Unit 4: Development of Strategies

Meaning of Strategy Development: Strategy development can be seen from three ways:
1. Strategy as design: It is the idea that strategy is formulated by top management through
careful analysis and planning and implemented down through the organization. Strategy
development is seen as a process of systematic thinking and reasoning. The design views
strategy development as the intentional positioning of the organization through a rational,
analytic, structured and directive process.
2. Strategy as experience: this draws on research which shows how strategic decisions are made
and strategies develop as the outcome of peoples experience and cultural processes in and
around organizations. When managers face a problem they make sense of situation in terms of
the mental models which are the basis of their experience.
3. Strategy as ideas: It examines how quite new strategies can be explained, why some
organizations are more innovative than others and why and how some organizations seem to
cope with a fast-changing environment better than others. Researchers have begun to examine
and develop useful insights into how organizations can be innovative in conditions of
uncertainty.
Methods of Strategy Development-3:
[a] Internal Development: The strategies are developed by building up an organization own
resources and competencies. It is also called organic development. It is a slow process. It consists
of developing internal strategic factors for strategic success. It is a strategy other than mergers,
acquisitions, joint development and alliances. All these are the external approach to expansion
whereas internal development strategy is an approach of internal expansion. Internal
development has a number of particular advantages over acquisition or joint development. This
strategy is quite appropriate for small companies which may not have the resources available for
major investment. There are so many problems that are faced by the companies which are
entering into external developments. Such as inability to find suitable company for merges and
acquisitions, and other organizational cultural and tradition problems. The company will develop
and retain the core competencies upon which the growth is based. Some of the types of internal
development strategy are:
Stable, Growth, Combination and Retrenchment strategies under corporate strategy
Overall cost leadership, differentiation and focus strategies of organization under business level
strategy
Consideration of internal development usually commences with an estimate of the best growth
rate that the company can achieve. Value creating activities can be brought and there is no need
to buy another company.
[b] Merger and Acquisition: Merger and acquisition involve permanent ownership ties. Merger
and acquisitions take the form of amalgamation or absorption. The need to keep up with the
changing environment necessities merger and acquisitions.
(a) Merger: It is own organization merging with another. It is combination of 2 organization into
one. Negotiations are usually friendly because the merger is believed to be mutually beneficial. It
can take the following forms:
1. Horizontal Merger: It is a combination of 2 or more similar firms engaged in similar types of
production and marketing processes. (e.g. merger of 2 banks.)

2. Vertical merger: It is the combination of 2 or more firms which engaged to produce the
complementary products (e.g. merger of sports shoe co. and leather shoe co.)
3. Concentric merger: It is the combination of 2 or more firms that are related to each other in
terms of customer functions or customer groups (e.g. merger of noodles co. and biscuit co.)
4. Conglomerate merger: It is the combination of 2 or more firms that are unrelated to each other
(e.g. merger of biscuit co. and textile co.)
(b) Acquisition: It is one organization taking over another through purchase of shares or
ownerships. The acquired organization generally keeps its separate identity.
The reason behind the development of merger and acquisitions can be explained as: it
allows the company to enter into the new product or market areas, since the rapid change in this
area cannot meet the internal development. When a company lacks the resources or
competencies to develop a strategy internally, the merger or acquisition takes place.
[c] Joint Development and Strategic Alliances: Joint development is where 2 or more
organization share resources and activities to develop a strategy. This is a cooperative approach
to strategy development. It is time bound and of a temporary nature. It takes the form of strategic
alliances.
Strategic alliance is a partnership tie up agreement between 2 or more organization to
jointly achieve mutually beneficial strategic objectives. Resources capabilities and core
competencies are combined to pursue mutual interests. It can be to
develop/manufacture/distribute products. Strategic alliances have a limited life span.
Process of Strategy Development: People who work strategically in organizations is likely to
see a variety of process occurring which contributes to strategy development.
a) Strategic planning system: strategy development is connected with strategic planning system.
Organizations which have sophisticated and extensive planning systems may well be familiar
with managers who believe that strategies can and should be developed rationally. It can
provide a structured means of analysis and thinking about complex strategic problems. It can
be used as a means of control by regularly reviewing performance and progress against agreed
objectives.
b) Strategic leadership: A strategic leader is an individual upon whom strategy development and
change are seen to be dependent. The central individual in the organization analyze and
evaluate the strategic design. This could be by using some techniques associated with strategic
planning and analysis. One the basis of their logic they work through issues their organization
face and come to their own conclusions.
c) Organizational politics: Managers often suggest that the strategy being followed by the
organization is the outcome of the bargaining and power of politics that go on between
important executives. Such executives are continually trying to position themselves such that
their views prevail or they control the resources in the organization necessary for future
success. Such activity gets in the way of through analysis and rational thinking. On the whole it
is seen as an inevitable but negative influence on strategy development.
d) Logical Incrementalism: Management process could best be described as logical
incrementalism. It can be thought of as the deliberate development of strategy by learning
through doing or the crafting (expertise) of strategy. Managers have a view of what they want
the organization to be in years to come and try to move towards their position incrementally.

