Business Essays – Company Strategy Business

Company Strategy Business

Your company has a clear goal and a solid strategy you have the right people in the right places you have great ideas and the resources to execute them. So does your competition.

Over the past decades, the role of economic organizations in society has been approached from various perspectives and alternative conceptualizations of business have been introduced (Grant, 2005; Skurnik, 2005). The traditional idea of business is that an efficient organization is formed to produce profit (Ansoff, 1965; Drucker, 1958). Lately, the concept of business, including the objectives and strategies of business companies, has been dominated by the idea of profit maximation for investor owners (Grant, 2005).

Strategic management researchers have been proponents of the theory that provide support to the relationship between the environment, firm strategy, structure, and performance. Several management researchers of the likes of Dill (1958), Chandler (1962), Lawrence & Lorsch (1967), Jurkovich (1974), Miles & Snow (1978), Porter (1980, 1985), Bourgeois (1980, 1981), Hambrick (1981, 1983), Dess & Davis (1984), Dess and Beard (1984), Mintzberg (1988), Miller (1986), Hamel & Prahalad (1991), Kotha & Valdamani (1995), and others have directly or indirectly made attempts to theorize the effects of single or multiple constructs, vis–vis the firm environment, strategy, and structure on firm performance. These efforts have led to the incremental development of the strategic management literature that stress on the relationships between the constructs mentioned above.

The levels of strategy, i.e. corporate level, business level, and functional level have been defined by management theorists in order to identify and conceptualize the differences in approach in managing firms across these levels of company hierarchy. Corporate level strategies focus on what businesses should the company invest in, in order to satisfy the interests of the stakeholders and to maximize the value of stockholders’ investments. The focus here is on issues pertaining to firm growth and liquidity (e.g. Kim, Mauer, & Sherman, 1998), which influence stockholders’ satisfaction.

On the other hand, business level strategies entail ways in which a company would seek to attain competitive advantage through effective positioning. It should be noted that these positioning strategies of companies would vary depending on the industry setting (Hill & Jones, 1995). In corporate finance, although business level strategies are not defined as positioning strategies, the objectives of these strategies and their effects are considered within the diversification and liquidity concepts of corporate strategies. The objective of functional level strategies is to achieve competitive advantage through “strategies directed at improving the effectiveness of functional operations within a company” (Hill & Jones, 1995; p. 12).

Note that in corporate finance the functional level strategies are considered as aggregates reported as part of the financial statements of individual business units, which are then analyzed in connection to the corporate strategies. It should also be noted that the business and functional strategies are impacted by the way in which corporate strategies are formulated.

Although it may be argued that a bottom-up approach of defining functional level and business level strategies will not entail the effects of corporate strategies on functional and business level strategies, in reality firms define their resource allocation strategies first by taking into consideration the effects of these strategies on overall corporate performance. Once the resource allocation decisions are formulated at the corporate level, managers at the business level can then identify the appropriate strategies to meet the objectives laid out by managers at the corporate level.

Management theorists have suggested that in order to achieve competitive advantage, the firm should achieve a fit between the environment, strategy, structure and controls (Jennings & Lumpkin, 1992). Effective strategy formulation and implementation lead to the attainment of performance objectives identified by the stakeholders of the firm.

Whereas the concept of fit between the environment and strategy is important in order to achieve competitive success, Hamel & Prahalad (1991) suggested that strategic intent is the key to achieving success as compared to strategic fit, the paradigm that most management theorists followed until the late eighties. The authors suggest that strategic intent is about building new resources and competencies to tap future opportunities as opposed to the strategic fit perspective of achieving a fit between existing company resources and current environment opportunities.

Hierarchical Levels of Strategy

Corporate Level Strategy

The corporate level strategy entails decisions made by corporate managers to insure that company stakeholders are satisfied at all times. With this as the goal, the managers at the corporate level of company hierarchy decide to invest in business(es) that result in long-term profit maximization and increased returns to the firm’s stockholders. Corporate strategies entail two distinct dimensions that include measures pertaining to growth (Zook & Rogers, 2001) and liquidity (Kim et al., 1998). Corporate managers decide what businesses to invest in and how liquid the assets of the firm should be to maximize the value of the firm, both in the short and long term scenario.

