. & Prahalad, C.K. (1989) and
also Hamel, G. & Prahalad, C.K. (1994).). Their most well-known advance was the
idea of core competency. They showed how important it was to know the one or two
key things that your company does better than the competition. (See Hamel, G. &
Prahalad, C.K. (1990).)
Active strategic management required active information gathering and active
problem solving. In the early days of Hewlett-Packard (H-P), Dave Packard and Bill
Hewlett devised an active management style that they called Management By Walking
Around (MBWA). Senior H-P managers were seldom at their desks. They spent most of
their days visiting employees, customers, and suppliers. This direct contact with key
people provided them with a solid grounding from which viable strategies could be
crafted. The MBWA concept was later popularized in a book by Tom Peters and Nancy
Austin (1985). Japanese managers employ a similar system, which originated at
Honda, and is sometimes called the 3 G's (Genga, Gengutsu, and Genjitsu, which
translates into “actual place”, “actual thing”, and “actual situation”).

Without doubt, the most influential strategist of the decade was Michael Porter. He
introduced many new concepts including; 5 forces analysis, generic strategies, the
value chain, strategic groups, and clusters. In 5 forces analysis he identifies the forces
that shape a firm's strategic environment. It is like a SWOT analysis with structure and
purpose. It shows how a firm can use these forces to obtain a sustainable competitive
advantage. Porter modifies Chandler's dictum about structure following strategy by
introducing a second level of structure: Organizational structure follows strategy,
which in turn follows industry structure. Porter's generic strategies detail the
interaction between cost minimisation strategies, product differentiation strategies,
and market focus strategies. Although he did not introduce these terms, he showed
the importance of choosing one of them rather than trying to position your company
between them. He also challenged managers to see their industry in terms of a value
chain. A firm will be successful only to the extent that it contributes to the industry's
value chain. This forced management to look at its operations from the customer's
point of view. Every operation should be examined in terms of what value it adds in
the eyes of the final customer.

John Kay (1993) took the idea of the value chain to a financial level claiming; “Adding
value is the central purpose of business activity”, where adding value is defined as
the difference between the market value of outputs and the cost of inputs including
capital, all divided by the firm's net output. Borrowing from Gary Hamel and Michael
Porter, Kay claims that the role of strategic management is to identify your core
competencies, and then assemble a collection of assets that will increase value added
and provide a competitive advantage. He claims that there are 3 types of capabilities
that can do this; innovation, reputation, and organizational structure.

The 1980s also saw the widespread acceptance of positioning theory. Although the
theory originated with Jack Trout in 1969, it didn’t gain wide acceptance until Al Ries
and Jack Trout wrote their classic book “Positioning: The Battle For Your Mind”
(1979). The basic premise is that a strategy should not be judged by internal company
factors but by the way customers see it relative to the competition. Crafting and
implementing a strategy involves creating a position in the mind of the collective
consumer. Several techniques were applied to positioning theory, some newly
invented but most borrowed from other disciplines. Perceptual mapping for example,
creates visual displays of the relationships between positions. Multidimensional
scaling, discriminant analysis, factor analysis, and conjoint analysis are mathematical
techniques used to determine the most relevant characteristics (called dimensions or
factors) upon which positions should be based. Preference regression can be used to
determine vectors of ideal positions and cluster analysis can identify clusters of
positions.

Others felt that internal company resources were the key. Jay Barney (1992) for
example saw strategy as assembling the optimum mix of resources, including human,
technology, and suppliers, and then configure them in unique and sustainable ways.

Michael Hammer and James Champy (1993) felt that these resources needed to be
restructured. This process, that they labelled reengineering, involved organizing a
firm's assets around whole processes rather than tasks. In this way a team of people
saw a project through, from inception to completion. This avoided functional silos
where isolated departments seldom talked to each other. It also eliminated waste due
to functional overlap and interdepartmental communications.
In 1989 Richard Lester and the researchers at the MIT Industrial Performance Centre
identified seven best practices and concluded that firms must accelerate the shift
away from the mass production of low cost standardized products. The seven areas of
best practice were:

 Simultaneous continuous improvement in cost, quality, service, and product

innovation

 Breaking down organizational barriers between departments

 Eliminating layers of management creating flatter organizational hierarchies.

 Closer relationships with customers and suppliers

 Intelligent use of new technology

 Global focus

 Improving human resource skills

The search for “best practices” is also called benchmarking (Camp, R. 1989). This
involves determining where you need to improve, finding an organization that is
exceptional in this area, then studying the company and applying its best practices in
your firm.

A large group of theorists felt the area where western business was most lacking was
product quality. People like W. Edwards Deming (1982), Joseph M. Juran (1992), A.
Kearney (1992), Philip Crosby (1979), and Armand Feignbaum (1983) gave us quality
improvement techniques like Total Quality Management (TQM), continuous
improvement, lean manufacturing, Six Sigma, and Return on Quality (ROQ).

An equally large group of theorists felt that poor customer service was the problem.
People like James Heskett (1988), Earl Sasser (1995), William Davidow (1989), Len
Schlesinger (1991), A. Paraurgman (1988), Len Berry (1995), Jane Kingman-Brundage
(1993), Christopher Hart, and Christopher Lovelock (1994), gave us fishbone
diagramming, service charting, Total Customer Service (TCS), the service profit chain,
service gaps analysis, the service encounter, strategic service vision, service mapping,
and service teams. Their underlying assumption was that there is no better source of
competitive advantage than a continuous stream of delighted customers.

Process management uses some of the techniques from product quality management
and some of the techniques from customer service management. It looks at an
activity as a sequential process. The objective is to find inefficiencies and make the
process more effective. Although the procedures have a long history, dating back to
Taylorism, the scope of their applicability has been greatly widened, leaving no
aspect of the firm free from potential process improvements. Because of the broad
applicability of process management techniques, they can be used as a basis for
competitive advantage.

Some realized that businesses were spending much more on acquiring new customers
than on retaining current ones. Carl Sewell (1990), Frederick Reicheld (1996), C.
Gronroos (1994), and Earl Sasser (1990) showed us how a competitive advantage could
be found in ensuring that customers returned again and again. This has come to be
known as the loyalty effect after Reicheld's book of the same name in which he
broadens the concept to include employee loyalty, supplier loyalty, distributor
loyalty, and shareholder loyalty. They also developed techniques for estimating the
lifetime value of a loyal customer, called customer lifetime value (CLV). A significant
movement started that attempted to recast selling and marketing techniques into a
long term endeavour that created a sustained relationship with customers (called
relationship selling, relationship marketing, and customer relationship management).
Customer relationship management (CRM) software (and its many variants) became an
integral tool that sustained this trend.

James Gilmore and Joseph Pine found competitive advantage in mass customization
(1997). Flexible manufacturing techniques allowed businesses to individualize
products for each customer without losing economies of scale. This effectively turned
the product into a service. They also realized that if a service is mass customized by
creating a “performance” for each individual client, that service would be
transformed into an “experience”. Their book, The Experience Economy (1999), along
with the work of Bernd Schmitt convinced many to see service provision as a form of
theatre. This school of thought is sometimes referred to as customer experience
management (CEM).

Like Peters and Waterman a decade earlier, James Collins and Jerry Porras spent
years conducting empirical research on what makes great companies. Six years of
research uncovered a key underlying principle behind the 19 successful companies
that they studied: They all encourage and preserve a core ideology that nurtures the
company. Even though strategy and tactics change daily, the companies,
nevertheless, were able to maintain a core set of values. These core values encourage
employees to build an organization that lasts. In Built To Last (1994) they claim that
short term profit goals, cost cutting, and restructuring will not stimulate dedicated
employees to build a great company that will endure. In 2000 Collins coined the term
“built to flip” to describe the prevailing business attitudes in Silicon Valley. It
describes a business culture where technological change inhibits a long term focus. He
also popularized the concept of the BHAG (Big Hairy Audacious Goal).
Arie de Geus (1997) undertook a similar study and obtained similar results. He
identified four key traits of companies that had prospered for 50 years or more. They
are:

 Sensitivity to the business environment — the ability to learn and adjust

 Cohesion and identity — the ability to build a community with personality,

vision, and purpose

 Tolerance and decentralization — the ability to build relationships

 Conservative financing

A company with these key characteristics he called a living company because it is able
to perpetuate itself. If a company emphasizes knowledge rather than finance, and
sees itself as an on-going community of human being, it has the potential to become
great and endure for decades. Such an organization is an organic entity capable of
learning (he called it a “learning organization”) and capable of creating its own
processes, goals, and persona.

Jordan Lewis (1999) finds competitive advantage in alliance strategies. Rather than
seeing distributors, suppliers, firms in related industries, and even competitors as
potential threats or targets for vertical integration, they should be seen as potential
assistants or partners. He explains how mutual respect and trust is the cornerstone of
this approach and describes how this can be fostered at the interpersonal relationship
level.

2.3.6 The military theorists

In the 1980s some business strategists realized that there was a vast knowledge base
stretching back thousands of years that they had barely examined. They turned to
military strategy for guidance. Military strategy books like “The Art of War” by Sun
Tzu, “On War” by von Clausewitz, and “The Red Book” by Mao Tse Tung became
instant business classics. From Sun Tzu they learned the tactical side of military
strategy and specific tactical prescriptions. From Von Clausewitz they learned the
dynamic and unpredictable nature of military strategy. From Mao Tse Tung they
learned the principles of guerrilla warfare. The main marketing warfare books were:

 Business War Games by Barrie James, 1984

 Marketing Warfare by Al Ries and Jack Trout, 1986

 Leadership Secrets of Attila the Hun by Wess Roberts, 1987

  Philip Kotler was a well-known proponent of marketing warfare strategy.

There were generally thought to be four types of business warfare theories. They are:

 Offensive marketing warfare strategies

 Defensive marketing warfare strategies

 Flanking marketing warfare strategies

 Guerrilla marketing warfare strategies

The marketing warfare literature also examined leadership and motivation,

intelligence gathering, types of marketing weapons, logistics, and communications.

By the turn of the century marketing warfare strategies had gone out of favour. It was
felt that they were limiting. There were many situations in which non-confrontational
approaches were more appropriate. The “Strategy of the Dolphin” was developed in
the mid-1990s to give guidance as to when to use aggressive strategies and when to
use passive strategies. A variety of aggressiveness strategies were developed.

J. Moore (1993) used a similar metaphor. Instead of using military terms, he created
an ecological theory of predators and prey (see ecological model of competition); a
sort of Darwinian management strategy in which market interactions mimic long term
ecological stability.

2.3.7 Strategic Change

Back in 1970 Alvin Toffler in Future Shock (Toffler, A. 1970) describes a trend towards
accelerating rates of change. He illustrated how social and technological norms had
shorter lifespans with each generation, and he questioned society's ability to cope
with the resulting turmoil and anxiety. In past generations periods of change were
always punctuated with times of stability. This allowed us to assimilate the change
and deal with it before the next change was upon us. But these periods of stability
are getting shorter and by the late 20th century had all but disappeared. In The Third
Wave (Toffler, A. 1980) he characterizes this shift to relentless change as the defining
feature of the third phase of civilization (The first two phases being the agricultural
and industrial waves.). He claims that the dawn of this new phase will cause great
anxiety for those that grew up in the previous phases, and will cause much conflict
and opportunity in the business world. Hundreds of authors, particularly since the
early 1990s, have attempted to explain what this means for business strategy.
Watts Waker and Jim Taylor (1997) call this upheaval a 500 year delta. They claim
these major upheavals occur every 5 centuries. They say we are currently making the
transition from the “Age of Reason” to a new chaotic Age of Access. Jeremy Rifkin
(2000) popularized and expanded this term, “age of access” three years later in his
book of the same name.

