Nature of Strategy
In the field of business and management, strategy plays an important role in determining the success and growth of every organization. It serves as a roadmap, which guides decision making processes and shapes the direction of a company. By understanding the nature of strategy professionals can easily seek to navigate the complex and ever-changing landscape of the business environment.
The nature of strategy involves several key components, including the following:
- Unified Direction
- Provides Overall Framework
- Major Course of Action
- Contradictory Actions
- A blend of Internal and External Factors
- Combination of Actions
- Dependent on System
The nature of strategy is not a static concept; rather, it is a dynamic process that requires continuous evaluation and adaptation to ensure alignment with the organization’s vision and mission. It involves analyzing the internal and external environment, identifying opportunities and threats, and formulating a comprehensive approach to maximize the competitive advantage of the business. The nature of strategy is embedded in every aspect of an organization’s decision-making, which guides its choices and actions.
The following points discuss the nature of strategy in detail:
1) Unified Direction: Strategy is concerned with a unified direction and efficient allocation of the organisation’s resources. A well-made strategy serves as a guiding force for managerial decision-making and cognitive processes. It provides an integrated approach for the organisation and aids in meeting the challenges posed by the environment.
2) Provides Overall Framework: Strategy provides an overall framework for guiding enterprise thinking and action. The purpose of strategy is to establish and communicate the overarching vision of the organization through a system of key goals and policies.
3) Major Course of Action: Strategy is a major course of action through which an organisation relates itself to its environment particularly the external factors to facilitate all actions involved in meeting the objectives of the organisation.
4) Contradictory Actions: As a result of dependence on environmental factors, the strategy may require a conflicting course of action. An organization may take conflicting action either simultaneously or at an interval of time.
5) Blend of Internal and External Factors: Strategy is the blend of internal and external factors. The nature of strategy encompasses the complex blend of both internal and external factors. To meet the opportunities and threats provided by external factors, internal factors are matched with them.
6) Combination of Actions: A strategy is a carefully crafted combination of actions designed to address specific situations, solve certain problems, or achieve desirable results. The specific actions taken vary based on the unique circumstances of each situation.
7) Dependent on System: Strategy requires some systems and norms for its efficient adoption in any organisation.
8) Future Oriented: Strategy is future-oriented. Strategic actions are required for new situations that have not occurred in the past.
Meaning of Strategy
The term Strategy is derived from the Greek word strategia, which means “generalship”. In the military, a strategy often refers to manoeuvring troops into position before the enemy is engaged. In this sense, a strategy refers to the deployment of troops. Once the enemy has been engaged, all of the attention shifts to tactics. Here, the employment of troops is central.
The substitution of resources for troops and the transfer of the concept to the business world are starting to take form. Reviewing the insights of noted writers about business strategy, it becomes clear that the adoption of the concept has been relatively smooth due to the minor adjustments required. In both business and military contexts, strategy functions as an important link between policy and strategy. Together, strategy and tactics effectively bridge the gap between ends and means.
In a broader sense, strategy is defined as the determination of the basic long-term objectives and goals of an enterprise and the formulation of plans and the acquisitions, allocation and utilisation of all necessary resources to accomplish these goals.
The strategy aims to achieve a harmonious alignment of concepts, objectives, and resources, thereby enhancing the likelihood of policy success and the positive outcomes that ensue. It is a process that seeks to apply a degree of rationality and linearity to circumstances that may or may not happen. A successful strategy is achieved by articulating its logic rationally and linearly. It involves identifying the desired outcomes, the methods to achieve them, and the resources required.
Developing a good strategy is a complex task. By gaining a deeper understanding of the logic behind a strategy, we can better understand its intricacies and then work out its complexity with more precision. A well-developed strategy theory provides fundamental definitions, terminologies, and explanations of the underlying assumptions, premises, and substantive propositions translated into testable hypotheses and methods that can be used to test the hypotheses and modify the theory accordingly.
Definition of Strategy
According to William F. Glueck, “Strategy is a unified, comprehensive and integrated plan designed to assure that the basic objectives of the enterprise are achieved”.
According to Igor Ansoff, “Strategy is the common thread among the organisation’s activities and product markets that defines the essential nature of the business that the organisation was or planned to be in future”.
According to George A. Steiner, “Strategy means deciding the basic mission of a company, the objectives which it seeks to achieve and the policies governing the use of resources at the disposal of the firm to achieve its objectives”.
According to Alfred D. Chandler, “Strategy is the determination of the basic long-term purpose and objectives of an enterprise and the adoption of courses of action and allocation of resources necessary for carrying out these goals”.