e) Learning organization: It corresponds to the aspects of logical instrumentalism. The idea that
top managers can formulate strategies implemented by others also becomes redundant because
top managers are less in touch with complex and turbulent world than others within the
organization. The learning organization is then one capable of continual regeneration from the
variety of knowledge, experience, and skills of individuals within a culture which encourages
mutual questioning and challenge around a shared purpose.
Challenges in developing strategies at various levels:
1. Adaptation: It is an important challenge in developing strategy. Successful strategies are
dependent on the organization having the strategic capability to perform at the level that is
required for success. Therefore, the first reason why an understanding of strategic capability is
important is concerned with whether an organizations strategic continue to fit the environment
in which the organization is operating and the opportunities and threats that exist. Many of the
challenges or issues of strategy development are concerned with changing strategic capability
better to fit a changing environment.
2. Resource challenge
3. Competencies challenge
4. Leadership challenge
5. Change management
6. Empowerment
7. Procedural challenge (licensing procedures, foreign collaboration procedures, foreign exchange
and regulation act requirements, import and export requirements etc.)
Governing issues in developing strategies at Operational level: It is the primary level of the
organization. On the basic level, every business must identify 3 core processes: product
development, demand mgmt and order fulfillment. These can be considered generic core
processes because every business develops product, sales product and fills orders for products,
regardless of whether the product is a good or a service, while no single standard identities all
core processes, the 3 processes shown in this exhibit indicate strong support to other studies. One
of the model identifies 5 basic processes; product development, purchasing, production, demand
mgmt and order fulfillment. In this case, the purchasing and production is added in the
fulfillment process.
We focus on 2 widely used, complementary approaches to improving a firms process
capabilities in order to achieve fit and sustain competitive advantage. One is commonly known
as TQM, the other as core process re-engineering (CPR). TQM focus on encouraging a
continuous flow of incremental improvements from the bottom of the organizations hierarchy.
CPR on the other hand, is generally more of a top-down approach, aimed at more radical changes
in how processes are designed.
TQM and CPR have become popular for improving process execution capabilities for at least 5
reasons:
1: They encourage a strategic approach to mgmt at the operational level.
2: They get the results managers want.
3: They work equally well for blue collar and white collar processes.
4: They allow organizations to take advantage of several enabling developments.
5: They fit with the orientation toward inter organizational collaboration.