Peter Drucker (1969) coined the phrase Age of Discontinuity to describe the way
change forces disruptions into the continuity of our lives. In an age of continuity
attempts to predict the future by extrapolating from the past can be somewhat
accurate. But according to Drucker, we are now in an age of discontinuity and
extrapolating from the past is hopelessly ineffective. We cannot assume that trends
that exist today will continue into the future. He identifies four sources of
discontinuity: new technologies, globalization, cultural pluralism, and knowledge
capital. Gary Hamel (Hamel, G. 2000) talks about strategic decay. The notion that the
value of all strategies, no matter how brilliant, decays over time.

Dereck Abell (Abell, D. 1978) describes strategic windows and stresses the importance
of the timing (both entrance and exit) of any given strategy. This has led some
strategic planners to build planned obsolescence into their strategies.

Charles Handy (Handy, C. 1989) identified two types of change. Strategic drift as a
gradual change that occur so subtlety that it is not noticed until it is too late. By
contrast, transformational change is sudden and radical. It is typically caused by
discontinuities (or exogenous shocks) in the business environment. The point where a
new trend is initiated is called a strategic inflection point by Andy Grove. Inflection
points can be subtle or radical. Malcolm Gladwell (2000) talks about the importance
of the tipping point, that point where a trend or fad acquires critical mass and takes
off.

Noel Tichy (Tichy, N. 1983) recognized that because we are all beings of habit we
tend to repeat what we are comfortable with. He says that this is a trap that
constrains our creativity, prevents us from exploring new ideas, and hampers our
dealing with the full complexity of new issues. He developed a systematic method of
dealing with change that involved looking at any new issue from three angles:
technical and production, political and resource allocation, and corporate culture.

Richard Pascale (Pascale, R. 1990) said that relentless change requires that businesses
continuously reinvent themselves. His famous maxim is “Nothing fails like success” by
which he means that what was a strength yesterday becomes the root of weakness
today, We tend to depend on what worked yesterday and refuse to let go of what
worked so well for us in the past. Prevailing strategies become self-confirming. In
order to avoid this trap, businesses must stimulate a spirit of inquiry and healthy
debate. They must encourage a creative process of self-renewal based on constructive
conflict.

Art Kleimer (1996) claims that to foster a corporate culture that embraces change,
you have to hire the right people; heretics, heroes, outlaws, and visionaries. The
conservative bureaucrat that made such a good middle manager in yesterday’s
hierarchical organizations is of little use today. A decade earlier Peters and Austin
(1985) had stressed the importance of nurturing champions and heroes. They said we
have a tendency to dismiss new ideas, so to overcome this, we should support those
few people in the organization that have the courage to put their career and
reputation on the line for an unproven idea.

Adrian Slywotsky (1996) showed how changes in the business environment are
reflected in value migrations between industries, between companies, and within
companies. He claims that recognizing the patterns behind these value migrations is
necessary if we wish to understand the world of chaotic change. In “Profit Patterns”
(1999) he describes businesses as being in a state of strategic anticipation as they try
to spot emerging patterns. Slywotsky and his team identified 30 patterns that have
transformed industry after industry.

A number of strategists use scenario planning techniques to deal with change. Kees
van der Heijden (1996), for example, says that change and uncertainty make
“optimum strategy” determination impossible. We have neither the time nor the
information required for such a calculation. The best we can hope for is what he calls
“the most skilful process”. The way Peter Schwartz (1991) puts it is strategic
outcomes cannot be known in advance so the sources of competitive advantage
cannot be predetermined. The fast changing business environment is too uncertain for
us to find sustainable value in formulas of excellence or competitive advantage.
Instead, scenario planning is a technique in which multiple outcomes can be
developed, their implications assessed, and their likeliness of occurrence evaluated.
According to Pierre Wick (1985), scenario planning is about insight, complexity, and
subtlety, not about formal analysis and numbers.

Henry Mintzberg (1988) looked at the changing world around him and decided it was
time to re-examine how strategic management was done. He examined the strategic
process and concluded it was much more fluid and unpredictable than people had
thought. Because of this, he could not point to one process that could be called
strategic planning. Instead he concludes that there are five types of strategies. They
are:

 Strategy as plan - a direction, guide, course of action - intention rather than

actual
  Strategy as ploy - a manoeuvre intended to outwit a competitor

 Strategy as pattern - a consistent pattern of past behaviour - realized rather

than intended

 Strategy as position - locating of brands, products, or companies within the

conceptual framework of consumers or other stakeholders - strategy
determined primarily by factors outside the firm

 Strategy as perspective - strategy determined primarily by a master strategist

Mintzberg (1998) developed these five types of management strategy into 10 “schools
of thought”. These 10 schools are grouped into three categories.

 The first group is prescriptive or normative. It consists of the informal design

and conception school, the formal planning school, and the analytical
positioning school.

 The second group, consisting of six schools, is more concerned with how
strategic management is actually done, rather than prescribing optimal plans
or positions. The six schools are the entrepreneurial, visionary, or great leader
school, the cognitive or mental process school, the learning, adaptive, or
emergent process school, the power or negotiation school, the corporate
culture or collective process school, and the business environment or reactive
school.

 The third and final group consists of one school, the configuration or
transformation school, an hybrid of the other schools organized into stages,
organizational life cycles, or “episodes”.

Constantinos Markides (1999) also wanted to re-examine the nature of strategic

planning itself. He describes strategy formation and implementation as an on-going,
never-ending, integrated process requiring continuous reassessment and reformation.
Strategic management is planned and emergent, dynamic, and interactive. J.
Moncrieff (1999) also stresses strategy dynamics. He recognized that strategy is
partially deliberate and partially unplanned. The unplanned element comes from two
sources: emergent strategies (result from the emergence of opportunities and threats
in the environment) and Strategies in action (ad hoc actions by many people from all
parts of the organization).

Some business planners are starting to use complexity theory. Complexity can be
thought of as chaos with a dash of order. Chaos theory deals with turbulent systems
that rapidly become disordered. Complexity is not quite so unpredictable. It involves
multiple agents interacting in such a way that a glimpse of structure may appear.
Axelrod, R. (1999), Holland, J. (1995), and Kelly, S. and Allison, M.A. (1999), call
these systems of multiple actions and reactions complex adaptive systems. Axelrod
(1999) asserts that rather than fear complexity, business should harness it. He says
this can best be done when “there are many participants, numerous interactions,
much trial and error learning, and abundant attempts to imitate each other’s
successes”. E. Dudik (2000) said that an organization must develop a mechanism for
understanding the source and level of complexity it will face in the future and then
transform itself into a complex adaptive system in order to deal with it.

2.3.8 Information and technology driven strategy

Peter Drucker had theorized the rise of the “knowledge worker” back in the 1950s. He
described how fewer workers would be doing physical labour, and more would be
applying their minds. In 1984, John Nesbitt theorized that the future would be driven
largely by information: companies that managed information well could obtain an
advantage, however the profitability of what he calls the “information float”
(information that the company had and others desired) would all but disappear as
inexpensive computers made information more accessible. Daniel Bell (1985)
examined the sociological consequences of information technology, while Gloria
Schuck (1985) and Shoshana Zuboff (1988) looked at psychological factors. Zuboff, in
his five year study of eight pioneering corporations made the important distinction
between “automating technologies” and “infomating technologies”. He studied the
effect that both had on individual workers, managers, and organizational structures.
He largely confirmed Peter Druckers predictions three decades earlier, about the
importance of flexible decentralized structure, work teams, knowledge sharing, and
the central role of the knowledge worker. Zuboff also detected a new basis for
managerial authority, based not on position or hierarchy, but on knowledge (also
predicted by Drucker) which he called “participative management”.

Peter Senge (1990), who had collaborated with Arie de Geus at Dutch Shell, borrowed
de Geus' notion of the learning organization, expanded it, and popularized it. The
underlying theory is that a company's ability to gather, analyse, and use information is
a necessary requirement for business success in the information age. (See
organizational learning.) In order to do this, Senge claimed that an organization would
need to be structured such that:

 people can continuously expand their capacity to learn and be productive,

 new patterns of thinking are nurtured,

 collective aspirations are encouraged, and

  people are encouraged to see the “whole picture” together.

Senge identified five components of a learning organization. They are:

 Personal responsibility, self-reliance, and mastery — we accept that we are the

masters of our own destiny. We make decisions and life with the consequences
of them. When a problem needs to be fixed, or an opportunity exploited, we
take the initiative to learn the required skills to get it done.

 Mental models — we need to explore our personal mental models to understand

the subtle effect they have on our behaviour.

 Shared vision — the vision of where we want to be in the future is discussed

and communicated to all. It provides guidance and energy for the journey
ahead.

 Team learning — we learn together in teams. This involves a shift from “a spirit
of advocacy to a spirit of enquiry”.

 Systems thinking — we look at the whole rather than the parts. This is what
Senge calls the “Fifth discipline”. It is the glue that integrates the other four
into a coherent strategy. For an alternative approach to the “learning
organization”, see Garratt, B. (1987).

Since 1990 many theorists have written on the strategic importance of information,
including J.B. Quinn (1992), J. Carlos Jarillo (1993), D.L. Barton (1995), M. Castells
(1996), J.P. Lieleskin (1996), T. Stewart (1997), K.E. Sveiby (1997), Gilbert J. Probst
(1999), and Shapiro and Varian (1999) to name just a few.

Thomas Stewart (1997) for example, uses the term “intellectual capital” to describe
the investment an organization makes in knowledge. It is comprised of human capital
(the knowledge inside the heads of employees), customer capital (the knowledge
inside the heads of customers that decide to buy from you), and structural capital
(the knowledge that resides in the company itself).

Manuel Castells (1997) describes a “network society” characterized by: globalization,

organizations structured as a network, instability of employment, and a social divide
between those with access to information technology and those without.

Stan Davis and Christopher Meyer (1998) have combined three variables to define
what they call the BLUR equation. The speed of change, Internet connectivity, and
intangible knowledge value, when multiplied together yields a society's rate of BLUR.
The three variables interact and reinforce each other making this relationship highly
non-linear.
Regis McKenna (1997) posits that life in the high tech information age is what he
called a “real time experience”. Events occur in real time. To ever more demanding
customers “now” is what matters. Pricing will more and more become variable pricing
changing with each transaction, often exhibiting first degree price discrimination.
Customers expect immediate service, customized to their needs, and will be prepared
to pay a premium price for it. He claimed that the new basis for competition will be
time based competition.

Geoffrey Moore (1991) and R. Frank and P. Cook (1995) also detected a shift in the
nature of competition. In industries with high technology content, technical standards
become established and this gives the dominant firm a near monopoly. The same is
true of networked industries in which interoperability requires compatibility between
users. An example is word processor documents. Once a product has gained market
dominance, other products, even far superior products, cannot compete. Moore
showed how firms could attain this enviable position by using E.M. Rogers five stage
adoption process and focusing on one group of customers at a time, using each group
as a base for marketing to the next group. The most difficult step is making the
transition between visionaries and pragmatists (See Crossing the Chasm). If successful
a firm can create a bandwagon effect in which the momentum builds and your
product becomes a defacto standard.

