Corporate strategy – Kenneth .R. Andrews
The importance of being general:
Business policy is the study of the functions and responsibilities of those charged with
running a successful business or a multifunctional entity within it. Business policy is
an intermixture of goals and purposes, impediments and obstacles, threats and
opportunities, resources and applications, environmental information and
misinformation which serves as the context of the strategic decision in a tumult of
competition. The successful resolution of disorder in the jumble of environmental
forces, goals and resources is what policy formulation is all about.
Business policy should provide direct preparation for performance as general manager
and result in certain knowledge, attitudes and skills relevant to these benefits.
Knowledge is the use of the concept of strategy
Attitudes are the ability to accept the associated frustrations and satisfactions.
Skills are both analytic and administrative. Business schools teach analytical skills
while experience gives administrative schools.
Management may be regarded as leadership in the informed, planned purposeful
conduct of complex organized activity. General management is the management of a
total enterprise or an autonomous subunit. The general manager has four sets of
responsibilities:
1. supervise current operations
2. plan future operations
3. coordinate the functions and human capabilities of his organization
4. make a distinctive personal contribution
The problem of previous preparation and systemic development of general
management potential goes beyond the business schools as it extends into the
business itself. However general management has no established system of
recruitment, education or on the job training appropriate to its dimensions.
To reduce the job of the general manager to more reasonable proportions, and subject
it to objective research and evaluation, a practioners theory is proposed. The theory
has a simple proposition that every business organization, every subunit of it and
every individual should have a clearly defined set of purposes or goals which keep it
moving in a deliberately chosen direction and prevents its drifting. The primary
function of the general manager is supervision of a continuous process of determining
the nature of the enterprise and setting of its goals.
The concept of corporate strategy
Corporate strategy is the pattern of major objectives , purposes or goals and essential
policies and plans for achieving these goals , stated in such a way as to define what
business the company is in or is to be in and the kind of company it is or is to be.
Stanford research institute definition is “strategy is the ways in which the firm,
reacting to its environment, deploys its principal resources and marshals its main
efforts in pursuit of its purpose.
The strategic decision is concerned with the long-term development of the enterprise.
It necessarily projects continuously into the future. Therefore the central character and
its individuality of a business organization must be determined with clarity.
Corporate strategy has two equally important aspects—formulation and
implementation.
What a strategy should be is a rational decision.
The formulation of strategy has as its sub activities-1. identifying opportunities and threats in its environment and attaching some
risk to the alternatives—market opportunity
2. appraise the company’s strengths and weaknesses—assess capacity to take
advantage of perceived markets or cope with attendant risks—called economic
strategy—corporate competence and resources
3. Consideration of the preference of the chief executive and his immediate
associates.--- personal values and aspirations
4. Taking the decisions in light of the company’s acknowledged obligations to
segments of society.—societal obligations.
The implementation of strategy is composed of a series of sub activities which are
primarily administrative. These include:
1. mobilize resources
2. Organizational structure and relationships: An appropriate organizational
structure is made effective by information systems and relationships
permitting coordination of subdivided activities.
3. Organizational processes and behavior: the processes of performance
measurement, compensation, management development all enmeshed in a
system of incentives and controls must be directed towards the desired
behavior required towards achieving the organizational purpose.
4. The role of personal leadership is important and sometimes decisive in the
accomplishment of strategy.
The functions of strategy:
A consciously considered strategy is required due to the following reasons:
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the inadequacy of stating goals only in terms of profit maximization
the necessity for planning ahead
the need for influencing rather than merely adjusting to the environment
Utility of setting visible goals to act as a fulcrum for cooperation and an
inspiration to organizational effort.
From the point of view of implementation, the most important function of strategy
is to serve as the focus of the organizational effort, as the object of commitment,
and as the source of constructive motivation and self control in the organization
itself.
The limitations of strategy:
1. With increasing complexity and fast changing environment accuracy in
detailed planning and forecasting is difficult.
2. Over dedication to planning may result in lost opportunities.
3. The inevitability of conflict between corporate goals and departmental goals.
4. the trouble faced in communicating the strategy
Dealing with these limitations effectively means learning to use it with reasonable
perspective on what is possible.
The criteria for evaluation:
1. to judge a strategy as optimal the following questions need to be answered:
 is the strategy identifiable and has it been made clear either in
words or practice
 does the strategy fully exploit domestic and international
environmental opportunity
 is the strategy consistent with corporate competence and resources
, both present and projected
 are the major provisions of the strategy and the program of major
policies it is comprised of internally consistent
 is the chosen level risk feasible in economic and personal terms
 is the strategy appropriate to the personal values and aspirations
of the key managers
 Is the strategy appropriate to the desired level of contribution to
society?
