Basic straTegy Question?
How is organizational direction determined? Every organization takes on some direction, in terms of what customers/clients it serves and what functions it performs for these customers. This direction is often called its purpose, Mission or realized strategy. An organization's mission is a set of statements that define the exchange relationship between the organization and its stakeholders or claimants. More specifically a mission defines the population served and the function it fulfills or the need it satisfies for that claimant. This direction, or mission, may be the result of a deliberate planning process or it may emerge as the result of a set of incremental decisions. Most Realized Strategies are the result of a combinations of Purely Deliberate and Purely Emergent Strategies. Brief descriptions of these two types of strategies follow:
Deliberate Strategy- This process starts with an analysis of a company's current mission and strategies. The most popular tool used in this process is the SWOT (Strengths, weaknesses, opportunities, threats) model. The external environment in terms of opportunities and threats, is analyzed by examining threats to the company's current position and new opportunities (new customers, new applications, unfulfilled customers needs, etc.). The analysis proceeds by examining the company's internal environment in terms of its strengths and weakness. A mission and competitive strategy is formulated that matches opportunities with strengths and plans are made to strengthen areas of weakness. The next step is to develop functional strategies that support the overall business level competitive strategy. Marketing, Human Resource, Financial, Operations, Information Systems, and R & D strategies are developed that support the business unit strategy. Finally, a control system (organizational structure) is designed to ensure that operational decisions are made consistent with the business and functional strategies. When every day decisions do not conform with the business and functional strategies, the Intended Strategy becomes an Unrealized Strategy. Many strategic plans have taken this route as they sit on shelves of corporate offices in nicely bound volumes.
Emergent Strategy- Emergent Strategies are the result of incremental decision making that achieve some degree of consistency over time and launch the organization into a direction. When decisions are made or problems are solved, they have potential strategic impact. As you remember from the Political Model of decision making, decision making is, by nature, a political process with various claimants attempting the influence each decision. When there is a strong control system (powerful hierarchy) that ensures that decision makers satisfy managerial constraints, intended strategies tend to become realized. However, when other influences are stronger, or there is not clear direction from above, decisions are made without regard to intended strategy and the organization takes on direction that is a result of the combined affect of these incremental decisions.
levels of strategy
One way to think about strategy to to conceptualize the various choices organizations make starting the highest or most strategic level working down to basic operational deicisions.
Before identification of strategy can occur, one must clearly identify the mission or domain of the organization. The domain of an organization consists of the population it serves and the functions it performs (satisfies) for that population. Sometimes the domain is defined in terms of products or services offered (rather than functions performed), but this tends to be more limiting because it defines the mission more in terms of means rather than ends. Note: One should distinguish Mission/Domain from a Mission Statement in that Mission statements often contain visions, goals, competitive strategies, and even human resource strategies.
Corporate Level Strategy
For multi-business organizations addresses the question: In what particular businesses or industries should we be operating? What is the purpose of each of these businesses? The following are generic strategies:
- Vertical Integration
- Forward Integration- Gaining ownership or control over distributors or retailers.
- Backward Integration- Seeking ownership or control of suppliers
- Horizontal Integration- Seeking ownership or control over competitors
- Market Penetration- Seeking increased market share for present products through greater marketing efforts
- Market Development- Introducing present products in new markets
- Product Development- Seeking increased sales by improving present products
- Concentric- Adding new or related product lines
- Conglomerate- Adding new, but unrelated product lines
- Joint Venture- Two or more sponsoring firms forming a separate organization for cooperative purposes
- Retrenchment- Regrouping through cost and asset reduction to reverse declining sales and profits
- Divestiture- Selling a division or part of organization
- Liquidation- Selling off tangible assets, in parts for their tangible worth.
Competitive or Business Level Strategy
How should we compete in our chosen business(es)? Competitive strategies involve determining the basis of costumer or client decision making. Generally, they are based on some combination of quality, service, cost, time, and quality of the experience. There are many typologies of competitive strategies. Porter's generic strategy typology has received the most attention.
Cost Leadership Strategies- With this strategy you are competing on price. Your various functional strategies all emphasize cost reduction. This is an effective strategy when the market is comprised of many price sensitive buyers, when there are few ways to achieve product differentiation, when buyers do not care much about differences from brand to brand (Coke vs. Pepsi), or when there are a large number of buyers with significant bargaining power. Some risks (potential threats) of pursuing this strategy are that competitors may imitate the strategy, thus driving overall industry profits down, technological breakthrough in the industry by other firms (generally firms pursuing this strategy have low R & D budgets), or buyer interest may swing to other differentiating feature besides price. Firms know for this strategy are Wal-Mart, MacDonald's, Black & Decker, Lincoln Electric, Briggs and Stratton, and 47th Street Camera.