Evans and Wurster (1997) describe how industries with a high information component
are being transformed. They cite Encarta's demolition of the Encyclopaedia Britanica
(whose sales have plummeted 80% since their peak of $650 million in 1990). Many
speculate that Encarta’s reign will be short-lived, eclipsed by collaborative
encyclopaedias like Wikipedia that can operate at very low marginal costs. Evans also
mentions the music industry which is desperately looking for a new business model.
The upstart information savvy firms, unburdened by cumbersome physical assets, are
changing the competitive landscape, redefining market segments, and disinter-
mediating some channels. One manifestation of this is personalized marketing.
Information technology allows marketers to treat each individual as its own market, a
market of one. Traditional ideas of market segments will no longer be relevant if
personalized marketing is successful.

The technology sector has provided some strategies directly. For example, from the
software development industry agile software development provides a model for
shared development processes.

Access to information systems have allowed senior managers to take a much more
comprehensive view of strategic management than ever before. The most notable of
the comprehensive systems is the balanced scorecard approach developed in the early
1990's by Drs. Robert Kaplan (Harvard Business School) and David Norton (Kaplan, R.
and Norton, D. 1992). It measures several factors financial, marketing, production,
organizational development, and new product development in order to achieve a
'balanced' perspective.

2.4 The psychology of strategic management

Several psychologists have conducted studies to determine the psychological patterns
involved in strategic management. Typically senior managers have been asked how
they go about making strategic decisions. An early treatise by Chester Barnard
(Barnard, C. 1938) that was based on his own experience as a business executive sees
the process as informal, intuitive, non-routinized, and involving primarily oral, 2-way
communications. Bernard says “The process is the sensing of the organization as a
whole and the total situation relevant to it. It transcends the capacity of merely
intellectual methods, and the techniques of discriminating the factors of the
situation. The terms pertinent to it are “feeling”, “judgement”, “sense”,
“proportion”, “balance”, “appropriateness”. It is a matter of art rather than
science.” (Page 235)

Henry Mintzberg (1973) found that senior managers typically deal with unpredictable
situations so they strategize in ad hoc, flexible, dynamic, and implicit ways. He says,
“The job breeds adaptive information-manipulators who prefer the live concrete
situation. The manager works in an environment of stimulus-response, and he
develops in his work a clear preference for live action.” (Page 38)

John Kotter (Kotter, J. 1982) studied the daily activities of 15 executives and
concluded that they spent most of their time developing and working a network of
relationships from which they gained general insights and specific details to be used
in making strategic decisions. They tended to use “mental road maps” rather than
systematic planning techniques.

Daniel Isenberg's study of senior managers (1984) found that their decisions were
highly intuitive. Executives often sensed what they were going to do before they
could explain why. He claims (1986) that one of the reasons for this is the complexity
of strategic decisions and the resultant information uncertainty.

Shoshana Zuboff (1988) claims that information technology is widening the divide
between senior managers (who typically make strategic decisions) and operational
level managers (who typically make routine decisions). He claims that prior to the
widespread use of computer systems, managers, even at the most senior level,
engaged in both strategic decisions and routine administration, but as computers
facilitated (he called it “deskilled”) routine processes, these activities were moved
further down the hierarchy, leaving senior management free for strategic decisions
making.
Abraham Zaleznik (1977) identified a difference between leaders and managers. He
describes leaders as visionaries who inspire. They care about substance. Whereas
managers are claimed to care about process, plans, and form. He also claimed (1989)
that the rise of the manager was the main factor that caused the decline of American
business in the 1970s and 80s. Lack of leadership is most damaging at the level of
strategic management where it can paralyse an entire organization.

According to Corner, Kinichi, and Keats (1994), strategic decision making in

organizations occurs at two levels: individual and aggregate. They have developed a
model of parallel strategic decision making. The model identifies two parallel
processes both of which involve getting attention, encoding information, storage and
retrieval of information, strategic choice, strategic outcome, and feedback. The
individual and organizational processes are not independent however. They interact
at each stage of the process.

2.5 Reasons why strategic plans fail

There are many reasons why strategic plans fail, especially:

a. Failure to understand the customer

 why do they buy

 is there a real need for the product

 inadequate or incorrect marketing research

b. Inability to predict environmental reaction
 what will competitors do
 fighting brands
 price wars
 will government intervene
c. Over-estimation of resource competence
 can the staff, equipment, and processes handle the new strategy
 failure to develop new employee and management skills
d. Failure to coordinate
 reporting and control relationships not adequate
 organizational structure not flexible enough
e. Failure to obtain senior management commitment
 failure to get management involved right from the start
 failure to obtain sufficient company resources to accomplish task
f. Failure to obtain employee commitment
 new strategy not well explained to employees
  no incentives given to workers to embrace the new strategy
g. Under-estimation of time requirements
 no critical path analysis done
h. Failure to follow the plan
 no follow through after initial planning
 no tracking of progress against plan
 no consequences for above

2.6 Criticisms of strategic management

Although a sense of direction is important, it can also stifle creativity, especially if it
is rigidly enforced. In an uncertain and ambiguous world, fluidity can be more
important than a strategic compass. When a strategy becomes internalized into a
corporate culture, it can lead to group think. It can also cause an organization to
define itself too narrowly. An example of this is marketing myopia.

Most theories of strategic management seem to have a lifespan less than that of the
latest teen music idol. Many critics claim that this is because they generally do not
work. Keep in mind that this article describes only the 50 or so most successful
theories. For every theory that gets incorporated into strategic management
textbooks there are 100 that are quickly forgotten. Many theories tend either to be
too narrow in focus to build a complete corporate strategy on, or too general and
abstract to be applicable to specific situations. The low success rate is fuelled by the
management talk-circuit in which hundreds of self-appointed gurus sell their books
and explain their “revolutionary” and “ground breaking” theories to audiences of
business executives for a not-insignificant fee. (See business philosophies and popular
management theories for a more critical view of management theories.)

Some critics take the opposite approach claiming effectively that there are not
enough theories, and when they arrive they are too late. These commentators remind
us that the basic purpose of strategic management is to match a company's strategy
with the business environment that the organization is in. Because the environment is
constantly changing, effective strategic management requires a continuous flow of
new theories suitable for the new circumstances. The problem with most theories is
that they solve yesterday’s problems.

Gary Hamel (2000) coined the term strategic convergence to explain the limited scope
of the strategies being used. He laments that strategies converge because the more
successful ones get imitated by firms that do not understand that the strategic
process involves designing a custom strategy for the specifics of each situation.
 CHAPTER THREE: Strategy Formulation

3.1 INTRODUCTION
It is useful to consider strategy formulation as part of a strategic management process
that comprises three phases: diagnosis, formulation and implementation.

Strategic management is an on-going process to develop and revise future-oriented

strategies that allow an organization to achieve its objectives, considering its
capabilities, constraints, and the environment in which it operates.

3.1.1 Diagnosis includes:

(a) performing a situation analysis (analysis of the internal environment of the

organization), including identification and evaluation of current mission, strategic
objectives, strategies, and results, plus major strengths and weaknesses;

(b) analysing the organization's external environment, including major opportunities

and threats; and (c) identifying the major critical issues, which are a small set,
typically two to five, of major problems, threats, weaknesses, and/or opportunities
that require particularly high priority attention by management.

3.1.2 Formulation

The second phase in the strategic management process produces a clear set of
recommendations, with supporting justification, that revise as necessary the mission
and objectives of the organization, and supply the strategies for accomplishing them.
In formulation, we are trying to modify the current objectives and strategies in ways
to make the organization more successful. This includes trying to create "sustainable"
competitive advantages -- although most competitive advantages are eroded steadily
by the efforts of competitors.

A good recommendation should be:

 effective in solving the stated problem(s),

 practical (can be implemented in this situation, with the resources available),
 feasible within a reasonable time frame, cost-effective, not overly disruptive,
and
 acceptable to key "stakeholders" in the organization.
It is important to consider "fits" between resources plus competencies with
opportunities, and also fits between risks and expectations.

There are four primary steps in this phase:

* Reviewing the current key objectives and strategies of the organization,

which usually would have been identified and evaluated as part of the
diagnosis

* Identifying a rich range of strategic alternatives to address the three levels of

strategy formulation outlined below, including but not limited to dealing with
the critical issues

* Doing a balanced evaluation of advantages and disadvantages of the

alternatives relative to their feasibility plus expected effects on the issues
and contributions to the success of the organization

* Deciding on the alternatives that should be implemented or recommended.

In organizations, and in the practice of strategic management, strategies must be

implemented to achieve the intended results. The most wonderful strategy in the
history of the world is useless if not implemented successfully. This third and final
stage in the strategic management process involves developing an implementation
plan and then doing whatever it takes to make the new strategy operational and
effective in achieving the organization's objectives.
We focus on strategy formulation, and we organize it into six sections:

 Three Aspects of Strategy Formulation,

 Corporate-Level Strategy,
 Competitive Strategy,
 Functional Strategy,
 Choosing Strategies, and Troublesome Strategies.

3.2 THREE ASPECTS OF STRATEGY FORMULATION

The following three aspects or levels of strategy formulation, each with a different
focus, need to be dealt with in the formulation phase of strategic management.

The three sets of recommendations must be internally consistent and fit together in a
mutually supportive manner that forms an integrated hierarchy of strategy, in the
order given.

(a) Corporate Level Strategy:

In this aspect of strategy, we are concerned with broad decisions about the total
organization's scope and direction. Basically, we consider what changes should be
made in our growth objective and strategy for achieving it, the lines of business we
are in, and how these lines of business fit together. It is useful to think of three
components of corporate level strategy: (a) growth or directional strategy (what
should be our growth objective, ranging from retrenchment through stability to
varying degrees of growth - and how do we accomplish this), (b) portfolio strategy
(what should be our portfolio of lines of business, which implicitly requires
reconsidering how much concentration or diversification we should have), and (c)
parenting strategy (how we allocate resources and manage capabilities and activities
across the portfolio -- where do we put special emphasis, and how much do we
integrate our various lines of business).

(b) Competitive Strategy (often called Business Level Strategy):

This involves deciding how the company will compete within each line of business
(LOB) or strategic business unit (SBU).

(c)Functional Strategy:

These more localized and shorter-horizon strategies deal with how each functional
area and unit will carry out its functional activities to be effective and maximize
resource productivity.

3.2.1 CORPORATE LEVEL STRATEGY

This comprises the overall strategy elements for the corporation as a whole, the grand
strategy, if you please. Corporate strategy involves four kinds of initiatives:

* Making the necessary moves to establish positions in different businesses and

achieve an appropriate amount and kind of diversification. A key part of
corporate strategy is making decisions on how many, what types, and which
specific lines of business the company should be in. This may involve deciding
to increase or decrease the amount and breadth of diversification. It may
involve closing out some LOB's (lines of business), adding others, and/or
changing emphasis among LOB's.

* Initiating actions to boost the combined performance of the businesses the

company has diversified into: This may involve vigorously pursuing rapid-
growth strategies in the most promising LOB's, keeping the other core
businesses healthy, initiating turnaround efforts in weak-performing LOB's
with promise, and dropping LOB's that are no longer attractive or don't fit into
the corporation's overall plans. It also may involve supplying financial,
managerial, and other resources, or acquiring and/or merging other
companies with an existing LOB.

* Pursuing ways to capture valuable cross-business strategic fits and turn them
into competitive advantages -- especially transferring and sharing related
 technology, procurement leverage, operating facilities, distribution channels,
and/or customers.

* Establishing investment priorities and moving more corporate resources into

the most attractive LOB's.

It is useful to organize the corporate level strategy considerations and initiatives into
a framework with the following three main strategy components:

 growth,
 portfolio, and
 parenting. These are discussed in the next three sections.
What Should be Our Growth Objective and Strategies?

Growth objectives can range from drastic retrenchment through aggressive growth.

Organizational leaders need to revisit and make decisions about the growth objectives
and the fundamental strategies the organization will use to achieve them.