Governing issues in developing strategies at Business level: This strategy is the managerial
action plan for directing and running a particular business unit. Business strategy deals with:
a) how the enterprise intends to compete in that specific business;
b) what role of each key functional area will be in building a competitive advantage;
c) developing responses to changing industry and competitive condition; and
d) Controlling the pattern of resources allocation within the business unit.
Following business strategy elements describes the business level strategy
1) How the business is being positioned to deal with industry trend, competitive conditions and
emerging opportunities and threats.
2) Attempts to appeal to particular customer, customer groups, customer needs and product end
users.
3) Degree of vertical integration and other traits which define the competitive scope within the
industry.
4) Nature and source of competitive advantage
5) Distinctive competitiveness and other sources of competitive strengths.
6) Competitive approaches to product differentiation, pricing, product quality, customer service
and other important competitive variables.
7) Image and reputation
8) Breadth of product line in comparison to rival firms.
9) Nature of recent actions to strengthen competitive position and improve performance.
10) Actual role in the industry (leaders) and efforts to change.
11) Key features of major functional area support strategies: personnel/labor relations, marketing
sales and distribution, R & D/ technology, manufacturing and production, & finance.
Diagnosing a companys strategic posture on each spoke of the business strategy wheel
in above figure usually yields a good overall picture of its business level strategy and issues.
Governing issues in developing strategies at Corporate level strategy: It is senior mgmts
game plan for directing and running the organization as a whole; it cuts across all of an
organizations activities- its different business divisions, product lines and technologies. The task
of developing a corporate strategy has 3 elements.
1) Developing a plan for managing the scope and mix of the firms various activities in order to
improve corporate performance.
2) Managing the business portfolio requires decisions and actions regarding when and how the
enterprise should get into new business, which existing businesses the company should get out,
which opportunities of which existing businesses to go forward with and what corporate mgmt
itself should do to improve the performance of the overall corporate portfolio. Portfolio mgmt
may involve selecting a general strategic posture for each business in the portfolio.
3) Providing for coordination among different businesses in the portfolio. For this several issues
have to be addressed: is there cost reduction potential in sharing technological knowledge; R &
D efforts; sales forces; distribution facilities and so on across any business units? Do other
opportunities exist? Are the benefits worth capturing? What coordination is needed? Will such
action enhance the competitive position and strengths?
The spokes around the corporate strategy wheel indicate the whole of an enterprises
corporate level strategy.
1)
What kind of diversification.

2) Evidence of efforts to build diversification around some strategic theme, unifying concept or
well defined mission.
3) Efforts to create corporate level competitive advantage.
4) Criteria and priorities for allocating investment capital to various business units.
5) Corporate level strategic objectives and financial performance targets.
6) Key corporate level functional area support strategies.
7) Use of any distinctive approaches to managing key business units.
8) Any corporate level or corporate wide distinctive competence.
9) Use of mergers/acquisition to build the corporate portfolio.
10) Actions to sell off weak or unattractive business unit.
11) How much diversification.
OR
Issues in developing the strategies at various levels-4:
1. Strategy at operating/Functional level: Functional level strategies support the business level
strategy. It is the approach taken by functional area such as marketing, production, human
resources, research and development, finance etc. Functional strategy needs to support the
business level strategy. Functional level strategy is concerned with developing and looking after
competence to provide a company or business unit with a competitive advantage.
For example, Donnelley and Sons Company, a Chicago-based printer, made a business
level strategic decision to invest huge amount of dollars in high-teach digital printing methods.
Now, its marketing department had to develop new sales plans and promotional pieces, the
production department had to incorporate the digital equipment in the printing plants, and the
human resourced department had to update its employee selection and training programs.
Another example of a functional strategy is America Onlines marketing strategy of covering the
entire market with a low-priced product. An important source of competitive advantage is
execution of capabilities at the functional level. Strategic management at functional level aims to
create customer value.
2. Strategy at business level: In multiple or diversified business organizations, each division
will have its own strategy that defines the products or services it will offer, the customers it
wants to reach, and the like. Therefore this strategy usually occurs at the business unit or product
level, and it emphasize improvement of the competitive position of a companys products or
services in the specific industry or market segment served by that business unit. Each decision
has developed its own unique approach for competing.
When an organization is in several different businesses, these single businesses that are
independent and formulate their own strategies are often called strategic business units (SBU).
Business strategies are also composed of competitive and cooperative strategies. For example,
Apple Computer uses a differentiation competitive strategy that emphasizes innovative products
with creative design. In contrast, British Airways followed cooperative strategy by forming an
alliance with American Airlines in order to provide global service. Therefore, business level
strategies look for competitive advantage. They try to add value for customers. The following
strategies are developed or used in the strategic business units.
a) Low cost leadership strategy: Low cost leadership means lowering the costs and process of the
products or services. This strategy aims to achieve low costs relative to competitors. The firm
becomes the industrys lowest cost provider of products.
b) Differentiation strategy: This strategy aims to make the product unique than the competitors so
that it is perceived as unique product in its industry.

