Report of Strategic Management Process practiced at Jusco

Report of Strategic Management Process practiced at Jusco The strategic management process aims at delineating the organizations strategy. It is defined as the process by which managers make a choice of a set of strategies for the organization to achieve efficient functioning and higher accomplishments. It is a continuous process that appraises the business and industries where organization is involved, evaluates its competitors, defines targets to meet all the present and future challenges and finally assesses each strategy periodically  [1]  . Strategic management is a particular course of action that is meant to achieve a corporate goal. By and large, the owners, founders of the company take the first step of the process. They lay down the structure responsible for carrying out several functions such as providing direction and guidance to the employees, setting up measurable goals with defined time spans and designated duties. Planning, budgeting, acquiring resources, maintaining resources and using follow-up techniques to resolve key issues are key elements for managers to know in the strategic management process. Strategic planning came into being years ago as an alternative to then popular tradition of long-range planning. Long-range planning was based on pooling historical data and several market assumptions to chart the direction that an organization should take. Strategic planning on the other hand is more leadership driven and vision-based; leaders decide on principles that guide the organization toward established goals  [2]  . Strategic management process is defined by four major steps which can be defined as follows  [3]  : Environmental Scanning-  Environmental scanning refers to a process of collecting, scrutinizing and providing information for strategic purposes, analysing the internal and external factors influencing the organization. After gathering the required data, management evaluates it on a continuous basis and strives to improve its resource database. Strategy Formulation-  Strategy formulation is the process of deciding best course of action for accomplishing organizational objectives and hence achieving organizational purpose. After conducting environment scanning, managers at this stage formulate corporate, business and functional strategies. Strategy Implementation-  Strategy implementation implies making the strategy work as intended or putting the organizations chosen strategy into action. Strategy implementation encompasses designing the organizations structure, distributing resources, developing decision making process, and managing human resources. Strategy Evaluation-  Strategy evaluation is the final step of strategy management process. The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance, and taking remedial / corrective actions. Evaluation makes sure that the organizational strategy as well as its implementation meets the organizational objectives. These components are chronologically carried steps while creating a new strategic management plan. Firms with existing plan in use revert to these steps as per the situations requirement, so as to make essential changes. Components of Strategic Management Process Components of Strategic Management Process 1.1 Environmental Scanning: Internal External Environment Organizational environment consists of both external and internal factors which need to be continually monitored to determine development and forecasts of factors that will influence organizational success.  Environmental scanning refers to possession and utilization of information about occasions, patterns, trends, and relationships within an organizations internal and external environment  [4]  . It helps the managers to decide the future path of the organization. Scanning must comprehensively identify the threats and opportunities existing in the environment such that efficient strategy which takes advantage of the opportunities and minimize the threats can be formulated. Internal analysis of the environment  is the first step of environment scanning. This primarily includes interaction of employees with other employees, management, manager interaction with other managers and shareholders, access to natural resources, brand awareness, organizational structure, main staff, operational potential, etc  [5]  . Internal environment analysis helps identify strengths and weaknesses within the organization. Most commonly used instruments used for assessment include interviews, surveys, discussions etc. While in  external analysis, three correlated environment are studied and analysed Immediate / Industry environment National environment Broader socio-economic environment / Macro-environment Examining the  industry environment  involves survey of the competitive structure of the organizations industry, emphasising competitive position of the organization with respect to its main rivals. This includes assessment of the nature, stage, dynamics, history of the industry and the effect of globalisation on competition within the industry. Analysing the  national environment  involves appraisal of efficacy of national framework in achieving competitive advantage in the global environment  [6]  . Macro-environment  analysis includes exploring macro-economic, social, government, legal, technological and international factors that may influence the environment. The analysis of organizations external environment reveals opportunities and threats for the organization  [7]  . As business becomes more competitive, external environment fluctuates rapidly hence, information from external environment adds crucial elements to the effectiveness of long-term goals and strategies. It becomes indispensable to identify competitors moves and actions in the dynamic environment such that organizations can amend their core competencies and internal environment as per external environment. Strategic managers must not only recognize the present state of the environment and their industry but also be able to predict its future positions. 