Letter S

S
Satisficing: Managers do not take optimal decisions after considering all the relevant factors. Instead, they tend to take what they consider to be the most sensible decision under the circumstances, based on the information available. This is called satisficing.

Herbert A Simon coined the term Satisficing Planning to describe efforts to attain some level of satisfaction, not necessarily the maximum level. Satisficing means doing well enough, which may not necessarily be the best. Satisficers argue that it is better to produce a feasible plan than an optimal plan that is not feasible. But as Ackoff has mentioned, this is based on a wrong belief that consideration of feasibility cannot be incorporated into the consideration of optimality. It is always possible to seek the best feasible plan.
(See Herbert Simon, Russell Ackoff)

Scenario Planning: Scenario planning enables firms to plan for the future by visualizing different ways in which the external environment may evolve in the future. The construction of a number of scenarios, each describing a possible future state, can help organizations deal with uncertainty more effectively. Scenario building stimulates creative thinking and helps identify major opportunities and threats in the future by taking into account various political, social, economic and technological factors. By contemplating a range of possible futures, better informed decisions can be taken and linkages between apparently unrelated factors identified.

Scenarios allow discussions to be more uninhibited, help challenge established views and enable new ideas to be tested. Seeing reality from different perspectives reduces the risk of increasing commitment to failing strategies.

Formal scenario planning emerged during the Second World War, when it was used as a part of military strategy as countries prepared themselves for different contingencies. Since then, the use of scenario planning has become increasingly popular. One company which has used scenario planning very effectively is Royal Dutch Shell.

The basic premise behind scenario planning is that reacting in ad hoc fashion to external events is not desirable. Understanding long-term trends enables companies to prepare for different future scenarios. It also helps a company to identify the scenarios for which its strengths and competencies are particularly suited. At the same time, by identifying the scenarios for which it is least prepared, the company can invest in building the required competencies. In extreme cases, it can even divest businesses, which do not look promising in the long run.
(See Discovery Driven Planning, Strategic Planning)

S Curve in Technology Evolution: The S curve is commonly used to describe the product life cycle. But it is also a useful tool for managing technology risk. Foster describes the S curve as the relationship between the effort put into improving a product or process, and the results one gets back for that investment. As technological limits are reached, the cost of making progress accelerates dramatically. Eventually, a point is reached, beyond which no meaningful gains in performance can be achieved by improving technology. Thereafter, other factors (such as the efficiency of marketing, purchasing and manufacturing) begin to determine the success of the business.
(See Innovator’s Dilemma, Technology Risk)

Senge, Peter: Peter Senge is famous for the concept of the learning organization, which effectively implies a shift from thinking about strategic issues as part of a formal, bureaucratic process to its being completely infused with organizational learning throughout the organization.

In his best seller, The Fifth Discipline (1990), Senge explains how organizations can achieve success by mastering five disciplines: (a) personal mastery or self-discipline on the part of all members; (b) continual challenge of stereotypical mental models; (c) the creation of a shared vision; (d) commitment to team learning rather than conflict, and (e) systems thinking, a holistic way of looking at problems. Systems thinking is a philosophy which realizes it is not possible to understand complexity by breaking the whole down into parts. The dynamic system has to be understood as a whole. Senge identifies a number of systems archetypes to illustrate this. For example, if a successful group is given more resources at the expense of other, less successful groups, the latter are even less likely to succeed.
(See Innovator’s Dilemma, Organizational Learning)

Service Level Agreement (SLA): Some organizations formalize the internal customer concept by insisting on agreements that establish the dimensions of service and the relationship between two or more departments of an organization. Service Level Agreements (SLAs) are useful in establishing boundaries of responsibility and facilitating inter departmental collaboration, especially if there have been coordination problems or inter departmental conflicts in the past.
Shareholder Value: The primary goal of any listed company is to increase the wealth of its shareholders. For this to happen, the returns to shareholders should outperform certain benchmarks such as the cost of capital. In essence, shareholders’ money should be used to earn a higher return then they could earn themselves, eg. by investing in risk free bonds.
Simple Structure: A structure used by organizations in their early days. When the organization is small and activities are easy to track and monitor, all the functions can report directly to the CEO or the owner. But such a structure becomes increasingly inappropriate as the size of the organization increases.
(See Organizational Structure)

Simon, Herbert A: One of the few Nobel Prize winners till date in the field of management. Simon’s insights about how the limitations of the human brain affect the functioning of organizations are truly land mark. Managers are bombarded with choices and decisions but they possess only finite information storage and processing capabilities. They tend to compensate for the inability to consider and evaluate all the available choices by selecting “good enough” options, rather than the “optimal” solutions.