Business Level Strategy

Business level strategy applies to the unit level of the organization and is referred to as those strategies that are applied at the strategic business unit (SBU) level. SBU level strategy is formulated and implemented by business level managers, who are also referred to as unit level managers or general managers. While this may be the case in the manufacturing industries, the hospitality industry general manager does not necessarily formulate these strategies, rather they are instrumental in the implementation of the strategy.

The formulation of business level strategies is entailed in the corporate strategy when the corporate managers define the positioning of the firm. Since business level strategy is a result of market segmentation and positioning strategies, the generic strategies of cost leadership, differentiation, and focus (Porter, 1980) result from the way corporate managers conceive the orientation and positioning of the product during the time of its inception. This logic also applies to the Miles & Snow’s typology of prospector, defender, analyzer, and reactor. These generic typologies are a result of the corporate level manager’s positioning strategies, and the budget allocated to the units to pursue that strategy.

In this regard, the hospitality industry is different from the manufacturing industry in terms of the distinction between the three levels of strategy. There is an overlap in the decisions made at the three levels, with the corporate level influencing the decisions of the unit level and the functional level. This may not be apparent by scrutinizing the organizational structure; rather, this results from the job responsibilities that are entrusted to the different levels of management hierarchy, especially the business and functional level.

Functional Level Strategy

Functional level strategies are those strategies that are initiated by the profit /support centres of an organization. These centres are individual functions that result when activities that are similar in their characteristics and objectives are grouped under a given function. Each separate function should have its own goal and objective, and functional managers formulate strategies to attain those goals and objectives.

To be competitively superior to other firms, functional level managers strategize to attain superior efficiency, superior quality, superior customer responsiveness, and superior innovation (Hill & Jones, 1995). Although hospitality researchers have posited that manufacturing based strategy theory may not be applicable to the hospitality industry (Murthy, 1994), it can be argued that strategies professed by management theorists have been generalized to apply to any given industry.

Strategy has been defined very distinctly in strategic management theory. For instance, according to Chandler (1962), strategy is the determination of basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Hofer & Shendel (1978) defined strategy as the match among organizational purposes, resources, skills, environment opportunities and risks. Similarly, Thompson & Strickland (1981) defined strategy as the manner in which an organization accomplishes its objectives through the formulation of means, matching and allocating resources, and directing its effort to produce results.

On the other hand, Bourgeois (1978) defined strategy in terms of a firm’s relationship with the environment to achieve its objectives, while Mintzberg (1981) defined the term as a pattern in a stream of decisions or actions. These definitions are important for the literature as it defines the domain of strategy in terms of its literal meaning as well as the direction of research efforts that it influences. Although the above definitions of strategy may differ in literal meaning, the underlying theme common to all is the ability of the organization to meet its objectives by directing its efforts in a resourceful manner, aligning them to the developments in the external environment.

Having identified this theme in the definition of strategy, it becomes essential to identify whether each individual research domain within the field is a proponent of this ideology professed by eminent researchers. To do so, it is essential to pinpoint the orientations of the sub-domains in the field of strategy.Strategy, in general, refers to how a given objective will be achieved. Consequently, strategy in general is concerned with the relationships between ends and means, that is, between the results we seek and the resources at our disposal.

Strategy and tactics are both concerned with formulating and then carrying out courses of action intended to attain particular objectives. For the most part, strategy is concerned with deploying the resources at your disposal whereas tactics is concerned with employing them. Together, strategy and tactics bridge the gap between ends and means .Strategy of an organization is the roadmap towards attainment of its long term goals and objectives.

Organizational strategy consists of planning, organizing, execution, and control activities. Strategic management process facilitates in the operationalization of strategy. Strategic thinking has been much influenced by military thinking about ‘the strategy hierarchy’ of goals, policies and programmes. Strategy itself sets the agenda for future action, strategic goals state what is to be achieved and when (but not how), policies set the guidelines and limits for permissible action in pursuit of the strategic goals, and programmes specify the step-by-step sequence of actions necessary to achieve major objectives and the timetable against which progress can be measured.

A well defined strategy integrates an organization’s major plans, objectives, policies and programmes and commitments into a cohesive whole. It marshals and allocates limited resources in the best way, which is defined by an analysis of a firm’s unique strengths and weaknesses and of opportunities and threats in the environment. It considers how to deal with the potential actions of intelligent opponents.