There are forces that tend to push top decision-makers toward a growth stance even
when a company is in trouble and should not be trying to grow, for example bonuses,
stock options, fame, ego.

Leaders need to resist such temptations and select a growth strategy stance that is
appropriate for the organization and its situation. Stability and retrenchment
strategies are underutilized.

Some of the major strategic alternatives for each of the primary growth stances
(retrenchment, stability, and growth) are summarized in the following three sub-
sections.

3.2.2 Growth Strategies

All growth strategies can be classified into one of two fundamental categories:

 concentration within existing industries or

  diversification into other lines of business or industries.
When a company's current industries are attractive, have good growth potential, and
do not face serious threats, concentrating resources in the existing industries makes
good sense.

Diversification tends to have greater risks, but is an appropriate option when a

company's current industries have little growth potential or are unattractive in other
ways. When an industry consolidates and becomes mature, unless there are other
markets to seek (for example other international markets), a company may have no
choice for growth but diversification.

There are two basic concentration strategies, vertical integration and horizontal
growth.

Diversification strategies can be divided into related (or concentric) and unrelated
(conglomerate) diversification.

Each of the resulting four core categories of strategy alternatives can be achieved
internally through investment and development, or externally through mergers,
acquisitions, and/or strategic alliances -- thus producing eight major growth strategy
categories.

Comments about each of the four core categories are outlined below, followed by
some key points about mergers, acquisitions, and strategic alliances.

1. Vertical Integration: This type of strategy can be a good one if the company has a
strong competitive position in a growing, attractive industry. A company can grow by
taking over functions earlier in the value chain that were previously provided by
suppliers or other organizations ("backward integration"). This strategy can have
advantages, e.g., in cost, stability and quality of components, and making operations
more difficult for competitors. However, it also reduces flexibility, raises exit
barriers for the company to leave that industry, and prevents the company from
seeking the best and latest components from suppliers competing for their business.
A company also can grow by taking over functions forward in the value chain
previously provided by final manufacturers, distributors, or retailers ("forward
integration"). This strategy provides more control over such things as final
products/services and distribution, but may involve new critical success factors that
the parent company may not be able to master and deliver. For example, being a
world-class manufacturer does not make a company an effective retailer.

Some writers claim that backward integration is usually more profitable than forward
integration, although this does not have general support. In any case, many
companies have moved toward less vertical integration (especially backward, but also
forward) during the last decade or so, replacing significant amounts of previous
vertical integration with outsourcing and various forms of strategic alliances.

2. Horizontal Growth: This strategy alternative category involves expanding the

company's existing products into other locations and/or market segments, or
increasing the range of products/services offered to current markets, or a
combination of both. It amounts to expanding sideways at the point(s) in the value
chain that the company is currently engaged in. One of the primary advantages of
this alternative is being able to choose from a fairly continuous range of choices, from
modest extensions of present products/markets to major expansions -- each with
corresponding amounts of cost and risk.

3. Related Diversification (aka Concentric Diversification): In this alternative, a

company expands into a related industry, one having synergy with the company's
existing lines of business, creating a situation in which the existing and new lines of
business share and gain special advantages from commonalities such as technology,
customers, distribution, location, product or manufacturing similarities, and
government access. This is often an appropriate corporate strategy when a company
has a strong competitive position and distinctive competencies, but its existing
industry is not very attractive.

4. Unrelated Diversification (aka Conglomerate Diversification): This fourth major

category of corporate strategy alternatives for growth involves diversifying into a line
of business unrelated to the current ones. The reasons to consider this alternative
are primarily seeking more attractive opportunities for growth in which to invest
available funds (in contrast to rather unattractive opportunities in existing
industries), risk reduction, and/or preparing to exit an existing line of business (for
example, one in the decline stage of the product life cycle). Further, this may be an
appropriate strategy when, not only the present industry is unattractive, but the
company lacks outstanding competencies that it could transfer to related products or
industries. However, because it is difficult to manage and excel in unrelated business
units, it can be difficult to realize the hoped-for value added.

3.3 Mergers, Acquisitions, and Strategic Alliances: Each of the four growth
strategy categories just discussed can be carried out internally or externally, through
mergers, acquisitions, and/or strategic alliances. Of course, there also can be a
mixture of internal and external actions.

Various forms of strategic alliances, mergers, and acquisitions have emerged and are
used extensively in many industries today. They are used particularly to bridge
resource and technology gaps, and to obtain expertise and market positions more
quickly than could be done through internal development. They are particularly
necessary and potentially useful when a company wishes to enter a new industry, new
markets, and/or new parts of the world.

Despite their extensive use, a large share of alliances, mergers, and acquisitions fall
far short of expected benefits or are outright failures. For example, one study
published in Business Week in 1999 found that 61 per cent of alliances were either
outright failures or "limping along." Research on mergers and acquisitions includes a
Mercer Management Consulting study of all mergers from 1990 to 1996 which found
that nearly half "destroyed" shareholder value; an A. T. Kearney study of 115
multibillion-dollar, global mergers between 1993 and 1996 where 58 per cent failed to
create "substantial returns for shareholders" in the form of dividends and stock price
appreciation; and a Price-Waterhouse-Coopers study of 97 acquisitions over $500
million from 1994 to 1997 in which two-thirds of the buyer's stocks dropped on
announcement of the transaction and a third of these were still lagging a year later.

Many reasons for the problematic record have been cited, including paying too much,
unrealistic expectations, inadequate due diligence, and conflicting corporate
cultures; however, the most powerful contributor to success or failure is inadequate
attention to the merger integration process. Although the lawyers and investment
bankers may consider a deal done when the papers are signed and they receive their
fees, this should be merely an incident in a multi-year process of integration that
began before the signing and continues far beyond.

3.3.3 Stability Strategies

There are a number of circumstances in which the most appropriate growth stance for
a company is stability, rather than growth. Often, this may be used for a relatively
short period, after which further growth is planned. Such circumstances usually
involve a reasonable successful company, combined with circumstances that either
permit a period of comfortable coasting or suggest a pause or caution. Three
alternatives are outlined below, in which the actual strategy actions are similar, but
differing primarily in the circumstances motivating the choice of a stability strategy
and in the intentions for future strategic actions.

1. Pause and Then Proceed: This stability strategy alternative (essentially a

timeout) may be appropriate in either of two situations: (a) the need for an
opportunity to rest, digest, and consolidate after growth or some turbulent events -
before continuing a growth strategy, or (b) an uncertain or hostile environment in
which it is prudent to stay in a "holding pattern" until there is change in or more
clarity about the future in the environment.

2. No Change: This alternative could be a cop-out, representing indecision or

timidity in making a choice for change. Alternatively, it may be a comfortable, even
long-term strategy in a mature, rather stable environment, e.g., a small business in a
small town with few competitors.
3. Grab Profits While You Can: This is a non-recommended strategy to try to mask a
deteriorating situation by artificially supporting profits or their appearance, or
otherwise trying to act as though the problems will go away. It is an unstable,
temporary strategy in a worsening situation, usually chosen either to try to delay
letting stakeholders know how bad things are or to extract personal gain before things
collapse. Recent terrible examples in the USA are Enron and WorldCom.

3.3.4 Retrenchment Strategies

Turnaround: This strategy, dealing with a company in serious trouble, attempts to

resuscitate or revive the company through a combination of contraction (general,
major cutbacks in size and costs) and consolidation (creating and stabilizing a smaller,
leaner company). Although difficult, when done very effectively it can succeed in
both retaining enough key employees and revitalizing the company.

Captive Company Strategy: This strategy involves giving up independence in

exchange for some security by becoming another company's sole supplier, distributor,
or a dependent subsidiary.

Sell Out: If a company in a weak position is unable or unlikely to succeed with a

turnaround or captive company strategy, it has few choices other than to try to find a
buyer and sell itself (or divest, if part of a diversified corporation).

Liquidation: When a company has been unsuccessful in or has none of the previous
three strategic alternatives available, the only remaining alternative is liquidation,
often involving a bankruptcy. There is a modest advantage of a voluntary liquidation
over bankruptcy in that the board and top management make the decisions rather
than turning them over to a court, which often ignores stockholders' interests.

What Should Be Our Portfolio Strategy?

This second component of corporate level strategy is concerned with making decisions
about the portfolio of lines of business (LOB's) or strategic business units (SBU's), not
the company's portfolio of individual products.

Portfolio matrix models can be useful in re-examining a company's present portfolio.

The purpose of all portfolio matrix models is to help a company understand and
consider changes in its portfolio of businesses, and also to think about allocation of
resources among the different business elements. The two primary models are the
BCG Growth-Share Matrix and the GE Business Screen (Porter, 1980, has a good
summary of these). These models consider and display on a two-dimensional graph
each major SBU in terms of some measure of its industry attractiveness and its
relative competitive strength

The BCG Growth-Share Matrix model considers two relatively simple variables:
growth rate of the industry as an indication of industry attractiveness, and relative
market share as an indication of its relative competitive strength. The GE Business
Screen, also associated with McKinsey, considers two composite variables, which can
be customized by the user, for (a) industry attractiveness (e.g., one could include
industry size and growth rate, profitability, pricing practices, favoured treatment in
government dealings, etc.) and (b) competitive strength (e.g., market share,
technological position, profitability, size, etc.)

The best test of the business portfolio's overall attractiveness is whether the
combined growth and profitability of the businesses in the portfolio will allow the
company to attain its performance objectives. Related to this overall criterion are
such questions as:

* Does the portfolio contain enough businesses in attractive industries?

* Does it contain too many marginal businesses or question marks?

* Is the proportion of mature/declining businesses so great that growth will be

sluggish?
 * Are there some businesses that are not really needed or should be divested?

* Does the company have its share of industry leaders, or is it burdened with
too many businesses in modest competitive positions?

* Is the portfolio of SBU's and its relative risk/growth potential consistent with
the strategic goals?

* Do the core businesses generate dependable profits and/or cash flow?

* Are there enough cash-producing businesses to finance those needing cash?

* Is the portfolio overly vulnerable to seasonal or recessionary influences?

* Does the portfolio put the corporation in good position for the future?

It is important to consider diversification vs. concentration while working on portfolio

strategy, i.e., how broad or narrow should be the scope of the company. It is not
always desirable to have a broad scope. Single-business strategies can be very
successful (e.g., early strategies of McDonald's, Coca-Cola, and BIC Pen). Some of the
advantages of a narrow scope of business are: (a) less ambiguity about who we are
and what we do; (b) concentrates the efforts of the total organization, rather than
stretching them across many lines of business; (c) through extensive hands-on
experience, the company is more likely to develop distinctive competence; and (d)
focuses on long-term profits. However, having a single business puts "all the eggs in
one basket," which is dangerous when the industry and/or technology may change.
Diversification becomes more important when market growth rate slows. Building
stable shareholder value is the ultimate justification for diversifying -- or any
strategy.

What Should Be Our Parenting Strategy?

This third component of corporate level strategy, relevant for a multi-business

company (it is moot for a single-business company), is concerned with how to allocate
resources and manage capabilities and activities across the portfolio of businesses. It
includes evaluating and making decisions on the following:
 * Priorities in allocating resources (which business units will be stressed)

* What are critical success factors in each business unit, and how can the
company do well on them

* Coordination of activities (e.g., horizontal strategies) and transfer of

capabilities among business units

* How much integration of business units is desirable?