 Does the strategy constitute a clear stimulus to organizational
effort and commitment
 Are there early indications of the responsiveness of the markets
and market segments to the strategy?
Problems of evaluation:
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Most common source of difficulty is misevaluation of results. This can be
a result of success achieved but not due to strategy but other not
identified results.
Misevaluation of requirements of resources
Misreading of the environment
Intrinsic difficulty in determining and choosing among strategic
alternatives.
Too little attention to company’s actual competence for growth
The company and its environment: relating opportunity and resources:
Determination of a suitable strategy begins in identifying the opportunities and risks
in its environment. Economic strategy is the match between qualification and
opportunity which relates a firm to its environment.
The nature of the company’s environment:
The environment of a company is the pattern of all the external conditions and
influences that affect its life and development.
The environmental influences relevant to the strategic decisions are technological,
economic, social and political in nature. Change in the environment necessitates
monitoring of it. The rate of change varies across the categories, being fastest in the
field of technology and the slowest in the political field.
The seven major apparent areas of advance are (technology)
1. increased transportation capability
2. increased mastery of energy
3. increased ability to extend and control life and serviceability
4. increased ability to alter characteristics of materials
5. extension of mans sensory capabilities
6. growing mechanization of physical activity
7. Growing mechanization of intellectual processes.
The simplest impact of all these is the increase of competition and therefore risk.
Therefore there is a requirement for organization to engage in technical development
or maintain technical intelligence capability to follow what is happening.
Changes threaten all established strategies. Change also brings new opportunities. No
matter how secure a company’s position is, obsolescence of a strategy is a continuous
threat. Hence forecasting and anticipation of these changes are essential for intelligent
planning.
The identification of new opportunity or of impending threat depends upon what kind
of information is relevant. Surveillance of developments becomes more practical once
the critical elements to look for have been determined.
Therefore there must be a mechanism to organize the systemic intelligence gathering
about the changing nature of the environment.
Ecological approach to the environment of the organization:
Environment is composed of four subsystems changing and evolving in orderly
relationships. They are:
1. Community—the total population of all the individuals and institutions
making up the immediate and intermediate context of company’s activities.
2. Culture – a combination of values, attitudes, beliefs, concepts, customs and
laws that condition the way people and organizations behave in relation to one
another and the physical universe.
3. Habitat: the natural manmade physical setting in which the other components
of the total ecological system move and exist.
4. Product: the stream of goods and services flowing from the firm through its
environment towards being consumed or converted.
The complexity of the environment becomes manageable as relationships to other
organizations and individuals are sorted out.
The process of scanning the environment can have four modes:
1. undirected viewing –exposure without purpose
2. conditioned viewing—direct exposure not involving active search, limited to
an identified area, sensitivity to data and readiness to assess importance
3. informal search—limited and unstructured, specific information for specific
purpose
4. formal search—deliberate, follow pre-established method to get specific
information
it is possible to organize the gathering of data by assigning responsibility for
these activities—collection, storage and communication. The completeness of a
company’s information needs depends on the strategy and the strategic
alternatives have been decided and are under consideration.
A systematic and dynamic and reasonable updating of current expectations of
what the future will be like can become a routine job in the future.
Identification of opportunities and risks:
For people who cannot know everything firms not into continuous surveillance of
the environment some questions will allow him to keep in mind changing
opportunity and risk:
--essential economic and technical characteristics of the industry of the firm
--apparent trends in these factors visible of the future
-- Nature of competition both within the industry and across industries
--requirements for success in competition in the company’s industry
--Based on the answers to above questions, what is the range of strategy available
Opportunity as determinant of strategy:
For informed choice, awareness of environment is a continuous requirement.
Planned exploitation of changing opportunity follows an orderly course. Start with
an initial strategy, extend it other markets when it is successful there, after
markets are exhausted, go for forward (towards consumer) or backward (towards
sources of supply) integration. Vertical integration is due to the fact that a firm
tries to expand in areas in which it has continuity with its original activities. This
can involve mergers and acquisitions of firms.
After this it may look at product diversification horizontally which requires
knowledge in areas where the company may not have knowledge.
