Developing Organizational Strategies

Dr. Fred Mugambi MwirigiJKUAT

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Just to recap….What is a strategy?• A roadmap• The shortest and most cost effective route to

achieve the highest levels of results• A predetermined mode of doing things

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Strategy Support • The right structure must be put in place to

support strategy development and implementation

• Such a structure must comprises all various key support pillars

• These pillars are created both internally and externally

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Strategy Support Factors

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STRATEGY

Strategic Objectives

Skill/ knowledge

Institutional/ Structural Support

Financial Resources

External Environmental

Support

Management Attitude

What are Strategic Objectives?

• They are broad statements of direction • They explain where the firm plans to go in the

medium to long term• They must borrow from the company’s vision

and mission • Strategic objectives are, in general, externally

focused• Good objectives make it easy to set workable

strategies and allocate resources5

Target Areas in Objective and Strategy Setting

• According to Peter Drucker they fall into eight major classifications: 1. Market standing- desired share of the present and new markets2. Innovation- development of new goods and services and of skills

and methods required to supply them3. Human resources- selection and development of employees4. Financial resources- identification of the sources of capital and their

use5. Physical resources- equipment and facilities and their use6. Productivity- efficient use of the resources relative to the output7. Social responsibility- awareness and responsiveness to the effects

on the wider community of the stakeholders8. Profit requirements- achievement of measurable financial well-

being and growth

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Other Targets for Objective and Strategy Setting

• New market opportunities • Reduced costs • Reduced risk • Improved worker health and morale • Reduced absenteeism • Reduced employee turnover • Reduced waste • Increased productivity • Improved customer satisfaction • Enhanced brand image • Better products and services

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Setting Strategic Objectives

Key Questions:• What is our general vision and mission?• In what areas will we continue being actively

involved in the future? • In what 3-7 areas will our company continue being

actively involved in the future? • What areas do we need to be involved in to

accomplish our mission statement? • What is our company going to do about our

competitive advantage categorically?

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Testing Clarity of strategic objectives

Key questions:• Can the area or activity be assigned to a

specific person?• Can specific tasks be assigned to the goal?• Does it have clear outputs and outcomes?• Can the objective be financed and resourced

in very specific terms?

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Institutional/ Structural Support • Structures must be aligned to management

systems and company objectives and strategy • Transparency within the business’s

organizational structure is important• Structures must be dictated by organization’s

strategic direction • Good structures are agile and dynamic

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Analyzing Structural Support Key things:1. Hierarchy levels (authorization and approval

bottlenecks)2. Grey areas in structure and hierarchy (gaps)3. Crowded structures (overlaps)4. Basis of structure (is its existence based on

tasks and goals, authority, control, etc?)5. Lame structures (poorly resourced)

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Choice of Structure

1. Hierarchical 2. Flat 3. Matrix

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Signs that the Structure is wrong/ Weak

• The structure and management system no longer support its business strategy and objectives

• The current distribution of responsibilities lacks transparency and effectiveness

• You find it difficult to allocate decision-making responsibilities • Units within your company have overlapping functions • Interaction between different management levels (e.g. between the

corporate centre and subsidiaries or affiliates) lead to conflict • Senior executives spend too much time discussing minor

operational issues • Your management’s decision-making process is slow and ineffective • Potential investors are unimpressed with your corporate

governance

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Environmental Factors

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Financial Resources• Poorly resourced strategies are unlikely to have much

impact• Select and work with strategies to which you can

commit adequate financial resources• Over-resourced strategies may work but could result

in wastage and reduced overall benefits (profits)• Financial resource allocation to strategies must be

decided before embarking on implementation of strategies

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Skill/ Knowledge Levels • There is need to align strategy with the right skill

and knowledgeKey questions:1. What is the skill/knowledge needed to develop and

implement the strategy?2. Who is in charge of what component/ role in

strategy development and implementation?3. What are their skills, experiences and exposures?

