Principles of Management Seminar Report

Strategic Management and its Limitations

Submitted By, Anjana E S B090425ME S5 ME A

Strategic Management
Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of rms in their external environments. It entails specifying the organization's mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs. A balanced scorecard is often used to evaluate the overall performance of the business and its progress towards objectives. Recent studies and leading management theorists have advocated that strategy needs to start with stakeholders expectations and use a modified balanced scorecard which includes all stakeholders. The initial task in strategic management is typically the compilation and dissemination of a mission statement. This document outlines, in essence, the raison d'etre of an organization. Additionally, it specifies the scope of activities an organization wishes to undertake, coupled with the markets a firm wishes to serve. Following the devising of a mission statement, a firm would then undertake an environmental scanning within the purview of the statement. Strategic formation is a combination of three main processes which are as follows:

Performing a situation analysis, self-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental. Concurrent with this assessment, objectives are set. These objectives should be parallel to a time-line; some are in the short-term and others on the long-term. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives.

In corporate strategy, Johnson, Scholes and Whittington present a model in which strategic options are evaluated against three key success criteria:[3]

Suitability; would it work? Feasibility; can it be made to work? Acceptability; will they work it?

Suitability
Suitability deals with the overall rationale of the strategy. The key point to consider is whether the strategy would address the key strategic issues underlined by the organisation's strategic position.

Does it make economic sense? Would the organization obtain economies of scale or economies of scope? Would it be suitable in terms of environment and capabilities?

Tools that can be used to evaluate suitability include:

Ranking strategic options Decision trees

Feasibility
Feasibility is concerned with whether the resources required to implement the strategy are available, can be developed or obtained. Resources include funding, people, time, and information. Tools that can be used to evaluate feasibility include:

cash flow analysis and forecasting break-even analysis resource deployment analysis

Acceptability
Acceptability is concerned with the expectations of the identified stakeholders (mainly shareholders, employees and customers) with the expected performance outcomes, which can be return, risk and stakeholder reactions.

Return deals with the benefits expected by the stakeholders (financial and non-financial). For example, shareholders would expect the increase of their wealth, employees would expect improvement in their careers and customers would expect better value for money. Risk deals with the probability and consequences of failure of a strategy (financial and non-financial). Stakeholder reactions deals with anticipating the likely reaction of stakeholders. Shareholders could oppose the issuing of new shares, employees and unions could oppose outsourcing for fear of losing their jobs, customers could have concerns over a merger with regards to quality and support.

Tools that can be used to evaluate acceptability include:

what-if analysis stakeholder mapping Once a strategy has been identified, it must then be put into practice. This may involve organising, resourcing and utilising change management procedures.

Reasons why strategic plans fail

There are many reasons why strategic plans fail, especially:

Failure to execute by overcoming the four key organizational hurdles

Cognitive hurdle Motivational hurdle Resource hurdle

Political hurdle Failure to understand the customer

Why do they buy Is there a real need for the product

inadequate or incorrect marketing research Inability to predict environmental reaction

What will competitors do

Fighting brands Price wars

Will government intervene Over-estimation of resource competence

Can the staff, equipment, and processes handle the new strategy

Failure to develop new employee and management skills Failure to coordinate

Reporting and control relationships not adequate

Organizational structure not flexible enough Failure to obtain senior management commitment

Failure to get management involved right from the start

Failure to obtain sufficient company resources to accomplish task Failure to obtain employee commitment

New strategy not well explained to employees

No incentives given to workers to embrace the new strategy Under-estimation of time requirements

No critical path analysis done Failure to follow the plan

No follow through after initial planning No tracking of progress against plan

No consequences for above Failure to manage change

Inadequate understanding of the internal resistance to change

Lack of vision on the relationships between processes, technology and organization Poor communications

Insufficient information sharing among stakeholders Exclusion of stakeholders and delegates