The identification of opportunity is the simplest for a uni product firm and goes on
increasing in difficulty as the firm grows both in markets and activities. The
corporate management would wish to invest profits in areas which will maximize
returns but it will not be in a position to evaluate all proposals or will it be able to
invest in all opportunities.
To decide which is the best of the opportunities, some criterion, apart from the
economic criterion must be in place. The first step in validating a tentative choice
is to determine whether the organization has the capacity to execute it
successfully. This is dependent on the company’s strengths and weaknesses. The
strengths of a company accrue primarily through experience in making and
marketing a product line. The distinctive competence of an organization is what it
can do particularly well. To identify the less obvious strengths one can examine
the current product line and define the functions it serves in the markets. The
diversifier must also look at the skills that underlie the success achieved by him.
The enumeration of the strengths requires analysis. The effort to find or create a
competence that is truly distinctive holds the key to the future development.
To narrow down the alternatives is to match the competence with opportunity,
once these have been identified and its future significance established. It is the
matching of the opportunity with the competence which establishes a company’s
economic mission and its relationship with the environment. While assessing
strengths look at the managerial capacity also. All these are subservient to the
identification of the nature of business and the kind of the company the
management desires which is a product of values.
Hence the combination of distinctive competences, organizational resources and
organizational values make a company unique. The matching of opportunity,
resources and competences leads to an economic strategy.
The company and its strategists: relating economic strategy and personal
values:
In examining the alternatives available to an organization due consideration must
be given to the preferences of the chief executive and key managers who might
contribute or give assent to it. Thus there is a need to reconcile the differences
between the preferences of the chief executive and the best alternative and
secondly between the various preferences of the key managers. Personal desires,
aspirations and needs of senior managers actually play an influential role in the
determination of strategy. Recognition of this inevitability and imagination,
ingenuity, goodwill and determination should be able to build successive
strategies balancing both the individual and company needs.
A value is a conception, explicit and implicit, distinctive of an individual or
characteristic of a group, of the desirable which influences the selection of
available modes, means, and ends of action. Introducing personal preferences
forces us to deal with the possibility that the decision we prefer is not acceptable
to other executives with different values. Their acceptance is necessary for the
successful implementation. In diagnosing the conflict we identify the values
implicit in our choice. Reconciliation needs the narrowing of the gaps in values.
Strategy is a human construct. It must inspire commitment.
The company and its social responsibilities:
It is true that the primary function of business is to create wealth but for the
following reasons corporates must actively participate in public affairs and assume
responsibility for impact of economic activity upon society:
1. Government regulation, though essential for provision of rules and for
control of grossly improper behavior, is neither a subtle instrument for
reconciling public and private interests nor it is an effective substitute for
knowledgeable self restraint.
2. Corporate power, vast in potential strength, must be brought to bear upon
certain social problems if they are to be solved and it can be applied in
presence of safeguards.
3. Corporate executives of high caliber, integrity, intelligence must look at
the social consequences of their economic activity they control and assume
responsibility for those actions.
4. The dangers and problems of corporate participation in public affairs can
be dealt through research, education, government control, and self
regulation.
The accomplishment of purpose:
Implementation of strategy can also be thought to consist of parts:
1. These are design of organizational structures and relationships.
2. The effective administration of organizational processes affecting
behavior.
3. Development of effective personal leadership.
The nature of corporate strategy must be made to dominate the design of
organizational structure and processes. The aspects of implementation which serve as
a road map are:
1. Identify key tasks to be performed, and kind of decisions to be taken.
2. Assign responsibility for accomplishing key tasks and decision making to
individuals and groups.
3. Have some hierarchical allocation of authority to facilitate accomplishment of
tasks.
4. Make provisions for the coordination of activities.
5. Information systems adequate for coordinating divided functions must be
designed and installed.
6. The tasks to be performed must be arranged in a time sequence as a schedule
of targets.
7. Actual performance as reported must be compared with the budgeted
performance.
8. Individuals and groups must be recruited and assigned to essential tasks
matching their skills to task requirements.
9. Individual performance should be subjected to influences to make it effective
for them to achieve organization goals.
10. Incentives should be both universally appealing and be of specialized forms of
recognition.
11. Maintain a system of constraints, controls and penalties which would require
information.
12. Provide for continuous development of requisite technical and managerial
skills. This can be both on the job and off the job as formal training.
13. Dynamic personal leadership is necessary. It must be expressed in some
perceptible style. This style must be natural and consistent with requirements
imposed on the organizations. The leader’s job is to achieve commitment to
strategy via clarification and dramatization of its requirements and value.