Business Strategy/The Three Processes of Strategy

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« Business Strategy
The Art, Science, and Craft of Decision-Making

The Three Processes of Strategy
»
Overview of Strategic Planning Approaches to Strategic Management

Strategic management is a combination of three main processes which are as follows:

Strategy formulation[edit]

  • Performing a situation analysis, self-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental.
  • Concurrent with this assessment, objectives are set. These objectives should be parallel to a timeline; some are in the short-term and others on the long-term. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives.
  • These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives.

This three-step strategy formulation process is sometimes referred to as determining where you are now, determining where you want to go, and then determining how to get there. These three questions are the essence of strategic planning. I/O Economics for the external factors and RBV for the internal factors.

Strategy implementation[edit]

  • Allocation and management of sufficient resources (financial, personnel, time, technology support)
  • Establishing a chain of command or some alternative structure (such as cross functional teams)
  • Assigning responsibility of specific tasks or processes to specific individuals or groups
  • It also involves managing the process. This includes monitoring results, comparing to benchmarks and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary.
  • When implementing specific programs, this involves acquiring the requisite resources, developing the process, training, process testing, documentation, and integration with (and/or conversion from) legacy processes.

Thus this type of problem can occur in strategy

In order for a policy to work, there must be a level of consistency from every person in an organization, including from the management. This is what needs to occur on the tactical level of management as well as strategic.

Strategy evaluation[edit]

  • Measuring the effectiveness of the organizational strategy, it's extremely important to conduct a SWOT analysis to figure out the strengths, weaknesses, opportunities and threats (both internal and external) of the entity in question. This may require to take certain precautionary measures or even to change the entire strategy.

In corporate strategy, Johnson and Scholes present a model in which strategic options are evaluated against three key success criteria:

  • Suitability (would it work?)
  • Feasibility (can it be made to work?)
  • Acceptability (will they work it?)

Suitability[edit]

Suitability deals with the overall rationale of the strategy. The key point to consider is whether the strategy would address the key strategic issues underlined by the organisation's strategic position.

  • Does it make economic sense?
  • Would the organisation obtain economies of scale, economies of scope or experience economy?
  • Would it be suitable in terms of environment and capabilities?

Tools that can be used to evaluate suitability include:

  • Ranking strategic options
  • Decision trees
  • What-if analysis

Feasibility[edit]

Feasibility is concerned with the resources required to implement the strategy are available, can be developed or obtained. Resources include funding, people, time and information.

Tools that can be used to evaluate feasibility include:

  • cash flow analysis and forecasting
  • break-even analysis
  • resource deployment analysis

Acceptability[edit]

Acceptability is concerned with the expectations of the identified stakeholders (mainly shareholders, employees and customers) with the expected performance outcomes, which can be return, risk and stakeholder reactions.

  • Return deals with the benefits expected by the stakeholders (financial and non-financial). For example, shareholders would expect the increase of their wealth, employees would expect improvement in their careers and customers would expect better value for money.
  • Risk deals with the probability and consequences of failure of a strategy (financial and non-financial).
  • Stakeholder reactions deals with anticipating the likely reaction of stakeholders. Shareholders could oppose the issuing of new shares, employees and unions could oppose outsourcing for fear of losing their jobs, customers could have concerns over a merger with regards to quality and support.

Tools that can be used to evaluate acceptability include:

  • what-if analysis
  • stakeholder mapping
« Business Strategy
The Art, Science, and Craft of Decision-Making

The Three Processes of Strategy
»
Overview of Strategic Planning Approaches to Strategic Management