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Strategy is influenced by a number of factors some of which are of controllable nature while
others not of controllable nature. Discuss the various factors that influence the development of a
strategy in any business organization of your choice.
Question one answer
Controllable environment
Human Resource
Organisational
Culture
OrganisationStructur
e
Assets
Financial Strength
Uncontrollable environment
Economicconditions
Technology
Climatechange
Legal
Media
Political
b)
Corporate-level strategies emanate from the organizational mission. The business level is also
known as the competitive, middle, or tactical level. Strategies formulated at the corporate level
are translated into specific action plans at this middle level.
Also, middle-level managers frame intermediate strategies, specific to their functions or
divisions.
Strategies framed at this level deal with issues such as:
(i) Market competition strategies,
(ii) Product or service development strategies matching with market requirements,
(iii) Strategies for meeting and satisfying customer needs, and
(iv) Strategies for achievement of organizational objectives such as long-term profitability, sales
growth, efficiency, etc.
The operational level is also known as the first level or the execution level. The operational-level
managers frame strategies that are necessary for routine day-to-day activities.
Operational-level strategies include strategies on:
(i) Inventory,
(ii) Quality, and
(iii) Production planning, etc.
Even though the corporate level largely frames strategies for the overall organization, the
business and operational-level managers are also required to frame their specific strategies and
action plans within the ambit of corporate- level strategies. Thus, at every level, we frame
strategies, but the nature and purpose of strategies are different
question four answer part B
budgets and resources to specific measures and activities. However I have also observed
situations were these terms have been used simply to outline potential, but unclear benefits.
Basically I recommend being very analytical when someone starts to employ such term in his or
her justification.
Note:
Since this is a very popular post on Eddielogic, I wrote a follow-up which provides more detailed
information, a comparison between strategic, tactical and operational decisions, and a practical
illustration: Nature and characteristics of strategic decisions
Of course, strategic decisions are part of corporate management. HAMBRICK and
FREDRICKSON, two important strategic thinkers, (2001) argue that the strategy should be a
central and integrated concept of how the business will achieve its objectives. Such a concept
needs to include activities and measures; since resources are limited in most cases or most
organizations, a concept needs to include decisions. Major strategic decisions will focus on
financial resources (i.e. investments), corporate culture or HR related areas. LOMBRISER and
ABLANALP explain that it could be possible within each step of strategy implementation to
return to a previous process step (in strategic planning) or even to decide about an unclear step in
advance. To implement strategic management the following set of attributes should be taken into
account:
Legal, political and social limitations
Ethical issues
Stakeholders expectations
Values, experiences, skills and goals of managers
Corporate culture
Financial room for maneuver
For all these attributes the management team needs to make long-lasting decisions. According
to JOHNSON and SCHOLES strategic decisions name four key characteristics.
Those decisions are likely to be linked with or influence the long term direction of an
organization.
Strategic decisions are normally concerned with attempting to achieve some advantage for the
organization, e.g. over the competition.
Furthermore, strategic decisions are likely to be concerned with the scope of activities and
address the question, whether the organization should concentrate on one area of activity, or
should it have many? This is a fundamental issue to strategic decisions.
The scope of activities defines the way in which managers understand the boundaries of the
organization.
Hence strategic decisions are very likely to have an impact on operational decisions.
Thinking strategically is what separates managers and leaders. Learn the fundamentals about
how to create winning strategy and lead your team to deliver it.
The Sustainability Mindset: Using the Matrix Map to Make Strategic Decisions
by Steve
Zimmerman and Jeanne
Bell
Drawing ontheir in-depth experience, the authors provide an easy-to-follow process complete
with tools and templates to help organizationsvisualize their business model and engage in
strategic inquiry.
Question Five (20 Marks)
Most firms will opt for diversification as a growth strategy at some point:
a)
Differentiate between the two major types of diversification, giving examples in each
cases.
(5 Marks)
b)
What are the major reasons for diversification in modern business organizations in
Kenya?
(15 Marks)
Horizontal Diversification
acquiring or developing new products or offering new services that could appeal to the company
s current customer groups. In this case the company relies on sales and technological relations to
the existing product lines. For example a dairy, producing cheese adds a new type of cheese to its
products.
Vertical Diversification
occurs when the company goes back to previous stages of its production cycle or moves forward
to subsequent stages of the same cycle - production of raw materials or distribution of the final
product. For example, if you have a company that does reconstruction of houses and offices and
you start selling paints and other construction materials for use in this business. This kind of
diversification may also guarantee a regular supply of materials with better quality and lower
prices.
Concentric Diversification
enlarging the production portfolio by adding new products with the aim of fully utilising the
potential of the existing technologies and marketing system. The concentric diversification can
be a lot more financially efficient as a strategy, since the business may benefit from some
synergies in this diversification model. It may enforce some investments related to modernizing
or upgrading the existing processes or systems. This type of diversification is often used by small
producers of consumer goods, e.g. a bakery starts producing pastries or dough products.
Heterogeneous (conglomerate) diversification
is moving to new products or services that have no technological or commercial relation with
current products, equipment, distribution channels, but which may appeal to new groups of
customers. The major motive behind this kind of diversification is the high return on investments
in the new industry. Furthermore, the decision to go for this kind of diversification can lead to
additional opportunities indirectly related to further developing the main company business access to new technologies, opportunities for strategic partnerships, etc.
Corporate Diversification
involves production of unrelated but definitely profitable goods. It is often tied to large
investments where there may also be high returns.
Question Five (20 Marks Part B answer
Avoiding Downturns
A conservative reason to diversify is to avoid major repercussions when an industry or sector
suffers a downturn. Some single-business or single-product organizations couldn't survive a
lengthy decline in their industry. A fashion retailer often sells in multiple product categories, for
instance, because fashion is so trendy and unpredictable. Being diversified protects the company
against changes. Many fashion retailers also expand into new store formats, such as for children
or babies, to diversify.
Competitive Defense
Another reason to diversify is that under-served locations or customers have available revenue
for somebody in your industry to take advantage of. If your company doesn't diversity and
expand to fill the additional demand, competitors are likely to do so. If you get in first, you can
often increase your customer base or establish yourself as a top provider. Movie rental provider
Blockbuster dissolved, in part, because it failed to protect against competitors moving into new
DVD-by-mail and online-streaming formats.
Stabilizing Influence
Diversity also helps your company build stability. If you concentrate too heavily on a single
industry or product, you risk volatility in revenue and resources as demand rises and falls. If your
business stretches across many industries or categories, you may have more predictability.
Advertising agencies often diversify clients to avoid major drops in revenue and having to cut
significant staff if a single industry falters. Losing a client here or there isn't as destabilizing if
the company is diversified.
Company Risks
As important and valuable as diversification is, it does have drawbacks and risks. When you
expand, you potentially lose focus on what your best products or offerings are. You also have to
spread out your business investments and costs, which may prevent you from putting enough
money in cash-cow sectors or products. If you expand, you need experts to work for you or
partner with you to achieve success in newer, unproven areas.