Simon’s theory of the firm is based on four main ideas: First, organizations are not the abstract, one-dimensional entities often depicted by economists. They are complex entities, made up of diverse individuals and interests, all of which are held together by a variety of “deals” and coalitions, ranging from explicit contracts to implicit agreements. Second, organizations do not have a complete list of alternatives. Nor do they have complete knowledge about the consequences of their decisions and actions. Third, rather than searching for optimal solutions, organizations distinguish between outcomes that are “good enough” and those that are not. Fourth, much human behavior involves following rules, rather than rationally evaluating the expected consequences of a given action.
(See Decision Making)

Six Sigma: Six Sigma is a disciplined, data driven approach that eliminates waste, improves productivity and helps to develop and deliver products and services of high quality. The word, Sigma is a statistical term that measures how far a given process deviates from perfection. The central idea behind Six Sigma is to measure how many defects there are in a process, and systematically figure out how to eliminate them and get as close to zero defects as possible. A Six Sigma quality level means 3.4 defects per million opportunities. Six Sigma tries to analyze the root cause of business problems and solve them. The methodology used in Six Sigma is popularly called DMAIC.
D: Define the goals and customer (internal and external) requirements.
M: Measure the current performance.
A: Analyze the performance and determine the root causes of the defects.
I: Improve the process by eliminating the root causes of the defects
C: Control the vital factors and implement process control systems.

The Six Sigma concept was developed by Motorola in 1979. Within 15 years, Motorola was operating at Six Sigma in many of its manufacturing units. Motorola saved billions of dollars earlier spent correcting defects on the production line and recalling products from the market. Since then many other companies like GE have embarked Six Sigma. Many of India’s leading software companies have also embraced Six Sigma enthusiastically.

Skimming: A strategy for pricing a new product at such a high level that it is only purchased by a small segment consisting of trend-setters, enthusiasts or the very rich. High pricing helps in establishing an up-market image and ensures that the initial buyers pay the high price they are willing to pay. Later on, the price is lowered to attract the mass market. But the risk is that a high price may make it easy for a competitor to launch a successful, lower priced imitation. By failing to maximize sales at the start, the firm may not be able to hold on to a viable market share when competitors arrive.
(See Strategic Pricing)

Skunk Work: Increasingly, companies are realizing that the key to attracting and retaining the best scientists, lies in offering freedom to experiment. Skunk work is a covert research project undertaken by a small, independent group, away from the mainstream operations of an organization. The idea is to allow the initiative to blossom by shielding it from the bureaucracy of the mainstream organization.

Sloan, Alfred P: One of the greatest management practitioners in business history. Sloan who led General Motors in its formative years, pioneered the divisional structure. He set up a number of centralized functions and framed policies to help rationalize the work of the divisions and to achieve synergy within the corporation. Sloan attempted to create a deliberate tension between “maximized decentralization” and “proper control.” The new structure left the broad strategic decisions as to the allocation of existing resources and the acquisition of new ones in the hands of a top team of generalists. Divisional executives could run the business, while the general officers set the goals and policies and provided overall appraisal. Sloan’s book “My years at General Motors” is a classic, a must read for any practicing manager.
(See Divisional Structure)

Slywotzky, Adrian J: Slywotzky is famous for the idea of value migration, which means that businesses often need to reinvent how they add value as industries and their markets change. This might, for example involve: getting rid of activities which add little value, dilute value, or destroy value, exploiting new ways of distribution and rebundling or unbundling existing products or services. In a sense, Slywotzky emphasizes the importance of business model innovation, ie changing the rules of the game by coming up with a new way of doing business.
(See Business Model Innovation)

Span of Control: Span of control can be viewed as the range of resources for which a manager is given decision rights and held accountable for performance. In more simple terms, it is the number of subordinates answerable directly to a manager. The span of control is 'wide' if the manager has many direct subordinates and 'narrow' if there are few. A wide span of control has several advantages. The boss has less time for each subordinate and is effectively forced to delegate. Fewer layers of hierarchy are needed, thereby improving vertical communication. On the other hand, a narrow span of control is useful when tighter management supervision may be necessary. There is less stress involved for each employee, as the scope of each job is limited. Moreover, as there are more layers of hierarchy, there are more frequent promotion opportunities, i.e. the career ladder has more rungs.

The actual span of control chosen depends on what is more important, customer responsiveness or cost control. For example, when customers are price sensitive, the span of control must be wide for managers of internal operating functions, to supply inputs to market facing units efficiently and cost effectively. Market facing managers usually want a wide span of control to maximize customer responsiveness. When the basis for competing is tailoring products and services to suit the tastes and needs of customers in particular geographic regions, a significant portion of value creation must be located close to the customer. So regional managers have a wide span of control.
(See Organizational Design)

Spender J C: Spender is famous for his concept of ‘strategic recipes’, the taken-for-granted rules of strategic decision-making. Strategic recipes are founded on things that have worked, or not worked in the past. These recipes relate back to a past group, or individual, strategic situations. When a new leader is appointed, particularly from the outside, these are likely to change or be challenged.

Stakeholders: Include shareholders, employees, managers, creditors, suppliers, contractors, agents, distributors, customers and the local community, whose interests are directly or indirectly affected by the company's activities. Different stakeholders wish to influence the decision-making within the organization to serve their own interests. For example, customers will want lower prices, suppliers will want prompt payments, employees will want higher wages, shareholders will want a return from their investment of capital and the society will expect the environment to be protected. Corporations have to try and balance these different expectations.
(See Corporate Social Responsibility)

Strategic Advantage: A term popularly used in the context of globalization. Global companies try to leverage two kinds of advantage while competing – comparative and strategic. Comparative advantage results when value chain activities are performed in cheaper locations. Beyond a point, however, an obsession with comparative advantage may be counter productive. Strategic advantages must not be overlooked. Any advantage which will accrue in the long run, which cannot be easily quantified in monetary terms immediately can be considered a strategic advantage. In other words, if comparative advantages help in cutting costs in the short run, strategic advantages help in adding value in the long run.

