Approaches to formulating strategy

Rational Planning Model (RPM)

This approach indicates that strategy has to be developed through a rational process based on a predetermined decision making criteria.

The foundation for RPM was developed through the thinking of Newton which was pioneered advised by F. W. Taylor through Scientific Management.

This process was considered into management by Igor Ansoff through the publication corporate strategy in 1965. This was support by Alfred Chandler through his publication strategy and structure.

This theory was justified in the present context by Michael Porter.

The RPM is a concept which indicates that strategy is carried out through a specific purpose defined based on a predetermined objective and a standard.

Mission & Objectives

This provides the basis for the entire plan.

Position Appraisal

This involves identifying the resources of the organization based on capability and capacity. This includes SWOT analysis.

Environmental Analysis

This involves a critical appraisal of the business environment based on the influence of factors such as competitor, customers etc… This also includes PEST analysis.

Corporate Appraisal

This will critically evaluate the quality of the organization resources against the environmental condition in order to develop a practical strategic plan.

Strategic Option generation

This involves generating possible alternatives options in order to achieve the stated objectives.
Eg: New product development
Invest in another country
Acquisition

Strategic Evaluation & Choice

This involves identifying the most appropriate option for the organization based on the objectives.
Eg: Acquisition

Strategy Implementation

This involves developing a schedule for practically implementing the strategic plan through people based on the future.

Monitoring & Review (Control)

This involves critical evaluation of the actual results against the predetermined objectives based on selected intervals.
Eg: Monthly Report

Advantages through characteristics of RPM

1. This provides a clear direction based on an objective to ensure consistent decision making.
2. This clearly identifies the capacity of the organization in the strategy development.
3. This clearly evaluates the nature of the environment and influence in generating strategy. This enables the organization to concentrate on long-term. This is a top down approach where top managers developing strategy for the entire organization.
4. This is a formal approach develop through a legitimate process involving every employee.
5. This clearly identifies every stakeholder in the process through the standards developed.
6. This includes specific level of control developed within the system.

Limitation of RPM

1. This ignores the environmental uncertainty and the impact of such variables.
2. This expect the plan which is on paper to be exactly implemented in real life which not practical.
3. This strategy is developed by the top management who will not interact with the customer, this lacks market information.
4. This ignores the involvement of people within the organization especially at lower level.
5. This is too rigid, therefore ignores actual trend in the market which should be basis.
6. This ignores the creativity and innovation of employees in generating new concept.
7. This ignores the market development after the plan which can directly influence any objectives.
8. This cannot be practice with small business or business start-up.

Practice of RPM Resource Based Theory – RBT

This theory indicates that strategy should be developed on the organizational resources; therefore strategy should be developed internally based on the capacity and the ability of the organization.

This identifies the resources and their competence on the basis for strategy development (ability).

The RBT can only be practice if the competence can be converted into core competence through which the organization can generate a competitive advantage over others. This is achieved through generating better performance than others through possessing specific resources.
Eg: Valvo for Safety
Rolex for quality

Strategy

Strategy can be defined as a course of action carried out to achieve a stated objective by effective utilization of resources.

Strategic Management

Mission

Mission explains the purpose of the organization therefore this demonstrates the nature of business and the process of generating value to a particular target market.
Mission statement will explain these values in order to communicate stakeholders.

Eg: BMW “the ultimate driving machine”
Eg: Coca Cola “We refresh the world”
Eg: Nokia “Connecting people”
Eg: Samsung “A better world is our business”

Characteristics of Mission – by Hooley

1. Mission should demonstrate the purpose of the organization
2. Mission should demonstrate the nature of the business. (“What business are you in?”)
3. This should demonstrate a particular value system. Eg: BMW – quality
4. This should indicate a specific standard. Eg: McDonalds.

Mission is qualitative

Objective

This is a qualitative statement developed through the mission. The mission is transformed through the objectives for decision making (mission practice through objective).

Characteristics of objectives

PRIME

Plan
Objective should be enabling the organization to take place the future through systematic planning; this provides a direction for developing a plan.

Responsibility
Objective should provide very clear guidelines for the staff to operate based on specific duties.

Integration
The objective should enable every employee and systems to integrate based on common values.

Motivate
The objective should provide specific target for the staff in order to generate results.

Evaluate
The objective should enable the organization to evaluate performance over a passage of time and control.

CSF – Critical success factor – by Johnson & Scholes

These are few areas of business which should be successful in order to achieve the objective.

Development of critical success factors

1. Identify the critical success factor. Eg: Coca Cola
- brand name
- distribution
- quality
- communication
- HR

2. Identify the competence of the CSF
This will demonstrate the ability of each factor. (Eg: Brand name; the competence is to generate awareness).

3. Identify the competitive advantage
The CSF should enable the organization to differentiate (create a different experience).
This should enable the organization to achieve better results than rivals in the market place. Eg: Wal-Mart, KFC.

4. Develop key performance indicators (KFI)
This will measure the achievement of the CSF
eg: Impact of branding (this can be evaluated)
(a) Estimating brand value
(b) Estimating brand awareness

5. Develop a sustainable advantage considering competition
The CSF should enable the organization to operate with an edge over competitors consistently. Eg: McDonald – Fast Food

6. Monitoring & Control
CSFs will enable the organization to maintain the standard and control.



Elements of Strategy



Competitive or Business Strategy

This is the fundamental beginning of strategy. The strategy is developed by identifying the nature of business and the direction. “What business are you in?”

This is demonstrated as business strategy by emphasizing on a particular value created to a targeted market. This will address the following:

i) The nature of business
ii) The nature of customers
iii) The nature of competition
iv) The nature of product & services
v) The business process

Eg: Toyota PRIUS is environmental friendly car which is powered through electricity targeted at environmental friendly customers.

Investment and resource strategy

This strategy is developed based on the competitive strategy. This strategy will emphasize on identifying the required resources to facilitate business strategy. This will demonstrate the nature of the investment required and the resources to ensure a successful business strategy.

Resources for PRIUS

i) Specific production plant
ii) Specific production area
iii) Specific engineers
iv) Specific suppliers
v) Specific systems

Financial Strategy

This strategy is developed based on the requirement of recourses. This will identify the nature of finance required to acquire specific resources. Therefore this will determined a suited method of finance for the strategy formulation. The decision will depend on the availability of equity or debt, and also long and short term sources.



Levels of strategy


The levels of strategy is required if the organization operates within more than ONE business.


Corporate Strategy

This is the highest levels of strategy. The objective of corporate strategy is to integrate different business strategy under a common philosophy. The corporate strategy will provide a framework for the decision making and control. This will demonstrate specific guidelines based on corporate values to ensure consistency.

This will ensure the following (basis):

i) The stakeholders and their interest
ii) The human resources (HR)
iii) The environmental impact
iv) The corporate values
v) The corporate standards
vi) The legal and regulatory issues
vii) Social responsibility

The corporate strategy in a policy therefore will NOT compete

Eg: General Electric which is a diversified company withdraws from investment in Myanmar due to violation of fundamental human rights.

Business Strategy (Refer to competitive or business strategy)

Functional Strategy (operational strategy)

The functional strategy is developed based on the business strategy. The objective of functional strategy is to support the business strategy by ensuring the development of required functional areas of business.

The functional strategy will demonstrate how business strategy is practiced. Eg: Marketing