Strategy is the backbone of every successful business organization which provides direction and also helps in decision making, ensures effective utilization of resources and enables a firm to achieve long-term objectives. Understanding strategy and its components is essential for corporate growth and competitive advantage.
Define Strategy
The word Strategy is derived from the Greek word 'Strategos' which means a general. A strategy is a declaration of intent; it defines what the organization wants to become in the longer term. The overall aim of strategy at corporate level will be to match or fit the organization to its environment in the most advantageous way possible. It is an integrated set of action at securing a sustainable competitive advantage.
Johnson and Scholes -"Strategy is the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations".
Elements of Strategy
- Where is the business trying to get to in the long-term (direction?)
- How can the business perform better than the competition in those markets? (Advantage)?
- What external, environmental factors affect the businesses' ability to compete? (Environment)?
- What are the values and expectations of those who have power in and around the business? (Stakeholders)
- What resources (skills, assets, finance) are required in order to be able to compete? (Resources)?
- It is derived from its policies, objectives and goals.
- It is related to per sue those activities which move an organization current position to a desired future state.
- It is concerned with the requisite resources to implement a plan.
Features of Strategy
- Strategy is Significant because it is not possible to foresee the future. Without a perfect foresight, the firms must be ready to deal with the uncertain events which constitute the business environment.
- Strategy deals with long term developments rather than routine operations, i.e. it deals with probability of innovations or new products, new methods of productions, or new markets to be developed in future.
- Strategy is created to take into account the probable behavior of customers and competitors. Strategies dealing with employees will predict the employee behavior.
Functions of Strategy
- It provides a dual approach to problem solving. Firstly, it exploits the most effective means to overcome difficulties and face competition. Secondly, it assists in the deployment of scarce resources among critical activities.
- It focuses attention upon changes in the organizational set up, administration of organizational process affecting behavior and the development of effective leadership.
- It offers a technique to manage changes. The management is totally prepared to anticipate, respond and influence to look at changes. It also offers a different way of thinking.
- It furnishes the management with a perspective whereby; the latter gives equal importance to present and future opportunities.
- It provides the management with a mechanism to cope with highly complex environment characterized by diversity of cultural, social, political and competitive forces.
Kinds of corporate strategy
There are four grand strategic alternatives. They are stability, expansion, retrenchment and any combination of these three. These strategic alternatives are also called as grand strategies.
- Stability Strategy- It is adopted by an organization when it attempts to improve functional performance. They are further classified as follows:
- No change strategy
- Profit strategy
- Pause/Proceed with caution strategy.
- Expansion Strategy - It is followed when an organization aims at high growth. They operate through
- Concentration
- Integration
- Diversification
- Cooperation
- Internationalization.
- Mergers, takeovers, Joint ventures and strategic alliances come under expansion through cooperation.
- Retrenchment Strategy - It is followed when an organization aims at a contraction of its activities. It is done through turnaround, divestment and liquidation in any of the following three modes:
- Compulsory winding up
- Voluntary winding up
- Winding up under supervision of the court.
- Combination Strategies - They are followed when an organization adopts a combination of stability, expansion and retrenchment either at the same time in different businesses or at different times in the same business.
Evolution of concepts of Business Strategy
In 1960s, most of the business was conducted by the small firms with the focus of the managers on day to day running business and they are satisfied with little growth. That's why competition was minimal. On that particular period technology was on early stages.
The Firms are focusing on long terms objective and working towards to achieving those goals. There were lots of potentials exist for business firms to tap. The managers prepare budgets and adopt control systems and procedure manuals for decisions that were to be made rapidly. These are made for maintain status quo. Budgeting is not done on the basis of environmental changes. Later variations included capital budgeting and management by objective systems.
In 1970s, The business firms started growing in size looked at environmental threats and opportunities and started assuming greater importance in strategic planning. That's why this stage is known as first generation planning. In this period Firms are analyzing that what are their Opportunities and what are the threats for Appraisal of a business. The strategy formulation is done primarily on the basis of matching of environment. In this period firm face constraint of resources for growth and diversification. The firms have developed consistent patterns for decision making to deal with the environment.
In 1980-90s, the firms started recognizing the dependency of the business firms on external environment. The firms facing stiff competition, that's why they have to emphasis on Competitive Advantage. In these period firms offering customers quality products at minimum cost Firms are producing goods in Bulk amount so that the cost of per unit of goods will minimize. Firms are started to analyze their business according to Porter's five forces – competitor, buyer, suppliers, substitute producer & Potential new entrants.
The different segments in the market were given importance on customer satisfaction. The Strategists aimed to establish a profitable and sustainable position against the force that determines competitive advantage.
In 2000s, the move has initiated to engage activity in environment scanning and building competitive intelligence system. The unprecedented changes like global competition, technological break though, changing consumer taste, ever changing exchange rates e.tc
In current era, joint venture, strategic business alliance, franchising, licensing, outsourcing e.tc, have gained popularity as alternative Forms of business. The free flow of across the globe have increased avenues for fresh investment as well as mergers and acquisitions. many firms have done away with long term plans. The firms are emphasizing on the issue management consciously monitoring the environment. Now strategists have started playing as a director in board of directors and as corporate planners.
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