Concept of Strategy & The Need For Strategy

Strategy is a key planning tool for the smooth running of an organization and achieving its goal of long-term survival and growth. It is regarded as the most important tool of top management to cope with external environmental challenges. Strategy is needed to anticipate the areas in which the greatest changes are likely to occur and to make business plans to cope with these changes.

All companies need a strategy to deal with the challenges that emerge from increasing competition. Competition is rising, accompanied by globalization, economic and political changes, and information technology advancement. As a result, companies in an industry will need to
be engaged in strategic activities such as acquiring, diversification, expansion, restructuring, networking, transfer of knowledge and skills, and divesting. After examining these alternatives, the firm has to select the best strategic alternative to run the organization in structural and financial terms and work out how resources are allocated to implement the given alternative.

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At the same time, changes in the internal management system are required to fit the strategy (also known as a business plan) to achieve strategic objectives. All these actions are regarded as parts of a strategy that helps a business firm get competitive advantages.

Various Definitions of Strategy

A range of definitions of strategy is given below:

According to Pettinger (1996): “The strategy of an organization is the definition and implementation of its purpose.”

According to David (2005): “Strategies are the means by which long-term objectives will be achieved.”

According to Quinn (quoted in Grant, 1998): “A strategy is the pattern: or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole. A well-formulated strategy helps marshal and allocates an organization’s resources into a unique _and viable posture based on its relative internal competencies and short~ommgs, anticipated changes in the environment, and contingent moves by intelligent opponents.”

According to Wheelen and Hunger (2002): “A strategy of a corporation forms a comprehensive master plan stating how the co’?.oration will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage.”

Characteristics of Strategy

Form the above definition strategy comprises the following key characteristics:

  • It is either a plan or a pattern of action set to achieve the long-term objectives of organizations.
  • Actions occur in a sequence.
  • It is about coordinating or uniquely orchestrating resources to use internal competencies and cope with the shortcomings.
  • Strategy is about future actions based on forecasts, guesses, and anticipated environmental changes (political, technological, economic, and social). It also actively considers what the competitors will do or have done.
  • Strategy, a plan of action, is about change, doing a coordinated set of things differently, expecting that it will ensure competitive advantage and organizational success.

THE NEED FOR STRATEGY

The need for strategy arises to meet environmental challenges and to get opportunities from the market. Porter asserts that strategy is helpful in:

“Building defenses against the competitive forces or finding positions in the industry where the forces are weakest. “

Firms face competition from the different forces in the industry, such as new entrants, increasing the bargaining power of customers and suppliers, threat from substitute products or services, and jockeying for positions. Therefore, the need for strategy arises due to the following reasons:

1. To defeat new entrants

New entrants pose threats in the industry. They bring more capable and efficient technology to provide a distinct quality or low-cost products that increase competition. Incapable firms with inefficient technology may have difficulty securing a position in the market. Strategy is required to decide about activities to defeat new entrants.

2. To maximise earnings

Customers’ requests for a low price and quality product ultimately force companies to earn lesser profits due to increasing competition in the quality and price among the companies in the industry. Therefore, with the right strategy, a firm can select other supporting activities that tailor low-price and quality service and help maximize earnings.

3. To minimise the supplier’s pressures

Suppliers exert pressure on the bargaining power of a buyer industry by raising prices or reducing the quality of purchased goods. In such a case, activities like keeping costs low or decreasing the quality of products influence the earnings from the sale of the products. A well-formulated strategy designs such activities to minimize the suppliers’ pressures.

4. To counter substitute products through quality or product differentiation

Substitute products challenge profits and the industry’s potential growth by fixing prices to a lower limit the potential competitors. To meet these challenges, it is important to either improve the product quality or differentiate one’s products from those of the competitors. Either of these activities influences the industry’s growth and profits.

5. To acquire a strategic position

Due to pressure from the above forces, every firm in an industry is attempting to secure a strategic position in the market. In a competitive world, unless firms come up with some strategy to deal with the above competitive forces, it would be rather difficult for them to survive, grow and secure a strategic position. So, individual companies have to formulate a strategy to overcome these challenges and gain competitive advantages.

The strategic position in the market occurs from the following activities:

  • Offering a variety of products distinct from those of the competitors and produced by using different sets of¬∑activities. The variety-based positioning makes economic sense when a firm can best deliver particular products or services using specific sets of activities.
  • Targeting a segment of customers with different needs and deciding activities to meet the needs of these customers. This is also known as need-based positioning. Such a positioning arises when groups of customers with differing needs and when a tailored set of activities can serve those needs best.
  • Segmenting customers who are accessible in different ways. Firms have to select activities to each these customers of different geographical regions in a different way from what thee competitors do.

Strategy is also concerned with maximizing customers’ values and includes policies on how to deploy people and technology with a lot of skills, abilities and capacity (core competencies) to maximize value.