Limitations of strategic management

Although a sense of direction is important, it can also stifle creativity, especially if it is rigidly enforced. In an uncertain and ambiguous world, fluidity can be more important than a finely tuned strategic compass. When a strategy becomes internalized into a corporate culture, it can lead to group think. It can also cause an organization to define itself too narrowly. An example of this is marketing myopia. Many theories of strategic management tend to undergo only brief periods of popularity. A summary of these theories thus inevitably exhibits survivorship bias (itself an area of research in strategic management). Many theories tend either to be too narrow in focus to build a complete corporate strategy on, or too general and abstract to be applicable to specific situations. Populism or faddishnesscan have an impact on a particular theory's life cycle and may see application in inappropriate circumstances. See business philosophies and popular management theories for a more critical view of management theories. In 2000, Gary Hamel coined the term strategic convergence to explain the limited scope of the strategies being used by rivals in greatly differing circumstances. He lamented that strategies converge more than they should, because the more successful ones are imitated by firms that do not understand that the strategic process involves designing a custom strategy for the specifics of each situation. Ram Charan, aligning with a popular marketing tagline, believes that strategic planning must not dominate action. "Just do it!" while not quite what he meant, is a phrase that nevertheless comes to mind when combatting analysis paralysis.

The linearity trap

It is tempting to think that the elements of strategic management (i) reaching consensus on corporate objectives; (ii) developing a plan for achieving the objectives; and (iii) marshalling and allocating the resources required to implement the plan can be approached sequentially. It would be convenient, in other words, if one could deal first with the noble question of ends, and then address the mundane question of means. But in the world where strategies must be implemented, the three elements are interdependent. Means are as likely to determine ends as ends are to determine means. The objectives that an organization might wish to pursue are limited by the range of feasible approaches to implementation. (There will usually be only a small number of approaches that will not only be technically and administratively possible, but also satisfactory to the full

range of organizational stakeholders.) In turn, the range of feasible implementation approaches is determined by the availability of resources. And so, although participants in a typical strategy session may be asked to do blue sky thinking where they pretend that the usual constraints resources, acceptability to stakeholders , administrative feasibility have been lifted, the fact is that it rarely makes sense to divorce oneself from the environment in which a strategy will have to be implemented. Its probably impossible to think in any meaningful way about strategy in an unconstrained environment. Our brains cant process boundless possibilities, and the very idea of strategy only has meaning in the context of challenges or obstacles to be overcome. Its at least as plausible to argue that acute awareness of constraints is the very thing that stimulates creativity by forcing us to constantly reassess both means and ends in light of circumstances. The key question, then, is, "How can individuals, organizations and societies cope as well as possible with ... issues too complex to be fully understood, given the fact that actions initiated on the basis of inadequate understanding may lead to significant regret?" The answer is that the process of developing organizational strategy must be iterative. Such an approach has been called the Strategic Incrementalisation Perspective. It involves toggling back and forth between questions about objectives, implementation planning and resources. An initial idea about corporate objectives may have to be altered if there is no feasible implementation plan that will meet with a sufficient level of acceptance among the full range of stakeholders, or because the necessary resources are not available, or both. Even the most talented manager would no doubt agree that "comprehensive analysis is impossible" for complex problems. Formulation and implementation of strategy must thus occur side-by-side rather than sequentially, because strategies are built on assumptions that, in the absence of perfect knowledge, are never perfectly correct. Strategic management is necessarily a "...repetitive learning cycle [rather than] a linear progression towards a clearly defined final destination. While assumptions can and should be tested in advance, the ultimate test is implementation. You will inevitably need to adjust corporate objectives and/or your approach to pursuing outcomes and/or assumptions about required resources. Thus a strategy will get remade during implementation because "humans rarely can proceed satisfactorily except by learning from experience; and modest probes, serially modified on the basis of feedback, usually are the best method for such learning." It serves little purpose (other than to provide a false aura of certainty sometimes demanded by corporate strategists and planners) to pretend to anticipate every possible consequence of a corporate decision, every possible constraining or enabling factor, and every possible point of view. At the end of the day, what matters for the purposes of strategic management is having a clear view based on the best available evidence and on defensible assumptions of what it seems possible to accomplish within the constraints of a given set of circumstances. As the situation changes, some opportunities for pursuing objectives will disappear and others arise. Some implementation approaches will become impossible, while others, previously impossible or unimagined, will become viable.