The importance of strategic management for the development of regions is growing, together with the effort of the regional representatives to increase the performance and competitive advantage of their regions. Individual countries, regions, cities, and towns compete among each other especially in the acquisition of economic subjects, which create and stabilize new jobs, thereby influencing prosperity and the standard of living of their residents.

Strategy choice is a component of strategy formulation that entails identifying the strategic alternatives in tandem with the firm’s strengths and weaknesses. Since strategy is about identifying the appropriate courses of action, these alternatives vary depending on the hierarchical levels of the organization confirmed by, for instance, Hofer & Shendel (1979), who point out that strategy content varies with the level of organizational hierarchy. The hierarchical levels identified by various management theorists in the strategy domain are functional level, business level, and corporate level strategies (Hill & Jones, 1995) .

The strategic management model suggests that intended strategy is an outcome of certain distinct actions taken by firms. These actions can be categorized as the product of a firm’s external analysis and internal analysis (Hill & Jones, 1995). The external analysis is about understanding the firm’s external environment to identify opportunities and threats. This analysis includes analyzing the firm’s remote environment domain, task environment domain, and industry environment domain in order to identify the forces driving change and their impact on the organization during a given time period (Olsen et al., 1998).

On the other hand, the internal analysis entails pinpointing what the strengths and weaknesses of the firm are in order to identify the quantity and quality of resources available to the organization (Hill & Jones, 1995). The concept that entails analyzing the firm’s external and internal environment and subsequently identifying the appropriate strategy comes under the strategy formulation sub-domain of strategy research. On the other hand, the sub-domain that deals with designing organizational systems and structures in order to put the strategy into action is termed as strategy implementation.

There are three levels of strategies in the organization viz. corporate strategy, business strategy, and functional strategy. The term ‘strategy’ proliferates in discussions of business. Scholars and consultants have provided myriad models and frameworks for analysing strategic choice (Hambrick and Fredrickson, 2001). For us, the key issue that should unite all discussion of strategy is a clear sense of an organization’s objectives and a sense of how it will achieve these objectives.

It is also important that the organization has a clear sense of its distinctiveness. For the leading strategy guru, Michael Porter (1996), strategy is about achieving competitive advantage through being different – delivering a unique value added to the customer, having a clear and enactable view of how to position yourself uniquely in your industry, for example, in the ways in which Southwest Airlines positions itself in the airline industry and IKEA in furniture retailing, in the way that Marks & Spencer used to.

To enact a successful strategy requires that there is fit among a company’s activities, that they complement each other, and that they deliver value to the firm and its customers. The three companies we have just mentioned illustrate that industries are fluid and that success is not guaranteed. Two of the firms came to prominence by taking on industry incumbents and developing new value propositions. The third was extremely successful and lost this position. While there is much debate on substance, there is agreement that strategy is concerned with the match between a company’s capabilities and its external environment.

Analysts disagree on how this may be done. John Kay (2000) argues that strategy is no longer about planning or ‘visioning’ – because we are deluded if we think we can predict or, worse, control the future – it is about using careful analysis to understand and influence a company’s position in the market place. Another leading strategy guru, Gary Hamel (2000), argues that the best strategy is geared towards radical change and creating a new vision of the future in which you are a leader rather than a follower of trends set by others.The idea of strategy has received increasing attention in the management literature. The literature on strategy is now voluminous and strategic management texts grow ever larger to include all the relevant material. Our premise is that a firm needs a well defined sense of its mission, its unique place in its environment and scope and direction of growth. Such a sense of mission defines the firm’s strategy.

A firm also needs an approach to management itself that will harness the internal energies of the organization to the realization of its mission. Historically, views of strategy fall into two camps. There are those who equate strategy with planning. According to this perspective, information is gathered, sifted and analysed, forecasts are made, senior managers reflect upon the work of the planning department and decide what is the best course for the organization. This is a top-down approach to strategy. Others have a less structured view of strategy as being more about the process of management.

According to this second perspective, the key strategic issue is to put in place a system of management that will facilitate the capability of the organization to respond to an environment that is essentially unknowable, unpredictable and, therefore, not amenable to a planning approach. We will consider both these views in this text. Our own view is that good strategic management actually encompasses elements of each perspective.

