Chapter 2: Strategy and business Flashcards
What is strategy?
- Strategy is the direction and scope of an organisation over the long term
- Which achieves advantage for the organisation through its configuration of resources within a changing environment
- To meet the needs of the markets and to fulfil stakeholder expectations (Johnson, Scholes and Whittington)
What makes planning strategic?
- It considers the longer term
- It considers the whole organisation (not just individual Strategic Business Units (SBUs)
- It considers the resources and external environment
- It considers all stakeholders (internal and external)
- It looks at how to gain a sustainable competitive advantage
What is the rational approach?
This approach is also referred to as the traditional, formal or top-down approach.
It adopts a formal and systematic process of identifying goals and then selecting strategies to achieve those goals.
What are the merits of strategic planning?
- Provides a framework
- Encourages long-term planning
- Goal congruence
- Considers the needs of stakeholders
- Optimised use of resources
- Considers changes in the business environment
- Monitors Progress
What are the demerits (Mintzberg) of strategic planning?
- Lack of evidence to prove that it leads to success
- Businesses may need to be more dynamic and react to problems as they occur
- Formal planning reduces initiative and innovative thinking
- Political infighting can disrupt the process
What are emergent strategies?
Emergent strategies are behaviours which are adopted and which have a strategic impact.
These are strategies that emerge over time in response to the environment.
Strategies are tried and developed as they are implemented.
This is also known as the bottom up approach
What are the different grades of strategy (Mintzberg)?
- Intended strategy: Conscious decision
- Deliberate strategy: put into practice
- Realised strategy: resultant strategy
- Unrealised strategy: strategy not implemented
- Emergent strategies: strategies that develop over time
When is an emergent approach suitable?
Often adopted by organisations who:
- Operate in dynamic environments and require quick decision making
- Have flexible, decentralised organisational structures allowing local managers to make decisions when issues or opportunities arise
What must an organisation decide when developing a strategic advantage?
When developing a strategic advantage, the organisation must decide whether to identify opportunities to exploit their existing strengths or to adapt to meet the needs of the customer
What is the ‘resource-based’ approach to developing a strategic advantage?
Resource-based (‘inside-out’):
Focus on developing internal resources and competences which are hard to imitate and find or create markets to exploit these strengths
What is the risk of the ‘resource-based’ approach?
The organisation may fail to react to long-term industry trends and may find their existing resources and competences are no longer valued by the customer
What is the ‘positioning approach’ to developing a strategic advantage?
Positioning (‘outside-in’):
Focus on analysing the external environment to identify customer needs and adapting to meet these needs
What is the risk of the ‘positioning’ approach?
As customer’s needs change over time the organisation is forced to
constantly evolve and develop new competences
What is a planning horizon and what are the influences?
Management need to balance short term results with longer term strategic development of the business.
The balance can be affected by a number of different influences.
Influences on planning horizons:
Nature of ownership – some shareholders may demand quick returns compared to not for profit organisations that are building a charity for long term provision
Capital structure – banks may expect returns over a longer period of time to match the assets securing the loan
Nature of industry – industries that require a high level of capital, such as an aircraft developer, would expect returns to be generated over a longer period of time
Nature of business environment – in a dynamic industry, where emergent strategies are more suitable, it may be better to plan short term and react to the current market
Nature of management – long term planning is a skill and some entrepreneurial managers may lack the time or skill to plan long-term.
What are the benefits to being sustainable?
Demonstrating a greater commitment to sustainability can increase the competitive advantage that an organisation enjoys, in the following ways:
Attracting customers who are themselves committed to sustainable practice
Attracting and retaining skilled staff
Building positive relationships with like minded suppliers
Demonstrating to shareholders an ability to deliver reliable returns