3.3.5 COMPETITIVE (BUSINESS LEVEL) STRATEGY

In this second aspect of a company's strategy, the focus is on how to compete

successfully in each of the lines of business the company has chosen to engage in.
The central thrust is how to build and improve the company's competitive position for
each of its lines of business. A company has competitive advantage whenever it can
attract customers and defend against competitive forces better than its rivals.
Companies want to develop competitive advantages that have some sustainability
(although the typical term "sustainable competitive advantage" is usually only true
dynamically, as a firm works to continue it). Successful competitive strategies usually
involve building uniquely strong or distinctive competencies in one or several areas
crucial to success and using them to maintain a competitive edge over rivals. Some
examples of distinctive competencies are superior technology and/or product
features, better manufacturing technology and skills, superior sales and distribution
capabilities, and better customer service and convenience.

Competitive strategy is about being different. It means deliberately choosing to

perform activities differently or to perform different activities than rivals to
deliver a unique mix of value. (Michael E. Porter). The essence of strategy lies in
creating tomorrow's competitive advantages faster than competitors mimic the
ones you possess today. (Gary Hamel & C. K. Prahalad)
We will consider competitive strategy by using Porter's four generic strategies (Porter
1980, 1985) as the fundamental choices, and then adding various competitive tactics.

Porter's Four Generic Competitive Strategies

He argues that a business needs to make two fundamental decisions in establishing its
competitive advantage: (a) whether to compete primarily on price (he says "cost,"
which is necessary to sustain competitive prices, but price is what the customer
responds to) or to compete through providing some distinctive points of
differentiation that justify higher prices, and (b) how broad a market target it will
aim at (its competitive scope). These two choices define the following four generic
competitive strategies. which he argues cover the fundamental range of choices. A
fifth strategy alternative (best-cost provider) is added by some sources, although not
by Porter, and is included below:

1. Overall Price (Cost) Leadership: appealing to a broad cross-section of the market

by providing products or services at the lowest price. This requires being the overall
low-cost provider of the products or services (e.g., Costco, among retail stores, and
Hyundai, among automobile manufacturers). Implementing this strategy successfully
requires continual, exceptional efforts to reduce costs -- without excluding product
features and services that buyers consider essential. It also requires achieving cost
advantages in ways that are hard for competitors to copy or match. Some conditions
that tend to make this strategy an attractive choice are:

* The industry's product is much the same from seller to seller

* The marketplace is dominated by price competition, with highly price-

sensitive buyers

* There are few ways to achieve product differentiation that have much value
to buyers

* Most buyers use product in same ways -- common user requirements

* Switching costs for buyers are low

 * Buyers are large and have significant bargaining power

2. Differentiation: appealing to a broad cross-section of the market through offering

differentiating features that make customers willing to pay premium prices, e.g.,
superior technology, quality, prestige, special features, service, convenience
(examples are Nordstrom and Lexus). Success with this type of strategy requires
differentiation features that are hard or expensive for competitors to duplicate.
Sustainable differentiation usually comes from advantages in core competencies,
unique company resources or capabilities, and superior management of value chain
activities. Some conditions that tend to favour differentiation strategies are:

* There are multiple ways to differentiate the product/service that buyers

think have substantial value

* Buyers have different needs or uses of the product/service

* Product innovations and technological change are rapid and competition

emphasizes the latest product features

* Not many rivals are following a similar differentiation strategy

3. Price (Cost) Focus: a market niche strategy, concentrating on a narrow customer

segment and competing with lowest prices, which, again, requires having lower cost
structure than competitors (e.g., a single, small shop on a side-street in a town, in
which they will order electronic equipment at low prices, or the cheapest automobile
made in the former Bulgaria). Some conditions that tend to favour focus (either price
or differentiation focus) are:

* The business is new and/or has modest resources

* The company lacks the capability to go after a wider part of the total market

* Buyers' needs or uses of the item are diverse; there are many different niches
and segments in the industry
 * Buyer segments differ widely in size, growth rate, profitability, and intensity
in the five competitive forces, making some segments more attractive than
others

* Industry leaders don't see the niche as crucial to their own success

* Few or no other rivals are attempting to specialize in the same target

segment

4. Differentiation Focus: a second market niche strategy, concentrating on a narrow

customer segment and competing through differentiating features (e.g., a high-
fashion women's clothing boutique in Paris, or Ferrari).

Best-Cost Provider Strategy: (although not one of Porter's basic four strategies, this
strategy is mentioned by a number of other writers.) This is a strategy of trying to
give customers the best cost/value combination, by incorporating key good-or-better
product characteristics at a lower cost than competitors. This strategy is a mixture or
hybrid of low-price and differentiation, and targets a segment of value-conscious
buyers that is usually larger than a market niche, but smaller than a broad market.
Successful implementation of this strategy requires the company to have the
resources, skills, capabilities (and possibly luck) to incorporate up-scale features at
lower cost than competitors.

This strategy could be attractive in markets that have both variety in buyer needs
that make differentiation common and where large numbers of buyers are sensitive to
both price and value.

Porter might argue that this strategy is often temporary, and that a business should
choose and achieve one of the four generic competitive strategies above. Otherwise,
the business is stuck in the middle of the competitive marketplace and will be out-
performed by competitors who choose and excel in one of the fundamental strategies.
His argument is analogous to the threats to a tennis player who is standing at the
service line, rather than near the baseline or getting to the net. However, others
present examples of companies (e.g., Honda and Toyota) who seem to be able to
pursue successfully a best-cost provider strategy, with stability.

3.3.6 Competitive Tactics

Although a choice of one of the generic competitive strategies discussed in the

previous section provides the foundation for a business strategy, there are many
variations and elaborations. Among these are various tactics that may be useful (in
general, tactics are shorter in time horizon and narrower in scope than strategies).
This section deals with competitive tactics, while the following section discusses
cooperative tactics.

Two categories of competitive tactics are those dealing with timing (when to enter a
market) and market location (where and how to enter and/or defend).

Timing Tactics: When to make a strategic move is often as important as what move
to make. We often speak of first-movers (i.e., the first to provide a product or
service), second-movers or rapid followers, and late movers (wait-and-see). Each
tactic can have advantages and disadvantages.

Being a first-mover can have major strategic advantages when: (a) doing so builds an
important image and reputation with buyers; (b) early adoption of new technologies,
different components, exclusive distribution channels, etc. can produce cost and/or
other advantages over rivals; (c) first-time customers remain strongly loyal in making
repeat purchases; and (d) moving first makes entry and imitation by competitors hard
or unlikely.

However, being a second- or late-mover isn't necessarily a disadvantage. There are

cases in which the first-mover's skills, technology, and strategies are easily copied or
even surpassed by later-movers, allowing them to catch or pass the first-mover in a
relatively short period, while having the advantage of minimizing risks by waiting until
a new market is established. Sometimes, there are advantages to being a skilful
follower rather than a first-mover, e.g., when: (a) being a first-mover is more costly
than imitating and only modest experience curve benefits accrue to the leader
(followers can end up with lower costs than the first-mover under some conditions);
(b) the products of an innovator are somewhat primitive and do not live up to buyer
expectations, thus allowing a clever follower to win buyers away from the leader with
better performing products; (c) technology is advancing rapidly, giving fast followers
the opening to leapfrog a first-mover's products with more attractive and full-
featured second- and third-generation products; and (d) the first-mover ignores
market segments that can be picked up easily.

Market Location Tactics: These fall conveniently into offensive and defensive
tactics. Offensive tactics are designed to take market share from a competitor, while
defensive tactics attempt to keep a competitor from taking away some of our present
market share, under the onslaught of offensive tactics by the competitor. Some
offensive tactics are:

* Frontal Assault: going head-to-head with the competitor, matching each

other in every way. To be successful, the attacker must have superior
resources and be willing to continue longer than the company attacked.

* Flanking Manoeuvre: attacking a part of the market where the competitor is

weak. To be successful, the attacker must be patient and willing to carefully
expand out of the relatively undefended market niche or else face retaliation
by an established competitor.

* Encirclement: usually evolving from the previous two, encirclement involves

encircling and pushing over the competitor's position in terms of greater
product variety and/or serving more markets. This requires a wide variety of
abilities and resources necessary to attack multiple market segments.

* Bypass Attack: attempting to cut the market out from under the established
defender by offering a new, superior type of produce that makes the
competitor's product unnecessary or undesirable.

* Guerrilla Warfare: using a "hit and run" attack on a competitor, with small,
intermittent assaults on different market segments. This offers the possibility
 for even a small firm to make some gains without seriously threatening a
large, established competitor and evoking some form of retaliation.

Some Defensive Tactics are:

* Raise Structural Barriers: block avenues challengers can take in mounting an

offensive

* Increase Expected Retaliation: signal challengers that there is threat of

strong retaliation if they attack

* Reduce Inducement for Attacks: e.g., lower profits to make things less
attractive (including use of accounting techniques to obscure true
profitability). Keeping prices very low gives a new entrant little profit
incentive to enter.

The general experience is that any competitive advantage currently held will
eventually be eroded by the actions of competent, resourceful competitors.
Therefore, to sustain its initial advantage, a firm must use both defensive and
offensive strategies, in elaborating on its basic competitive strategy.

3.3.7 Cooperative Strategies

Another group of "competitive" tactics involve cooperation among companies. These

could be grouped under the heading of various types of strategic alliances, which have
been discussed to some extent under Corporate Level growth strategies. These
involve an agreement or alliance between two or more businesses formed to achieve
strategically significant objectives that are mutually beneficial. Some are very short-
term; others are longer-term and may be the first stage of an eventual merger
between the companies.

Some of the reasons for strategic alliances are to: obtain/share technology, share
manufacturing capabilities and facilities, share access to specific markets, reduce
financial/political/market risks, and achieve other competitive advantages not
otherwise available. There could be considered a continuum of types of strategic
alliances, ranging from: (a) mutual service consortiums (e.g., similar companies in
similar industries pool their resources to develop something that is too expensive
alone), (b) licensing arrangements, (c) joint ventures (an independent business entity
formed by two or more companies to accomplish certain things, with allocated
ownership, operational responsibilities, and financial risks and rewards), (d) value-
chain partnerships (e.g., just-in-time supplier relationships, and out-sourcing of major
value-chain functions).

3.3.8 FUNCTIONAL STRATEGIES

Functional strategies are relatively short-term activities that each functional area
within a company will carry out to implement the broader, longer-term corporate
level and business level strategies. Each functional area has a number of strategy
choices, that interact with and must be consistent with the overall company
strategies.

Three basic characteristics distinguish functional strategies from corporate level and
business level strategies: shorter time horizon, greater specificity, and primary
involvement of operating managers.

A few examples follow of functional strategy topics for the major functional areas of
marketing, finance, production/operations, research and development, and human
resources management. Each area needs to deal with sourcing strategy, i.e., what
should be done in-house and what should be outsourced?

Marketing strategy deals with product/service choices and features, pricing strategy,
markets to be targeted, distribution, and promotion considerations. Financial
strategies include decisions about capital acquisition, capital allocation, dividend
policy, and investment and working capital management. The production or
operations functional strategies address choices about how and where the products or
services will be manufactured or delivered, technology to be used, management of
resources, plus purchasing and relationships with suppliers. For firms in high-tech
industries, R&D strategy may be so central that many of the decisions will be made at
the business or even corporate level, for example the role of technology in the
company's competitive strategy, including choices between being a technology leader
or follower. However, there will remain more specific decisions that are part of R&D
functional strategy, such as the relative emphasis between product and process R&D,
how new technology will be obtained (internal development vs. external through
purchasing, acquisition, licensing, alliances, etc.), and degree of centralization for
R&D activities. Human resources functional strategy includes many topics, typically
recommended by the human resources department, but many requiring top
management approval. Examples are job categories and descriptions; pay and
benefits; recruiting, selection, and orientation; career development and training;
evaluation and incentive systems; policies and discipline; and management/executive
selection processes.

