STRATEGIC MANAGEMENT

Precautions to avoid failures in strategies for General Managers of a production unit :

Strategic Management is a set of Managerial decisions and actions aimed at the generation of sustainable competitive advantage. It operates on several time scales as short term and long term. The short term involve planning and managing for the present while long term strategies involve preparing and pre empting the future.

Strategic Management is difficult in part because it requires contradictory qualities and skills in dealing with the paradoxical demands of situations. The way to understand strategic management is first seeing the different types of managers and then realizing how the qualities and skills of the different types may be present in single individuals, who have to being them together in complementary ways to deal with the strategic tensions they confront.

Now a days the study of strategic management in business schools and other places has increased for one good reason that is Strategic management works. In fact, there are hundreds of definitions of strategic management and probably the main variants of them can be justified on numerous grounds.

STRATEGIC PLANNING

Strategic management has become widely established in all sectors of modern economies, although mainly in larger organizations. The rise of strategic planning in the 1960s and its use in the private sector in the 1970s was noted, advocated, and analyzed in many influential studies. This prescriptive view of strategic planning emphasized the importance of the organizational environment as a source of threats and opportunities and the need for effective responses was expressed in a plan. Typically this plan formulated major decisions about entry to new industries or the development of new products or services and was guided by sets of objectives and goals. In the 1980s, under the influence of Porter’s writings, the emphasis was less on the plan then on the selection of an appropriate generic strategy to position the business unit in is competitive environment. Porter appeared less concerned with trends and events that might pose threats and opportunities than with an environment. Porter suggested that the competitive environment could be analyzed using what is now often referred to as a Five Forces Analysis. Mapping the environment primarily as a pattern competitive pressure from rivals, suppliers, buyers, entrants, and substitutes. Then he broadly distinguished two strategic options. The business could either position itself as offering a low cost product at a standard price, or it could offer a product that was different from that offered by rivals. These are referred to as generic strategies. However, Porter still placed emphasis on the analytical strategic thinking needed to formulate an appropriate response to an organization’s environment. This analytical thinking extended to the planning of implementation of cost reductions to additions to value through differentiation. This planning of the implementation of a generic strategy could be done using Porter’s concept of the value chain. This involved essentially characterizing different types of activity within an organization and analyzing them in sufficient detail to identify opportunities for cutting unproductive costs or adding values as perceived by customers.

IMPLEMENTATION

The emergent but rational quality of strategy formulation was emphasized in Quinn, whose study had a more descriptive intent than some earlier studies of strategic management. This meant that strategic thinking was logical but issues of organizational politics and managerial ignorance affected the way in which strategy might be implemented. Others studies alerted managers to the issues of strategic implementation. Ansoff took on board the importance of resistance strategic planning is coupled with strategy implementation. Ohmae’s draws attention to three key groups – the corporation, the customer, and the competitors. Strategic Management might be defined, therefore, as the pursuit of superior performance by using a strategy that ensures a better or stronger matching of corporate strengths to customer needs than is provided by competitors. Ohmae also emphasizes the importance of moving from abstract ideas of strategy to concrete planning of implementation. This means that this favours properly worked–up action plans for line managers. Pettigrew and Whip also make the point about the importance of property linking strategic and operational changes. This is based on their in-depth case studies of specific organizations. Strategic intensions should be broken down to what they call actionable pieces, made the responsibility of change managers. They identify target setting, communication mechanisms, and reward systems as important in carrying strategic intensions though operational activities. This suggests, as does Ohmae, that strategic management is based on an interdependent relationship between strategic ideas or intensions and operational level changes.

On number of circumstances the strategy get fails due to various reasons. Therefore it is to be taken note of the circumstances why the strategies fail. In an effort to deepen our understanding of why so many strategies have failed in implementation, designed and led in the mid 1980s, a research project. Its focus was on where things most often go wrong in the process of strategy formulation and implementation.

In this research, the researcher invited a response to an extensive questionnaire from a broad sample of business unit heads, corporate planning directors, and chief executive officers with substantial experience in strategic planning in American multi-business corporations. He also conducted executive seminars to search for remedied. There were 300 respondents to the questionnaire and 216 participants in the day-and-a-half seminars. Of these, 61 per cent were general management line executives either at corporate or business unit level. The remaining 39 per cent were corporate planning directors and staff. Forty-one per cent of the seminar participants were from service businesses, 52 per cent from manufacturing businesses and 7 percent from government agencies.

