“Strategy is not the same as Strategic Planning”( 2002).
Critically assess what is meant by this statement.
I. Introduction
A global business environment involves high levels of competition so that the driving force for business firms is the achievement of a competitive edge over similar businesses in the market. According to (2003), competitive advantage pertains to the situation where “a firm successfully formulates and implements a value-creating strategy” (). Two forms of competitive advantage exist, which are cost advantage and differentiation advantage. Cost advantage exists when the business firm is able to sell its products at a lower price relative to firms selling the same product (1998). Dell incorporated is an excellent example of a firm, which has achieved cost advantage over its closest competitors, Hewlett-Packard, Gateway and IBM, by selling its products at a price almost half the price of its competitors (2003). Differentiation advantage pertains to the delivery of product and service value exceeding competing products and services. This implies that the business firms develop superior value for customers and superior profit for itself. ( 1998)
To achieve competitive advantage, the business firm should identify relevant strategies and incorporate these into its strategic plan to direct its operations towards the creation of value for customers and for the organization. However, before an organization can start to implement its strategic plan and manage its progress, it is imperative that the organization is able to differentiate strategy from strategic plan in order to distinguish their respective roles in its capability optimization and resource maximization targets.
II. Definition
Strategy
The definition of strategy has evolved through time. Strategy is “the unique and sustainable ways by which organizations create value” as a competitive advantage (2000). This definition developed from the evolution of the perception of strategy.
Definition of strategy changed throughout history according to the (1996). The initial rise of strategy was in the beginning of the 1960s when Harvard professors came up with the definition of strategy as “a tool to link together functions of a business and assess a company’s strengths and weaknesses against competitors (). During this time, General Electric was at the head of strategic operations by seeking the assistance of consultants in perceiving the organization as a strategic business unit, identifying its competitors, and evaluating the company’s relative position in the market.
This definition remained even up to the 1980s when (1980) developed the technique of managing strategy through economic models, supporting the experience curve and growth/market-share matrix in the 1960s. In 1983, General Electric changed its strategy from depending upon the assistance of consultants to developing a strategy unit from the various operations of the firm. Despite the persistence of the definition, there was a shift from strategy and strategic planning to operational management giving rise to the concept of total quality management. In the late 1980s, reorganization became the winning strategy with companies reengineering their operations to achieve efficiency in production. It was during this decade that (1996) attributes the fall of strategy and the rise of operations management concepts.
The fall of strategy, according to (1996) was due to the shift in the understanding of strategy. First shift is the diminished importance of strategy in the organization. This pertains to the perception of strategy as mainly management practices and placement of strategy as subordinate to total quality management even if this not possible since strategy and total quality management belong to polar opposites, with strategy referring to new systems while total quality management refers to the perfection of existing systems. Second shift is the minimization of the scope of strategy to cover only external forces. This implied that strategy became concerned only with external market factors despite the need for holistic strategy fro the efficient achievement of the goals of the company.
In the late 1990s until the present, strategists are again reintroducing strategy as a potent tool for business firms by developing strategy creation in the modern context. This led to the definitions encompassing the entire operations of the company with a long-term approach and a clear direction such as the definition given by (2002). It was during this time that strategy was taking its place again as a tool for value creation, as competitive advantage, in the contemporary market context of fierce competition.
Due to the redirection of strategy, detailed explorations of the concept emerged. (1998) described strategy with three different formulations capturing the holistic nature of the organization, which are corporate level, business unit level and functional/departmental level strategies. Textron exemplifies diversified strategy since the firm comprise of production in various unrelated industries, which are aircraft, automotive, industrial and finance. By having diversified strategy, the business firm is able to achieve efficient production in its various production operations.
Corporate level strategy covers the identification and selection of the market where the company should compete and the portfolio development of the firm. This strategy level involves consideration of several factors. First is reach that covers the determination of corporate responsibility, type of business, and integration and management of the business. Second is competitive contact or the identification of the local area or unit for localizing competition. Third is management of business relations and activities or the coordination of resources and capabilities. Fourth are management practices involving overall governance and centralization or decentralization. (1998)
Business unit level strategy focuses on the development and maintenance of the competitive advantage of the goods and services offered by the organization. This strategy level involves the phases of firm positioning in the market, anticipation and adjustment to demand and technology changes, and swaying competition through strategic techniques. (1998) (1998) also identified cost leadership, differentiation and as focus three generic strategies applicable in this level to create competitive advantage. First two concepts have been previously while focus pertains to the goal directed strategies of the organizations.
Functional level refers to the units and divisions of the business firm while functional level strategy centers on value chain and business processes for the creation of operations, marketing, human resource, finance, research and development with the coordinated use of resources so that business unit level strategies may be executed effectively. (1998)
Strategic Planning
Strategic planning, a concept closely related but different from strategy, also has various definitions depending upon the organization applying it. However, according to (2000) strategic planning should be viewed through the sole definition of being “the method by which a community continuously creates artifactual systems to serve extraordinary purposes” () if the concept should stay true to its initial conceptualization and purpose. Strategic planning is a method because it is not end but a means to an end so that its relevance is based on the achieved results. It operates in the community because it affects various levels of relations. It is continuous, in anticipation of constant changes in the business environment requiring continuous adjustments. It is a tool for creation because it enables the business organization to develop new systems. Creations are artifactual because the persistence of a new system depends upon its usefulness. Extraordinary purpose involves the discovery of the business firm’s extraordinary capabilities.