1.2 Strategy Formulation Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives to fulfil organizational vision.  The process of strategy formulation involves six main steps which can rationally be followed in the following order  [8]  : Setting Organizations objectives   The key component of any strategy statement is to set the long-term objectives of the organization. Objectives specify the desired end state while strategy stresses upon the means of achieving it. Strategy encompasses both fixation of objectives and definition of the medium to be used to realize those objectives. Thus, strategy is an extensive word which is based on manner of deployment of resources to achieve desired goals. While fixing the organizational objectives, it is essential that the factors which influence the selection of objectives must be analysed before the selection of objectives. Evaluating the Organizational Environment   The next step is to evaluate the general economic and industrial environment in which the organization operates highlighting its competitive position. This generally involves a qualitative and quantitative review of organizations existing product line.  [9]  The aim is to ensure that factors important for competitive success in the market can be discovered such that management can identify and exploit its strengths and weaknesses against those of its competitors. Setting Quantitative Targets   In this step, an organization must fix desired quantitative target values for certain objectives. The idea behind this is to compare with long term customers, so as to evaluate the contribution that might be made by various product zones or operating departments. Aiming in context with the divisional plans   In this step, the contributions made by each department, division, product category within the organization is identified and accordingly strategic planning is done for each sub-unit. This requires a careful analysis of macroeconomic trends. Performance Analysis   Performance analysis includes discovering and analysing the gap between the planned and desired performance. A critical evaluation of the organizations past performance, present condition and the desired future conditions must be done by the organization. This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the current trends persist. Choice of Strategy   This is the ultimate step in Strategy Formulation where the best course of action is selected after considering organizational goals, organizational strengths, potential and limitations as well as the external opportunities. 1.3 Strategy Implementation Strategy implementation is the translation of chosen strategy into organizational action so as to achieve strategic goals and objectives. Strategy implementation is also defined as the manner in which an organization should develop, utilize, and amalgamate organizational structure, control systems, and culture to follow strategies that lead to competitive advantage and a better performance. Organizational structure allocates special value developing tasks and roles to the employees and states how these tasks and roles can be correlated so as maximize efficiency, quality, and customer satisfaction-the pillars of competitive advantage  [10]  . But, organizational structure is not sufficient in itself to motivate the employees. An organizational control system is also required. This control system equips managers with motivational incentives for employees as well as feedback on employees and organizational performance. Organizational culture refers to the specialized collection of values, attitudes, norms and beliefs shared by organizational members and groups. Following are the main  steps in implementing a strategy  [11]  : Developing an organization having potential of carrying out strategy successfully Disbursement of abundant resources to strategy-essential activities Creating strategy-encouraging policies Employing best policies and programs for constant improvement Linking reward structure to accomplishment of results Making use of strategic leadership Excellently formulated strategies fail if not properly implemented. Also, it is essential to possess stability between strategy and each organizational dimension such as organizational structure, reward structure, resource-allocation process, etc to ensure efficient strategy implementation. Strategy implementation poses a threat to many managers and employees in an organization as new power relationships are predicted and achieved. New groups (formal as well as informal) are formed whose values, attitudes, beliefs and concerns may not be known. With the change in power and status roles, the managers and employees may employ confrontation behaviour  [12]  . Following are the main differences between Strategy Formulation and Strategy Implementation  [13]   Strategy Formulation Strategy Implementation Strategy Formulation includes planning and decision-making involved in developing organizations strategic goals and plans. Strategy Implementation involves all those means related to executing the strategic plans. In short, Strategy Formulation is  placing the Forces before the action. In short, Strategy Implementation is  managing forces during the action. Strategy Formulation is an  Entrepreneurial Activity  based on strategic decision-making Strategic Implementation is mainly an  Administrative Task  based on strategic and operational decisions Strategy Formulation emphasizes on  effectiveness. Strategy Implementation emphasizes on  efficiency. Strategy Formulation is a  rational process. Strategy Implementation is basically an  operational process. Strategy Formulation requires co-ordination among few individuals. Strategy Implementation requires co-ordination among many individuals. Strategy Formulation requires a great deal of  initiative and logical skills. Strategy Implementation requires specific  motivational and leadership traits. Strategic Formulation precedes Strategy Implementation. Strategy Implementation follows Strategy Formulation. 