External environment - Sample Essay
Emergent Strategy is the strategic direction that emerges from actions taken by middle management, and organisational routines. It is the strategy actually in place in the organisation that was never intended (Stahl & Grigsby, 1997, p. 10 and 140). Deliberate/Intended Strategy consists of a firm deciding on its goals and implement intended strategy to realise the goals (Stahl & Grigsby, 1997, p. 10). Intended/Deliberate Strategy is an expression of desired strategy direction deliberately formulated or planned by managers (Johnson & Scholes, 2002, p. 75).
According to Mintzberg and Waters (1985) there are some other types of strategies which could be either deliberate or emergent; even, they could be both. These strategies are: planned; entrepreneurial; ideological; umbrella; process; unconnected; consensus; and imposed (See Appendix C, p. 28). Realised Strategy is the strategy actually being followed by an organisation in practice (Johnson & Scholes, 2002, p. 75). Dominant Strategy is one that out performs all other strategies whatever rivals choose (Johnson & Scholes, 2002, p. 342).
FORMS OF STRATEGIC PLANNING
Mintzberg (1994) suggests three forms of strategic planning: conventional; numbers game; and capital budget, which intend to clarify the confusion around the planning process model. They are based on Mintzberg’s Four Planning Hierarchies: hierarchy of objectives; hierarchy of budgets; hierarchy of strategies; and hierarchy of programs (See Appendix D, p. 30). Conventional Strategic Planning shows the hierarchical relationship among the different hierarchies above in a conventional way: “objectives over strategies (together called formulation) and these over programs, all three of them driving budgets (the latter two conventionally labeled implementation)” (Mintzberg, 1994, p. 82) (See Appendix E, p. 32).
Strategic Planning as a Numbers Game develops “a hierarchy of objectives and a hierarchy of budgets (each either top-down, bottom-up, or negotiated) with the objectives at each level feeding as one determinate of the budget. This kind of performance control is easy to understand and to do then the conventional strategic planning…what are called strategic planning exercises often reduce to the generation of numbers, not ideas -objectives and budgets but not strategies” (Mintzberg, 1994, p. 84-85) (See Appendix F, p. 34).
Capital Budgeting as Ad Hoc Control is “a system to handle the approval of major capital expenditure” (Mintzberg, 1994, p. 87). It is “a portfolio technique to control capital spending through decision making but not strategy making” (Mintzberg, 1994, p. 89) (See Appendix G, p. 36). Mintzberg (1994) considers the conventional strategic planning being in between the numbers game and the capital budgeting. Moreover, he advocates that these three independent approaches -or portfolio of planning techniques- are what remains of strategic planning.
THE STRATEGIC MANAGEMENT PROCESS
Two models of the strategic management process have been selected in order to explain what scholars believe this process involves. The selected models are the ones proposed by: Stahl and Grigsby (1997); and Johnson and Scholes (2002). Stahl and Grigsby (1997) suggest that the strategic management process comprises three major stages: formulation; implementation; and evaluation and control.
In the first stage, referred to as strategic formulation or planning; the mission of the organisation; its objectives; strategies; and policies are established. According to Wheelen and Hunge (2002, p.10) the “strategic formulation is the development of long-range plans for the effective management of environmental opportunities and threats, in light of corporate strengths and weakness”. The second stage, implementation or operational management, “involves activities and decisions that are made to install new strategies or support exiting strategies” (Stahl & Grigsby, 1997, p. 11). Operation is the division of the organisation immediately accountable for achieving organisational objectives (Campbell, 1997)
In between these two stages there is a link, referred to as policy. According to Wheelen and Hunge (2002, p. 14): “Policy is a broad guideline for decision making that links the formulation of strategy with its implementation. Companies use policies to make sure that employees throughout the firm make decisions and take actions that support the corporation’s mission, objectives, and strategies”. In the last stage, evaluation and control, the strategic management process is kept on track by following up achievement of goals and getting feedback from the decision-making results. The purpose of this stage is “to ensure that behaviours, systems and operations conform to corporate objectives/policy” (Drummond & Ensor, 1996)
Johnson and Scholes (2002) talk about a model of the Elements of Strategic Management, a three-stage process as well which includes: position, choice and action (See Appendix H, p. 38). Strategic position deals with the business environment and resource capabilities of the organisation in the context of the organisation culture and the expectations of stakeholders. Drummond and Ensor (1996) refer to this stage as strategic analysis. It is part of an auditing process of the external and internal environment.
