Strategic Management - Introduction II
1. Basics [Introduction I]
2. Strategic planning and Challenges
2. Strategic Planning and Challenges
2.1. Strategic Planning
To follow a strategy implies fundamental decisions where there is no way back. A company’s focus has to be the common goal. A good strategy needs to be prepared carefully. The plan has to cover a longer time period. It offers the direction. But when it comes to execution, it is about people. However, strategic planning is a process. From the first idea, the first draw until its implementation it is a long and hard way. But the result is a company which has much better chances to survive due to its strategy.
SWOT Analysis – a “simple” reporting tool
But it’s difficult to identify if something is a strength, weakness, opportunity or thread.
“There is nothing either good or bad, but thinking makes it so.” (Shakespeare et al., 2002)
It depends on the point of view. And a view could be changed just with a single step into another direction or a new mindset.
Business literature describes strength and weakness as something we could influence or modify. Hereby we should concentrate on improving our strength. Opportunity and threads are external factors we can’t change. And yet we can use them to our advantage. Optimal results could be achieved when strength and opportunity come into operation simultaneously. Big problems occur in a combination of weakness and thread at the same time.
“Scenario Analysis is the process of analyzing possible future factors and/or developments by considering alternative possible outcomes and to evaluate strategies for responding to these future factors and/or developments.” (“Scenario Analysis | Soltis Consulting, Inc.,” n.d.)
As long we are not omniscient or almighty we need to define our scenario, the area we want to focus on. It is important to identify the key variables. But which variables are important?
Applied Scenario Analysis
Automobile Industry - point of view: Hyundai
Hyundai Motor Group
We would find the Hyundai Motor Group on the 6th position of the top 10 world leading car manufacturers, if we would sum up the revenues of Hyundai and Kia (“Revenue of the leading car manufacturers 2013 | Statistic,” n.d.). Hyundai is considered as strong in producing powerful gasoline cars. But they don’t have much experience with producing electronic cars.
Recent developments in the automobile branch:
a) Apple Car
In February 2015 the Wall Street Journal published information about Apples so called Project Titan. Apple hired hundreds of new employees with car expertise. The goal is to produce Apples own self-driving electric car. The expected market entrance will be 2020 (Wakabayashi and Ramsey, 2015).
Imagine now Apple would outsource the producing of the Apple Car to Hyundai. Would it be sold as a “Hyundai”? Probably not. In my view Apple could sell more cars if it uses its own brand strength. Apple has a brand value of roundabout 130 billion USD. That’s why Apple is leading the top 500 global brands. Hyundai is with 19 billion USD brand value far behind Apples pool position(“Best Global Brands | Brand Profiles & Valuations of the World’s Top Brands”). Apple is considered as strong in synchronizing its technologically high developed electronic modules. Actually it seems to be not clear if Apple is going to produce the car itself. More likely it could outsource the manufacturing.
Google Self-Driving Car
b) Google Car
The data giant Google already presented recently its autonomous driving proto-type. This car is able to drive completely un-manned. But it’s also possible for the driver to take control if necessary. Google plans to release the car in the next five years. Google is seeking for car manu-facturers to produce the car. (Anthony, 2014)
These developments can be seen as key variables. Other key variables are customers, which are increasingly more interested in the protection of the environment. Also their preferences are changing continuously (fashion). Another very important factor is the price of raw material and gasoline. On the long run the price of gasoline is going to rise due to limited oil resources. The prospect changes in the price of raw material is not sure. All these things and more have to be considered in a scenario analysis.
Now let’s think about possible scenarios. What could the Hyundai Motor Group do to keep or increase their market share?
- They could develop their own electric self-driving car too. Hyundai’s strength are gasoline cars. Although they planned to release their new battery driven electric car in 2016 (Yoo-chul, K., 2014). Furthermore Hyundai is working on an autonomous driving model too. But their schedule is ten years behind apple or Google. Hyundai quotes it’s car will be fully functional in 2030(ZDNet).
- Hyundai could cooperate with Google. As stated above Google is looking for partners to produce the Google car. Because they neither have manufacturing experience nor car production plants.