The US is a strategically important market for products like investment banking, computer software, pharmaceuticals and automobiles. France is an important country for cosmetics and perfumes, while Japan is the world leader in consumer electronics. These are not the cheapest locations in the world but a presence in these markets is important to keep in touch with highly sophisticated customers and leverage the innovations that are happening.

In some cases, while generating strategic advantages, comparative disadvantages such as expensive labor can be circumvented through ingenuity and meticulous planning. Nicholas Hayek , CEO of Switzerland based SMH, which makes the world famous Swatch watches, once argued that if a company is determined to develop low cost methods of manufacturing, it can do so, no matter what the location. Hayek’s contention was that in watch manufacturing, as long as direct labor accounts for less than 10% of the total costs, Switzerland would remain an attractive place for manufacturing.
(See Comparative Advantage, Global Leverage)

Strategic Alliance: An agreement between two or more organizations to do business together, in a mutually beneficial way. Through a strategic alliance, the companies involved can gain access to each other's resources, including markets, technologies, capital and people. Alliances can facilitate geographic expansion, cost reduction and generation of manufacturing and other supply-chain synergies. Alliances can also accelerate learning and increase market power.

There are some general criteria that differentiate strategic alliances from conventional alliances. An alliance can be considered strategic if it is critical to the success of a core business goal or objective, it blocks a competitive threat or it mitigates a significant risk to the business.

Strategic alliances usually succeed when the partners involved, see a mutual benefit and trust each other. In any alliance, mechanisms must be put in place to resolve tensions as and when they surface. Top management commitment and selection of capable executives to manage the alliance are key success factors.
(See Joint Ventures)

Strategic Architecture: A top management action plan which indicates the new competencies which will be needed in the coming years, how existing competencies have to be strengthened, how business processes have to be reoriented and relationships with external entities, especially customers have to be reconfigured.

Strategic Business Unit (SBU): A variation of the divisional structure. An SBU is an operating unit or division of a corporate group that determines its own strategy largely independent of the corporate center. Usually, the SBU will have its own distinct set of products and services, for a customer segment or a geographical region. The terms SBU and profit centre are often used interchangeably. In general, SBUs in Indian companies are far less empowered than the term would suggest. They are heavily dependent on headquarters for key resources and approval of important decisions.
(See Divisional Structure, Organizational Structure)

Strategic Choice: Strategy is all about making trade offs. A company must avoid competing in some segments while strengthening its presence in others in line with its strategic vision. The choices which the company makes, must address three questions: Who are the customers? What are they looking for? How can these products/services be offered most efficiently? These questions look simple but have profound implications for the viability of a strategy.

Strategic Control: A strategic control system links operations to strategic goals, using appropriate financial and non-financial information. It is concerned with tracking the strategy as it is being implemented, identifying problems or changes in underlying assumptions and making necessary adjustments. It involves controlling and guiding efforts as the action is taking place. To be effective, a strategic control system needs to be broken down into operational control systems which evaluate the progress in meeting annual objectives. For example, the company can identify key success factors like improved productivity, high employee morale, high product quality, increased EPS, growth in market share, etc. Performance standards can be established and deviations from standards evaluated as the strategy is implemented and the causes identified. Corrective action can then be taken.
(See Strategy Implementation)

Strategic Cost Management: A holistic approach to managing costs, using a cross-functional perspective. A systematic approach to understanding cost drivers can create various benefits. Companies must have a good understanding of what activities add value and what do not. Accordingly, they must cut costs in some areas while increasing spending in others.
(See Activity Based Costing)

Strategic Fit: A term, which is commonly used in the context of diversification and mergers & acquisitions. Strategic fit refers to the extent to which the activities of the two businesses/organizations complement each other. A good strategic fit exists when there is scope for cost reduction due to rationalization of activities/economies of scale. Strategic fit may also exist if there are cross selling opportunities, or if market power can be increased. In general, it is easier to quantify the impact on costs, compared to that on the bottom-line.

Strategic Groups: Strategic Group is a concept that helps to bring sharper focus into strategy formulation. There are groups of companies within an industry that have similar business models or similar strategies. Strategic groups are essentially companies who are aware of each other as competitors in a particular market, and who are collectively separated from other such groups by mobility barriers such as scale economies, proprietary technology, possession of government licences, control over distribution, marketing power and so forth. Such barriers vary widely in nature from group to group. Different companies within a group may relate to them to varying degrees. The number of groups within an industry and their composition depends on the dimensions used to define the groups. Strategists often use a two dimensional grid to display the position of each company along the two most important dimensions. The term was coined by Hunt (1972). Michael Porter (1980) developed the concept and explained strategic groups in terms of "mobility barriers" or entry barriers.
(See Entry Barriers, Industry)

Strategic Inflection Point: A term coined by Andrew Grove, former CEO of Intel to describe a dramatic change in competitive forces. At that time, the leaders must give up the past, see closely how the industry is evolving and find new ways of competing. This point of dramatic change in the industry is known as Strategic Inflection Point.