In the responses both to the questionnaire and the seminar, almost every participant (87 per cent) reported feelings of disappointment and frustration with his/her experience with strategic planning. Fifty-nine percent attributed their discontent mainly to difficulties encountered in the implementation of plans. Two out of three trace their implementation problems to the design of their strategic planning systems and the way they manage them. Yet, despite all the frustration expressed, most companies in the sample stated their resolve to continue with strategic planning.

It is striking that most companies remain committed to strategic planning despite the disappointing returns on their investments to date. The reasons for this are rooted in the needs that led firms to adopt strategic planning in the first place. Their managements have come to realize that financial controls alone are insufficient to steer the business. Balance sheet feedback is too aggregated, too stripped of connotative information and often too late. It managers are to make more timely and appropriate mid-course corrections in response to external change, financial plans must be augmented and supplemented by strategic plans. Without these, the penalty for inability to adapt along the way is simply too great.

Another reason that persists in planning despite disappointment stems from a tendency by managers to separate in their thinking, strategy formulation from strategy execution. If one believes that the strategy was soundly developed in the first place, then subsequent failures in implementation can be blamed on the poor work of those lower down in the organization responsible for executing the strategy. However, when one examines in depth the relationship between strategy formulation and strategy execution, this tendency to view the two aspects of strategy as distinctly separate issues can be seen to be wrongheaded.

Most of the chief executives, corporate planning directors and business unit heads who responded to the questionnaire were later involved in one of a series of executive seminars. In discussing common problems, they appeared to have second thoughts about what was wrong with their firms’ planning systems and what was needed to put things right. Two-thirds of what these managers had initially described as implementation difficulties was, on closer scrutiny, attributed to ten factors. Factors 1 through 9 relate to the way strategic plans are formulated – well in advance of actual implementation. Only factor 10 relates directly to implementation itself. Yet, the mishandling of each of these factors can have profound, adverse impacts on the extent to which intended strategic objectives are actually realized.

Many precautions will have to be taken to avoid the failures of the strategies. The important reasons for the failure of strategies are follows:-

Poor Preparation of Line Managers

It was noted that since the early 1980s, an increasing number of companies have recognized that the responsibility for formulating strategy belongs to line managers, not staff planners. The staff planner’s role is supportive and facilitative. Number of instances, line executives have been inadequately prepared to assume this responsibility and therefore the same turns as one of the important reason for failure of the strategies.

Line managers will have to be briefed and they need to understand the key concepts and language of strategic planning. It is unlikely that without some help, they will uniformly understand the operational meaning of such notions as ‘bases of competition’, ‘strategic issues’, ‘key success factors’, ‘portfolio role’, and ‘strategic management’. Some line managers think the strategic planning as an additional burden imposed from above, diverting them from ‘running the business’. All too often, many line managers adopt a grudging, mechanistic approach to their planning duties. Small wonder that staff planners creep back in to lend a hand of help. Another aspect of preparing line managers to become more effective strategy formulators has to do with broadening their perspective. Normally the line managers will be concentrating the particular field, which has been entrusted them, but in fact they need to think about the business as a whole rather than only their own function. They need to know how to rise above their specialized frames of reference into a general management view of trade-offs between functions. They also need to know what questions will be asked and what challenges to expect when they submit their proposed business plans for approval.

Improving line managers’ understanding and skills in strategic planning through participation in ‘quick-fix’ management development courses often yields disappointing results. Too much management development training still consists of discussions of generic or hypothetical case materials and packages of received wisdom presented to groups of peers. Such training may provide some value, but it usually falls far short of replicating the real conditions facing the line management strategist.

When line managers can focus on real problems in their own companies, they can enhance their understanding of the strategic context and implications. An opportunity to learn how to think more broadly and how to behave in ways that are more flexible and adaptive should be offered with the explicit understanding that particular changes in personal behaviour are required. This offer should be made to groups representing the various functions and levels whose co-operation is needed to solve problems that are both tough and urgent.

