This Thursday we are talking about two big Japanese photographic-film companies--- Fujifilm and Kodak. How did they react to the new age--- digitalization? What led to Fujifilm's successful postdigital transition while Kodak failed to keep pace?
Main learning objectives of the week:
What is the purpose of determining company's business strategies?
Q: What is business strategy?
A: A business strategy is the means by which it sets out to achieve its desired ends (objectives). It can simply be described as a long-term business planning. Typically a business strategy will cover a period of about 3-5 years (sometimes even longer).
A business strategy is concerned with major resource issues e.g. raising the finance to build a new factory or plant. Strategies are also concerned with deciding on what products to allocate major resources to - for example when Coca-Cola launched Pooh Roo Juice in this country.
Strategies are concerned with the scope of a business' activities i.e. what and where they produce. For example, BIC's scope is focused on three main product areas - lighters, pens, and razors, and they have developed superfactories in key geographical locations to produce these items.
Two main categories of strategies can be identified:
1. Generic (general) strategies, and
2. Competitive strategies.
(Source: http://businesscasestudies.co.uk/business-theory/strategy/business-strategy.html#ixzz4JxRWNP1E
“Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stockholder expectations” Johnson et al (2008)
Without a strategy an existing business can drift away from its customers and become uncompetitive within its environment and eventually stops making profit, this is known as Strategic Drift. Therefore having a strategy is a way to remain competitive or a way of forcing a strategic change when an organisation has drifted away from its environment and is starting to fail.
How do companies form strategies to tackle the challenges?
There are arguably three ways to create a strategy:
Entrepreneurial
This method is very much the gut feeling by either an individual or small group, who decides on the direction of an organisation. Strategy tools are mostly used for validating the gut feeling of the Entrepreneur and to communicate this to the stakeholders.
Emergent Orientated
The strategy becomes the obvious choice and emerges from day to day activities and from what has succeeded in the past. Again strategy tools if they are used will be to validate and communicate the strategy. As opportunities are spotted they are seized, maybe using some SWOT analysis or financial planning to underpin these obvious strategic moves.
Intended Strategy
Intended strategy consists of strategies which are deliberately created through some process for example a number of leaders within an organisation, who use their combined creativeness and strategic tools to generate new strategies for the organisation. Using the tools to generate the strategy and validate and communicate it. As such this approach looks at the organisations capabilities, at the environment the organisation sits in and creates and validates a strategic ‘position’. This type of strategy tends to be a once yearly task that is done at a strategy conference with maybe quarterly updates.(Source: http://aiconsortia.com/2011/05/ac/three-ways-to-create-a-strategy/)
STRATEGIC MANAGEMENT
Steps in Strategy Formulation Process
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.
- 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 analyzed before the selection of objectives. Once the objectives and the factors influencing strategic decisions have been determined, it is easy to take strategic decisions.
- 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. - 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.
- 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.
- Performance Analysis - Performance analysis includes discovering and analyzing 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.
- 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.
What are the factors that are affecting the choice of strategies?
Organizational goals, organizational strengths, potential and limitations as well as the external opportunities, cultural and ethical issue.
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