3.3.9 CHOOSING THE BEST STRATEGY ALTERNATIVES

Decision making is a complex subject, worthy of a chapter or book of its own. This
section can only offer a few suggestions. Among the many sources for additional
information, I recommend Harrison (1999), McCall & Kaplan (1990), and Williams
(2002). Here are some factors to consider when choosing among alternative
strategies:

* It is important to get as clear as possible about objectives and decision

criteria (what makes a decision a "good" one?)

* The primary answer to the previous question, and therefore a vital criterion,
is that the chosen strategies must be effective in addressing the "critical
issues" the company faces at this time

* They must be consistent with the mission and other strategies of the
organization
 * They need to be consistent with external environment factors, including
realistic assessments of the competitive environment and trends

* They fit the company's product life cycle position and market
attractiveness/competitive strength situation

* They must be capable of being implemented effectively and efficiently,

including being realistic with respect to the company's resources

* The risks must be acceptable and in line with the potential rewards

* It is important to match strategy to the other aspects of the situation,

including: (a) size, stage, and growth rate of industry; (b) industry
characteristics, including fragmentation, importance of technology,
commodity product orientation, international features; and (c) company
position (dominant leader, leader, aggressive challenger, follower, weak,
"stuck in the middle")

* Consider stakeholder analysis and other people-related factors (e.g., internal

and external pressures, risk propensity, and needs and desires of important
decision-makers)

* Sometimes it is helpful to do scenario construction, e.g., cases with

optimistic, most likely, and pessimistic assumptions.

3.3.10 SOME TROUBLESOME STRATEGIES TO AVOID OR USE WITH CAUTION

Follow the Leader: when the market has no more room for copycat products and
look-alike

competitors. Sometimes such a strategy can work fine, but not without careful
consideration of the company's particular strengths and weaknesses. (e.g., Fujitsu
Ltd. was driven since the 1960s to catch up to IBM in mainframes and continued this
quest even into the 1990s after mainframes were in steep decline; or the decision by
Standard Oil of Ohio to follow Exxon and Mobil Oil into conglomerate diversification)

Count On Hitting Another Home Run: e.g., Polaroid tried to follow its early success
with instant photography by developing "Polavision" during the mid-1970s.
Unfortunately, this very expensive, instant developing, 8mm, black and white, silent
motion picture camera and film was displayed at a stockholders' meeting about the
time that the first beta-format video recorder was released by Sony. Polaroid
reportedly wrote off at least $500 million on this venture without selling a single
camera.

Try to Do Everything: establishing many weak market positions instead of a few

strong ones

Arms Race: Attacking the market leaders head-on without having either a good
competitive advantage or adequate financial strength; making such aggressive
attempts to take market share that rivals are provoked into strong retaliation and a
costly "arms race." Such battles seldom produce a substantial change in market
shares; usual outcome is higher costs and profitless sales growth

Put More Money On a Losing Hand: one version of this is allocating R&D efforts to
weak products instead of strong products (e.g., Polavision again, Pan Am's attempt to
continue global routes in 1987)

Over-optimistic Expansion: Using high debt to finance investments in new facilities

and equipment, then getting trapped with high fixed costs when demand turns down,
excess capacity appears, and cash flows are tight

Unrealistic Status-Climbing: Going after the high end of the market without having
the reputation to attract buyers looking for name-brand, prestige goods (e.g., Sears'
attempts to introduce designer women's clothing)

Selling the Sizzle without the Steak: Spending more money on marketing and sales
promotions to try to get around problems with product quality and performance.
Depending on cosmetic product improvements to serve as a substitute for real
innovation and extra customer value.

Thus strategy formulation:

Strategy formulation refers to the process of choosing the most appropriate course of
action for the realization of organizational goals and objectives and thereby
achieving the organizational vision. The process of strategy formulation basically
involves six main steps. Though these steps do not follow a rigid chronological order,
however they are very rational and can be easily followed in this order.

1. Setting Organizations’ objectives - The key component of any strategy

statement is to set the long-term objectives of the organization. It is known
that strategy is generally a medium for realization of organizational
objectives. Objectives stress the state of being there whereas Strategy stresses
upon the process of reaching there. Strategy includes both the fixation of
objectives as well the medium to be used to realize those objectives. Thus,
strategy is a wider term which believes in the manner of deployment of
resources so as to achieve the objectives.

While fixing the organizational objectives, it is essential that the factors which
influence the selection of objectives must be analysed before the selection of
objectives. Once the objectives and the factors influencing strategic decisions
have been determined, it is easy to take strategic decisions.

2. Evaluating the Organizational Environment - The next step is to evaluate the

general economic and industrial environment in which the organization
operates. This includes a review of the organizations competitive position. It is
essential to conduct a qualitative and quantitative review of an organizations
existing product line. The purpose of such a review is to make sure that the
factors important for competitive success in the market can be discovered so
 that the management can identify their own strengths and weaknesses as well
as their competitors’ strengths and weaknesses.

After identifying its strengths and weaknesses, an organization must keep a

track of competitors’ moves and actions so as to discover probable
opportunities of threats to its market or supply sources.

3. Setting Quantitative Targets - In this step, an organization must practically fix

the quantitative target values for some of the organizational objectives. The
idea behind this is to compare with long term customers, so as to evaluate the
contribution that might be made by various product zones or operating
departments.
4. Aiming in context with the divisional plans - In this step, the contributions
made by each department or division or product category within the
organization is identified and accordingly strategic planning is done for each
sub-unit. This requires a careful analysis of macroeconomic trends.
5. Performance Analysis - Performance analysis includes discovering and
analysing the gap between the planned or desired performance. A critical
evaluation of the organizations past performance, present condition and the
desired future conditions must be done by the organization. This critical
evaluation identifies the degree of gap that persists between the actual reality
and the long-term aspirations of the organization. An attempt is made by the
organization to estimate its probable future condition if the current trends
persist.
6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best
course of action is actually chosen after considering organizational goals,
organizational strengths, potential and limitations as well as the external
opportunities

CHAPTER FOUR: Strategy Implementation

Definition: Strategy implementation is the translation of chosen strategy into
organizational action so as to achieve strategic goals and objectives.

Strategy implementation is also defined as the manner in which an organization

should develop, utilize, and amalgamate organizational structure, control systems,
and culture to follow strategies that lead to competitive advantage and a better
performance. Organizational structure allocates special value developing tasks and
roles to the employees and states how these tasks and roles can be correlated so as
maximize efficiency, quality, and customer satisfaction-the pillars of competitive
advantage. But, organizational structure is not sufficient in itself to motivate the
employees.

An organizational control system is also required. This control system equips managers
with motivational incentives for employees as well as feedback on employees and
organizational performance. Organizational culture refers to the specialized
collection of values, attitudes, norms and beliefs shared by organizational members
and groups.

Following are the main steps in implementing a strategy:

Developing an organization having potential of carrying out strategy successfully.

Disbursement of abundant resources to strategy-essential activities.
Creating strategy-encouraging policies.
Employing best policies and programs for constant improvement.
Linking reward structure to accomplishment of results.
Making use of strategic leadership.

Excellently formulated strategies will fail if they are not properly implemented. Also,
it is essential to note that strategy implementation is not possible unless there is
stability between strategy and each organizational dimension such as organizational
structure, reward structure, resource-allocation process, etc.
Strategy implementation poses a threat to many managers and employees in an
organization. New power relationships are predicted and achieved. New groups
(formal as well as informal) are formed whose values, attitudes, beliefs and concerns
may not be known. With the change in power and status roles, the managers and
employees may employ confrontation behaviour.

Following are the main differences between Strategy Formulation and Strategy
Implementation-

Strategy Formulation Strategy Implementation

Strategy Formulation includes planning Strategy Implementation involves all

and decision-making involved in those means related to executing the
developing organization’s strategic goals strategic plans.
and plans.

In short, Strategy Formulation is placing In short, Strategy Implementation is

the Forces before the action. managing forces during the action.

Strategy Formulation is an Strategic Implementation is mainly an

Entrepreneurial Activity based on Administrative Task based on strategic
strategic decision-making. and operational decisions.

Strategy Formulation emphasizes on Strategy Implementation emphasizes on

effectiveness. efficiency.

Strategy Formulation is a rational Strategy Implementation is basically an

process. operational process.

Strategy Formulation requires co- Strategy Implementation requires co-

ordination among few individuals. ordination among many individuals.

Strategy Formulation requires a great Strategy Implementation requires specific

deal of initiative and logical skills. motivational and leadership traits.
Strategic Formulation precedes Strategy Strategy Implementation follows Strategy
Implementation. Formulation.

Stated simply, strategy is a road map or guide by which an organization moves from a
current state of affairs to a future desired state. It is not only a template by which
daily decisions are made, but also a tool with which long-range future plans and
courses of action are constructed. Strategy allows a company to position itself
effectively within its environment to reach its maximum potential, while constantly
monitoring that environment for changes that can affect it so as to make changes in
its strategic plan accordingly. In short, strategy defines where you are, where you are
going, and how you are going to get there.

CHAPTER FIVE: STRATEGIC PLANNING

5.1 HISTORY

Strategic planning, as a formalized business process, has been in practice for almost
40 years. However, it is commonplace to find that a grand majority of organizations
have no clear concept of how to effectively conduct the planning process. As a result,
most strategic plans are poorly conceived and do nothing more than sit on a
bookshelf; no real impact is ever made on the company and its activities. Fortunately,
within the past decade or so, there have been attempts made to clarify the major
components and processes of strategic planning. In this respect, it has become easier
for ordinary an organization to effectively create and implement a first rate strategic
plan.

5.2 STRATEGY FORMULATION

Basic strategic planning is comprised of several components that build upon the
previous piece of the plan, and operates much like a flow chart. However, prior to
embarking on this process, it is important to consider the players involved. There
must be a commitment from the highest office in the organizational hierarchy.
Without buy-in from the head of a company, it is unlikely that other members will be
supportive in the planning and eventual implementation process, thereby dooming the
plan before it ever takes shape. Commitment and support of the strategic-planning
initiative must spread from the president and/or CEO all the way down through the
ranks to the line worker on the factory floor.

Just as importantly, the strategic-planning team should be composed of top-level

managers who are capable of representing the interests, concerns, and opinions of all
members of the organization. As well, organizational theory dictates that there
should be no more than twelve members of the team. This allows group dynamics to
function at their optimal level.

The components of the strategic-planning process read much like a laundry list, with
one exception: each piece of the process must be kept in its sequential order since
each part builds upon the previous one. This is where the similarity to a flow chart is
most evident, as can be seen in the following illustration.

The only exceptions to this are environmental scanning and continuous

implementation, which are continuous processes throughout. This article will now
focus on the discussion of each component of the formulation process: environmental
scanning, continuous implementation, values assessment, vision and mission
formulation, strategy design, performance audit analysis, gap analysis, action-plan
development, contingency planning, and final implementation. After that, this article
will discuss a Japanese variation to Strategy Formulation, Hoshin Planning, which has
become very popular.

5.3 ENVIRONMENTAL SCANNING

This element of strategy formulation is one of the two continuous processes.

Consistently scanning its surroundings serves the distinct purpose of allowing a
company to survey a variety of constituents that affect its performance, and which
are necessary in order to conduct subsequent pieces of the planning process. There
are several specific areas that should be considered, including the overall
environment, the specific industry itself, competition, and the internal environment
of the firm. The resulting consequence of regular inspection of the environment is
that an organization readily notes changes and is able to adapt its strategy
accordingly. This leads to the development of a real advantage in the form of
accurate responses to internal

Figure 1
Strategic Planning Process
and external stimuli so as to keep pace with the competition.