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Management Attitude• Subordinates tend to take the cue from what

managers do more than from what they say• The overall attitude of a manager has

significant effect on strategy development and implementation

• For example, pessimistic managers tend to provide poor support to strategy

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Identifying Strategy Needs• These are gaps that could render the goals

unachievable- strategy gaps• Sometimes we set goals/objectives and leave them

unsupported with strategies• One way of identifying strategy needs is to ask:1. Are goals at all levels supported with strategies?2. How strong is this support?3. What is the nature of the support strategies?4. Are they well aligned with the objectives?

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Key Strategies

• Internal operational Strategies

• Broad corporate level Strategies

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Internal operational Strategies• Based on Functions:1. HR2. Finance3. Marketing4. Production5. IT6. General operations7. Others

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Broad Corporate Level Strategy Categories

• Offensive strategies• Defensive strategies• Collusive Strategies

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Offensive Strategies

1. Concentration strategies2. Integration Strategies3. Diversification Strategies

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1. Concentration strategy

There are two main options for pursuing a concentration strategyi. Market development strategy- here the company tries to

expand the market of its current business. This can be achieved by expanding into new geographic areas or attracting new market segments. A good example of a company that has consistently used this strategy is Coca Cola.

ii. Product development strategy- this strategy involves altering the basic product or adding a closely related product that can be sold through the existing marketing channels. For example, both Airtel and Safaricom have introduced many new products all of which use the cell phone and their respective networks.

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2. Integration

• Integration- this strategy involves extending business operations into any one or both of the two possible directions i.e. forward and/or backward integration.

• In forward integration the organization ventures into the distribution of its own products as opposed to using external distributors.

• In backward integration the organization begins to supply some or all of the materials used in producing its current products

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3. DiversificationOptions under this strategy are:• Concentric diversification- this strategy involves expanding

into a related but distinct area. For example a flourmill that processes flour for human consumption could venture into animal feeds. This is because the area of animal feeds lies within the know-how, technology and experience of such a business

• Conglomerate diversification- this growth strategy involves adding new products that are significantly different from the company’s present products in to the company’s product portfolio. This strategy can be achieved thorough mergers, acquisitions or joint ventures.

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Defensive strategies

• Defensive strategies are also referred to as retrenchment strategies.

• These strategies are used when the company needs to reduce its operations.

• They are popular when a company needs to reverse a negative trend or to overcome a crisis.

• They serve as short-term remedies to problematic situations or as the only avenues out of situations when no other options seem feasible.

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Defensive strategies Contd.

Specific reasons that could prompt a company to use defensive strategies are:

1. If the company is having financial problems

2. If the company forecasts difficult times ahead

3. If the company stands to benefit immensely by selling the business

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Defensive strategies Contd.

Defensive strategies include:1. Turnaround strategy2. Divestment strategy3. Liquidation strategy4. Filing for bankruptcy5. Becoming a captive (tying down

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Defensive strategies contd.

• Turnaround strategy- this is the strategy of reversing a negative trend to get the organization back on the track of profitability. Turnaround strategies are intended to reduce the costs of operations at the same time increasing efficiency. Reducing the number of employees or shedding replicated operations is a good example of this strategy.

• Divestment strategy- divestment involves selling off part of the business, e.g. an SBU, a product line or a division. A company may result to divestment if a recent diversification did not work out or if it has a large debt to settle. It could also pursue divestiture if it intends to change its core business or business direction.

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Defensive Strategy Categories

Defensive strategies include:1. Turnaround strategy2. Divestment strategy3. Liquidation strategy4. Filing for bankruptcy5. Becoming a captive (tying down

property)

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Collusive Strategies • Collusive strategies involve collaborative efforts that

tamper with the industry balance of supply and demand.

• Price/output collusion occurs when rival firms reduce the supply of an output below its competitive level in order to raise price above its competitive level and earn a greater than economic return.

• In some countries some collusive strategies are outlawed

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In conclusion….

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What are our objectives?

What are the strategy needs?

What skill and knowledge is available?

What internal and external support is available?

Which is the best strategy option?

What are the strategy Options?

Thank you

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