Corporate strategy defines the markets and the businesses in which a company will operate. Competitive or business strategy defines for a given business the basis on which it will compete. Corporate strategy is typically decided in the context of defining the company’s mission and vision, that is, saying what the company does, why it exists, and what it is intended to become. Competitive strategy hinges on a company’s capabilities, strengths, and weaknesses in relation to market characteristics and the corresponding capabilities, strengths, and weaknesses of its competitors. According to Michael Porter, a Harvard Business School professor and the reigning guru of competitive strategy, competition within an industry is driven by five basic factors:

1. Threat of new entrants.
2. Threat of substitute products or services.
3. Bargaining power of suppliers.
4. Bargaining power of buyers.
5. Rivalry among existing firms.

Porter also indicates that, in response to these five factors, competitive strategy can take one of three generic forms: (1) focus, (2) differentiation, and (3) cost leadership.

Business strategy focuses on how a company competes in a selected industry over markets. The core of the business strategy can be captured in to a question How should we compete? (Grant, 2005: 22-23). Thus, business strategy is closely related to the concept of competitive strategy (Porter, 1987), which is about creating competitive advantage in a chosen industry. Competitive strategy means choosing a different set of activities to deliver a unique mix of value (Porter, 1996, 1987).

Corporate strategy defines the breadth of the company in relation to an industry and markets, where it competes; it answers the question What business should we be in? (Grant, 2005: 22-23). According to Porter (1996), deciding which target group of customers, varieties, and needs the company should serve is fundamental in developing a strategy.

Strategy can be neither formulated nor adjusted to changing circumstances without a process of strategy evaluation. Whether performed by an individual or as part of an organizational review procedure, strategy evaluation forms an essential step in the process of guiding an enterprise. For many executives strategy evaluation is simply an appraisal of how well a business performs.

Has it grown? Is the profit rate normal? If the answers to these questions are affirmative, it is argued that the firm’s strategy must be sound. Despite its unassailable simplicity, this line of reasoning misses the whole point of strategy – that the critical factors determining the quality of current results are often not directly observable or simply measured, and that by the time strategic opportunities or threats do directly affect operating results it may well be too late for an effective response. Thus strategy evaluation is an attempt to look beyond the obvious facts regarding the short-term health of a business and appraise instead those more fundamental factors and trends that govern success in the chosen field of endeavour.

Strategic thinking has been much influenced by military thinking about ‘the strategy hierarchy’ of goals, policies and programmes. Strategy itself sets the agenda for future action, strategic goals state what is to be achieved and when (but not how), policies set the guidelines and limits for permissible action in pursuit of the strategic goals, and programmes specify the step-by-step sequence of actions necessary to achieve major objectives and the timetable against which progress can be measured.

A well defined strategy integrates an organization’s major plans, objectives, policies and programmes and commitments into a cohesive whole. It marshals and allocates limited resources in the best way, which is defined by an analysis of a firm’s unique strengths and weaknesses and of opportunities and threats in the environment. It considers how to deal with the potential actions of intelligent opponents.

A firm competes with a large number of other firms in the business environment. The firm has a two-fold objective. It has to attain its long-term goals in the most efficient manner. At the same time, the firm has to deliver higher ‘value’ to its customer as compared to other competing firms to gain a sustainable competitive advantage. The roadmap consisting of a comprehensive plan towards achievement of the aforesaid objectives is known as organizational strategy. Strategy, in general, refers to how a given objective will be achieved.

Consequently, strategy in general is concerned with the relationships between ends and means, that is, between the results we seek and the resources at our disposal. Strategy and tactics are both concerned with formulating and then carrying out courses of action intended to attain particular objectives. For the most part, strategy is concerned with deploying the resources at your disposal whereas tactics is concerned with employing them. Corporate identity merges strategy, culture, and communications to present a memorable personality to prospects and customers.

The term is closely linked to corporate philosophy, the company s business mission and values, as well as corporate personality, the distinct corporate culture reflecting this philosophy, and corporate image. The main objective of corporate identity is to achieve a favourable image among the company s prospects and customers. When a corporation is favourably regarded this is likely to result in loyalty. If the corporate identity is the self-portrayal of a company, then the corporate image is the perception of an organization by the audience. The closer the corporate image is to the corporate identity; the closer the public s perception of a company is to how the company defines itself, making for superior corporate communication.