For example, the arrival of containers marked a strategic inflection point in the shipping industry. The introduction of the IBM PC was a strategic inflection point in the computer industry. The emergence of large discount store chains like Giant and Big Bazaar may well turn out to be a strategic inflection point in the Indian retailing industry. The rise of virtual book stores like Amazon has also marked a point of severe discontinuity. The entry of low cost airlines like Air Deccan represents a strategic inflection point in the airline industry in India.

In his fascinating book, “Only the Paranoid Survive,” Grove calls a very large change in one of the competitive forces in an industry, a “10X” change, suggesting a sudden tenfold increase in the force. The business no longer responds to the company’s actions as it used to in the past. Put another way, a strategic inflection point marks a shift from the old ways of doing business to new ones.

Grove offers some useful insights to cope with the situation. When a technology break or other fundamental change comes their way, companies must grab it. Only the first mover has a true opportunity to gain time over its competitors. Companies must also show discipline by setting a price that the market will bear and then work hard to cut costs so that they can make money at that price. Cost plus pricing will not work in such cases.

When is a change really a strategic inflection point? Most strategic inflection points, instead of coming in with a bang, appear slowly. They are often not clear until we can look at the events in retrospect. So how do we know whether a change signals a strategic inflection point? Grove suggests managers must ask a few basic questions. Are we no longer clear about who the key competitors are? Does the company that in past years mattered the most to us and our business seem less important today? Does it look like another company is about to eclipse them? Are people who for years have been very competent, suddenly becoming ineffective?

The best way of identifying a strategic inflection point is to engage in a broad and intensive debate, involving employees, people outside the company, customers and partners who not only have different areas of expertise but also have different interests. Such a debate can consume a lot of time and intellectual energy. It can also take courage to enter a debate the top management may lose, in which weaknesses may be exposed and the disapproval of people may be encountered.
(See Disruptive Technology)

Strategic Innovation: A term introduced by Vijay Govindarajan and Chris Trimble . Strategic innovation, which goes beyond process or product innovation, addresses three fundamental questions:

a) Who is the customer?
b) What is the value the company offers to the customer?
c) How does the company deliver that value?

Strategic innovation must not be left to chance. It must be viewed as the outcome of strategic experiments. These are deliberately planned strategic moves, which have ten common characteristics:

a) They have high revenue growth potential
b) Typically, they target emerging or poorly defined industries
c) Such experiments are launched before any other competitor and before any profit making formula has been established.
d) They depart from the company’s proven business definition and its assumptions about how the business will succeed.
e) These experiments leverage some of the corporation’s existing capabilities and assets in addition to capital.
f) They need some new knowledge and capabilities
g) They involve discontinuous rather than incremental value creation.
h) They involve greater uncertainty across multiple functions
i) They may remain unprofitable for several quarters or more.
j) Such experiments give no clear picture of performance early on.

Strategic innovations involve unproven business models. Companies that are good at strategic innovation change the rules of the game and delight investors with sustained growth. Their business models are difficult to imitate.

Govindarajan and Trimble have explained in great detail, the challenges involved in implementing innovations. Typically three stages are involved in any innovation. Creativity dominates the beginning of the innovation process. Efficiency is important towards the end of the innovation process. The middle involves unique challenges - a forgetting challenge, a borrowing challenge and a learning challenge.

It is in the middle, where companies often stumble. The new initiative must forget the parent company’s business definition, assumptions, mindsets and biases to develop new competencies to exploit new business possibilities. The new initiative must learn how to borrow assets from the parent company. These may include manufacturing capacity, expertise, sales relationships, distribution channels, etc. The new initiative must learn and constantly improve its predictions of business performance. It must be able to resolve various critical unknowns in its business plan and put in place a working business model as quickly as possible.
(See Innovation, Process Innovation, Product Innovation, Value Innovation)

Strategic Intent: An ambitious organizational goal that is disproportional to current resources and capabilities. The top management articulates a desired leadership position and then establishes the criterion that the organization will use to chart its progress. The management must motivate people by communicating the value of the target; sustain enthusiasm by providing new operational definitions as circumstances change and make the intent the basis for resource allocations.

Strategic intent can be viewed as an animating dream that energizes a company by setting stretch targets, providing a sense of direction and conveying a sense of destiny to the company's employees.
For example, Dabur's intent states:

We intend to significantly accelerate profitable growth. To do this, we will :

• Focus on growing our core brands across categories, reaching out to new geographies, within and outside India, and improve operational efficiencies by leveraging technology.
• Be the preferred company to meet the health and personal grooming needs of our target consumers with safe, efficacious, natural solutions by synthesizing our deep knowledge of ayurveda and herbs with modern science.
• Provide our consumers with innovative products within easy reach.
• Build a platform to enable Dabur to become a global ayurvedic leader.
• Be a professionally managed employer of choice, attracting, developing and retaining quality personnel.
• Be responsible citizens with a commitment to environmental protection.
• Provide superior returns, relative to our peer group, to our shareholders.
Source: www.dabur.com
(See Bhag)

Strategic Management: Strategic management is concerned with the formulation and implementation of strategies to achieve the objectives of an organization.