Levels of Strategy
There are three levels of strategy as shown in the figure:-
1) Corporate Level Strategies: Strategy at the corporate level is designated as corporate strategy. The top management plans to direct and run the organisation as a whole. Corporate strategy sheds light on how one should manage the business one is in and intends to be in to achieve the target levels of corporate performance. The corporate-level strategy represents the pattern of entrepreneurial actions and intents underlying the organisation’s strategic interests in different businesses, divisions, product lines technologies, customer groups and customer needs.
2) Business Level Strategies: Business strategy or SBU level strategy is the managerial plan for directing and running a particular business unit. The core principle of the Strategic Business Unit (SBU) is to identify the discrete independent product or market segments that an organization serves. Since each product or market segment has a distinct environment, a Strategic Business Unit is created for each such segment.
For example, Reliance Industries Limited operates in fabrics, textiles, yarns, fibres, and a variety of petrochemical products. Such a strategy defines the product-market posture of its business units.
A business strategy refers to the specific courses of action adopted by a company for each of its businesses separately. The ultimate goal of these actions is to serve identified customer groups and provide value to the customers by the satisfaction of their needs. In the process, the firm uses its competencies to sustain, gain, and enhance its strategic and competitive advantage.
3) Functional Level Strategies: The functional level of the organisation is the level of the operating divisions and departments. At the functional level, strategic issues are related to business processes and the value chain. The development and coordination of resources in finance, marketing, operations, human resources, and R&D are important for executing business unit-level strategies with maximum efficiency and effectiveness.
Functional units of an organisation are involved in higher-level strategies by providing input into the corporate-level strategy and business unit level, such as providing information on resources and capabilities on which the higher-level strategies can be based. Once the higher-level strategy is developed, the functional units translate it into discrete action plans so that each department or division must accomplish the strategy to succeed.
Elements of Strategy
A well-crafted strategy must encompass four important elements:
1) Scope: A strategy defines the scope of the firm that is, the kind of products the firm will offer, the markers (geographies, technologies, processes) it will pursue and the broad areas of activity it will undertake. It will at the same time, throw light on the activities that the firm will not undertake.
2) Goals: A strategy invariably indicates the long-term goals toward which all efforts are directed. Such sustainable goals are necessary for the employees to perform at their best and to establish a clear competitive position for the firm regarding its rivals.
3) Logic: This is the most important element of strategy. It is defined as the tool for distinguishing between true and false. Logic is considered a science as well as the art of reasoning. For example, a firm’s strategy is to dominate the market for inexpensive detergents by being the low-cost, mass-market producer. Here the goal is to dominate the detergent market. The objective is to produce affordable detergent powder for the Indian mass market, with the company’s competitive edge being its low cost. However, this example fails to explain why this strategy will prove to be successful. Why the company will get ahead of others by limiting its scope and by being the low-cost producer (competitive advantage) in the detergent industry?
4) Competitive Advantage: A well-crafted strategy includes a concise declaration of competitive advantages the firm will pursue and sustain. The competitive advantage arises when a firm can perform an activity that is distinct or different from that of its rivals.
Importance of Strategy
The importance of strategy can be understood from the following points:-
1) Facilitate Overall Effectiveness: By setting objectives and drawing up a strategy to accomplish these, companies can train people, invest in resources, build up production capacity and take a clear position within their environment.
2) Gives Direction: Strategies are required to give direction to companies. Without strategies, and incorporating objectives, companies would be aimless.
3) Facilitate Optimal Resource Allocation: Well-planned strategies also facilitate optimal resource allocation. Developing a strategy disciplines strategists to explicitly consider all available information and consciously evaluate all available options before committing to a course of action.
4) Coordinate Activities: A well-crafted strategic plan offers the advantage of coordinating all strategic initiatives within a company into a single cohesive pattern. A companywide master strategy can ensure that differences of opinion can be resolved, and a consistent course of action can be followed throughout the entire organization. This approach helps to avoid conflicting, overlapping, and contradictory behaviour, which can hinder success and impede progress.
5) Programme all Organisational Activities: Strategies are a means for programming all organisational activities in advance. Having detailed strategies allows companies to be rum with the clockwork precision, reliability and efficiency of a machine.
6) Helps in Comparing Courses of Action: Documented strategies also permit corporate-level strategists to compare the courses of action proposed by their various business units and to allocate scarce resources to the most promising initiatives.
7) Provides a Framework for Ongoing Decision Making: Since all decisions should support the strategy, the strategy and the strategic initiatives are the reference point for decision making.
8) Defines Accountabilities: It outlines the importance of defining accountabilities and timelines for achieving expected results on the agreed strategic initiatives within an organization.
9) Improves Communication and Fosters Commitment: By clearly defining the vision and responsibilities, a strategic plan increases the communication between the units and coordination of all organizational activities. It fosters commitment and cultivates a sense of dedication at every level.
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