Strategic Management; Strategy Formulation and Implementation
Introduction
Strategy formulation and implementation is a crucial aspect in a business's pursuit for long-term sustainability (Barney 2002). According to Johnson, Scholes, and Whittington (2008), strategy refers to the direction and scope that an organisation adopts in the quest to achieve long-term success. Effective strategy formulation and implementation enhance an organisation’s competitive advantage hence improving a firm’s capacity to cope with the changing business environment. However, for a strategy to contribute to an organisation’s competitiveness, it is imperative for managers to ensure that the necessary organisational resources and competences are integrated (Ahlstrand, Lampel & Mintzberg 2014).
Strategy formulation and implementation is a complex process that managers are required to undertake through the strategic management function (Johnson, Scholes & Whittington 2008). The complexity arises from the fact that strategy is based on conceptualisation of difficult aspects. Strategy formulation involves the human element, which explains the importance of entrenching sociology and psychology in the strategy formulation process. The effort to deal with the complexity associated with strategy formulation and implementation has led to the development of the process approach. Johnson, Scholes and Whittington (2008) assert that ‘these process researchers have shown again and again the real-world messiness of strategy formulation and implementation. The implication is that it is impossible to analyse everything upfront and predict the future and that the search of economically optimal decisions is futile’ (p. 17). Therefore, in the strategy implementation process, it is imperative for managers to appreciate the complexities and imperfections of strategy formulation and implementation process.
In light of the above assertion, this paper analyzes how the different perspectives of social science disciplines inform strategic management. Social sciences encompass different disciplines such as economics, environmental planning, development studies, sociology, psychology, education, business studies, and management (Cox et al. 2012). Considering the broad nature of social science, this study will adopt a general view of strategic management. The paper details a comparative analysis of models that can be integrated in strategic management. Additionally, the report evaluates the application of strategy formulating by taking into consideration the content and process approach to strategy. This goal is achieved by illustrating how Tesla Motors’ in Norway can enhance its future competitiveness by entrenching different business models.
Literature review; content and process approaches to strategy
Content and process approaches are some of the renowned traditional approaches to strategic management. Process approach is concerned with how strategies are developed while the content approach entails the ‘what’ aspect of strategy (Collings 2009). Strategic management requires business managers to entrench both the content and process approaches. The Harvard model is one of the renowned models that entrenches both the content and process approaches. The model accentuates the importance of entrenching the situational perspective in the strategy formulation and implementation processes. According to the model, it is imperative for businesses to take into consideration the interests of different stakeholders and to integrate the internal and external environments (Collings 2009).
Barney (2013) asserts that the strategy formulation and implementation process should focus on establishing a tight strategic fit between the organisational structure, human resource management policies, and organisational structure. Moreover, achieving strategic fit should take into consideration the economic, cultural, and political forces. Johnson, Scholes and Whittington (2008) are of the view that pursuing strategic fit increases the probability of an organisation achieving an optimal market position. This arises from the fact that an organisation is able to provide goods and services that meet the market needs. Thus, the content approach is very critical in enhancing an organisation’s quest to entrench organisational change in order to achieve enhanced performance. Chapman (2005) argues that ‘content approach seeks to identify fundamental principles for developing strategy or guiding strategic change’ (p.12).
The content approach to strategy involves developing strategies that are unique to an organisation as opposed to integrating a predetermined set of strategies (Cox et al. 2012). Additionally, Chapman (2005) accentuates that the content approach to strategy involves formulating strategic priorities that are likely to increase an organisation’s strategic competitiveness (Rabin & Miller 2009). Therefore, business managers have a duty to formulate strategies that increases an organisation’s capability to adapt to the prevailing contextual setting (Wit & Meyer 2010). The content approach is actualised by integrating two main perspectives that include the outside-in and inside-out perspectives.
The outside-in perspective is concerned with evaluating the external environment in order to determine the prevailing opportunities and threats. Through the outside-in perspective, an organisation can successfully determine its ability to achieve future competitiveness by evaluating the effectiveness of its current strategies (David 2005). Conversely, the inside-out perspective enables an organisation to evaluate its internal capabilities and resources that either contributes to development of a business’s strengths or weaknesses (Chapman 2005).
Content approach further underlines the need to ensure that the strategic objectives adopted by a firm are adequately aligned with the people policies. Collings (2009) argue that ‘the people policies create and support the individual behaviour and competencies that have the potential to be a source of competitive advantage’ (p.46).