The major areas of strategic management are:
i) Articulating the Corporate Mission.
ii) SWOT analysis.
iii) Identifying various strategic options like capacity expansion, vertical integration
and diversification.
iv) Selecting the desired option(s).
v) Formulation of long term objectives and strategies consistent with the desired options.
vi) Formulation of short term objectives and strategies consistent with the long term objectives
and strategies.
vii) Implementation.
vii) Control.

The term strategic implies heavy, irreversible resource commitments, long-term implications and organization wide consequences. But strategic management is not only about the long term. Short term strategies and objectives must be aligned with the long term objectives to facilitate effective implementation.

Strategic management leads to those crucial decisions which effectively determine the future of the firm. Indeed, the outcome of strategic management can make or break a firm. Consider the examples of Metal Box (India) Ltd, Asian Paints and Microsoft. Metal Box diversified into bearings manufacture with disastrous consequences. Asian Paints on the other hand successfully pursued a strategy of backward integration, to become self sufficient in critical raw materials such as pentaerythrytol. Today, Asian Paints is far ahead of other leading paint manufacturers in the country including the MNCs. In the early days of the global computer industry, Microsoft decided to bet on software unlike many other companies which emphasized hardware or a combination of hardware and software. Microsoft also decided to focus on capturing the desktop. By setting its targets right, Microsoft went on to become one of the most successful companies in business history. In contrast, others like Apple struggled.
(See Mission, Environmental Scanning, Strategic Planning, SWOT Analysis, Vision)

Strategic Market: A market, which scores high on either market potential or learning potential or both for a global company. By competing in such a market, a company can gain strategic advantages. The US is a strategic market for a wide range of goods and services, especially for information technology, pharmaceuticals and biotech. So, most European and Japanese MNCs have a major presence there. A strategic market demands significant commitment of human and material resources. Usually, such a market calls for a long-term orientation, i.e. making necessary investments and waiting patiently for results to come. The Japanese car makers like Toyota have succeeded globally by targeting the strategic US market.
(See Globalization, Strategic Advantages)

Strategic Options : Based on a careful analysis of the external environment and the company’s profile, various strategic options are available for a company. The company must choose one or more of these and commit resources accordingly. A few are listed below:

• Concentration: The firm can continue to allocate resources for making more of the current products with the existing technology.
• Market Development: Existing products can be modified slightly and sold to customers in related market areas. Alternatively, sales can be boosted by adding new distribution channels or by changing the promotion mix.
• Product development: Existing products can be modified significantly and new related products created. They can then be sold to current customers through established channels.
• Innovation: A firm may decide to keep launching new products. Even if new players enter the market and increase rivalry, the firm can stay ahead by moving on to a new product.
• Horizontal Integration: The company can acquire one or more similar businesses which are operating at the same stage of production/marketing.
• Vertical Integration: The firm can enter businesses that either provide inputs or that serve as consumers for the firm's output.
• Joint ventures: Two or more business partners may get together if each of them is lacking in some competencies or resources which are necessary for the success of the project.
• Concentric Diversification: Entry into a new business which is related to the existing business in terms of technology, markets or products is called concentric diversification.
• Conglomerate Diversification: The firm can enter an unrelated business based primarily on profit or growth considerations.
• Turnaround: By cutting costs, divesting assets and improving asset utilization, the firm tries to strengthen itself and restore profitability.
• Divestiture: The firm can sell the business or a major chunk of the business. This is the last resort, often considered after the failure of a turnaround strategy.
• Liquidation: The business may be sold (in parts or as a whole) for its tangible asset value and not as a going concern.

The above options need not be mutually exclusive. Based on the company mission and the SWOT analysis, one or more of the above options may be selected. Techniques which help in arriving at a desirable option include the BCG matrix and the GE 9 cell planning grid.
(See BCG Matrix, GE 9 Cell Planning Grid, SWOT Analysis)

Strategic Planning : Strategic planning is the determination of the basic long-term goals and objectives of an organization and adoption of courses of action and the allocation of resources necessary to achieve these goals.

There are several steps in strategic planning.

• The first step is to establish objectives, the results expected, what is to be done and where the primary emphasis is to be placed.
• The second step is to establish planning premises, i.e. assumptions about the anticipated environment. These premises can be classified as external and internal, qualitative and quantitative and controllable, non controllable. External premises can be classified into: general environment, (economic, technological, political, social and ethical conditions); the product market; and the factor market, (location of factory, labor, and materials etc). Internal premises include capital investment, sales forecast and organization structure. Some premises can be quantified while others may be qualitative. Some premises are controllable, such as expansion into a new market, adoption of a research program or a new site for the headquarters. Non-controllable premises include population growth, price levels, tax rates, business cycles etc. The semi controllable premises are the firm's assumptions about its share of the market, labor turnover, labor efficiency, and the company's pricing policy.
• The third step in planning is to identify alternative courses of action.
• The fourth step is to evaluate them by weighing the various factors in the light of premises and goals.
• The fifth step is adopting the plan.
• The final step is to give meaning to plans by putting in numbers and preparing budgets.