Moreover, strategic planning inevitably exists in organizations because every aspect of business operations is covered by a strategic plan so that operating without a plan is a plan in itself. Apart from this, strategic planning also involves a bold stand for the business firm because the concept implies the willingness to give up an existing system in the quest to look for an extraordinary new system. (2000)
To elucidate on the concept of strategic planning, its aspect as a process is considered. According to ( 2000), in the modern business context firms have to apply strategic planning, clearly defining business objectives and assessing both internal and external environment and situation in the formulation, implementation, evaluation and adjustment phases to direct and redirect the actualization of the plan towards the achievement of identified objectives. The strategic planning process is shown by the figure below.
Mission and objectives refers to the goals and objectives of the business firm, its values, and its visions for the future. In relation to competitive advantage, the mission and objectives revolve around enhancing the firm’s position and its market share. Environmental scanning covers the assessment and analysis of the internal organization and operations of the business firm and the analysis of its external microenvironment. Environmental scanning tools include SWOT and PEST analysis. Strategy formulation means thinking of ways to optimize the strengths and opportunities and address its weaknesses and threats covering both the internal and external aspects of the business. Examples of strategy formulation are the three generic strategies by (1998). Strategy implementation refers to the movement and interaction of resources and capabilities of the business firm to actualize the formulated strategies by using programs, procedures and budgets as tools. At this stage, it is imperative that the strategic plan and the strategies to be actualized are clearly communicated to all areas of operation to achieve a coordinated and consistent result. The last stage, evaluation and control, involves these steps: 1) defining the parameters to be measured; 2) defining the target values for these parameters; 3) performing the measurement; 4) comparing the measured results to pre-defined standards; and 5) making the necessary changes and adjustments. ( 2000)
III. Differences
Strategy and strategic planning are both key components to the business firm’s achievement of value as its competitive advantage. The two concepts is distinguishable in terms of definition, purpose and direction, scope, relation to each other, and the sequence of their manifestation in the business organization
First in relation to definition, strategy is “the unique and sustainable ways by which organizations create value” ( 2000, p.2) while strategic planning is “the unique method by which a community continuously planning is “the unique method by which a community continuously creates artifactual systems to serve extraordinary purposes” (2000). Both concepts become similar because these are both described as methods. However, the definitions also show that strategy and strategic planning differ because the former refers to a system or a way of doing things while strategic planning refers to the process or the interrelated stages or phases of actualizing strategies and creating new systems.
Chanel is a clothing line that gained competitive advantage during its beginnings by utilizing the strategy of differentiation to distinguish itself from the market. In its strategic planning, Chanel identified the objective of creating women’s clothing, covering the fabric, colour and design that would be exclusively associated with the company. Based on its analysis of the business environment it had to opportunity to use its strength of modern values to capture a larger market share and provide greater value to its customers. During the strategy formulation, Chanel sought to differentiate the firm form from its competitors. In the application of the strategy, Chanel created the ‘little black dress’ into the market targeting modern working women. After the introduction of the little black dress, the company assessed its performance and adjusted the differentiation strategy and the corresponding strategic plan to expand its clothing line to different colours usable in different occasions. The ‘little black dress’ concept was so enduring that it became part of the fashion statement of women for decades. In the recently held little black dress competition, the winners come from different generations with the first place won by Audrey Hepburn through her little black dress in Breakfast at Tiffany’s followed by Princess Diana and Elizabeth Taylor. Part of the top ten included Julia Roberts, Nicole Kidman and Cameron Diaz who wore little black dresses created by Valentino, Chanel and Roland Moret respectively. The little black dress is also a mainstay in decades of proms across the world. (2002)
Second point of difference is the purpose and direction that strategy and strategic planning are moving. Strategy is the conceptual manner of creating value while strategic planning is the process of moving and integrating resources and capabilities to actualize strategies and create systems enhancing the efficiency of the organizations such as value creation, as competitive advantage. Strategy is both a means and end because in its application the result may be a new strategy while strategic planning is a means but not an end in itself because strategic planning is a continuous process. Due to this, the efficiency of strategy is validated by the achievement of a result or the creation of a new system while the efficiency of strategic planning is dependent upon the achievement of the actual results.
In the case of Dell Incorporated, one strategy of the company is outsourcing. Its strategic planning covers the identification of the objectives the company wants to meet, particularly the minimization of production cost to significantly reduce its market price for computer products and services. Environmental scanning covers the assessment of its internal and external environment to support the choice of relevant strategy. Strategy formulation resulted to the identification of outsourcing as the best cost-minimizing move. Strategy implementation involves the establishment of assembly plants in various regions around the world at lesser cost and utilizing the automation process in assembly. Evaluation and control resulted to the increase in the number of assembly plants located near its parts suppliers and the enhancement of the automation process to speed up production. (2003)
Third point of difference is in terms of scope and the relation of both terms to each other. Strategy is general because it is an idea or concept while strategic planning is specific because it involves the development of a series of realizable details in identifying and utilizing strategy to arrive at actual results. Strategy is the concept while strategic plan is the realistic conceptual design or the guide for realizing the determined objectives.
Conclusion
(2002) is accurate in saying that strategy is not similar to strategic planning despite the close relation between the two terms. Based on the exploration of the definition and conceptualization of the two terms, differences arose in terms of the definition, the purpose and objectives, and the scope and relation to each other. Strategy refers to a system while strategic planning refers to the process of actualizing and creating new systems. Strategy is aimed at the creation of value while strategic planning consist of the detailed stages of integrating resources and capabilities to achieve the capability potentials of the organization such as value creation. Strategy is a general idea while strategic planning is the detailed process of using strategy to actualize objectives.
IV. Similarities
V. Discussion
-areas we should focused when doing strategy planning and implementation
VI. Conclusion
References
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