2. Faulty Definition of the Business

Another circumstances which led to failure of strategy is the faulty definition of the business. The firms’ management’s definition of each of the businesses they are conducting can have a profound bearing on the business’s strategic behaviour, its competitive clout and on the strategic options management may choose to implement.

The two issues relevant to the connection between business definition and successful strategy implementation is ‘getting the definition right’ and executive perceives and understands the business definition In this context, ‘right’ means in tune with the marketplace requirements and competitive dynamics. It means the definition which best positions the firm to compete successfully. The successful strategy implementation depends heavily on an agreed business definition among the entire management group. Differences in perception will undermine the effectiveness of strategy implementation.

3. Faulty Definition of the Strategic Business Unit (SBU)

Another important aspect to be considered as a precaution to safeguard the business from failure is to give proper definition to strategic business unit. When a multi-business fails to define its SBUs correctly within its organizational structure, an excellent planning process can do the damage. When strategic planning is newly installed, it is often assumed that the organizational units already in place should handle the planning. Because these units are typically a result of historical evolution, they may owe their boundaries to many factors that make them inappropriate to use as a basis for planning: geography, administrative convenience, the terms of old acquisition deals, product lines, traditional profit centers, a belief in healthy internal competition, or old ideas about centralization and decentralization.

Such rationales for unit boundaries often lead to faultily defined SBUs. Executives who take organizational structure as a given before planning begins are not realizing that their SBU definitions are defective. Organization theory and strategic management hold that the main purpose of organization is to support the development and execution of strategy. Thus organization should come after strategic planning. The faultiness of the reorganization logic and its consequences for strategic planning can be attributed to either ignorance or discounting of customer and competitor behaviour in the major home appliance market. Specifically, the product line organization with its associated localized strategic perspective impeded consideration of several important factors that characterize this market. The quality and style of the materials, Price of the product, and the competition are the main and important factors that decides the market :

• Quality and style: customers expect that the refrigerator, dishwasher, cooking range etc., which they purchase be coordinated in terms of quality (materials used, performance, warranties, etc.) and appearance (colour, tones, physical design, features, etc.).

• Price: customers expect a pricing policy that unified the major kitchen appliances within the context of the manufacturer’s ‘quality and style’ philosophy.

• Competition: the division responsible for cooking ranges quickly discovered that its competitors and distribution channels were identical to those faced by its sister divisions, which manufactured refrigerators, dishwashers, etc. Despite this extensive overlap each division was waging its own battle with the same set of competitors.

The important principles which guide the definition of SBUs are as follows:-

•Let external rather than internal forces shape unit boundaries. If competitive forces require a larger unit than normal spans of control would dictate, go with the larger unit.

•When separate units are strategically appropriate for external reasons but must, for economies of scale, share central facilities and services, let them share, but keep them as separate units.

•Include within the jurisdiction of the SBU all functions and processes the unit head needs for executing the strategy. For example it may not be wise to require a manager charged with opening up new markets for a cluster of products to buy manufacturing and distribution services from sister profit centers.

•Leave the unit head free to take profits where strategy dictates. Hence nothing smaller than an SBU should be a profit center.

While the application of these principles of SBU definition is crucial to good strategy development and execution, they can conflict with one another. As a practical matter, therefore, these principles cannot serve as absolutes. In the end, boundary setting is an executive judgment call but not a purely subjective one.

4.Excessive Focus on the Numbers

When in strategic planning there is an excessive focus on financial and other numbers relevant to business performance, the resultant plan is likely to have serious distortions and be of limited value in guiding implementation. A numbers-driven plan is often the result of a short-term, bottom-line mindset on the part of top management. There is also likely to be an excessive focus on the numbers when the staff supports function for planning is under the control of the corporate financial function. When performance numbers govern strategy formulation, SBU managers responsible for carrying out the strategy tend to make arbitrary or constrained strategic choices. Such choices are not reflecting the realities of the industry, markets and competitive environment. It is important to note that when the numbers dominate strategic planning, there is likely to an imbalance between the quantitative and qualitative elements of the plan. Explanations of what lies behind the numbers and what the numbers really mean are often cursory. There are mainly three adverse consequences of a numbers-driven planning system they are :-

(a). The quality of the plans suffers because they are shaped more by top management’s willful assumptions then by the realities of the market place.