- Hyundai could cooperate with Apple. But here it seems to be clear who would dominate this partnership. The result would be an Apple car with parts and components made by Hyundai. Although Hyundai is already working with Apple on something different. The new Sonata will include Apples Carplay – an Apple interface which contains driver-friendly functions of an iPhone(“HYUNDAI BRINGS APPLE CARPLAY INTO THE NEW 2015 SONATA,”).
Maybe the best way could be cooperation with Google. Both players could use their comparative cost advantages to produce a car together to lower costs than the competitors. Google would gain access to manufacturing and Hyundai would get know-how with electronic devices and data.
Besides these main actors as prospect competitors and recent competitors, other factors are influencing the automobile industry too. Customers might be skeptical towards an autonomously driving car. Their preferences for cars and their components are changing. More and more people are concerned about the environment. In this regard the electronic car would be a good fit. To use electricity as a source of power might also be a solution for the expected rise of the gasoline price.
Chandler (1990) figured out: strategy first, then structure and people. The big “What to do” is covered by strategy. “How to do” depends on a company’s structure. And last but not least it is important to show initiative and leadership in order to get your people follow you. These are the challenges of general management.
But challenging could also be strategic planning (SP). It has its pros and contras. Positively to mention. SP brings people together through shared ideas. We could see it as a kind of learning agreement. Good SP makes the outcome more predictable. It makes preparation easier, because people know what to do. Nevertheless the focus on a goal could lead to a higher performance of the company. But on the other hand it is not always good to stick to the plan. It makes a company less flexible.
Rigidity is a problem. Another disadvantage is the lack of diversity. Through focusing on one direction a company misses other profitable projects. SP in execution shows a company’s strategy. Or competitors could deduct it from visible actions. In the end a certain strategy is not a secret anymore. A general manager has to know these two pages of SP.
Lafley (2013) pointed out six frequently occurring errors:
"There is no perfect strategy—no algorithm that can guarantee sustainable competitive advantage in a given industry or business. But there are signals that a company has a particularly worrisome strategy. Here are six of the most common strategy traps:
- The do-it-all strategy: failing to make choices, and making everything a priority. Remember, strategy is choice.
- The Don Quixote strategy: attacking competitive “walled cities” or taking on the strongest competitor first, head-to-head. Remember, where to play is your choice. Pick somewhere you can have a chance to win.
- The Waterloo strategy: starting wars on multiple fronts with multiple competitors at the same time. No company can do everything well. If you try to do so, you will do everything weakly.
- The something-for-everyone strategy: attempting to capture all consumer or channel or geographic or category segments at once. Remember, to create real value, you have to choose to serve some constituents really well and not worry about the others.
- The dreams-that-never-come-true strategy: developing high-level aspirations and mission statements that never get translated into concrete where-to-play and how-to-win choices, core capabilities, and management systems. Remember that aspirations are not strategy. Strategy is the answer to all five questions in the choice cascade.
- The program-of-the-month strategy: settling for generic industry strategies, in which all competitors are chasing the same customers, geographies, and segments in the same way. The choice cascade and activity system that supports these choices should be distinctive. The more your choices look like those of your competitors, the less likely you will ever win." (Lafley, 2013)
To get something done, what involves several parties, could sometimes be a delicate mission. Each party has its own agenda, goals and needs. This is why you need to “balance” between these participants, in order to get what you need, to get it done. You need to use people, make commitments, support here, deny there. A very impressive example of the art of balancing is shown in the tv show “House of Cards”. The protagonist Frank Underwood (Kevin Spacey) has read Machiavelli at breakfast. He has one goal: to become the president of the United States. In order to reach it he has to play his cards very smart. Frank uses the people around him, promising them positions, power or something else. So they help him. Every possible way is considered. Besides legal options also threatening, murderer, bribes etc..
As good as all these words about strategy might sound. In reality we can find much more challenges. And it's difficult to what is the best strategy. An appropriate answer might be: Well, it depends.
However, we should keep in mind why we use strategy: to win the game. We should focus on the goal. By doing so, we can determine the strategy.
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