Henry Mintzberg has identified ten schools of strategic planning :

• The Design School: Aims at creating a fit between internal strengths and weaknesses and external threats and opportunities.
• The Planning School: Strategic planning is viewed as an intellectual, formal exercise using various techniques.
• The Positioning School: The company selects its strategic position after thoroughly analyzing the industry.
• Entrepreneurial School: The focus here shifts to the chief executive who largely relies on intuition to formulate strategy. The emphasis moves away from precise designs, plans or positions to vague visions or broad perspectives.
• Cognitive School: The focus here is on cognition and cognitive biases.
• Learning School: Strategies evolve as the organization learns more about the environment and the business.
• Power School: Strategy making is rooted in power.
• Cultural School: Views strategy formulation as a process rooted in culture.
• Environment School: The focus here is on coping with the environment.
• Configuration School: Integrates the claims of other schools.

The three broad approaches to strategic planning can be summarized as follows:

Rational planning involves identifying and understanding gaps between previously established goals and past performance, identifying the resources needed to close these gaps, distributing those resources and monitoring their use in moving the organization closer towards its goals. This approach assumes the environment is predictable and the organization can be effectively controlled. Clearly, such an approach is not advisable if the business environment is complex and unpredictable.

Incrementalism means moving from one strategy to the next, depending on the unfolding of events beyond the control of managers. Incrementalism assumes that managers cannot forecast or enforce the developments essential to developing a pre-ordained strategy and therefore must continually adjust. Future developments are likely to be random so that there is little scope to learn from past experiences. Thus, in contrast to rational planning which emphasizes intended strategies, incrementalism is based on emergent strategies.

Organizational learning also emphasizes the need for making continuous adjustments. However, these adjustments need not be random. Rather, managers must keep making incremental adjustments to rational plans as they attempt to move the organization toward its goals. Though they may be unable to foresee the future, managers must not allow their organization to drift aimlessly. The role of top management is to encourage all employees to continuously challenge the status quo, generate ideas for improving the status quo, conduct experiments to see which of these ideas are most fruitful and then try to disseminate knowledge gained from these experiments throughout the organization. (See Discovery Driven Planning, Environmental Scanning, Scenario Planning, Strategic Management)

Strategic Pricing: Pricing is a key factor in business innovation. Strategic pricing involves aligning the pricing strategy with corporate strategy. The price must be chosen carefully after considering various scenarios and possible implications. Is the price attractive enough to capture the mass of target buyers? Can the company make the offering at the target cost and still earn a healthy profit margin? Can the company profit at a price that is affordable to the target buyers? Strategic pricing is a key component of Blue Ocean Strategy pioneered by Chan Kim and Renee Mauborgne.

In a competitive market, cost plus pricing does not work. Costs must be controlled so that profits can be generated at the price the market can take. At the same time, in the process of cost cutting, the company should not reduce utility, i.e. the value customers perceive in the product or service.

To hit the cost target, companies can look at various options. They can streamline operations and introduce cost innovations from manufacturing to distribution by addressing relevant questions. Can the currently used raw materials be replaced by unconventional, less expensive ones? Can high-cost, low-value added activities in the value chain be reduced or outsourced? Can the physical location of the product or service be shifted from prime real estate locations to lower-cost locations? Can the number of parts or steps used in production be truncated by changing the way things are made? Can activities be digitized or automated?

As goods become more knowledge intensive, product development costs rather than manufacturing costs start dominating. So achieving high volumes quickly has become the need of the hour. Moreover, to a buyer, the value of a product or service increases as more people start using it. As a result of this phenomenon, called network externalities, either millions of units are sold at once, or nothing at all. So it is increasingly important to know from the start what price will quickly capture the mass market. That is why strategic planning is gaining in importance.

The main challenge in strategic pricing is to understand the price sensitivity of those people who will be comparing the new product or service with a host of products which on the surface look different, but offer the same benefits to the customers. So companies must list competing products and services that fall into two categories: those that take different forms but perform the same function, and those that take different forms and functions but fulfill the broad objective. The exact price will be guided by two principal factors - the extent of patents or copyrights protection and the ease of imitation.

Sometimes, there may be little scope to cut costs but there could be scope to come up with an innovative pricing model. Take telecom. In developing countries, public call offices in rural areas, by eliminating fixed monthly rentals, significantly reduce the price of the service. Another pricing innovation is small packs. Offering products or services in small quantities makes them more affordable to the masses.
(See Blue Ocean Strategy, Value Innovation)

Strategy Evaluation: How do we know whether the strategy is working? Since results are not usually available for substantially long periods of time, other indicators become necessary. The degree of consensus which exists among executives regarding corporate goals and policies, the extent to which major areas of managerial choice are identified and the degree to which resource requirements are anticipated well in advance, are all pointers to the workability of the strategy.

To ensure that it is workable, any strategy needs to be evaluated carefully with respect to the following:

Internal Consistency: A corporation may have many policies. If the strategy is sound, the policies should mesh well with each other.

External Consistency: The strategy must make sense with respect to events in the external environment, both current and anticipated.

Availability of resources: It is resources taken together which represents the capacity of the organization to respond to opportunities and threats in the environment. Resources include cash, competence, facilities, etc. A key issue in strategy formulation is achieving a balance between strategic goals and available resources. The company must decide how much of resources to commit to opportunities currently available and how much to keep in reserve to take care of unanticipated demands.

