Until about the early 1960s what we usually refer to these days as a strategy used to be called a master plan. The term strategy has been borrowed from the military vocabulary.
Kenneth Andrews in the early 1960s defined strategy as the goals of the firm and the pattern of policies as well as programmes designed to advance its goals.
Strategy has to do with the life and death of firms. It provides boundaries within which functions must be carried on to achieve the goals. It does not state explicitly where manager should be heading, but provides signposts indicating what activists must not be undertaken.
Students of management have observed that general managers do not spend much time on strategic planning. Rather, they spend it on visiting and communicating with member of staff.
A good strategy is often hard for competitors to recognise. A company has got invisible assets which competitors may not see until it is too late.
In an age where technology and capital are highly mobile, a company’s most valuable assets are the knowledge that it has. Indeed, the American management guru the late Dr Peter F Drucker often said this is the knowledge age.
A company’s knowledge of markets, how to apply technology, the knowledge embedded in the organisation, how to link technology capacities and its reputation constitute the company’s assets.
Because some of these assets of a company are invisible, competitors have been taken by surprise. For a long time, railway companies thought that they were in the railway business. They did not recognise the dangers that the introduction of vehicles and aviation would pose for them. If they had defined their business as freight and passenger transportation, they could have started at the earlier time to fortify their defences.
Similarly, three vehicle companies in the United States General Motors, Ford and Chrysler ignored the impact that the Volkswagen Beetle and Japanese small cars would have on the America’s market. It was after the Big Three had lost more than half the American market that they set out to combat the competition.
How then do we identify a strategy where it exists? We need to answer a series of questions about products and processes. These are some of the questions:
1. In the long term, what does the firm intend to accomplish? Market domination? Half the market?
2. What are the products and services that firms sell?
3. To which market does it sell them?
4. What is the operational model of the firm? We will explain this here below.
5. What is the economic model? This, too, will be explained later in the article.
6. What are the principal functional policies in regard to research and development, production, marketing, sales and finances?
7. What are the principal management policies with regard to organisation, information, personnel, planning and resource allocation?
A company strategises itself in relation to its competitors, customers and suppliers. These impact on its operations in a decisive manner. If competitors have better and cheaper products, they will outperform it on the market. It is the customers who turn a company’s factory expenses into cash when they buy its products and services. The prices suppliers charge and their efficiency in delivery are crucial to accompany.
What is operational model? This comprises the activities in which a company has chosen to engage in. We may enquire where the company begins and where it ends as well as how it adds value to its products and services.
The economic model comprises the prices, variable costs, fixed costs and the balance sheet of the firm. Firms differ greatly as regards the gross margins and their profits, asset turnover and financial resources.
Strategic plans determine whether a corporation will have a long or short span. Plans involve both innovation of existing products and introduction of new ones.
We live in an environment that is not very friendly. If you start a new business, sooner than later someone wants to start his close to yours.
If you invent a product that is doing well, sooner than later you will find others making copycats to undercut you.
The strategic plan must be sound. It must deal with the present while preparing for the future. The plan must be logical. It must relate its goals to its resources.
Strategic plans are essential for both corporation and economies. If you do not plan, you plan to fail.