(b) The managers responsible for implementations are de-motivated with no real commitment to implementation because the plans lack credibility and no longer reflect their best thinking.

(c) Corporate executives insulate themselves from opportunities to learn about the firm’s various businesses because of their imposition of uniform quantitative objectives and their unwillingness to enter into a debate with SBL managers on the consequences of arbitrary cuts in finding.

5.Imbalance between External and Internal Considerations

Earlier we have noted that strategic planning differs from earlier efforts to plan for the long term by its primary emphasis on the firm’s external environment. In practice, this means developing an understanding of the firm’s industry, markets, customers and competition, and using this knowledge to determine what is strategically relevant when assessing the firm’s capabilities, and competitive strengths and weaknesses. Understanding and focusing on externals is crucial in making the strategic choices that will lead to the desired long-term outcomes.

6.Unrealistic Self-assessment

There is another element in strategic planning that can significantly influence the quality of the strategic choices and the extent to which a strategy can be implemented successfully. This is the quality of management’s analysis of their organization’s capabilities to carry out various strategies. Management’s assessment of the firm’s strengths and weaknesses in the light of possible courses of action in an important consideration in the choice of strategic options. Further, this assessment is an important input to the definition of the work required to implement the selected options.

7.Insufficient Action Detailing

Implementation is bound to go away if strategy formulation goes no further than defining general thrusts and end-point goals.

About seven out of ten companies do not carry the formulation of strategy much beyond some general statement of thrust such as market penetration or internal efficiency and some generalized goal such as excellence. Having, only generalizations to work which makes implementation very difficult. Targets don’t mean much if no one maps out the pathways leading to them. After this kind of half-baked strategy is handed over for execution, subordinates who have not been in on the formulation of the strategy are left to deal with its cross-impacts and trade-offs when they bump into them.

The cure for half-baked strategy is action detailing, but this task often baffles and irritates many executives. Only one in three of the companies have a process or a forum for the interfunctional debate and testing of unit strategies. Their procedures for action detailing and other kinds of reality testing are often non-existent or merely rudimentary. Action detailing of a sort is carried on in some places as a part of operational planning, but it usually follows strategic planning and takes the strategy as given. Planning in detail should be used as a further test of a strategy’s feasibility.

One way to combine operational and strategic planning is to begin an action planning advocacy process as soon as preliminary agreement on strategic options has been reached. An interfunctional task group is set up for each strategic option – with strong representation from middle management. Each group first can identify and analyze the issues that must be resolved for implementing a particular strategy. Then they can rough out the major action steps or pieces of work necessary to resolve each issue and thus implement the strategy. The group then presents its proposed action Programme to the unit strategic planning team. Each task group’s job is to explain and defend what it considers the best way of bringing the strategic option to life.

After the planning team has heard, debated, modified and validated each of the proposed action programmes, they deal with time frame, risk analysis, allocation of responsibility, resource requirements, organizational obstacles, performance measurement and monitoring devices. In mapping out and testing strategic options, managers begin to think explicitly about assumptions, alternatives, contingencies, and what competitive reactions to expect. Failure to come to grips with these details can undermine the execution of the strategy.

8.Insufficient Effective Participation Across Functions

Strategic plans are of better quality and are more likely to be implemented successfully when the plan is formulated by a team of executives and managers working together in ‘real time’. This team should include the SBU general manager, the functional heads who report to this executive and middle-level managers Elected for their ability to contribute usefully to the debate. In addition, the planning team should include other functional executives and managers outside the SBU who are responsible in providing strategically significant resources and supporting services to the SBU.

9.Poor Management of the Corporate Face-off

In a multi-business corporation, even when all the steps in the strategy development process are taken according to the principles of best practice, strategic plans can be ruined and the whole system undermined at the final corporate review state. The issue here is how good the design is and management of the planning cycle when the SBUs’ proposed plans hit the corporate screen. This may be called the corporate face-off.

The face-of is a moment of inevitable, healthy conflict. Not only do all the units’ resource requests often exceed what corporate is prepared to provide, but also their aggregate performance promises are often less than the Corporate requires. Performance requirements typically come from an analysis of capital markets. On the other hand, performance promises arise from strategies for dealing with each SBU’s particular environment. Thus, conflict is to be expected.