Degree of risk involved: The degree of risk inherent in a strategy depends on the uncertainity about the availability of the resources, the length of the time periods to which resources are committed and the proportion of resources committed to a single venture.

Time Horizon: A viable strategy has to indicate the time frame in which goals are to be achieved. The greater the time horizon, the wider the range of strategic choices available. The larger the organization, the longer the time horizon, since adjustment time is larger. Large organizations change slowly and need time to make significant modifications in their strategy. While, it is useful to have a certain consistency of strategy over long periods of time, flexibility is important in a rapidly changing environment.

Strategy Implementation: Often the difference between the market leaders and other players in the industry is the ability to execute strategy. Effective strategy implementation involves getting people’s buy in, choosing the right metrics and tracking performance on an ongoing basis. Much of strategy implementation involves managing change. So the behavioral issues involved, must not be overlooked.

The following are useful guidelines for strategy implementation.

Unlearn the past: Often past strategies stand in the way. So unlearning is important.

Increase commitment at lower levels: People at lower levels in an organization are often skeptical about the practical utility of a strategic plan. Without taking the lower level employees along, strategy implementation is difficult.

Avoid over ambitious strategies: Functional managers are used to a way of working. They may not be able to adjust suddenly to a new strategy.

Identify responsibilities and milestones: The list of specific tasks each function must perform, specific milestones and the names of the individuals who accept responsibility for each major functional program, must be identified.

Communicating downward is as important as communicating upward: It is the functional and lower level operating managers who hold the key to the successful implementation of a strategy. Half hearted commitment from functional managers can thwart the goals set for the business.

Organizational structure, leadership and culture play an important role in ensuring that strategy percolates into the day-to-day activities of the company. Structure divides tasks so that they can be performed efficiently. Leadership must send out the right signals to facilitate smooth implementation. Culture is the set of important, often unstated assumptions that influence the opinions and actions of the employees. Culture becomes a weakness when the assumptions of the employees interfere with the needs of the business and its strategy.

The key to execution is shaping the attitudes and behavior of people. A culture of trust and commitment motivates people to execute the agreed strategy. People's minds and hearts must align with the new strategy so that they embrace it willingly, going beyond compulsory execution to voluntary cooperation.

To build people's trust and commitment, Chan Kim and Renee Mauborgne emphasize the importance of getting people's buy-in, building trust and creating a perception that a level playing field exists. Only then will people cooperate voluntarily in implementing strategic decisions. This approach called Fair process has three main components: engagement, explanation and expectation clarity.

Engagement means involving individuals in strategic decisions by asking for their inputs and encouraging them to critically examine the merits of the ideas and assumptions of different people.

Explanation means that everyone involved and affected should understand why important decisions are made as they are. An explanation of the thinking that underlies decisions makes people confident that managers have considered their opinions and have made objective decisions in the overall interest of the company.

Expectation clarity requires that, managers state clearly the new rules of the game. Although the expectations may be demanding, employees should know up front what standards they will be judged by and the penalties for failure. When the expectations are clearly defined, political jockeying and favoritism are minimized, and the focus shifts to execution.

By organizing strategic planning around the principles of fair process, execution can be built into strategy making from the start. People will realize that compromises and sacrifices are necessary to achieve the organizational goals. The ensuing discipline and increased collaboration levels will facilitate strategy execution.
(See Change Management, Policies, Strategic Control)

Stretch: A concept introduced by Sumantra Ghoshal and Christopher Bartlett in their book, “The Individualised corporation”. Employees must be given challenging goals to motivate them and exploit their full potential. Stretch helps in moving people from satisfactory underperformance to high performance. Stretch encourages managers to see themselves not in terms of the past but in terms of the future.
(See Bhag, Purpose-Process-People-Doctrine)

Stuck in the Middle : A firm should be clear about the way it is going to do business. Michael Porter suggests that the firm that has not made a choice about pursuing cost leadership or differentiation runs the risk of being ‘stuck in the middle’. Such a firm tries to achieve the advantages of low cost and differentiation but in fact achieves neither. Poor performance results because the cost leader, differentiator or focuser will be better positioned to compete in their respective segments. (See Cost Leadership, Differentiation, Generic Strategy)

Succession Planning: The process of identifying and preparing people for assuming greater responsibility, to ensure that vacant positions are filled smoothly. While the human resources department can take care of succession planning at lower levels, at higher levels, it has strategic implications often involving the CEOs themselves. CEO level succession planning is a challenging task that involves active collaboration between the board and the incumbent CEO. In companies like GE and Unilever, succession planning is taken very seriously and implemented with the help of elaborate mechanisms and processes. In India, companies like Hindustan Lever Limited (HLL) have mastered the art of succession planning. The biggest succession planning problems seem to be in the case of our public sector enterprises because of political interference and in family owned businesses due to lack of professionalism. Witness the recent crisis in Reliance.

