Performing Strategic Analysis and Making Decisions
After Studying This Chapter, Students Should Be Able To
· Understand the various types of strategies that can be employed in making major decisions
· Explain how to go about formulating strategies
· Collect information that can help in developing strategies and making decisions
· Conduct an analysis of data gained from a variety of sources including environmental, functional, business, and historical
· Differentiate among the models of approach in developing operational changes
· Implement a strategic plan that involves all the stakeholders
This chapter stresses the importance of understanding the strategic planning process and developing a plan of action that allows it to attain and sustain a competitive advantage over would-be competitors. The strategic plan helps formulate a long-range view utilizing resources efficiently. The strategic management process focuses on formulating the plan that will keep the organization ahead of the competition and toward maintaining focus on the organization’s mission and goals.
The first step of the strategic management process is to look ahead by asking five key questions:
1. What is our mission? What business are you in?
2. Who are our customers?
3. What do our customers consider of value?
4. What have been our results?
5. What is the plan?
. The second responsibility is to design an implementation plan:
· Identify organizational mission and goals.
· Assess current performance of the organization.
· Create strategic plans to accomplish the objectives.
· Implement the strategic plans.
· Evaluate results, change plans and/or implementation.
Levels of Strategy
Successful organizations formulate different levels of strategy:
· Corporate level: Overall plan set by top management.
· Business level: Marketplace plan set by top- and mid-level managers.
· Functional level: Internal operational service plan set by mi- and low-level managers.
Types of Strategy
As these plans or levels become visualized, then types of strategies are pursued:
· Growth or expansion strategies.
· Concentrate resources strategies, for increased leverage.
· Diversification strategies to expand services or products in unrelated areas.
· Retrenchment or reduction of products and services strategies:
(a) Retrenchment by way of a turnaround or downsizing.
(b) Retrenchment by way of divestiture or selling parts.
(c) Retrenchment thru liquidation or closure/bankruptcy.
· Stability strategies via maintaining current operations.
· Cooperation strategies through collaboration partnerships.
· Strategic partnerships with other organizations with mutual interests.
· Outsourcing alliances by purchasing services.
Savvy organizations employ other multiple strategies to solidify their competitive advantage:
· Cost and quality strategies, with an emphasis on operating efficiency and/or product or service quality.
· Knowledge and training strategies, with an emphasis on learning, innovation, and speed of delivery to market for new ideas.
· Barriers to entry strategies, with an emphasis on creating a market stronghold that is protected from entry by others.
· Financial stronghold strategies, with an emphasis on investments and/or loss sustainment that competitors can’t match.
Five essential valuesdrive the decision-making process for managers:
1. Accountability: For the decision made, but also for how the decision was determined, what data were analyzed, and which course of action was pursued in arriving at the final decision.
2. Adaptability: Means being flexible in considering options, being able to deal with a wide range of people, and having a versatile business approach.
3. Dependability: Making timely decisions that, for the most part, are correct and specify a proper course of action.
4. Responsibility: Embraces responsibility for making decisions, takes ownership for decisions, and views the management role as a commitment to organizational excellence.
5. Visibility: Leaders are present and on the scene.
This approach is a basic method of formulating strategy and making decisions, in which managers allocate scarce organizational resources among competing opportunities. There are four possibilities or approaches within this type of planning:
· Stars produce substantial profits through penetration of expanding markets.
· Question marks are low-market-share businesses in high-growth market locations.
· Cash cows are high-market-share businesses in low-growth market locations.
· Dogs are low-market-share businesses in low-growth market locations.
Strategic Tools for Decision Making
Strategic tools play a very important part in the strategic planning process. Great emphasis is placed on
· Collecting hard realistic data.
· Basing decisions on historical information or past actions.
· Using frames of reference or book knowledge.
· Analyzing hard data.
· Assessing prediction attempts.
· Following one’s gut instinct.
