These are intervined between external and internal factors in a decision on business portfolio.
a.
Value System in
Decision Making :
The role of value system in
choosing a strategic alternative is well recognized. While evaluating the
strategic alternatives, different executives may take different positions
because of differences in their personal values. Guth and Tagiuri (1965)found
that personal values were important determinants of the choice of corporate
strategy. Similarly, value system to top management affects the types of
strategy that an executive chooses.
The constructive role that is
played by the value system in decision making by managers cannot be
underestimated. Value system is the frame work of personal philosophy that
rules and affects the individual reactions and responses to any situation the
person in exposed.
Values are essentially a bunch
of attitudes, beliefs and feelings of a person as individual and as a group
member. Attitudes are the positive or negative, good or bad, desirable or
undesirable stands taken or a view point formed. Say, smoking is good or bad,
desirable or undesirable. The beliefs are feelings that support one’s stand.
According to Hindutva husband
is God and, therefore, the wife shall salute him before going to bed and
leaving bed early morning; sneezing in odd number is good and even number is
bad; black cat crossing the road from right to left and left to right, the second
being a good omen and so on.
Feelings are perceptions
prevailing in mind about anything. Value system is constantly changing. This is
what we call as generation gap. The value systems are developed by the managers
founded on their education, experience and the information they get on their
jobs.
According to Mr. William D.Guth
and Renato Tagiuri managers have six major value orientation- Theoretical- an
orientation toward truth and knowledge; Economic- an orientation toward what is
useful and powerful; Political- an orientation toward power; Aesthetic- an
orientation toward form and Harmony; Social- an orientation toward love of
people; Religious- an orientation toward unity in the universe.
While evaluating the strategic
choice, executives have differing sets of values which are respected and
accepted by group and personal sets of values which interact in giving
weightage. The research findings have proved that Americans are the best
business people, Japanese are the best imitators and innovative, Britishers are
conventional in their approach and Indians are the best cheats.
To use the words of Mr. George
England “Successful—American managers are more pragmatic, dynamic, and
interactive and achievement oriented value, while the less successful ones are
in favour more static and passive values.”
Coming to another expression,
of the six above orientations, American executives lean more toward economic,
theoretical and political values than the other values. Thus, the business
values and personal bias have deep influence on choosing the strategic option.
b. Influence of Past
Strategies:
It has been noticed that the
choice of current strategy may be influenced by what type of strategies have
been used or followed in the past. Pearce and Robinson have said, “A review of
past strategy is the point at which the process of strategic choice begins. As
such past strategy exerts considerable influence on the final strategic
choice.”
Hence, it is said that ‘past
strategies are often the principal architects of current strategies.’ Pearce
and Robinson explain the reason in this way – “Because they have invested
substantial time, resources and interest in these strategies, the strategists
would logically be more comfortable with a choice that closely parallels past
strategy or represents only incremental alternations.”
Henry Mintzberg says, “the past
strategy strongly influences current strategic choice.” On the other hand,
Barry M. Straw has remarked, “the older and more successful a strategy has
been, the harder it is to replace. It is very difficult to change because
organisational momentum keeps it going.”
Future has its roots in the
past. To this, past strategy is no exception. That is, choice of the current
and the future is influenced by the past strategy due to number of reasons. The
foundation for formulation of new strategies is the past strategy.
In the light of the past
strategy, the strategist either might not have thought of altering it or it is
also possible that the strategists might have taken the things lightly and
might not have thought of alternatives with the seriousness that they deserve
due to inertia.
Personal involvement of the
decision maker with the past strategy will continue to do so. Thus, the present
and future strategies will be influenced by personal involvement. One cannot
afford to lose sight of the research findings of Professor. Mintzberg and his
associates.
The research findings say-
1. The older and more
successful a strategy, the harder it is to change. The present strategy stems
from a past strategy developed by a single, powerful leader. This original and
tightly integrated strategy is a major influence on later strategic choices.
2. Once a strategy gets under
way it becomes exceedingly difficult to change, and the bureaucratic momentum
keeps it going. It becomes a sort of ‘push-pull’ phenomenon; the original
decision- maker pushes the strategy, when lower management pulls along.
3. When the past strategy
begins to fail because of changing conditions, the enterprise reacts and grafts
new sub- strategies on to the old and only later seeks out a new strategy.
4. If the environment changes
even more radically, then the enterprise begins to seriously consider other
alternative strategies which might have been previously suggested but ignored.