Supply Chain Management (SCM): A supply chain involves the various parties who came together to fulfill a customer request. Manufacturers, suppliers, transporters, warehouses, distributors, wholesalers, retailers and customers together make up the supply chain. These entities are supported by various functions such as sales, product development, operations, logistics, after sales service and finance. At the heart of the supply chain lies the flow of information, products and cash flows. Some of these flow towards and some away from the customer. The main objective of any supply chain is to deliver value to customers in optimal fashion. Value can, in simple terms, be understood as the difference between the price the end customers are prepared to pay and the costs incurred in meeting their needs.

Complicated outsourcing arrangements backed by information technology mean that supply chains are no longer linear but quite intricate, taking the shape of a network. Several suppliers, factories and logistics providers may be involved, making supply chain management (SCM) a fairly challenging task.

SCM must be treated as an integral part of competitive strategy. Indeed, SCM drives corporate strategy in the case of companies like Dell. There must be a strategic fit between competitive strategy and SCM, i.e. consistency between the customer needs that competitive strategy focuses on and the capabilities that SCM is building.

A company must have a broad vision of how the supply chain will function and evolve over time. Accordingly, investment decisions must be made. These include manufacturing facilities, warehouses, transportation infrastructure and information technology. Supply chain design decisions typically have long term implications. So they must be made carefully, taking into account uncertainty and anticipated market conditions over the next few years.

These strategic design decisions must be backed by appropriate medium term planning decisions and short term operational decisions. Planning may involve making forecasts typically for a year and breaking it down into quarterly figures. Supply chain operations are more focused on handling incoming customer orders in the best possible manner. The design, planning and operation of a supply chain can have a major impact on a company’s overall success in many industries. The computer manufacturer Dell, the Spanish retailer, Zara and the Hong Kong trader, Li & Fung are good examples.

Efficiency and responsiveness make up the two conflicting demands of a supply chain. Depending on the market realities, SCM must arrive at a suitable trade off. Usually as investments are made to improve responsiveness to market needs, costs tend to go up. Similarly, as efforts are made to cut costs, responsiveness often suffers. Of course, there are situations, where intelligent supply chain configuration can simultaneously improve responsiveness and lower costs. Thus, in the computer industry, Dell builds-to-order thereby cutting the costs associated with inventory obsolescence. But Dell has also cut down response time and increased the opportunities to customize, so that responsiveness to customer needs has not been compromised.

The effectiveness of a supply chain depends critically on how different activities are coordinated. Coordination problems arise because of conflicting objectives or poor information flows. These challenges have increased in recent times on account of multiple ownership of the supply chain and increased product variety. One manifestation of the problem is the bullwhip effect. Fluctuations in orders get amplified as they move backwards along the supply chain from retailers to wholesalers to manufacturers to suppliers. Suppose, there is a random increase in customer demand at the retailer level. Interpreting this rise in demand as a growth trend, retailers may order more than the observed increase in demand to cover anticipated future growth. Similarly the wholesalers may order more than the observed increase in demand from the retailer. This phenomenon extends right down to the suppliers. The bullwhip effect can be minimized by greater coordination across the supply chain by streamlining information flows, by aligning incentives and by improving trust.

Another challenge today in SCM is mass customization, the ability to execute small customized orders, without sacrificing the cost advantages of a mass production system. A key tool here is the principle of postponement. Companies must delay the final configuration of a product till the order is received. In general, the demand for intermediate products/components is more stable than that for finished goods. Take the example of paints. The only difference between two shades of a paint could be the addition of a small quantity of pigment. This can always be done at the retail outlet. By only keeping a few primary colors as the core inventory and generating new shades based on actual customer demand, there is scope to reduce inventory and improve customer responsiveness simultaneously. The demand for primary colors fluctuates less than that for individual shades.

Information Technology (IT) has a key role to play in SCM. Inventory is nothing but a hedge against uncertainty. Uncertainty arises due to poor information flows. So by streamlining the flow of information, IT can significantly improve the functioning of a supply chain. However, it is wrong to equate SCM with IT as many computer software companies do. The essence of SCM is managing relationships among the different entities involved both within and outside the organization, like customers, suppliers and third party logistics providers. Trust and fair play are the key ingredients for good relationships.
(See Value Chain, Value System)

Switching Costs: Costs incurred by buyers while changing products, services or suppliers, due to various factors. A buyer's product specification may tie it to particular suppliers. The buyer may have invested heavily in specialist ancillary equipment. The new product may require new learning or its production lines may be connected to the supplier's manufacturing facilities. In addition, the buyer may have developed routines and procedures for dealing with a specific vendor. These routines will need to be modified if a new relationship is established. All else being equal, a buyer will be motivated to continue existing relationships to minimize switching costs.
(See Bargaining Power of Buyers, Bargaining Power of Sellers, Barriers to Entry)

SWOT Analysis: SWOT analysis is used for identifying those areas where an organization is strong, where it is weak, the major opportunities the company can explore and the threats. SWOT Analysis helps a company to know where it stands by exploring key issues:

Strengths:

. What do we do well?
. How are we better than our competitors?

Weaknesses:

. What could be done better?
. What is being done badly?

Opportunities:

. What are the opportunities that can be exploited?
. What are the interesting trends?

Threats:
. What obstacles are being faced?
. What is the competition doing?
. Are the specifications for the products or services changing?
. Is changing technology threatening our business?

(See Company Profile, Environmental Analysis, Strategic Planning)