Types of Analysis
Once data are collected they must be analyzed with relevance to environmental, functional, business, and historical attributes to the organization’s mission and goals:
● Environmental analysis: Takes into account the theoretical and physical environment in which you operate and the action plan that will be undertaken.
● Functional analysis: You evaluate every role affected by implementing and executing a strategic action plan: “Who can do what to make this happen?”
● Business analysis: You must analyze business-related dynamics.
(a) Continuous quality improvement (CQI).
(b) Continuous business development (CBD).
● Historical analysis: Takes into account past precedents established in the organization, as a starting point. Must consider relevance and contribution to the organization.
Models of Implementing Strategies and Decisions
Common Strategic Pitfalls
1. Failure of substance or inadequate attention to detail.
2. Failure of process or poor handling of the plan itself.
Military Model Has Five Distinct Parts
1. Define the objective.
2. Identify resources.
3. Establish a plan.
4. Lay out a course of action.
5. Provide closure.
Parliamentary Model Is an Eight-Step Process
1. Establish need.
2. Define optimum outcomes.
3. Conduct a stakeholders’ review.
4. List pros and cons.
5. Make an options review.
6. Review potential consequences.
7. Formulate a step-by-step plan.
8. Analyze achievement.
Strategy Plan Completion and Implementation
· Communicate with stakeholders:
(a) With clarity.
(b) With closure on a positive note.
(c) With cohesion from team members working together.
(d) With command by swift decisions and timely action.
Action analysis The process of a manager examining the viability of a plan and predicting whether a decision is sound and the courses of action effective.
Business strategy Top- and mid-level management set the direction for a single business unit.
CBD A building-block approach to all departmental activities in management efforts. Every effort undertaken by the department should be done to make the department a stronger, more progressive entity than it was prior to the effort. Stands for continuous business development.
Competitive advantage An attribute or combination of attributes that allows an organization to outperform its rivals.
Concentration Growth strategy that uses existing strengths in new and productive ways.
Corporate strategy Top management directs an organization as a whole toward sustainable competitive advantage.
CQI Ongoing quality enhancement as the incentive that fuels everyday activities associated with optimum health care delivery. Stands for continuous quality improvement.
Diversification Growth strategy that focuses on acquiring or investing in new businesses and services.
Emergent strategy Strategy that develops progressively over time as managers learn from and respond to work situations.
Environment analysis Analysis that takes into account the theoretical and physical environment in which you operate and in which the action plan will be undertaken.
Formal references Information sources such as journals, management texts, or an organization’s manual of standard operating procedures.
Function analysis Analysis in which you evaluate every role affected by implementing and executing a strategic action plan.
Functional strategy Middle- and low-level management guide the use of resources to implement a specific business strategy.
Growth strategy Strategy that pursues larger-size and expanded operations.
Hard data Any information that may have been generated by a test, questionnaire, form, or survey.
Historical analysis Analysis that takes into account past precedents established in the organization.
Outsourcing alliance Contracting to purchase important services from another organization.
Portfolio planning approach A basic method of formulating strategy and making decisions, in which managers allocate scarce organizational resources among competing opportunities.
Retrenchment strategy Strategy that reduces the scale of operations in order to gain efficiency and improve performance.
Stability strategy Strategy that maintains a present course of action without major operating changes.
Strategic alliance Two or more organizations join together in partnership to pursue an area of mutual interest.
Strategic intent The focusing of all organizational energies on a unifying and compelling target.
Strategic management The process of formulating and implementing strategies that create competitive advantage and advance an organization’s mission and objectives.
Strategy A comprehensive action plan that identifies long-term direction and guides resource utilization to accomplish an organization’s mission and objectives with sustainable competitive advantage.
Strategy formulation Assessing existing strategies, organizations, and environments to develop new strategies and strategic plans capable of delivering future competitive advantage.
Strategy implementation Acting upon strategies successfully to achieve the desired results.
Sustainable competitive advantage An attribute that is difficult for competitors to imitate.