Differentiation Strategies- Differentiation strategies rely on some basis of product differentiation such as flexibility, specific features, service, time and availability, low maintenance, etc. as the basis for competition. Product development and market research are generally necessary components of a differentiation strategy. Generally, a successful differentiation strategy allows a firm to charge a higher price for its product. Organizations generally need strong R & D departments with strong coordination between R & D and marketing departments. Human Resource strategies must place emphasis maintaining a competitive skill base and motivating employees toward the basis for differentiation. Common risks (potential threats) include there may not exist the necessary price/feature trade-off among customers to justify higher prices, development of a quick copy of the differentiating features without the expensive R & D. Firms pursuing differentiation strategies include Dr. Pepper, Jenn-Air, The Limited, Cross. Service and Quality strategies are the major types of differentiation strategies.
Focus or Niche Strategies- A successful focus strategy depends upon an industry segment that is of sufficient size, has good growth potential, and it not crucial to the success of other major competitors. Focus strategies are pursued in limited markets in conjunction with cost leadership and/or differentiation strategies. Focus strategies are the most effective when consumers have distinctive preferences or requirements and when rival firs are not attempting to specialize in the same target segment. Risks of pursuing a focus strategy include the possibility that numerous competitors recognize the successful focus strategy and copy the strategy, or that consumer preferences drift towards those of the market as a whole. Customer groups, geographic areas, and specific product lines are some bases of focus strategies. Firms using the focus strategy are Red Lobster, Federal Express, MCI, Coors, and URI (EMBA).
Multiple Strategies- Combinations of the above competitive strategies.
How do organizational functional units contribute to the business level strategies? How can functional strategies be integrated to achieve competitive advantage?
Marketing Strategies- How do we communicate our strengths to the customer? How do we identify customer requirements and changes in customer requirements?
Human Resource Strategies- How do we recruit, train, develop, motivate, compensate, and place employees so that behavior is directed toward the competitive strategy and works to build competitive advantage?
Financial Strategies- How do we secure financial resources necessary to carry our competitive strategy?
Operations Strategies- How do we design our processes to produce products and/or service that meet customer requirements as specified in our strategy?
Information System Strategies- How do we provide decision makers, at all levels, with information necessary to make decisions consistent with strategy?
Technological (R & D) Strategies- How do we develop products consistent with customer requirements as specified in strategy?
In addition to supporting competitive strategy through the development of the functional strategies, functional specialist also provide tools and information used in the development of strategy? For example a number of marketing tools are used to identify and evaluate opportunities, financial and human resources tools are used to examine strengths and weaknesses.
This a simple diagnostic approach to diagnosing the the level at which problems causes exist. For example, declining sales, market share and stymied growth can be caused by fundamental issues with the target domain of the company (markets and products) down to a firm's inability to implement operational plans, or anywhere in between.
This page has two parts:
- The basic Description of the levels of organizational analysis;
- A Diagnostic Flow Chart
Basis of Decision
Partial List of Tools
Market Share Goals
|Mission (2) (Domain)||Who are customers and what function(s) do we perform||SWOT Analysis
Market Research Techniques
|Competitive (Business Level) Strategy||On What basis do we compete?
||Market Research Techniques|
|Marketing Strategy||How do we communicate our strengths to the customer? How do we identify customer requirements and changes in customer requirements?||Reputation building
Human Resource Strategy
|How do we recruit, train, develop, compensation, and place employees so that behavior is directed toward our competitive level strategy?||
Motivational Diagnostic Models
Training & Development
Recruitment & Selection
Leadership Style & Culture
|How do we secure financial resources necessary to carry our competitive strategy?|
|How do we design our processes to produce products and/or service that meet customer requirements as specified in our strategy?|
|How do we provide decision makers, at all levels, with information necessary to make decisions consistent with strategy?|
Technology (R & D) Strategy
|How do we develop products and services consistent with customer requirements as specified in strategy?|
- Stakeholders- Organizational stakeholders include Shareholder, Customers/Clients, Employees, Public at Large (communities, regulatory groups, interest groups, etc.), and Suppliers.
- Mission/Domain- The domain of an organization consists of the population it serves and the functions it performs (satisfies) for that population. Sometimes the domain is defined in terms of products or services offered (rather than functions performed), but this tends to be more limiting because it defines the mission more in terms of means rather than ends. Note: One should distinguish Mission/Domain from a Mission Statement in that Mission statements often contain visions, goals, competitive strategies, and even human resource strategies.
- Opportunity- A group of potential customers whose needs are not being satisfied adequately. A white space opportunity exists when there is no other organization attempting to satisfy this need.
- Core Competency/Distinctive Competence- Special capacities, skills, technologies or resources that enable a company to distinguish itself from its competitions and create a competitive advantage.
- Competitive Advantage- The ability to transform a distinctive competence into a product of service outcome (lower price, better quality, better service, quicker response time, etc.) that makes your product or service more attractive to the customer than your competitors' product or service. A sustainable competitive advantage is not easy for your competitors to duplicate or mimic in the short run.