Similarly, it is the nature of
firms that determines to what extent past strategies influence the present or
future strategy choice. According to Reymonds E Miles and Charles C. Snow(1978),
the firms are four categories as defenders, prospectors, analysers and
reactors. “Defenders” are those firms which penetrate in a narrow market
product domain and guard it.
They emphasize more on cost
effectiveness, centralised control, intensive planning and put less emphasis on
environmental scanning. “Prospectors” are the firms that use broad planning
approaches, broad environmental scanning, decentralised controls, and reserve
some resources utilised for future use.
They go on searching new
products markets on regular basis. “Analysers” are those firms that he between
the defenders and prospectors. That is, analysers act some times as defenders
and sometimes as prospectors. That is they are sitting on the fence.
“Reactors” are the firms that
realise that fact that their environment is changing but fail to relate
themselves with the changing environment. Hence, they should act is any one of
the ways as defenders or prospectors or analyses or face extinction.
If at all, one is to exile from
the influence of the past strategy, the only alternative is to dethrone the
past management. In fact, Professors Glueck and Jauch (1980) quite bluntly
state “Strategic change is less likely if the new executives are promoted from
within, and it is least likely if the existing management group remains in
power.”
It is because the old strategy
of the old or existing people at the top which is flowing in the blood so much
so that they are charmed by the old strategy.
c. Coalition phenomenon
Mintzberg has advanced a theory about
formulation of objectives that combines the stakeholder forces described
earlier with the internal power relationships. He believes that power plays
result from interactions of internal and external coalitions.
The external coalition includes
owners, suppliers, unions, and the public. These groups influence the firm
through social norms, specific constraints, pressure campaigns, direct
controls, and membership on the board of directors. Mintzberg specifies three
types of external coalitions, noted in the above Exhibit.
The internal coalition includes top
management, middle-line managers, operators, analysts, and support staff. These
groups influence the firm through the personnel control system, the
bureaucratic control system, the political system, and the system of ideology.
Mintzberg specifies 5 types of internal coalitions, shown in the same Exhibit
Mintzberg says that there are six
basic power configurations, as shown in Exhibit 4.3 In the instrument power
configuration, one external influence with clear objectives, typically the
owner, is able to strongly influence objectives through the top manager. In a
closedsystem power configuration, power to set objectives rests with the top
manager, who sets the objectives. This is also true in the autocracy power
configuration. In the missionary power configuration, objectives are strongly
influenced by past ideology and a charismatic leader. Ideology tends to dictate
the objectives. In the meritocracy power configuration, the objectives are set
by a consensus of the members, most of whom are professionals. Thus the
formulation of mission and objectives can be a simple process: the top manager
sets them subject to the environment. Or, more frequently, they are set by a
complex interplay of past and present, internal and external role players.
Incrementalists are of the opinion
that the achievement of objectives depends on the bargaining process between
different interested coalition groups existing in an organisation, and
therefore a rational decision-making process should take all these interests
into consideration.
d.
Pressures from
Stakeholders:
The attractiveness of a
strategic alternative is affected by its perceived compatibility with the key
stakeholders in a corporation’s task environment. Creditors want to be paid on
time. Unions exert pressure for comparable wage and employment security.
Governments and interest groups demand social responsibility. Shareholders want
dividends. All these pressures must be given some consideration in the
selection of the best alternative.
Stakeholders can be categorized
in terms of their
(i)
Interest in the corporation’s
activities and
(ii)
Relative power to influence the
corporation’s activities.
Each stakeholder group can be
shown graphically based on its level of interest (from low to high) in a
corporation’s activities and on its relative power (from low to high) to
influence a corporation’s activities.
Strategic
managers should ask four questions to assess the importance of stakeholder
concerns in a particular decision:
i. How will this decision
affect each stakeholder, especially those given high and medium priority?
ii. How much of what each
stakeholder wants is he likely to get under this alternative?
iii. What are the stakeholders
likely to do if they don’t get what they want?
iv. What is the probability
that they will do it?
Strategy makers should choose strategic
alternatives that minimize external pressures and maximize the probability of
gaining stakeholder support. Managers may, however, ignore or take some
stakeholders for granted—leading to serious problems later. (Thomas Wheelen and
David Hunger)
e.
Time Dimension:
This time dimension has four elements
which one cannot ignore, these are:
(i) Time pressure,
(ii) Time frame,
(iii) Time horizon and
(iv) Timing of the decision.