1.4 Strategy Evaluation Strategic Evaluation is the final phase of  strategic management. Strategy Evaluation throws light on the efficiency and effectiveness of the comprehensive plans in achieving the desired results as stated during strategy formulation. The management assesses the validity of current strategy in existing environment with respect to dynamic socio-economic, political and technological innovations. The significance of strategy evaluation lies in its capacity to co-ordinate the task performed by managers, groups, departments etc, through control of performance. Strategic Evaluation is significant because of various factors such as developing inputs for new strategic planning, the urge for feedback, appraisal and reward, development of the strategic management process, judging the validity of strategic choice etc  [14]  . The process of Strategy Evaluation consists of following steps  [15]  : Fixing benchmark of performance   While fixing the benchmark, strategists answer questions such as what benchmarks to set, how to set them and how to express them. In order to determine the benchmark performance to be set, it is essential to discover the special requirements for performing the main task. The performance indicator that best identify and express the special requirements might then be determined to be used for evaluation. The organization can use both quantitative and qualitative criteria for comprehensive assessment of performance. Quantitative criteria include determination of net profit, ROI, earning per share, cost of production, rate of employee turnover etc. Among the Qualitative factors are subjective evaluating factors such as skills and competencies, risk taking potential, flexibility etc. Measurement of performance   The standard performance is a bench mark with which the actual performance is compared. The reporting and communication system help in measuring the performance. If appropriate means are available for measuring the performance and if the standards are set in the right manner, strategy evaluation becomes easier. But various factors such as managers contribution are difficult to measure. Similarly divisional performance is sometimes difficult to measure as compared to individual performance. Thus, variable objectives must be created against which measurement of performance can be done. The measurement must be done at right time for evaluation to meet its purpose. For measuring the performance, financial statements like balance sheet, profit and loss account must be prepared on an annual basis. Analysing Variance   While measuring the actual performance and comparing it with standard performance there may be variances which are further analysed. The strategists must mention the degree of tolerance limits between which the variance between actual and standard performance may be accepted. The positive deviation indicates a better performance but it is quite unusual exceeding the target always. The negative deviation is an issue of concern because it indicates a shortfall in performance. Thus in this case the strategists must discover the causes of deviation and must take corrective action to overcome it. Taking Corrective Action   Once the deviation in performance is identified, it is essential to plan for a corrective action. If the performance is consistently less than the desired performance, the strategists must carry a detailed analysis of the factors responsible for such performance. If the strategists discover that the organizational potential does not match with the performance requirements, then the standards must be lowered. Another rare and drastic corrective action is reformulating the strategy which requires going back to the process of strategic management, reframing of plans according to new resource allocation trend and consequent means going to the beginning point of strategic management process. 2. Strategic Planning Vs Strategic Thinking There has been a lot of research done on strategic planning and strategic thinking but seldom is the contrast explained well enough. Strategic thinking is about coming up with the next big idea. This is not the sole responsibility of any one person. Everybody in the organization from the salesperson who suddenly discovers an untapped market for the product to the business level head who can come up with product modifications and product innovations should ideally be a part of strategic planning process. This process involves intuition and understanding about the process. The outcome more often than not is a vision of direction and not a concrete plan. The strategic planning is a natural progression step after this as explained below. Strategic Planning is articulation, elaboration of strategies that already exist. Planning essentially breaks down an idea or a broad vision into smaller more concrete and clear steps that can be implemented almost automatically. Formal planning is very analytical and depends on rearrangement of established strategies, products and structures. Too much reliance on planning impedes organizational change. We then begin to experience only incremental changes and will miss out on many good opportunities. As a result people have become disillusioned with Planning. Also planning tends to impose too many restrictions on the working of lower level managers by defining everything very precisely. These factors along with the ones listed below led to downfall of strategic planning in