Strategy is the sum of determining the purpose or mission and the basic long-term objectives of an enterprise, and the adoption of courses of action and allocation of resources necessary to achieve these aims.
It covers several steps, starting from the initial examination of the current state of affairs, through the preparation of a plan and down to the final checks on how the plan is affecting daily performance.
Strategy concerned with the direction in which human and material resources will be applied with a view to increasing the chance of achieving selected objectives which requires 9 continuous steps.
These steps are discussed below;
Step-1: Planning Awareness
The first step in developing a strategic plan is to take stock of the existing situation; an organization’s current mission, its goals, structure, strategy and performance; the values and expectations of the major stake-holders and power brokers of the organization and the environment in which the organization exists and operates.
Commitments made in previous plans must also be reviewed at this stage. Such earlier commitments might have created groups with vested interests, allocated resources, and exerted other influences on decisions about the future.
Former organizational missions are most likely to cause managers to establish commitments and groups which exert considerable influence on future decisions.
The goal, strategy, structure, and organizational performance accompanying the current mission must also be examined.
The organization’s current goals, methods used to achieve them and the rate of success in achieving them — all have a major bearing on the decisions to be made for the next round of strategic planning.
A last element of the planning awareness is the understanding that managers must have knowledge about the environment of the organization.
Step-2: Formulating Goals
The second step for management to develop a strategic plan is to clearly spell out what an organization wants to achieve in the future.
Formulating goals demands from managers’ necessary affirmation and verification of reasons or justification of the organization’s existence, the definition of its mission or purpose, and establish strategic objectives.
The beliefs, values and expectations of the dominant coalition of stake-holders tend to shape any new mission statement and concomitant goals and strategies. Managers vary in their attitude and expectation.
For example, some managers are found more concerned about delivering new goods and services and, hence, give more importance on research and development of goals.
Managers aspiring to dominate the market would like to design goals in terms of acquisitions of and merger with other companies.
Managers with social orientation and responsibility tend to set goals likely to produce favorable social effects along with profits.
In case of large organizations in particular, the process of goal development is complex, “Individuals and groups, both internal and external to an organization, engage in a process of bargaining and out of this exchange organizational goals emerge.
The relative power of these various stakeholders in the organization determines the nature and character of the bargaining process and the goals that ultimately emerge.
Step-3: Analyzing the External Environment
Once the formulation of organizational goals is over, the next step is to look at the factors in the environment which might affect the management’s ability to accomplish them.
Scanning or assessing the environment is the process of collecting information from the external environment about factors having the ability to exert influence on the organization.
The assessment of environment is done on economic, social, political, legal, demographic, and geographic counts.
In addition, the environment is scanned for technological developments, for products and services in the market and for other factors required to determine the competitive situation of the firm.
The main purpose of an environmental assessment is to identify opportunities and threats to the organization so that managers can develop a strategy to face them.
This step may be taken along with the next step i.e. step four, analyzing the internal environment or the organization’s own resources.
Step-4: Analyzing Internal Environment (or own organizational resources)
The analysis of internal environment or the organization’s resources from within identifies its present strengths and weaknesses by examining its internal resources.
Audit and evaluation should be undertaken in matters of research and development, production operation, procurement, marketing, products and services.
Such other important internal factors as human resources and financial resources, the image of the company, the organization’s culture and structure and relations with customers should also be assessed.
The critical factor in an organizational analysis is a statement of what the organization does better or worse than its competitors.
Managers, in other words, must answer the question about their strength or weakness compared with their competitors so far as internal resources are concerned.
Step-5: Identifying Strategic Opportunities and Threats
Having the facts provided by assessment of the external and internal environments in steps three and four respectively, managers proceed to the fifth step.
There they identify their opportunities to achieve their goals, on the one hand, and the threats that could hamper and halt them. Both these factors must be considered for effective strategic planning.
In short, managers should use all the information provided by their scanning of both sides of the environment in the course of strategic planning that are likely to affect their organization in the future.
Step-6: Performing Gap Analysis
Gap analysis identifies the expected gaps between where managers want the organization to go and where it will actually go if they maintain the current strategy.
Gap analysis helps to point out areas in which an organization is likely to succeed, but its real value lies in identifying the limitations of the present strategy and pointing out the areas requiring change.
Thus gap analysis helps determine the causes of the gaps and, most importantly, makes managers concerned about the issues to be seriously addressed in designing a new strategy—the core issue of step seven.
Step-7: Developing Alternative Strategies
At this step of the strategic planning process, managers are faced with the question of whether a new strategy is required and, if so, what kind of strategy it will be. If no gap is found from the above analysis (step six), there is hardly any problem.
But gap analysis quite often tends to show that some changes in strategy are required. Hence managers as a matter of course have to identify new alternatives, evaluate each of them, and choose a new or an alternative strategy.
The nature and extent of gaps exercise considerable influence on the complexity of the process. Sometimes only minor adjustments in existing goals and strategies are required.
An image problem of the company might be rectified by some simple measures such as a change in advertisement or modernization of equipment to expedite delivery of products or services.
At other times, important changes in matters of organizational strategy become necessary.
An organization may require entering into a new market, redesigning a product, or even merging with or acquiring another organization to face new and changing competition.
Finally various alternatives have to be carefully considered and evaluated before the choice is made. Strategic choices must be examined in the light of the risks involved in a particular situation.
Although some opportunities appear to be profitable, they might not be pursued for the risk of failure and consequent bankruptcy of the company.
Time is another critical factor in selecting a strategy. For example, even a very high quality product may fail if it is introduced to the market at a wrong time.
Step-8: Implementing Strategy
However good a strategic plan may be, it cannot fully utilize its potential unless it is implemented effectively at each level of the organization.
A corporate level strategy must generate appropriate strategic plans for each unit of business. Within each business unit, supportive functional strategies must be developed.
Again, as the overall strategy filters downward, managers at each level must follow the full strategic planning process in a similar manner and must develop in their turn, strategies for the major organizational divisions, subdivisions and each major functional area.
Managers must also remember that a strategy must have the support of the employees at every level for its success.
It is therefore important for the managers to give due consideration to the attitudes, values and goals of organization members at the time of implementing a new strategy.
Step-9: Measuring and Controlling Progress
At the last step, managers must evaluate the effectiveness of the strategy being pursued.
Necessary checking should be done by management to see whether it conforms to the strategy that they designed in step seven and is achieving the goals that they set forth in step two.
The results of the evaluation and control measures during this last step of the process inform managers about the actions required to enforce a strategy, which is not being followed or to revise or improve a strategy that is not working.
At this final stage managers can employ several criteria to measure the success of a strategy. Some of them are;
- External consistency: How far is the strategy helping the organization to cope with the demands of the external environment?
- Internal consistency: Is the strategy using organizational resources to achieve the objectives set by management?
- Competitive advantage: Does the strategy enable the organization to do things better than its competitors?
- Degree of risk: Is the risk involved in the strategy consistent with the organization’s expectations?
- Contribution to society: Is the strategy socially responsible?
- Motivation: Is the strategy contributing to the morale, motivation and commitment of the people in the organization?
If the plan fulfills these above criteria at the final stage of the strategic planning process, managers might feel assured that the strategy is working well and according to their expectation.