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 operations2. plan future operations3. coordinate the functions and human capabilities of his organization4. 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 strategyCorporate 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 resources2. 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:

1. the inadequacy of stating goals only in terms of profit maximization2. the necessity for planning ahead3. the need for influencing rather than merely adjusting to the environment4. 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:

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 capability2. increased mastery of energy3. increased ability to extend and control life and serviceability4. increased ability to alter characteristics of materials5. extension of mans sensory capabilities

6. growing mechanization of physical activity7. 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 purpose2. conditioned viewing—direct exposure not involving active search, limited to

an identified area, sensitivity to data and readiness to assess importance3. informal search—limited and unstructured, specific information for specific

purpose4. formal search—deliberate, follow pre-established method to get specific

informationit 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.