its current form. Deterministic Framework Planning borders on being an exact science. It assumes many simplifying assumptions which generally do not hold true in real life. The planning process requires estimates within a very narrow band for it to have any considerable accuracy. But in todays fast changing world it is the one luxury that we do not have. There are too many factors that are changing ranging from technological breakthroughs to governmental regulations to entry of new and powerful competitors. The Silo Syndrome Strategic Planning was generally carried out in the management by exception mode. The top management basically got information from the ground level and developed strategies without consulting anybody at the ground level. This approach generally lacked the soft insights that people in the field develop when they deal with the product which are far more valuable than general theories espoused by the management. The other drawback was the resistance it faced from the lower levels of the organization. They felt that these decisions were being forced on them by the top management and did not like the autocratic form of decision making. Formalization Fallacy Formalization implies a rational sequence from analysis through administrative procedure to eventual action. But good strategies are not always formulated in that order. Most of the radical ideas were stumbled upon by accident. Many times we try things and those experiments that work gradually converge into viable patterns that become strategies. Formal procedures will never be able to predict discontinuities or create novel strategies. These shortcomings led to the decline in popularity for the practice in this form. 2.1 Modus Operandi Based on the above discussion we can broadly divide strategy formulation into two parts namely strategic thinking and strategic planning. The business level managers are ideally positioned to take up the role of strategic thinking because they have the access to soft information from informal sources mostly like grapevine, informal talks with the people on the field. They also have the suitable authority derived from their position to take decisions and provide directions. Once the rough plan has been outlined the planners can take over. This method has some distinct advantages. The planner has the analytical tools and the abilities to give proper shape and form to the outline. The manager also does not generally have the time to break down a plan into finer and actionable sub-plans. 2.2 Advantages of highly evolved plans A well articulated plan can ensure coordination among the various parties involved. This will also help clarifying the roles, responsibilities and interdependencies present. These plans can also be used to gain tangible support from outsiders. Written plans can also be used to inform financiers, government and other stakeholders about the current state of the company. 2.3 Roles of Planners Strategy Finders It is basically the responsibility of the mangers to find out and formulate new strategies. Planners can help the mangers in this regard. Planners can snoop around places to find patterns while eliminating the noise from the data. They could discover new ways of doing things like finding out new markets and also coming up with new products for the existing markets. Analysts Planners also have the responsibility of carrying out analyses of specific issues. Planners are an obvious choice for studying hard data and ensuring that managers consider the results in strategy-making process. This may include industry analyses, competitive analyses, and internal analyses among other things. Catalysts When the planners are donning the role of catalysts they are not a part of the decision making process but they ensure that the right kind of people line managers, business level managers are in charge of this process. Planners in this role help mangers get out of ruts and help them think out of the box. This could be achieved by challenging the conventional wisdom and practices by asking uncomfortable questions about the status quo. Overall strategic management is a process by which the managers along with planners come up with new ideas that help the firms chart their future course of action and stay ahead of the curve. 3. Strategy Development Process at JUSCO The Strategic Planning Process (SPP) at JUSCO is led by the Managing Director along with Senior Leadership Team (SLT), the purpose of which is to collectively establish directions for future success through: Evolving analysis-based Long Term/Short Term plans Setting measurable goals Setting review mechanism to monitor progress and take corrective action SPP has a flow which is aimed at ensuring focus and action ability of strategy. SPP is an enterprise level process comprising of four basic steps: Plan-Develop-Deploy-Review (shown in figure on next page along with the key steps, participants, outputs and timelines). The process includes revisiting Vision, identification of Strategic Direction / Challenges / Advantages / Objectives and Long Term / Short Term plans followed by deployment through Balanced Score Card (BSC) and review. It is supported by data / information gathering and analysis including comparisons with benchmarks / competitors / past performance / targets. Strategy development is a continuous process with strategic directions being reviewed by the Board. In order to formalize directions, SPP is followed annually with inputs, schedule and participation across levels. SPP utilizes inputs from promoters expectations, external environment, other stakeholders, strategic challenges and advantages identified by each businesses / functions, aspirations for each business, process reviews and feedback of internal and external assessments. Through collective discussion in strategy workshops involving SLT, corporate