MS351: Business Strategy

A1: Introduction to Planning and Strategy

A1.1: Strategy:
'Strategy is the direction and scope of an organization over the long term, which achieves advantage for the
organization through its configuration of resources within a changing environment, to meet the needs of markets and
to fulfill stakeholder expectations.' (Johnson, Scholes and Whittington)
Strategy is therefore concerned with:
 The long-term direction (objectives) of the organization
 The environment in which it operates
 The resources at its disposal
 The return it makes to stakeholders.

A1.2: Purpose of Strategy:

The purpose of strategy is to provide direction and scope of an organization over the long-term, which achieves
advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling
stakeholder expectations.
A business strategy is foundational to a company's success. It helps leaders set organizational goals and gives companies
a competitive edge. It determines various business factors, including: Price: How to price goods and services based on
customer satisfaction and cost of raw materials.

A1.3: Types of Strategies:

Mintzberg (The Strategy Process) identified the following.

a) Intended: The result of a deliberate planning process.

b) Deliberate: Where the intended plans have been put into action.
c) Unrealized: Not all planned strategies are implemented.
d) Emergent: Sometimes strategies are created by force of circumstances.
e) Realized: It can be seen that the final realized strategy results from a balance of forces of the other types of strategies.

A1.4: Levels of Strategy:

Strategy can exist at several levels in an organization as listed below:
a) Corporate strategy: Corporate strategy is generally determined at head office/main board level. The types of
matters dealt with include:
 Determining the overall corporate mission and objectives
 Overall product/market decisions, e.g. expand, close down, enter new market, develop new product etc. via
methods such as organic growth, merger and
 acquisition, joint venture etc.
 Other major investment decisions besides those for products/markets, e.g. information systems, IT development
 Overall financing decisions - obtaining sufficient funds at lowest cost to meet the needs of the business
 Relations with external stakeholders, e.g. shareholders, bondholders, government, etc.

b) Business strategy:
This normally takes place in strategic business units (SBUs). An SBU is 'a section, within a larger organization, which is
responsible for planning, developing, producing and marketing its own products or services.

c) Functional (operational) strategies:

This refers to the main functions within each SBU, such as production, purchasing, finance, human resources and
marketing, and how they deliver effectively the strategies determined at the corporate and business levels.

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A1.5: Approach to strategy formulation:
The main stages in the rational approach are:
1. Conduct a corporate appraisal: This involves assessing the present business environment and assessing how it
may develop over the timescale of the plan horizon (typically five + years). It will also consider the internal
position of the business, including such things as its present staffing, quality of products and financial condition.
2. Set mission and objectives: Management will assess whether the long-term interests of the business are best met
in its present industry and competing in its present way or whether the business needs to strike out in a new
direction. This is called its mission. Objectives will be set for the coming years. The job of strategy is to attain
them.
3. Gap analysis: Involves forecasting performance forward and comparing it with the strategic objectives set by
management. If forecast performance is below the objectives set, then this exposes gap which must be filled by
new and better strategy.
4. Strategic choice: Management must generate new business options for the firm such as new products or markets,
and evaluate these to arrive at a set of potentially successful and affordable strategies to help the firm reach the
objectives set.
5. Strategy implementation: Management carries out the strategy at corporate, business and functional levels by
the development of organizational structures, policies and programmes to carry it out.

A1.6: Strategic Planning:

Strategic planning is a process in which an organization's leaders define their vision for the future and identify their
organization's goals and objectives. The process includes establishing the sequence in which those goals should be
realized so that the organization can reach its stated vision.
 Strategy Formulation
 Strategy Implementation
 Strategy Evaluation.

A1.7: Importance of Planning:

Planning helps us to be accountable for what we do. Planning helps us decide how best to use our resources (people,
time, money, information, equipment) so that they make the most significant contribution to achieving our goal.
Planning lays the basis for us to assess and evaluate our achievements effectively.

A1.8: Strategic Planning vs. Strategic Management:

Strategy involves setting goals first and then designing strategies to reach
Strategic planning also called
them
 Top down approach
 Some prediction of the future is possible
 Rational approach
 Outcomes of strategic choices can be predicted and controlled
 Formal approach
 Possible to separate the planning and selection of strategies from the
 Traditional approach
implementation of strategies
 Builds management team with right strategic skills
Strategic management also called
 Managers of divisions granted significant autonomy
 Emergent approach
 Empowerment of mangers to develop and adapt strategies as
 Bottom up approach
circumstance change and opportunities and threats arise

A1.9: Benefits and criticism of strategic planning:

A1.9.1: Benefits claimed for strategic planning
Strategic planning can achieve several purposes:
 Creates a management process to detect and respond to changes in market and environmental forces
 and so improve performance
 Provides a framework for all SBUs of the organization to produce plans with clear, long term goals thus
avoiding short-termism
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 Enables derivation of milestones for achievement of goals and monitoring progress by stages
 Mechanism to ensure harmony of objectives, both between different SBUs and over time (often referred to as
'goal congruence')
 Improves stakeholder perceptions of the business, for example a clear strategy may improve the share price
 Investment in planning process develops future management potential and can aid continuity when senior
management retire or move on.

A1.9.2: Mintzberg's criticisms of strategic planning:

Strategic planning has fallen from popularity and has been criticised. Mintzberg's critique below is amongst the most
insightful.
Mintzberg argues that planning doesn't work out in practice.
Problem Comments
Practical failure Empirical studies have not proved that formal planning processes contribute to success.

Strategic planning often occurs as an annual cycle, but a firm cannot allow itself to wait every
Routine and regular
year for the month of February to address its problems.

Formal planning discourages strategic thinking. Once a plan is locked in place, people are
Reduces initiative unwilling to question it. Obsession with particular performance indicators means that managers
focus on fulfilling the plan rather than concentrating on developments in the environment.
The assumption of 'objectivity' in evaluation ignores political battles between different managers
Internal politics
and departments. The model doesn't describe reality therefore

Managers face limits to the extent to which they can control the behaviour of the organisation.
Exaggerates power
The plans may be ignored by subordinates.
The hierarchy of objectives, budgets, strategies and programmes does not reflect the reality of
Impractical
most organisations who prefer simple, more easy to apply programmes such as capital budgeting.

Secondly Mintzberg claims the concept is flawed in principle.

Criticism Comments
We have no evidence that any of the strategic planning systems – no matter how elaborate –
Formalisation succeeded in capturing (let alone improving on) the messy informal processes by which strategies
really do get developed.

Detachment: This implies that the managers not involved in planning do not really need day-today knowledge
divorcing planning of the product or market to do their jobs. But strategic thinking is necessary to detect the
from operations strategic messages within the nitty-gritty of operations.

Formulation A strategy is planned – then it is implemented. But defining strengths and weaknesses is actually
precedes very difficult in advance of testing them. Discovering strengths and weaknesses is a learning
implementation process. Implementing a strategy is necessary for learning – to see if it works.

Planning assumes that the environment can be forecast, and that its future behaviours can be
controlled, by a strategy planned in advanced and delivered on schedule. In conditions of stability,
forecasting and extrapolation make sense. However, forecasting cannot cope with high uncertainty
Predetermination and discontinuities (e.g., publishers and other media owners find it hard at present because they
cannot predict the form and platforms we will be using to access media in five years' time.
Permanent on line through wi-fi enabled readers? Hand-held page screens? Modified spectacles? In
ear via text-to-voice converters?

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