5.4 CONTINUOUS IMPLEMENTATION

The idea behind this continual process is that each step of the planning process
requires some degree of implementation before the next stage can begin. This
naturally dictates that all implementation cannot be postponed until completion of
the plan, but must be initiated along the way. Implementation procedures specific to
each phase of planning must be completed during that phase in order for the next
stage to be started.

5.5 VALUES ASSESSMENT

All business decisions are fundamentally based on some set of values, whether they
are personal or organizational values. The implication here is that since the strategic
plan is to be used as a guide for daily decision making, the plan itself should be
aligned with those personal and organizational values. To delve even further, a values
assessment should include an in-depth analysis of several elements: personal values,
organizational values, operating philosophy, organization culture, and stakeholders.
This allows the planning team to take a macro look at the organization and how it
functions as a whole.

Strategic planning that does not integrate a values assessment into the process is sure
to encounter severe implementation and functionality problems if not outright
failure. Briefly put, form follows function; the form of the strategic plan must follow
the functionality of the organization, which is a direct result of organizational values
and culture. If any party feels that his or her values have been neglected, he or she
will not adopt the plan into daily work procedures and the benefits will not be
obtained.

5.6 VISION AND MISSION FORMULATION

This step of the planning process is critical in that is serves as the foundation upon
which the remainder of the plan is built. A vision is a statement that identifies where
an organization wants to be at some point in the future. It functions to provide a
company with directionality, stress management, justification and quantification of
resources, enhancement of professional growth, motivation, standards, and
succession planning. Porrus and Collins (1996) point out that a well-conceived vision
consists of two major components: a core ideology and the envisioned future.

A core ideology is the enduring character of an organization; it provides the glue that
holds an organization together. It itself is composed of core values and a core
purpose. The core purpose is the organization's entire reason for being. The
envisioned future involves a conception of the organization at a specified future date
inclusive of its aspirations and ambitions. It includes the BHAG (big, hairy, audacious
goal), which a company typically reaches only 50 to 70 percent of the time. This
envisioned future gives vividly describes specific goals for the organization to reach.

The strategic results of a well formulated vision include the survival of the
organization, the focus on productive effort, vitality through the alignment of the
individual employees and the organization as a whole, and, finally, success. Once an
agreed-upon vision is implemented, it is time to move on to the creation of a mission
statement.

An explicit mission statement ensures the unanimity of purpose, provides the basis for
resource allocation, guides organizational climate and culture, establishes
organizational boundaries, facilitates accountability, and facilitates control of cost,
time, and performance. When formulating a mission statement, it is vital that it
specifies six specific elements, including the basic product or service, employee
orientation, primary market(s), customer orientation, principle technologies, and
standards of quality. With all of these elements incorporated, a mission statement
should still remain short and memorable. For example, the mission statement of the
American Red Cross, reads:

"The mission of the American Red Cross is to improve the quality of human life; to
enhance self-reliance and concern for others; and to help people avoid, prepare
for, and cope with emergencies."

Other functions of a mission statement include setting the bounds for development of
company philosophy, values, aspirations, and priorities (policy); establishing a
positive public image; justifying business operations; and providing a corporate
identity for internal and external stakeholders.

5.7 STRATEGY DESIGN

This section of strategy formulation involves the preliminary layout of the detailed
paths by which the company plans to fulfill its mission and vision. This step involves
four major elements: identification of the major lines of business (LOBs),
establishment of critical success indicators (CSIs), identification of strategic thrusts to
pursue, and the determination of the necessary culture.

A line of business is an activity that produces either dramatically different products

or services or that are geared towards very different markets. When considering the
addition of a new line of business, it should be based on existing core competencies of
the organization, its potential contribution to the bottom line, and its fit with the
firm's value system.

The establishment of critical success factors must be completed for the organization
as a whole as well as for each line of business. A critical success indicator is a gauge
by which to measure the progress toward achieving the company's mission. In order to
serve as a motivational tool, critical success indicators must be accompanied by a
target year (i.e. 1999, 1999–2002, etc.). This also allows for easy tracking of the
indicated targets. These indicators are typically a mixture of financial figures and
ratios (i.e. return on investment, return on equity, profit margins, etc.) and softer
indicators such as customer loyalty, employee retention/turnover, and so on.

Strategic thrusts are the most well-known methods for accomplishing the mission of
an organization. Generally speaking, there are a handful of commonly used strategic
thrusts, which have been so aptly named grand strategies. They include the
concentration on existing products or services; market/product development;
concentration on innovation/technology; vertical/horizontal integration; the
development of joint ventures; diversification; retrenchment/turnaround (usually
through cost reduction); and divestment/liquidation (known as the final solution).

Finally, in designing strategy, it is necessary to determine the necessary culture with

which to support the achievement of the lines of business, critical success indicators,
and strategic thrusts. Harrison and Stokes (1992) defined four major types of
organizational cultures: power orientation, role orientation, achievement orientation,
and support orientation. Power orientation is based on the inequality of access to
resources, and leadership is based on strength from those individuals who control the
organization from the top. Role orientation carefully defines the roles and duties of
each member of the organization; it is a bureaucracy. The achievement orientation
aligns people with a common vision or purpose. It uses the mission to attract and
release the personal energy of organizational members in the pursuit of common
goals. With a support orientation, the organizational climate is based on mutual trust
between the individual and the organization. More emphasis is placed on people being
valued more as human beings rather than employees. Typically an organization will
choose some mixture of these or other predefined culture roles that it feels is
suitable in helping it to achieve is mission and the other components of strategy
design.

CHAPTER SIX: PERFORMANCE AUDIT ANALYSIS

Conducting a performance audit allows the organization to take inventory of what its
current state is. The main idea of this stage of planning is to take an

Figure 2
SWOT Analysis
in-depth look at the company's internal strengths and weaknesses and its external
opportunities and threats. This is commonly called a SWOT analysis.

Developing a clear understanding of resource strengths and weaknesses, an

organization's best opportunities, and its external threats allows the planning team to
draw conclusions about how to best allocate resources in light of the firm's internal
and external situation. This also produces strategic thinking about how to best
strengthen the organization's resource base for the future.

Looking internally, there are several key areas that must be analyzed and addressed.
This includes identifying the status of each existing line of business and unused
resources for prospective additions; identifying the status of current tracking systems;
defining the organization's strategic profile; listing the available resources for
implementing the strategic thrusts that have been selected for achieving the newly
defined mission; and an examining the current organizational culture. The external
investigation should look closely at competitors, suppliers, markets and customers,
economic trends, labor-market conditions, and governmental regulations. In
conducting this query, the information gained and used must reflect a current state of
affairs as well as directions for the future. The result of a performance audit should
be the establishment of a performance gap, that is, the resultant gap between the
current performance of the organization in relation to its performance targets. To
close this gap, the planning team must conduct what is known as a gap analysis, the
next step in the strategic planning process.

6.1 GAP ANALYSIS

A gap analysis is a simple tool by which the planning team can identify methods with
which to close the identified performance gap(s). All too often, however, planning
teams make the mistake of making this step much more difficult than need be.
Simply, the planning team must look at the current state of affairs

Figure 3
Gap Analysis
and the desired future state. The first question that must be addressed is whether or
not the gap can feasibly be closed. If so, there are two simple questions to answer:
"What are we doing now that we need to stop doing?" and "What do we need to do
that we are not doing?" In answering these questions and reallocating resources from
activities to be ceased to activities to be started, the performance gap is closed. If
there is doubt that the initial gap cannot be closed, then the feasibility of the desired
future state must be reassessed.

6.2 ACTION PLAN DEVELOPMENT

This phase of planning ties everything together. First, an action plan must be
developed for each line of business, both existing and proposed. It is here that the
goals and objectives for the organization are developed.

Goals are statements of desired future end-states. They are derived from the vision
and mission statements and are consistent with organizational culture, ethics, and the
law. Goals are action oriented, measurable, standard setting, and time bounded. In
strategic planning, it is essential to concentrate on only two or three goals rather
than a great many. The idea is that a planning team can do a better job on a few
rather than on many. There should never be more than seven goals. Ideally, the team
should set one, well-defined goal for each line of business.

Writing goals statements is often a tricky task. By following an easy-to-use formula,

goals will include all vital components.

 Accomplishment/target (e.g., to be number one in sales on the East Coast by

2005)
 A measure (e.g., sales on the East Coast)
 Standards (e.g., number one)
 Time frame (e.g., long-term)

Objectives are near-term goals that link each long-term goal with functional areas,
such as operations, human resources, finance, etc., and to key processes such as
information, leadership, etc. Specifically, each objective statement must indicate
what is to be done, what will be measured, the expected standards for the measure,
and a time frame less than one year (usually tied to the budget cycle). Objectives are
dynamic in that they can and do change if the measurements indicate that progress
toward the accomplishment of the goal at hand is deficient in any manner. Simply,
objectives spell out the step-by-step sequences of actions necessary to achieve the
related goals.

With a thorough understanding of how these particular elements fit and work
together, an action plan is developed. If carefully and exactingly completed, it will
serve as the implementation tool for each established goal and its corresponding
objectives as well as a gauge for the standards of their completion.

6.3 CONTINGENCY PLANNING

The key to contingency planning is to establish a reactionary plan for high impact
events that cannot necessarily be anticipated. Contingency plans should identify a
number of key indicators that will create awareness of the need to re-evaluate the
applicability and effectiveness of the strategy currently being followed. When a red
flag is raised, there should either be a higher level of monitoring established or
immediate action should be taken.

6.4 IMPLEMENTATION

Implementation of the strategic plan is the final step for putting it to work for an
organization. To be successful, the strategic plan must have the support of every
member of the firm. As mentioned in the beginning, this is why the top office must be
involved from the beginning. A company's leader is its most influential member.
Positive reception and implementation of the strategic plan into daily activities by
this office greatly increases the likelihood that others will do the same.

Advertising is key to successful implementation of the strategic plan. The more often
employees hear about the plan, its elements, and ways to measure its success, the
greater the possibility that they will undertake it as part of their daily work lives. It is
especially important that employees are aware of the measurement systems and that
significant achievements be rewarded and celebrated. This positive reinforcement
increases support of the plan and belief in its possibilities.
 CHAPTER SEVEN: HOSHIN PLANNING

Hoshin planning, or "hoshin kanri" in Japanese, is a planning method developed in

Japan during the 1970s and adopted by some U.S. firms starting in the 1980s. Also
known in the United States as policy deployment, management by policy, and hoshin
management, it is a careful and deliberate process by which the few most important
organizational goals are deployed throughout the organization. It consists of five
major steps:

1. Development at the executive level of a long-term vision.

2. Selection of a small number of annual targets that will move the organization
toward the vision.
3. Development of plans at all levels of the organization that will together
achieve the annual targets.
4. Execution of the plans.
5. Regular audits of the plans. Among U.S. companies that utilize this method are
Hewlett-Packard and Xerox.

7.1 HISTORY OF HOSHIN PLANNING

The literal meaning of "hoshin kanri" is helpful in understanding its use "hoshin" is
made up of two characters that mean "needle" and "pointing direction," together
meaning something like a compass "kanri" also is made up of two characters that
mean "control" or "channeling" and "reason" or "logic." Together they mean managing
the direction of the company, which is vitally important especially in times of rapid
change.