level strategic challenges and advantages are identified. Challenges posed to the organization by various stakeholders are identified collectively in the strategic planning sessions. From the list, strategic challenges are identified which are likely to exert most decisive influence on companys future success. Principle Success Factors (PSF) are then identified which can help the company overcome the strategic challenges. From list of PSFs, competitive differentiators, strategic advantages, core competencies and likely future core competencies. As part of SPP, formulated strategy is syndicated with strategic advisors, consultants and sectorial experts. Strategy is also presented to the Board for its inputs and approval. This brings external perspective, utilizes market standards and helps in validation of potential blind spots identified during SPP. Short-term and long-term planning horizons are 1 year and 4 years respectively. JUSCOs major businesses (Water Services, Power Services, Municipal Solid Waste Management, etc.) are primarily in domain of government and semi government bodies. Reforms have begun in these sectors and are expected to translate into business opportunities. In such a reforming sector, a 4-year time frame allows appropriate assessment of ever-changing market and evolving regulations. First years plan of 4-year horizon is the short term plan, which forms the basis for Annual Business Plan (ABP), thus integrating short-term and long-term planning horizons. These time horizons are reviewed continuously for their adequacy in addressing needs of planning process. SPP has undergone several rounds of Evaluation Improvement (EI) based on the changing environment and needs of the organization. 4. Inputs to Strategic Planning Process Environment Analysis: Environment scanning is done throughout the year, which incorporates analysis conducted by businesses/functions and discussions in reviews. Performance reviews, ABP sessions and Business Excellence assessment feedback help in identifying industry attractiveness, companys SWOT and competitors strength and weaknesses which are used to modify strategies, BSCs and targets. SPP captures information on various factors from internal as well as external sources. Strengths and weaknesses: Gaps in capabilities of resources are assessed to identify training and development, recruitment and organization change needs, IT initiatives, new business opportunities, procurement of equipment, etc. JUSCOs major strength lies in its ability to manage water on river-to-river basis, its understanding of municipal water market which helps in taking risk in emerging market and bidding competitively, urban power distribution and Municipal Solid Waste (MSW) management. These strengths are used in SPP to identify competitive position leading to direction for growth. Changes in Regulatory Environment: The sectors JUSCO operates in are expected to be under continuous regulatory scrutiny at all times. Interaction with regulatory bodies and consultants, participation in conferences, legal and internal audits help in identifying statutory shifts and legal requirements and ensuring compliance. At the business levels, changes in regulations are closely monitored to enable quick reaction. Opportunities and threats: SPP captures information on emerging opportunities and threats while deciding strategic challenges and accordingly plans are made for timely preparation of organization and capturing these opportunities. Opportunities arising out of reforms in power sector had been exploited by JUSCO previously by acquiring license for Saraikela-Kharsawan district as first parallel power distributor in the country and more such future endeavors are planned. Major shift in Markets Customer preferences: These are identified through interaction with potential customers during business development, industry meets, conferences, customer satisfaction surveys, customer feedbacks, etc. Analysis of marketplace shifts provides inputs for innovating business models, identifying strategic objectives and Long Term/Short Term plans e.g. identifying partners, targeting new market segments and geographies, etc. PPM and SWOT analysis deal with customer, market needs, expectations and opportunities. At business/ functional level, inputs from Customer Complaint Handling Process (CCHP), Customer Satisfaction Survey (CSS) and Customer Visit Report (CVR) are used to evaluate and improve operational effectiveness parameters like cycle time, response time and service quality and also to align capabilities like IT system, HR skills, etc. Major shift in Competitive Environment: As integral part of SPP, information on competition is captured through internal market surveys, win loss analysis, various professional bodies, conferences, publications etc. Information is analyzed to assess competitive strengths, weaknesses, strategies and capabilities and prepare pricing and positioning strategies. This information is also utilized to identify new opportunities and partnership requirements. Major Technological shifts: At corporate level, SPP utilizes analysis of technological shifts to enhance competitiveness, improve services, and identify partnership and competency needs. Recent significant shifts in technologies have been reuse of waste water and desalination of sea water for potable needs. At business/functional level current performance is evaluated for potential improvements through technological up gradation. IT infrastructure improvement/up gradation is based on scalability, responsiveness, accessibility, productivity improvement, etc. Human resource capabilities: HR strengths and weaknesses are evaluated through analysis of employee mix, engagement survey results, leadership perception survey results, skill gap, attrition, etc. Redeploying resources, creation of bench strength, Rewa