Unit 3 (Business policy and strategy)

 

COMPONENTS OF STRATEGY FORMULATION AND COMPETITIVE DYNAMICS

Corporate strategy refers to the overall, long-range behavior of an organization viz-a-viz its environment. It is the planned overall, long-range behavior of the corporation toward different sectors of the environment. The environmental areas, scopes, policies, timings etc., which are regarded by the top management group as strategic, are part of their corporate strategy.

The strategy formulation process can be seen from two angles. One is the problem solving (task accomplishment) angle and the other the group dynamics’ angle.

Efficiency of a Strategy Formulation Process

Whether or not a process is judged to be efficient will depend on the point of view from which the particular problem is being analysed. The problem is generally formulated in terms of input into the process and output from the process. Output is then related to input, and efficiency is judged by comparing the resulting relation with similar relations in similar processes, with some accepted standard or with some goals or objectives. In any case output is somehow related to goals. A fundamental decision in this context thus concerns the definitions of output and input.

A related problem concerns the length of time between measuring the input and measuring the output. By deciding the time that should lapse between measurements, the start and the finish of the process whose efficiency are measured should also be defined.

The operations chosen for inclusion in a strategy are associated with the input of resources, such as skill, labor, money, courage, organization, good-will, land and so on. When the input to be taken into account is determined, the resources whose efficiency are related to should also be determined. Efficiency is often measured in terms of the return on a specific resource that is believed to be correlated with the goals of the organization.

The time lag between input and output must be relatively long, preferably the whole lifetime of the strategy. The intended life span of any particular strategy will depend, for instance, on the dynamism of the environment in which the organization operates and on the thoroughgoing nature of the changes embraced by the strategy. A further complication is that the influence of a planned strategy on actual behavior will not be the same during its intended lifetime due to unforeseen changes both in the environment and in the organization.

The efficiency of a strategy is to be determined before the strategy is implemented (efficiency of the strategy ex ante), other ways must be sought. Top executives who have not participated in the strategy formulation process estimate if the strategy will lead to goal fulfillment and try to assess whether the operations indicated in it will be practicable in relation to the resources available. They can also be asked whether they are prepared to accept the strategy and to do their best to implement it.

Another possibility is to examine the efficiency of the process in which the strategy is being formulated. The idea underlying this approach is that if there exist some knowledge about the process in which the strategy is formulated, then an idea of what type of process produces an efficient strategy also exists. Then find indicators on process characteristics that are vital for producing a process with an efficient strategy as output – that is a strategy that will put the organization in a favorable position viz-a-viz its environment. What is meant by favorable will of course depend on the goals of the particular organization.

Some Properties of the Strategy Formulation Process

Following Bales and Strodtbeck (1968), the strategy formulation process could be separated into three phases:

(1) The orientation phase

(2) The evaluation phase

(3) The control phase

The Orientation Phase

As the group displays a certain degree of differentiation (cognitive and emotional differences) among its members, views and opinions must somehow be integrated. If this integration is to be efficient, group members must in some way recognize and come to terms with the variety of cognitive and emotional elements in their group, and work out a common frame of reference concerning the organization and its environment. This should involve an open expression of feelings, beliefs and knowledge.

Further, the process of developing a common frame of reference should induce group members to seek additional information about the organization and its environment. Thus the orientation phase should contain both integration between the group members, and an orientation towards the environment of the group.

Thus we can identify two major activities that must take place if the orientation phase is to be efficient: information-seeking and integration of information.

The Evaluation Phase

During the evaluation phase the emphasis gradually shifts from confrontation and the integration of information to evaluation of alternative courses of action. This phase should imply a critical analysis of the present exchange processes between the organization and its environment, to find out whether present scopes and policies fully utilize the organization’s major strengths and to ensure avoidance of major threats. The main task now, can be said to be a critical analysis, which also involves steps of information-seeking and information-integration. The information-seeking is directed to the environment of the group. The integration of information in this phase is more of a striving for compromise.

One group member, for example, may have to be prepared to reject his own ideas and standpoints for the sake of group efficiency.

The Control Phase

The purpose of this phase is to check the quality of the problem solution (the degree of goal fulfillment). This phase can be said to involve fairly long-term activities (especially when the problem solution has a long-term application, such as a business strategy).

For this phase to be efficient, the group must be able to gather feedback information from vital areas (people, groups etc.) in the organization, and be prepared and able to formulate and reformulate a written document accordingly. In other words the vital processes in the control phase can be expressed in terms of information-seeking and information-integration.

 
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