What should happen at the face-off is reconciliation. This often involves queuing, downsizing, redirection and recycling. What actually does happen is often rather primitive: exhortation, backdoor dealing across-the-board cost cuts, moving the goalposts, and mandated promises.

10.Conflicts with Institutionalized Controls and Systems

The foregoing nine factors describe flaws in the ‘upstream strategic planning process that can undermine ‘downstream’ strategy implementation.

This tenth factor is the only once directly applicable to the implementation process. A strategic planning system can’t achieve its full potential until it is integrated with other control systems such as budgets, information, and rewards. The badly designed, poorly managed face-off is a manifestation of a deeper problem – compartmentalized thinking which treats various existing control systems as freestanding and strategically neutral. When this is the case, there is a high probability that conflicts will arise between the requirements and organizational impact of each SBU’s intended strategies, and the requirements of institutionalized control systems. These are usually far more deeply rooted in the organization’s culture than strategic thinking and planning. When conflicts occur, the existing control systems prevail and strategy implementation suffers.

PLANS AND BUDGETS:-

The conflict between strategic plans and budgets is the most commonly perceived area of dissonance. Managers tend to view the annual planning and budgeting sequences as logically connected but not integrated in fact. A budget should be derived from the strategic plan. Yet in many firms strategic planning is so divorced from budgeting that budget preparation precedes strategy formulation. The best strategic planning is systemic, involving the integration of all the relevant functions. It starts from an environmental analysis and then works in the unit’s ability to respond. Budgeting, on the other hand focuses on each function, and usually proceeds by making incremental adjustments to the previous year’s internal departmental budgets. This practice allows the momentum of last year’s business strategy and this year’s functional strategies to determine the funding of this year’s business unit plan.

The absence of strategic action planning often thwarts those who want to integrate plans and budgets. Not until a company has formulated explicit action steps can it cast fixed capital working capital, operating expense and revenue and head-count implications in the form of strategy-based budgets. Most CEOs yearn for such budgets so that they can see how their strategies, not just their departments, are doing. But the same CEOs often report that they are told such budgets are not possible without disrupting the whole accounting system.

PLANS AND INFORMATION SYSTEMS

In recent years many strategic planners in the units and at the top of multi-business corporations express concern about the adequacy of their planning information based and decision support systems, and thereby the plan goes out of way and not reaching the desired result. They worry about linking poor information bases with sophisticated computers. Even accurate, timely, and accessible information will not help the planner if it leads to an inappropriate strategy.

Like many businesses, this company based its strategy on data that had accumulated in response to questions raised in the past by its financial managers and its technical and professional specialists, whose expertise was too narrow. The information system drove future strategy instead of the other way around. Strategy is what makes a fact relevant or irrelevant and a relevant fact significant or insignificant.

Corporate CEOs and their SBL’ heads are the ones who must raise the issues ask the questions, and formulate the business definitions, missions, objectives, and strategies that will drive their decision-support systems. With today’s information technology, it is possible to move in the right or the wrong strategic direction with great speed.

PLANS AND REWARD SYSTEMS

When companies design reward systems as separate, freestanding controls, they may overlook the fact that such controls are not strategically neutral. Many companies have witnessed the quiet destruction of a two or a three-year strategy while their executives protected their first-year profit-sharing bonuses. It is folly to appeal to managers’ self-interest with rewards for behaviour other than the kind the strategic business plan calls for and it is naïve to expect them to override the powerful incentives that reward systems evoke.

11.From Strategic Planning to Strategic Management

There is no organizational arrangement, control system, or productivity Programme is strategically neutral. Strategic planning becomes the device for consistently lining up such factors.

It is important to note that among companies exploring the problem of integrated control systems, the idea is taking shape that strategic planning can serve as the core control instrument of a business enterprise, with other controls adjusted and adapted to facilitate the execution of strategy. Why this emphasis on strategic planning? Because of all control devices, it is one that is driven by the business environment.

Strategic planning comes before the final results are known, determines whether profit will be taken now or later, and decides which facts are relevant. While financial controls are obviously indispensable the feedback they arrive is often too aggregated, too homogenized, and too late not to mention too conservative of past business practices.

Under the circumstances it can safely conclude that the above are the precautions one will have to take to avoid failures in strategies in a production unit