1. Developing Organizational Strategies Dr. Fred Mugambi Mwirigi JKUAT 1

2. Just to recap…. What is a strategy? A roadmap The shortest and most cost effective route to achieve the highest levels of results A predetermined mode of doing things 2

3. Strategy Support The right structure must be put in place to support strategy development and implementation Such a structure must comprises all various key support pillars These pillars are created both internally and externally 3

4. Strategy Support Factors 4 STRATEGY Strategic Objectives Skill/ knowledge Institutional/ Structural Support Financial Resources External Environmental Support Management Attitude

5. What are Strategic Objectives? They are broad statements of direction They explain where the firm plans to go in the medium to long term They must borrow from the company’s vision and mission Strategic objectives are, in general, externally focused Good objectives make it easy to set workable strategies and allocate resources 5

6. Target Areas in Objective and Strategy Setting According to Peter Drucker they fall into eight major classifications: 1.Market standing- desired share of the present and new markets 2.Innovation- development of new goods and services and of skills and methods required to supply them 3.Human resources- selection and development of employees 4.Financial resources- identification of the sources of capital and their use 5.Physical resources- equipment and facilities and their use 6.Productivity- efficient use of the resources relative to the output 7.Social responsibility- awareness and responsiveness to the effects on the wider community of the stakeholders 8.Profit requirements- achievement of measurable financial well- being and growth 6

7. Other Targets for Objective and Strategy Setting New market opportunities Reduced costs Reduced risk Improved worker health and morale Reduced absenteeism Reduced employee turnover Reduced waste Increased productivity Improved customer satisfaction Enhanced brand image Better products and services 7

8. Setting Strategic Objectives Key Questions: What is our general vision and mission? In what areas will we continue being actively involved in the future? In what 3-7 areas will our company continue being actively involved in the future? What areas do we need to be involved in to accomplish our mission statement? What is our company going to do about our competitive advantage categorically? 8

9. Testing Clarity of strategic objectives Key questions: Can the area or activity be assigned to a specific person? Can specific tasks be assigned to the goal? Does it have clear outputs and outcomes? Can the objective be financed and resourced in very specific terms? 9

10. Institutional/ Structural Support Structures must be aligned to management systems and company objectives and strategy Transparency within the business’s organizational structure is important Structures must be dictated by organization’s strategic direction Good structures are agile and dynamic 10

11. Analyzing Structural Support Key things: 1.Hierarchy levels (authorization and approval bottlenecks) 2.Grey areas in structure and hierarchy (gaps) 3.Crowded structures (overlaps) 4.Basis of structure (is its existence based on tasks and goals, authority, control, etc?) 5.Lame structures (poorly resourced) 11

12. Choice of Structure 1.Hierarchical 2.Flat 3.Matrix 12

13. Signs that the Structure is wrong/ Weak The structure and management system no longer support its business strategy and objectives The current distribution of responsibilities lacks transparency and effectiveness You find it difficult to allocate decision-making responsibilities Units within your company have overlapping functions Interaction between different management levels (e.g. between the corporate centre and subsidiaries or affiliates) lead to conflict Senior executives spend too much time discussing minor operational issues Your management’s decision-making process is slow and ineffective Potential investors are unimpressed with your corporate governance 13

14. Environmental Factors 14

15. Financial Resources Poorly resourced strategies are unlikely to have much impact Select and work with strategies to which you can commit adequate financial resources Over-resourced strategies may work but could result in wastage and reduced overall benefits (profits) Financial resource allocation to strategies must be decided before embarking on implementation of strategies 15

16. Skill/ Knowledge Levels There is need to align strategy with the right skill and knowledge Key questions: 1.What is the skill/knowledge needed to develop and implement the strategy? 2.Who is in charge of what component/ role in strategy development and implementation? 3.What are their skills, experiences and exposures? 16

17. Management Attitude Subordinates tend to take the cue from what managers do more than from what they say The overall attitude of a manager has significant effect on strategy development and implementation For example, pessimistic managers tend to provide poor support to strategy 17