Hoshin management was developed in Japan as part of the overall refinement of

quality programs in that country after World War II. At one time, "made in Japan" was
synonymous with shoddy quality, but with the encouragement of the American
occupation force, the Japanese Union of Scientists and Engineers (JUSE) made great
efforts to improve Japanese manufacturing. An important element of the JUSE
program between 1950 and 1960 was inviting W. Edwards Deming and Joseph M. Juran
to train managers and scholars in statistical process control (SPC) and quality
management. So significant were these visits, especially Deming's, that the highest
Japanese award for quality is called the Deming Prize. Each company developed its
own planning methodology, but the Deming Prize system involves the sharing of best
practices, and common themes developed. In 1965 Bridgestone Tire published a
report described the planning techniques used by Deming Prize winners, which were
given the name hoshin kanri. By 1975 hoshin planning was widely accepted in Japan.

In the early 1980s hoshin planning began to gain acceptance in the United States, first
in companies that had divisions or subsidiaries in Japan which won the Deming Prize:
Yokagawa Hewlett-Packard, Fuji Xerox, and Texas Instruments' Oita plant. Florida
Power and Light, the only company outside Japan to win the Deming Prize, was an
early adopter. During the 1990s the practice spread. In 1994 Noriaki Kano, professor
of management science at the University of Tokyo and member of the Deming Prize
Committee, gave a presentation on the topic at the meeting of the American Society
of Quality Control (now the American Society for Quality).

7.2 THE CONTEXT FOR HOSHIN PLANNING

Hoshin planning should be seen in the context of total quality management (TQM).
Several elements of TQM are especially important for the effectiveness of hoshin
planning. Most basic is a customer-driven master plan that encapsulates the
company's overall vision and direction. Hoshin planning also assumes an effective
system of daily management that keeps the company moving on course, including an
appropriate business structure and the use of quality tools such as SPC. A third
important element of TQM is the presence of cross-functional teams. Experience in
problem solving and communications across and between levels of the organization
are vital for hoshin planning.
A number of general principles underlie this method. Of utmost importance is
participation by all managers in defining the vision for the company as well as in
implementing the plans developed to reach the vision. Related to this is what the
Japanese call "catchball," which means a process of lateral and vertical
communication that continues until understanding and agreement is assured. Another
principle is individual initiative and responsibility. Each manager sets his own monthly
and yearly targets and then integrates them with others. Related to this principle is a
focus on the process rather than strictly on reaching the target and a dedication to
root cause analysis. A final principle that is applied in Japan-but apparently not in the
United States-is that when applying hoshin planning, there is no tie to performance
reviews or other personnel measures.

7.3 STEPS OF POLICY DEPLOYMENT

In its simplest form, hoshin planning consists of a plan, execution, and audit. In a
more elaborated form it includes a long-range plan (five to ten years), a detailed one-
year plan, deployment to departments, execution, and regular diagnostic audits,
including an annual audit by the CEO.

7.3.1 FIVE- TO TEN-YEAR VISION.

The long-range vision begins with the top executive and his staff, but is modified with
input from all managers. The purpose is to determine where the company wants to be
at that future point in time, given its current position, its strengths and weaknesses,
the voice of the customer, and other aspects of the business environment in which it
operates. Beyond stating the goal, this long-range plan also identifies the steps that
must be taken to reach it. It focuses on the vital few strategic gaps that must be
closed over the time period being planned.

Once the plan has been drafted, it is sent to all managers for their review and
critique. The object is to get many perspectives on the plan. The review process also
has the effect of increasing buy-in to the final plan. This process is easier in Japanese
companies than in most U.S. firms because most Japanese companies have only four
layers of management.

7.3.2 ANNUAL PLAN.

Once the long-range vision is in place, the annual plan is created. The vital few areas
for change that were identified in the vision are translated into steps to be taken this
year. Again, this process involves lateral and vertical communication among
managers. The targets are selected using criteria such as feasibility and contribution
to the long-term goals. The targets are stated in simple terms with clearly measurable
goals. Some companies and authors refer to such an annual target as a hoshin. Most
companies set no more than three such targets, but others establish as many as eight.
Not all departments are necessarily involved in every hoshin during a given year. The
targets are chosen for the sake of the long-term goals, not for involvement for its own
sake.

7.3.3 DEPLOYMENT TO LOWER LEVELS.

Once the targets, including the basic metrics for each, are established, the plan is
deployed throughout the company. This is the heart of hoshin planning. Each hoshin
has some sort of measurable target. Top-level managers, having discussed it with
their subordinates earlier in the process, commit to a specific contribution to that
target, and then their subordinates develop their own plans to reach that
contribution, including appropriate metrics. Plans are deployed to lower levels in the
same way (see Figure 1). An important principle here is that those who have to
implement the plan design the plan. In addition to the lower level targets, the means
and resources required are determined. Catchball plays an important role here. A key
element of the hoshin discipline is the horizontal and vertical alignment of the many
separate plans that are developed. All ambiguities are clarified, and conflicting
targets or means are negotiated.
The final step in deploying the hoshin is rolling up the separate plans and targets to
ensure that they are sufficient to reach the company-wide target. If not, more work is
done to reconcile the difference.

7.4 EXECUTION.

The best-laid plans can come to naught if they are not properly executed. In terms of
TQM, the execution phase is where hoshin management hands responsibility over to
daily management. The strategies identified in the plan become part of the daily
operation of the company. If the process has been done properly, all employees know
what has to be done at their level to reach the top-level goals and thereby move the
company toward the future described in the long-term vision.

7.5 AUDITING THE PLAN.

Essential to hoshin planning is the periodic diagnostic audit, most often done on a
monthly basis. Each manager evaluates the progress made toward his own targets,
and these reports are rolled up the organization to give feedback on the process to
the highest levels. Successes and failures are examined at every level, and corrective
action is taken as necessary. If it becomes apparent that something is seriously amiss
in the execution, because of a significant change in the situation or perhaps a mistake
in the planning phase, the plan may be adjusted and the change communicated up
and down the organizational structure as necessary. The audit is a diagnostic review,
an opportunity for mid-course corrections and not a time for marking up a scorecard.
At the end of the year, the CEO makes an annual diagnostic review of the entire plan,
focusing not only on the overall success or failure, but also on the entire process,
including the planning phase. The results of this audit become part of the input for
the next annual plan, along with the five-to-ten-year plan and changes in the internal
or external business environment.
 CHAPTER EIGHT: EVALUATION

Although full implementation of hoshin planning in a large organization takes

considerable effort, it is recognized as having many advantages over traditional
business planning. The discipline of

Figure 4
hoshin planning uncovers the vital few changes that need to be made and ties them to
strategic action. It transmits the signals from top management to the rest of the
organization in a form that can bring about change at every level. It is participative:
the individuals that have to implement the plans have input into their design. Perhaps
most importantly, it focuses on the process rather than just the result. This includes
continual improvement of the hoshin planning process itself. Organizations that
persist in this method over a period of a few years report great benefits from its use.
 CONTINOUS ASSESSMENT 1( CAT 1).
In the health sector, identify an organization of your choice and then answer the
following sections. .

1. PARTICIPANTS AND ORGANISATIONAL DETAILS

1.1 Name of the Participant

1.2 Name of the Organization

2. IDENTIFY THE KEY STATEMENTS FOR YOUR ORGANIZATION

1. MISSION STATEMENT

2. VISION STATEMENT

3. CORE VALUES

4. STRATEGIC THEMES/DIRECTIONS

3. WHAT ARE THE MAJOR LEADERSHIP CHALLENGES FACING THE

ORGANIZATION AND THE HEALTH INDUSTRY IN YOUR ORGANIZATION?
4. WHAT ARE THE MAJOR POLICY ISSUES?

5. IDENTIFY TWO ISSUES YOU PLAN TO ADDRESS

6. WRITE A CHALLENGE STATEMENT

7. WRITE SMART OBJECTIVES FOR THE SELECTED CHALLENGE

8. WHAT ARE YOUR EXPECTED OUTPUTS AND OUTCOMES?

1.

2.

3.

4.

5.

9. STAKEHOLDERS TO BE INVOLVED

NAME ORGANIZATION POSITION

10. ACTION PLAN

KEY TASK BY BY EXPECTED SUCCESS INPUTS/ ASSUMPTIONS

OBJECTIVE WHO WHEN OUTPUT/ INDICATORS BUDGET
ACTIVITIES OUTCOME
11. BUDGET

Prepare a detailed budget in Excel and use the summary figures in the action plan
above.

12. RESOURCE MOBILIZATION

How will you raise the resources required for the actualization of the Action Plan for
Better Health?

13. MONITORING AND EVALUATION PROGRAM

What is your plan for Monitoring and Evaluation?

 CONTINOUS ASSESMENT 2 (CAT 2)

A research carried out shows that ‘globally for out of 45 countries (55%)’ have
evidence of implementation of plans.

a) What are the hindrances to implementation of strategic plans?

b) What action can be taken to increase the implementation rate?

1ST SET OF EXAMINATION QUESTIONS

UNIT CODE: BBM4117

Instructions: Answer four (4) questions only.

1. State and explain the eight step planning process (20 marks)

2. Strategy is not driven by future intent alone, it is the gap between today’
s reality and intent for the future that is critical: Explain what is meant by
strategy formulation, strategy implementation, strategy monitoring and
evaluation and their respective differences. (20 marks)

3. You have been appointed by your county Governor to lead the strategic
planning exercise of the county. The Governor wants to know whether or
not it is useful to undertake strategic planning. By use of examples
advice the Governor. (20 marks)

4. A Strategic Planning team has been set up in your organization to

undertake the five year strategic plan, however you feel there is need to
hire a consultant to facilitate your organization to undertake its strategic
planning exercise. What role will the consultant play? (20 marks)
5. (i) Explain the three main characteristics of a good strategy and discuss
what makes a good strategy? (20 marks)
 6. (i) What is a vision statement and why have one? (10 marks)
(ii) What is a mission statement? (5marks)
(iii) What are values? (5 marks)
7. What questions must be considered in determining critical success
factors? (20 marks)

2nd set of Examination questions

Instructions
(A) Question (1) One is compulsory

(B) Answer any other three questions

1. Using appropriate examples, define Strategic Management and its

application in an organization. 20 marks

2. Corporate level strategy, competitive strategy (or Business level

strategy) and functional strategy are the three aspects or levels of
strategy formulation that need to be dealt with in the formulation
phase of strategic management. Discuss with appropriate examples
for each level. 20 marks

3. Explain by use of appropriate examples what is meant by strategy

formulation. 20 marks

4. Explain by use of appropriate examples what is meant by strategy

implementation. 20 marks

5. Sometimes it is useful to undertake Strategic Planning exercise

while at other times it is not useful. Giving examples state
 i. When it is not useful to undertake Strategic Planning
10 marks

ii. When it is useful to undertake Strategic Planning. 10

marks

6 State and explain the five steps involved in Strategic Planning

Process. 20 marks

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Strategic Management Journal

Harvard Business Review

The Journal of Business Strategy

Long Range Planning

Journals that frequently contain strategic management articles

Management Science

Sloan Management Review

Journal of Marketing

European Management Journal

Administrative Science Quarterly

Journal of Marketing Research

American Economic Review

Academy of Management Review

Magazines that frequently contain strategic management articles

Forbes

The Economist
 The Wall Street Journal

Harvard Business Review

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Recommended books:

1 Strategic Management: Concepts and Cases, 13th Edition -- by Arthur A. Jr.

Thompson, A. J. Strickland III

2 Strategic Management: Concepts and Cases, Ninth Edition -- by Fred R.

David

3 Strategic Management: Concepts and Cases -- by Arthur A. Thompson,

Strickland