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.
Figure 1: Porter’s five forces framework
According to Jeffs (2008), gaining knowledge on the prevailing industry structure enable business managers to formulate effective corporate, business and operational strategies. On the basis of the Porter’s five forces, business managers can effectively adjust the operations of the strategic business units in order to achieve the intended competitive advantage. For example, businesses can succeed in adjusting the business level strategies in order to cope with the hypercompetitive nature of the industry. Some of the business level strategies that managers can entrench include effective pricing-based strategies such as low-cost strategy (Johnson, Scholes &Whittington 2008). In addition to the above models, strategic management should further entail conduction of a SWOT analysis to determine the prevailing conditions in the internal and external environments.
Business example
Effective strategy formulation and implementation is critical in enhancing a business’s long-term and future sustainability (Breuer 2010). To achieve this goal, it is imperative for businesses to integrate both the content and process approaches to strategy. The effectiveness with which business managers can entrench these approaches is influenced by the success with which the different business models adopted in formulating and implementing strategy (Johnson, Scholes & Whittington 2008). Tesla Motors, a renowned global automobile company has established market presence in different countries amongst them Norway. The firm has achieved remarkable success in the global automobile industry (MarketLine 2015). Nevertheless, its success in a particular market is influenced by the effectiveness with which the firm’s managers understand the prevailing macro and micro environmental environments.
To understand the impact of the political, economic, social, environmental, technological factors, Tesla Motors should consider applying the PESTLE model. With reference to the political environment, Tesla Motors is likely to gain from integration of a policy aimed at issuing subsidy to automobile manufacturers of energy-efficient vehicles (Holtsmark & Skonhof 2014). Tesla Motors should consider leveraging on this strategy by adjusting its business level strategy to include development of highly energy-efficient automobiles such as electric and hybrid vehicles. Additionally, Tesla Motors should consider adjusting its business level strategy by ensuring that the pricing of its automobiles is aligned with the prevailing economic environment in Norway. For example, Tesla Motors should ensure that its pricing strategy is adjusted to cater for changes in the rate of inflation. This approach will enable Tesla Motors achieve sustainable competitive advantage. For example, the firm will be able to set attractive price point for its automobiles hence attracting and retaining customers.
With reference to the social factors, Tesla Motors success in the Norwegian market depends on the effectiveness with which it establishes an effective customer relationship (Murthy 2009). An evaluation of Tesla Motors operations shows that the firm has previously been sued for engagement in misleading advertisement on the uniqueness of its electric cars (Walsgard 2016; Maurer 2016). This aspect might adversely affect the firm’s reputation and hence its future competitiveness. Tesla Motor’s management team should adjust the content of its advertisement in order to optimally and truthfully reflect the uniqueness of its automobile. In addition to the above dimensions, Tesla’s Motors is likely to be affected by change in legal environment such as law on emission of greenhouse gases. For example, the Norwegian legislators are committed at formulating a law that will led to elimination of all petrol and diesel engine cars in Norway (Giest 2016). To align with the legal requirement, Tesla Motors should focus on designing automobile do not emit greenhouse gases. Therefore, Tesla Motors should ensure that its operational strategies are adjusted accordingly. This approach will play an essential role in improving the firm’s future competiveness due to its effectiveness in minimising occurrence of environmental pollution.
In addition to evaluating the macro environment using the PESTLE model, Tesla Motors should consider evaluating the prevailing industry structure by employing the Porter’s five forces model. Currently, Tesla Motors faces intense rivalry with reference to production of new electric and hybrid cars from other well established luxury car manufacturing companies such as Toyota Motor Group, Bayerische Moteren Werke AG (BMW Group) ,Volvo Motors, and Volkswagen Motors (MarketLine 2015). To deal with the growing rivalry, it is imperative for Tesla Motors to entrench the differentiation strategy. Increase in the degree of rivalry has substantially increased the threat of substitute that Tesla Motor faces. Production of diesel and petrol engine car presents the main source of substitute for Tesla’s electric car business unit. Nevertheless, Tesla Motors faces minimal risk from new entrants because of the high entry cost. Achieving dominance in this market would require new entrants to undertake a heavy investment in the firm’s operations (MarketLine 2015). Tesla’s future competitiveness is also likely to be affected by supplier bargaining power. The firm depends on supply of the requisite raw materials such as metals from different suppliers. The suppliers provide slightly differentiated raw materials, which significantly reduces their bargaining power. According to MarketLine (2015), ‘fluctuating raw material prices have adversely affected car manufacturers’ (p. 17).
In order to establish future competitiveness, Tesla Motors should consider establishing an effective relationship with suppliers throughout the supply chain. This move will aid in moderating supplier power. Tesla’s future competitiveness in the Norwegian market is further likely to be enhanced by the projected economic growth in Norway. Increase in the consumers’ disposable income will enhance the consumers’ affordability for automobile. To benefit from the increase in consumer disposal income, Tesla Motors management team should adjust its business and corporate level strategy such as ensuring that its automobiles are optimally differentiated. Figure 2 below illustrates a matrix relating to Porter’s five forces facing Tesla Motors in Norway.
Figure 2; Porters five forces model; New car marekt in Norway
Source: (MarketLine 2015)
In addition to the above models, Tesla Motors should consider conducting a SWOT analysis to determine its strengths and weaknesses. Findings of the SWOT analysis will further enable the firm to manage the possible threats and to capitalize on the opportunities. Thus, the firm will be able to develop and accomplish future goals by leveraging on its strengths.
Conclusion
The paper reveals that business managers face a challenging task in formulating and implementing strategy. The business strategy adopted by a firm should contribute towards its future competitiveness. Despite the fact that it is impossible for managers to predict and analyse everything upfront, it is possible for business managers to ensure that effective strategies are formulated and implemented. One of the ways through which this outcome can be achieved entail entrenching the content and process approach to strategy. Entrenching the content approach increases the effectiveness with which a business achieves long term and future competitiveness. This arises from the fact that business managers are able to formulate and develop strategies that are unique to the firm’s operations. For example, content approach enables businesses to effectively differentiate its operations. Additionally, content approach to strategy enables a business to successfully entrench the inside-out and outside-in perspectives to strategy. Thus, a firm is able to develop adequate understanding of its prevailing internal and external environments. Conversely, the process approach to strategy is concerned with ensuring that business strategies are effectively implemented, for example by entrenching an action plan.
The paper further shows that the content and process approach to strategy can be implemented by employing different models such as the PESTLE analysis, SWOT analysis and the Porter’s five forces model. Through these models, business managers can successfully formulate and implement strategy hence strengthening a firm’s future competitiveness. The application of these models in the strategy formulation and implementation is underlined by Tesla Motors case. In summary, the analysis underlines the fact that social science disciplines have a significant impact on strategic management. The analysis reveals that strategic management is based on evaluating the impact of different organisational, management, environmental and economic aspects on a business’s future competitiveness.
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