The essence of being strategic thus lies in a capacity for "intelligent trial-and error" rather than linear adherence to finally honed and detailed strategic plans. Strategic management will add little valueindeed, it may well do harmif organizational strategies are designed to be used as a detailed blueprints for managers. Strategy should be seen, rather, as laying out the general pathbut not the precise stepsan organization will follow to create value. Strategic management is a question of interpreting, and continuously reinterpreting, the possibilities presented by shifting circumstances for advancing an organization's objectives. Doing so requires strategists to think simultaneously about desired objectives, the best approach for achieving them, and the resources implied by the chosen approach. It requires a frame of mind that admits of no boundary between means and ends. It may not be so limiting as suggested in "The linearity trap" above. Strategic thinking/ identification takes place within the gambit of organizational capacity and Industry dynamics. The two common approaches to strategic analysis are value analysis and SWOT analysis. Yes Strategic analysis takes place within the constraints of existing/potential organizational resources but its would not be appropriate to call it a trap. For e.g., SWOT tool involves analysis of the organization's internal environment (Strengths & weaknesses) and its external environment (opportunities & threats). The organization's strategy is built using its strengths to exploit opportunities, while managing the risks arising from internal weakness and external threats. It further involves contrasting its strengths & weaknesses to determine if the organization has enough strengths to offset its weaknesses. Applying the same logic, at the external level, contrast is made between the externally existing opportunities and threats to determine if the organization is capitalizing enough on opportunities to offset emerging threats.

Putting creativity and innovation into strategy

Given that companies of all sizes are competing on the global stage, and the pace of change and level of complexity have skyrocketed in the last decade, creative strategy development is needed more than ever. In 2010, IBM released a study summarizing three conclusions of 1500 CEOs around the world: 1) complexity is escalating, 2) enterprises are not equipped to cope with this complexity, and 3) creativity is now the single most important leadership competency. IBM said that it is needed in all aspects of leadership, including strategic thinking and planning. James Bandrowski declared in 1990 that strategy development should no longer be just an analytical exercise, but should be highly creative with an aim to conceiving and executing an innovative strategy that creates competitive distinction and elates customers. He introduced a sine wave approach that amplifies the strategic thinking of all participants in the development and execution of strategy. It can be used at the corporate level, for every function in the organization, as well as in mergers, acquisitions, divestitures, and turnarounds. He states, the bigger the amplitude (measure of the height and depth of a sine wave) of ones thinking and feeling, the greater the chance of value-added breakthrough thinking and achieving stretch goals. In 2009, he declared that a small amplitude both positively and negatively in ones thinking is the metaphorical box in thinking outside the box.

Time Consuming: An analysis of internal and external environment, forecasting, interaction with officers and employees take considerable amount of time. This leads to limiting the strategic management`s success. Ignorance of Managerial functions: The times are changing fast globally affecting organizations performance. This itself `limits` strategic programming in strategic management process. Strategic management is possible to apply only if certain stable conditions prevail. But these are becoming rare. These conditions, if not to limit strategy, have to be inter-related and supportive for strategic management. Stability: Organization that operates in predictable environment free from major unexpected shocks. Simplicity: Organization that is not complex, but simple enough to understand what the right strategy that is most appropriate for strategic management. Industry Maturity: Mature markets are required to overcome `limitations to strategic management`, so that managers have past experience to draw on. Capital Intensity: If heavy investment to capital equipment is done in an organization, it is an incentive for managers to adhere to strategic management to overcome limitations to strategic management. Powerful External Control: When outside forces tightly control an organization, it has a built-in motivation to follow strictly the strategic management process. Diminishing Viability. `Externally` global competition is limiting active competitors to adjust to fragmenting markets that need greater flexibility in adapting to emerging requirements, and mechanistic organizations ten to adopt to changes slowly. `Internally` knowledge-workers empowered by advances in information technology encourage organizations to get more people involved in planning and decision-making, so that planning becomes inter-twined with `doing. Problems with strategic planning: This is useful in bringing about incremental change with the organization, but does not promote radical changes in strategy management or organizational transformation. Every manager should overcome limitations to make strategic management part of his job. Change should be within the strategic management process.