18. Identifying Strategy Needs These are gaps that could render the goals unachievable- strategy gaps Sometimes we set goals/objectives and leave them unsupported with strategies One way of identifying strategy needs is to ask: 1.Are goals at all levels supported with strategies? 2.How strong is this support? 3.What is the nature of the support strategies? 4.Are they well aligned with the objectives? 18

19. Key Strategies Internal operational Strategies Broad corporate level Strategies 19

20. Internal operational Strategies Based on Functions: 1.HR 2.Finance 3.Marketing 4.Production 5.IT 6.General operations 7.Others 20

21. Broad Corporate Level Strategy Categories Offensive strategies Defensive strategies Collusive Strategies 21

22. Offensive Strategies 1. Concentration strategies 2. Integration Strategies 3. Diversification Strategies 22

23. 1. Concentration strategy There are two main options for pursuing a concentration strategy i.Market development strategy- here the company tries to expand the market of its current business. This can be achieved by expanding into new geographic areas or attracting new market segments. A good example of a company that has consistently used this strategy is Coca Cola. ii.Product development strategy- this strategy involves altering the basic product or adding a closely related product that can be sold through the existing marketing channels. For example, both Airtel and Safaricom have introduced many new products all of which use the cell phone and their respective networks. 23

24. 2. Integration Integration- this strategy involves extending business operations into any one or both of the two possible directions i.e. forward and/or backward integration. In forward integration the organization ventures into the distribution of its own products as opposed to using external distributors. In backward integration the organization begins to supply some or all of the materials used in producing its current products 24

25. 3. Diversification Options under this strategy are: Concentric diversification- this strategy involves expanding into a related but distinct area. For example a flourmill that processes flour for human consumption could venture into animal feeds. This is because the area of animal feeds lies within the know-how, technology and experience of such a business Conglomerate diversification- this growth strategy involves adding new products that are significantly different from the company’s present products in to the company’s product portfolio. This strategy can be achieved thorough mergers, acquisitions or joint ventures. 25

26. Defensive strategies Defensive strategies are also referred to as retrenchment strategies. These strategies are used when the company needs to reduce its operations. They are popular when a company needs to reverse a negative trend or to overcome a crisis. They serve as short-term remedies to problematic situations or as the only avenues out of situations when no other options seem feasible. 26

27. Defensive strategies Contd. Specific reasons that could prompt a company to use defensive strategies are: 1.If the company is having financial problems 2.If the company forecasts difficult times ahead 3.If the company stands to benefit immensely by selling the business 27

28. Defensive strategies Contd. Defensive strategies include: 1.Turnaround strategy 2.Divestment strategy 3.Liquidation strategy 4.Filing for bankruptcy 5.Becoming a captive (tying down property) 28

29. Defensive strategies contd. Turnaround strategy- this is the strategy of reversing a negative trend to get the organization back on the track of profitability. Turnaround strategies are intended to reduce the costs of operations at the same time increasing efficiency. Reducing the number of employees or shedding replicated operations is a good example of this strategy. Divestment strategy- divestment involves selling off part of the business, e.g. an SBU, a product line or a division. A company may result to divestment if a recent diversification did not work out or if it has a large debt to settle. It could also pursue divestiture if it intends to change its core business or business direction. 29

30. Defensive Strategy Categories Defensive strategies include: 1.Turnaround strategy 2.Divestment strategy 3.Liquidation strategy 4.Filing for bankruptcy 5.Becoming a captive (tying down property) 30

31. Collusive Strategies Collusive strategies involve collaborative efforts that tamper with the industry balance of supply and demand. Price/output collusion occurs when rival firms reduce the supply of an output below its competitive level in order to raise price above its competitive level and earn a greater than economic return. In some countries some collusive strategies are outlawed 31

32. In conclusion…. 32 What are our objectives? What are the strategy needs? What skill and knowledge is available? What internal and external support is available? Which is the best strategy option? What are the strategy Options?

33. Thank you 33