According to Mahoney and McGahan (2007), business managers should entrench both inside-out and outside-in perspectives in order to optimally address the strategic gap that might affect an organisation’s future competitiveness. The resource-based view (RBV) is one of components of content approach to strategy. The RBV highlights the importance of deriving competitive advantage by using organisational resources to develop unique and inimitable products. The resources may either be tangible such as machines, or intangible assets such as organisational reputation, and intellectual property rights (Johnson, Scholes & Whittington 2008)). However, the internal capabilities and competences developed must be dynamic in order to enhance an organisation’s capacity to respond to changing business environment. In summary, the content approach aids in determining the organisational aspects to be changed.
Process approach accentuates that the strategy formulation and implementation process should be based on a logical decision making pattern. Rabin and Miller (2009) assert that ‘individuals are assumed to consciously go through a process of thinking about strategies, t develop and then formulate explicit plans’ (p. 23). The strategies that are realised are attained from what an organisation intends to achieve. Strategy implementation under the process approach requires businesses managers to develop a comprehensive action plan, assign roles and responsibilities and to conduct a post-completion review. Additionally, the process approach acknowledges the strategy formulation and implementation process has to be undertaken through a rational, and ordered process. Despite the fact that it is relatively difficult to design formal processes that enhances an organisation’s capability to deal with all emergent issues, the process approach acknowledges on the importance of integrating formal controls in order to enhance the efficacy of the strategy formulation process (Cox et al. 2012).
Comparative analysis of business models
There are different strategies that organisations can integrate in the quest to achieve competitive advantage. However, the strategies are categorised into three main levels that include business level, corporate level and operational level (Johnson, Scholes &Whittington 2008). Corporate level strategy constitutes the leading or top-level strategies and focus on how an organisation can enhance the competitive advantage of its different business units. Business-level strategy emphasise on how a firm can achieve competitiveness by improving the effectiveness and efficiency of the different business activities. Thus, the business level strategy focuses on enhancing the efficacy of the strategic business units (Johnson, Scholes &Whittington 2008). The rationale of business level strategy is to deliver the best value by offering customers high quality products. Other notable approaches to business level strategies include product innovation, pricing, differentiation, and integration of a distinctive distribution channels (Cox et al. 2012). Conversely, operational level strategies are concerned with how an organisation can achieve effectiveness and efficiency in operationalising the business and corporate level strategies. The capability of operational strategies in achieving the intended outcome depends on an organisation’s internal resources such as people, processes and resources (Faulkner & Campbell 2003).
To achieve sustainable competitive advantage, it is essential for business managers to appreciate the importance of entrenching effective corporate level, operational level and business level strategies. One of the approaches through which an organisation can achieve this outcome entails integration of effective business models. The rationale of entrenching business models is underlined by the fact that both the content and process approaches to strategy. The two approaches underline the importance of integrating both inside-out and outside-in perspectives in the strategy formulation process (Chapman 2005).
According to Mahoney and McGahan (2007), businesses do not operate in vacuum but are rather impacted by diverse macro-environmental forces. The PESTLE model is one of the most valuable models that businesses can adopt in the strategy formulation process. The model enables an organisation to develop insight on the prevailing macro-environmental factors that are likely to influence a businesses’ current and future competitiveness (Johnson, Scholes &Whittington 2008). By applying the PESTLE model in the strategic management process, business managers develop adequate understanding on the impact of political, economic, social, environmental, technological and legal factors on business operations. Thus, the PESTLE model is essential in determining the underlying drivers that might affect a business’s competitiveness.
In addition to understanding the conditions in the wider macro-environmental conditions, it is imperative for businesses to gain insight on dynamics affecting the specific industry in which the firm operates. Therefore, business managers should focus on gaining knowledge on the prevailing industry structure (Ahlstrand, Lampel & Mintzberg 2014). This goal can be achieved through integration of the Porter’s five forces model. The Porter’s five forces provide business managers adequate insight on the competitive forces that affect the specific sector or industry in which the firm operates (Johnson, Scholes &Whittington 2008). Through the Porter’s five forces, businesses managers are able to determine the attractiveness of the industry. For example, business managers understand the challenges and opportunities inherent in the industry. Thus, business managers can determine whether its current strategy can enhance or hinder the firm’s success in light of the prevailing industry characteristics.
By applying the Porter’s five forces framework, business managers understand the competitive nature of the industry by evaluating five main dimensions of competition that include buyer bargaining power, supplier bargaining power, threat of substitute, threat of new entrants and the competitive rivalry (Ahlstrand, Lampel & Mintzberg 2014). The interaction of the five forces impacts the industry’s competitive rivalry as illustrated by the framework below.
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