Strategic choice is concerned with identification, evaluation and selection of the new strategy for the organisation. Here, the scope of the organisation strategy; the bases for competitive advantage; and the suitability, feasibility of the new strategy should be evaluated. This could be the strategic formulation mentioned by Drummond and Ensor (1996), which develops the necessary “plans to appropriate current and future circumstances” (Drummond & Ensor, 1996, p.2).
Strategy into action is related to the allocation of resources. Any change within the organisation should properly be managed and the organisation should be structured and designed to achieve success. Drummond and Ensor (1996) consider this stage to be the strategic implementation. Control mechanisms take place within this period. These authors point out that “implementation is often a key determinant in the success or failure of any strategic activity” (Drummond & Ensor, 1996, p. 146).
ENVIRONMENTAL FACTORS AND THEIR RELATIONSHIP WITH STRATEGIC MANAGEMENT
The assessment of the environment is part of the strategic analysis. Organisations should understand and forecast environmental trends in order to adapt the strategic planning to internal and external changes. External threats could be very trying since they are not under the control of managers (Stahl & Grigsby, 1997). Threats could prevent the organisation to achieve its goals. By contrast, any opportunity in the outer environment could help the organisation to reach its strategic objectives. “Analysing the external environment is labeled as environmental scanning. High organisational performance is associated with frequent and broad environmental scanning” (Stahl & Grigsby, 1997, p. 32).
Environmental mapping “examines more generally the wider commercial context affecting all industries” (Elkin, 1998, p. 26). Hence, it is a synonymous of environmental scanning. Internal strengths and weaknesses are within the boundaries of the organisation; therefore, they are under the managers’ control. Organisational strengths could “lead to a customer benefit and a competitive advantage” (Stahl & Grigsby, 1997, p. 30-31). On the contrary, weaknesses could drive the firm to sink in competitive disadvantage and, even, to go out of business.
Industrial mapping “helps to identify the strength of the competitive forces that impact on the industry…this approach focused on the specific industry in which the organisation operates” (Elkin, 1998, p. 26). These forces could be ranked according to Elkin (1998), which enables the organisation to act appropriately and take advantage of, or protect from, any situation. The organisational strategic plan should “capitalise on external opportunities and internal strengths (grow-and-invest situations) and work around external threats and internal weaknesses (shrinkage or withdrawal situations)” (Stahl & Grigsby, 1997, p. 34-35).
Organisations should carefully evaluate the general environment in both short and long-term in order to be able to adapt to new conditions. The impact of external and internal triggers should always be present in the strategic management’s formulation stage. Even starting businesses should perform an environmental scanning in order to check the general conditions in the market place.
Afterwards, an assessment of the distinctive competences should be done. Johnson and Scholes (2002) point out that the strategic capabilities of an organisation are made up by its resources and competences. Mintzberg (1994) suggests that Ansoff’s Grid for Capabilities Profile set the standard for subsequent works on strategic capabilities (See Appendix I, p. 40). This is a “framework for the ‘competence profile’, a matrix of functional areas and types of organisational capabilities (personnel, facilities, and equipment, etc)” (Mintzberg, 1994, p. 56).
The environment ‘turbulence’ would depend on the kind of industry the organisation is in, as well as on the organisation’s size. It would also depend on whether the organisation runs within the boundaries of its domestic market or out in the international arena. Organisations operating in the global market should know “how to interpret, categorise and respond to environments and situations that are frequently different from their domestic settings, and how to better understand the minds of their rivals” (Mukherji & Hurtado, 2001). When assessing the environment, organisations should take into consideration “the important role of culture in strategic decision making” (Mukherji & Hurtado, 2001).
“Policy and strategic planners in different cultural context look upon the environment in different and sometimes opposing ways, in terms of their beliefs and likely to respond” (Mukherji & Hurtado, 2001). Consequently, cultural differences could affect the way business is conducted in singular countries. The cultural framework proposed by Hofstede (Huczynski & Buchanan, 2001, p. 651) could be useful to analyse cross-cultural factors (See Appendix J, p. 43).
Either in the domestic or the international arena “managers who can expand their imagination to see wider range of possible futures will be much better positioned to take advantages of the unexpected opportunities that will be come along” (Schoemaker, 1995). According to Schoemaker (1995) scenario planning is a very good guide to present a wider picture of internal and external environments (See Appendix K, p. 45).