c) Focused strategy: This strategy stresses on particular buyer groups, geographical market or
segment of product line. It is also called specialization strategy.
d) Quick response: It is the speed in responding to customer needs. It is developing, producing and
delivering products to customers faster than competitors. It is also a source of competitive
advantage. It adds value by increasing the products worth to customers. Quick response
provides flexibility to the firm. Focused strategies facilitate quick response.
3. Strategy at Corporate Level: Corporate level strategies aim to maximize stockholder value.
It reflects the direction in which the organization is going and the roles that each business unit in
the organization will play in pursuing that direction. Corporate strategy consists of strategic
planning at corporate level and do not limited to one particular area such as marketing,
production, financial etc. it is the sense of direction for the entire corporate group. For Example,
PepsioCos corporate level strategy integrates the strategies of its various business units such as
North American Soft Drinks, Pepsi International, South Beach (SOVE) etc. Corporate level
performance may be enhanced by developing the strategies are described below:
a) Stability strategy: this strategy is pursued in relatively stable environment. The organization is
the market leader. There is no change in products, markets and functions. The product is at the
peak stage in the product life cycle. Current operations are made efficient. Stability is aimed
through incremental performance improvement. Example of this strategy include continuing to
serve the same clients by offering the same product or service, maintaining market share, and
sustaining the organizations return-on-investment results.
b) Expansion strategy: This strategy is pursued in highly competitive environment. New
products, markets and functions are added. It means this strategy seeks to increase the
organizations business by expanding the number of products offered or markets served.
Expansion is made through increased market share and production capacity. The aim is high
growth. Therefore, the pace of activities increases. The product is in the growth stage of
product life cycle.
c) Retrenchment: This strategy is pursued in threatening environment. Products, markets and
functions are reduced. The pace of activities decreases. The business is redefined. The product
is in the decline stage of product life cycle. Retrenchment is aimed through reduced market
share, dropping the product lines and markets, and divestment. The aim is contraction of
activities. Thus, in this stage, management cuts costs and restructures organizational
operations.
d) Combination strategy: This strategy is pursued in changing environments. Since organization
has multiple business units, it simultaneously uses combinations of stability, expansion and
retrenchment strategies to different parts of the organization. Old products, markets and
functions are continued, dropped or expanded. Products lifecycles are in different stages. The
aim is to improve performance.
4. Strategy at International Level: Business that operates across national boarders faces many
of the same competitive challenges that their domestic counter parts do. The governing in
developing strategies are developed by the use of number of different strategies. There can be
reporting, licensing, franchising & exporting and joint venture and wholly owned subsidiaries.
Firms starts with the low risk/low control options and then advance to higher level of risk and
control as they gain experience and build confidence. The issues governing international level
are:
a. Early entrants into a new internationalized market.

b. To predict where competitors will spingup.

c. Foreign investment is growing as foreign firms buy into domestic markets.
d. Growth opportunities through united their economy.
e. Economic liberation.
f. Lowest operational costs
g. Unlimited growth opportunities.
i. Greater and more complex risks
STRATEGY FORMULATION PROCESS:
1 Evaluate current performance result: In the process of strategy formulation it is essential to
evaluate the concerned firms current performance in terms of profit and loss situation and
return on investment. It is also required to appraise the current mission, objectives, strategies
and policies adopted by the firm.
2 Review corporate governance: This includes appraisal of performance of the BODs, CEOs and
other top level managers. It is also essential to examine the organizational vision, mission,
objectives culture and management practices as successful drives for governing the
corporation.
3 Scan and assesses the internal corporate environment: It is also essential to assesses
organizational competencies, skills, abilities and resources in order to cope with external
changes. These are the determining factors to enhance organizational strength and minimize
weaknesses and to fit a firm with the external challenges and opportunities.
4 Scan and assesses the external environment: This is related with the examination of external
factors that are posing threats as well as opportunities. The firms market shares and growth
depend largely on external opportunities and threats.
5 Analyze strategic factors: Strategic factors are external and internal elements determining the
future of a firm. At this stage of strategy formulation process, it is essential to pin point the
problematic areas and issues relating to getting competitive advantages. Problems and issues
are analyzed in the SWOT form. The SWOT variables are important for the effective
implementation of the strategy.
6 Generate, evaluate, and select the basic strategic options: This is relative to the identification
of the strategic options upon which a new strategy may be build. At this stage, one or more of
the strategic option is selected for implementation.
Processes are systems of interconnected activities involved in accomplishing an
organization work. For instance; key processes for a bank might include credit management
and transaction. The example refers fairly large processes. But processes we should follow
sequence.