Chapter 2 Strategy and business Flashcards
1.1 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.
Planning is strategic when it considers the longer term, whole organisation, resources and external environment, all stakeholders and it looks at how to gain a sustainable competitive advantage.
2.1 The rational approach
Referred to as the traditional, formal or top-down approach. It adopts a formal and systematic process of identifying goals and selecting strategies to achieve those goals.
2.2 Merits and demerits of strategic planning
The merits are it provides a framework, encourages long-term planning, goals congruence, considers the needs of stakeholders, optimised use of resources, considers changes in the business environment and it monitors progress.
The demerits are lack of evidence that it needs to success, businesses need to be more dynamic and react to problems as they occur, formal planning reduces initiative and innovative thinking and political infighting can disrupt the process.
2.2 Merits and demerits of strategic planning
The merits are it provides a framework, encourages long-term planning, goals congruence, considers the needs of stakeholders, optimised use of resources, considers changes in the business environment and it monitors progress.
The demerits are lack of evidence that it needs to success, businesses need to be more dynamic and react to problems as they occur, formal planning reduces initiative and innovative thinking and political infighting can disrupt the process.
3.1 Strategic management – emergent approach
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 and tried and developed as they are implemented. This is known as the bottom-up approach.
3.2 Different grades of strategy (Mintzberg)
Intended strategy (conscious decision), deliberate strategy (put into practice), realised strategy (resultant strategy), unrealised strategy (strategy not implemented) and emergent strategies (develop over time).
3.3 Suitability of the emergent approach
Often adopted by organisations who operate in dynamic environments and require quick decision making and have flexible, decentralised organisational structures allowing local managers to make decisions when issues or opportunities arise.
4.1 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 meet the needs of the customer.
A resource-based (inside out) approach focuses on developing internal resources and competences which are hard to imitate and find or create markets to exploit these strengths. The risk is 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.
Positioning (outside in) approach focuses on analysing the external environment to identify customer needs and adapting to meet these needs. The risk is as customer’s needs change over time the organisation is forced to constantly evolve and develop new competences.
4.2 Planning horizon
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 such as:
- Nature of ownership: some shareholders 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, 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
5.1 Strategy and sustainability
Demonstrating a greater commitment to sustainability can increase the competitive advantage of an organisation:
- Attracting customers who themselves are 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
5.2 ESG
Organisations wishing to demonstrate sustainable commitment could incorporate ESG factors into strategic planning:
- Environment: strategies in respect of harmful emissions, use of renewable energy, waste management
- Social: workplace health and safety, labour standards in the supply chain diversity
- Governance: executive pay, business ethics and internal controls
