Nature of Strategies and Policies

Strategies and policies are closely related. Both give direction, both are in the framework for plans, both are the basis of operational plans, and both affect all areas of managing. The term strategy has been used in different ways. Authors differ in at least one major aspect about strategies. Some writers focus on both the end points (purpose, mission, goals, and objectives) and the means of achieving them (policies and plans). Others emphasize the means to the ends in the strategic process rather than the ends per se.

Strategy refers to the determination of the purpose (or mission) and the basic long term objectives of an enterprise, and the adoption of courses of action and allocation of resources necessary to achieve these aims. Therefore, objectives are a part of the strategy formulation.

Policies are general statements or understandings that guide managers’ thinking in decision making. They ensure that decisions fall within certain boundaries. They usually do not require action but are intended to guide managers in their commitment to the decision they ultimately make. The essence of policy is discretion. Strategy on the other hand concerns the direction in which human and material resources will be applied in order to increase the chances of achieving selected objectives.

To be effective strategies and policies must be put into practice by means of plans, increasing in detail until they get down to the nuts and bolts of operations. Tactics, then, are the action plans through which strategies are executed. Strategies must be supported by effective tactics.

Although specific steps in the formulation of a strategy may vary, the process can be built, at least conceptually around the key elements.

The various organizational inputs including the goal inputs of the claimants were discussed.

The formulation of a strategy requires the evaluation of the attractiveness of an industry by analysing the external environment. The focus should be on the kind of competition within an industry, the possibility of new firms entering the market the availability of substitute products or services the bargaining positions of the suppliers and buyers/customers

The enterprise profile is usually the starting point for determining where the company is an where it should go. Thus, top managers determine the basic purpose of the enterprise and clarify the firm’s geographic orientation, such as whether it should operate in selected regions in all states in the United States, or even in different countries. In addition managers assess the competitive situation of their firm.

One can also often infer from the advertisements what is important for company in terms of geographic orientation, product emphasis and strategies in cooperating with partner and even competitors. Here are some examples:
For Komatsu it is going global in a big, big way
For Ricoh it is Embracing the potential of a digital future.
For Konica it is giving the customer a voice in product design.
For AMWAY it is made in America sold around the world.
For Cannon it is working both with partners and competitors.

The enterprise profile is shaped by people, especially executives, and their orientation and values are important for formulating the strategy. They set the organizational climate, and they determine the direction of the firm through their vision. Consequently their values their preferences and their attitudes towards risks have to be carefully examined because they have an impact on the strategy.

The mission, also sometimes called as purpose is the answer to the question; What is our business? The major objectives are the end points towards which the activities of the enterprises are directed. Strategic intent is the commitment to win in the competitive environment. Firms achieving global leadership had an obsession with winning not only at the top level but also throughout the organization. This obsession is called strategic intent and is illustrated by Komatsu’s intent to encircle caterpillar its main rival, or Canon’s idea to Beat Xerox or Honda’s intent to become an automotive pioneer such as a second Ford. The authors pointed out that the strategic intent requires a personal effort and commitment. The intent statement is stable over time and focuses on the essence of winning.

The present and future external environment must be assessed in terms of threats and opportunities. The evaluation focuses on the competitive situation as well as on economic, social, political, legal, demographic and geographic factors. In addition the environment is scanned for technological developments for products and services on the market and for other factors necessary for determining the competitive situation of the enterprise.

Latest Organization Designs

Many practicing managers are becoming disenchanted with traditional ways of designing their organization. Up until a few years ago, most managers attempted only timid modifications of classical bureaucratic structures and balked at daring experimentation and innovation. However, many of today’s managers finally overcome this resistance to making drastic organizational changes. They realize that the simple solutions offered by the classical theories are no longer adequate in the new paradigm environment. In particular the needs for flexibility, adaptability to change, creativity, innovation, knowledge, as well as the ability to overcome environmental uncertainty are among the biggest challenges facing a growing number of organizations. The response has been horizontal network, and virtual organization designs.

Horizontal designs replace the traditional vertical, hierarchical organization. The advanced information technology and globalization environment, suggests the use of horizontal structure to facilitate cooperation, teamwork and a custom rather than a functional orientation. A McKinsey & Company consultant is given credit for developing some of the following guiding principles that define horizontal organization design.

Organization revolves around the process, not the task. Instead of creating a structure around the traditional functions, the organization is built around its three to five core processes. Each process has an owner and specific performance goals.

The hierarchy is flattened. To reduce levels of supervision, fragmented tasks are combined, work that fails to add value is eliminated and activities within each process are cut to the minimum.

Teams are used to manage everything. Self-managed teams are the building blocks of the organization. The teams have a common purpose and are held accountable for measuring performance goals.

Customers drive performance: Customer satisfaction, not profits, or stock appreciation, is the primary driver and measure of performance.

Team performance is rewarded. The reward systems are geared toward team results, not just individual performance. Employees are rewarded for multiple skill development rather than just specialized expertise.

Supplier and customer contact is maximized. Employees are brought into direct, regular contact with suppliers and customers. Where relevant, supplier and customer representatives may be brought in as full working members of in-house teams.

All employees need to be fully informed and trained. Employees should be provided all data, not just sanitized information on a need to know basis. However, they also need to be trained on how to analyse and use the data to make effective decisions.

Today, the horizontal structure has become a reality in an increasing number of organizations. For example, AT&T units are doing budgets based not on functions but on processes, such as the maintenance of a worldwide telecommunication network. Importantly AT&T is also rewarding its people based on customer evaluations of the teams performing these processes, and GE Motorola and Xerox among other firms have moved to the principles of the horizontal design of organization. For example General Electric has scrapped the vertical structure that was in place in its lighting business and replaced the design with a horizontal structure that is characterized by over 100 different processes and programs. In particular, to cut out bureaucracy and solve organizational problems that cut across functions and levels. GE implemented its famous Work Out described as follows:

Large groups of employees and managers – from different organizational levels and functions come together to address issues that they identify or that identify or that senior management has raised as concerns. In small teams people challenges prevailing assumptions about the way we have always done things and come up with recommendations for dramatic improvements in organizational processes.

The Government Electronics group at Motorola has redesigned its supply chain management organization so that it is now a process structure geared towards serving external customers. At Xerox new products are developed through the use of multidisciplinary teams: the vertical approach that had been used over the years is gone. These new ways of organizing are more relevant to today’s environmental needs for flexibility, speed, and cooperation.

The Horizontal Organization suggests principles such as the following:
Make teams not individuals, the cornerstone of organizational design and performance
Decrease hierarchy by eliminating non value added work and by giving team members the authority to make decisions directly related to their activities within the process flow.
Emphasize multiple competencies and train people to handle issues and work in cross functional area.
Measure for end of process performance objectives, as well as customer satisfaction, employee satisfaction and financial contribution.
Build a corporate culture of openness, cooperation and collaboration a culture that focuses on continuous performance improvement and values employee empowerment responsibility and well-being.

The network designs go beyond even horizontal structures and totally abandon the classical, hierarchical, functional structure of organization. The bureaucratic model worked fine in the previous era when there was less competition and more stable market conditions, and before the now boundary less conditions of advanced information technology and globalization.