For example, most companies have access to the same technology. If they want to further distinguish themselves, the strategy must rely on another factor than technology: the user experience. As the audience s focus changes constantly, corporate strategies must move in the same direction as the customer. Products are the most important spokespersons for any brand or company. Therefore, the key to defining your corporate identity resides in how well a company communicates its visions and values by means of the identity and image of its products, always keeping the target audience involvement in mind.

There is no one best way of strategy. The planning approach can work in a stable, predictable environment. Its critics argue that such environments are becoming increasingly scarce, events make the plan redundant, creativity is buried beneath the weight and protocols of planning and communication rules. Furthermore, those not involved in devising the plan are never committed to its implementation. The second approach emphasizes speed of reaction and

flexibility to enable the organization to function best in an environment that is fast-changing and essentially unpredictable. The essence of strategy, according to this view, is adaptability and incrementalism. This approach has been criticized for failing to give an adequate sense of where the organization is going and what its mission is. Critics speak disparagingly of the ‘mushroom’ approach to management. (Place in a dark room, shovel manure/money on the seeds, close the door, wait for it to grow!)

Inconsistency in strategy is not simply a flaw in logic. A key function of strategy is to provide coherence to organizational action. A clear and explicit concept of strategy can foster a climate of tacit co-ordination that is more efficient than most administrative mechanisms. Many high technology firms, for example, face a basic strategic choice between offering high-cost products with high custom-engineering content and lower-cost products that are more standardized and sold at higher volume.

If senior management does not enunciate a clear, consistent sense of where the corporation stands on these issues, there will be continuing conflict between sales, design, engineering and manufacturing people. A clear, consistent strategy, by contrast, allows a sales engineer to negotiate a contract with a minimum of coordination the trade-offs are an explicit part of the firm’s posture.Rumelt (1988).

A strategy is a set of objectives, policies and plans that, taken together, define the scope of the enterprise and its approach to business. Rumelt suggests that three questions are central to the challenge of strategy evaluation:

1. Are the objectives of the business appropriate?
2. Are the major policies and plans appropriate?
3. Do the results obtained to date confirm or refute critical assumptions on which

The strategy rests?

He further suggests that strategy must satisfy four broad criteria:

• Consistency. The strategy must not present mutually inconsistent goals and policies.

• Consonance. The strategy must represent an adaptive response to the external environment and to the critical changes occurring within it.

• Advantage. Strategy must provide for the creation and/or maintenance of a competitive advantage in the selected area of activity.

• Feasibility. The strategy must neither overtax available resources nor create insoluble problems.

Strategic management represents the collection of methods and approaches that are applicable to the regulation of regional development. This process can include the following:

• Defining the mission of the development of the region – it depends on visions, values and expectations of the key implementing entities.

• Setting the strategic and performance objectives – the objectives might comprise e.g. social development of regions, development of infrastructure, improvement of environmental aspects of the life of the local population, better territorial distribution of economic activities in the region etc.

• Formulating strategy (determining strategic alternatives, their evaluation – assessment and selection) – we seek to answer the question of how to meet the future objectives. Also essential is to use the results of both the external and internal environment analyses (situation analysis)

• Introducing and implementing the selected strategy (strategy implementation) – this component is related to the further elaboration of regional development strategies into more detailed programs, measures and activities. The success of the strategy implementation depends to a certain degree on the motivation of all the stakeholders and apart from other things it is also associated with the level of culture in the community

• Evaluating results and proposing corrective measures (strategic control) – it serves to ascertain the success rate of the selected strategy and also signals the necessary changes at whichever stage of its implementation.

Basic requirement of this process is to increase competitive advantage of the regions in the long run. We can define the regional competitive advantage as the ability of the region to produce products and services, which will be able to compete on the international market, while securing and maintaining the incomes of its inhabitants.

Managing risk at the organizational level is considered to be the key to the longterm survival of firms. According to Busman & Van Zuiden (1998) “there is a growing recognition that coordinating and financing all facets of organizational risk effectively is critical to maximizing success, whether that success is measured by shareholder value or, in the case of not-for-profit, educational or governmental institutions, by the range and quality of provided services” (p. 14).

Furthermore, the authors point out that because of the speed at which the organization’s external business environment is constantly changing, managers are required to keep pace with this change through effective monitoring of the developments that increase the risk exposure of firms.

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