(i) Time Pressure:
Decisions are to be taken within the dead line. This dead line is
set by higher ups which cannot be questioned. It is these deadlines which
generate time pressure within which the managers are forced to make the right
choice. For instance, say that there is an offer of acquisition by another
company.
The strategists because of the time pressure or a deadline which
gives hardly 36 hours, they may accept thinking that such acquisition might
reduce the losses because further continuation leads to further deterioration.
It is equally true that, acquisition being a very important decision, the
strategist may not take decision and post pone it as it warrants ins and outs
of proposed acquisition.
(ii) Time Frame:
Time frame refers to time frame of the decision in question. That
is, the short-term and long-term implications of a choice. It depends on the
reward system that is prevailing in an organisation.
In case the reward system of the firm is associated with
achievement of short-term goals, the choice is to gains for short term gains
ignoring the long-run gains of the proposed choice. Instead, if the rewards are
associated with long-term achievements, there is every possibility of ignoring
short-run gains.
(iii) Time Horizon:
This part of time dimension speaks of the period of commitment
that goes with it. We have already conversant with stable growth strategy and
diversification strategy. It is the strategy in question that decides the time
horizon. For example, stability strategy warrants immediate action and the
fruits start bearing very early.
Instead, if it is a diversification strategy the decision is not
immediate as the fruits of diversification are available in due course of time
rather than immediate future. Thus, a long-range strategy that calls for
commitment of resources for an uncertain future is less acceptable than that of
one having immediate relationship.
That is ‘Law of Delay’ devised by Mr. C. Northcote Parkinson
applies. That is, the longer a decision can be delayed, the lower the
probability that it will ever be accepted. Much depends on the strategists.
(iv) Timing of Decision:
Timing of a decision determines the strategic choice. It is the
timing of the decision that determines the effectiveness of it. It is well
known “stitch in time saves nine” which applies. For instance, a prompt and
timely decision is a must to exploit the opportunity which is open to the firm.
It should be encashed well before the competitors have hand at it.
Again, a decision to enter a new market is going to be in favour of the firm
which cannot be delayed. If so the competitors waiting will not wait for you.
Thus, delay makes year to lose the golden opportunity on which you can care
your future success.
Pearce and Robinson suggest
that “strategic choice will be strongly influenced by the match between
management’s current time horizon and the lead time associated with different
choices.”
f.
Competitors’
Reactions:
It is important to consider the
competitors’ reactions, responses and capacity to react and its impact while
choosing a strategic alternative.
For example, if a company
decides to choose an aggressive strategy which directly affects the key
competitors to react, then the company may also pursue an aggressive
counter-strategy for safety. It would be unrealistic for the company not to
consider that possibility.
The strategic choice of a
strategy option is bound to reflex in the competitors’ reaction. Therefore, a
wise strategist places himself in the shoes of the competitor or competitors to
know where exactly the shoe bites. Only after studying the reactions, he may be
able to take correct decision than ignoring the impact of competitor reaction.
Much depends on your market
position. That is, whether you are leader, challenger, follower or nicher. Say,
both your firm and your arch-rival firm are challengers. In this case, it is
quite possible that your competitor may take your strategic option as very
aggressive and makes the competitor to have counter strategy to overpower you.
Take the case of price war going on between arch rivals namely Hindustan Lever and Proctor and Gamble.
If the first company has
reduced the price of Surf Excel , Proctor
and Gamble has done so in case of Arial. Later, Surf Excel has been introduced
with new proposition.
The followers say Nirma and
others being followers, have no choice than to follow the suit without option.
Thus, the competitor’s reaction has far reaching impact on the choice of a
strategy.
g.
Availability of Information:
Availability of information is
a crucial factor in the choice of strategy. Managers choose a strategic option
on the basis of relevant data and information. The degree of uncertainty and
risk depends upon the amount of information that is available to the
strategist. The greater the amount of available information, the lesser the
risk is. Hence, managers must ensure the availability of all information
bearing on the strategic alternatives.
When it is a question of choice
rather rational choice, the quality and quantity of information decide the
strategy choice. The choice or strategic decision that is based on facts, the
considered opinions other sources of information written as oral are more sound
and acceptable that is, the degree of risk and uncertainty depends on the
amount and quality of information made available to the decision makers.
There is inverse relationship
between the available information and the degree of accuracy of strategic
choice. That is, the greater the amount of high quality information, lesser the
risk and uncertainty. The decision maker is a risk-prone or a risk averter or
risk neutral.
Risk prone and risk averters
need the information to decide whether to take or not the calculated risks
which are unavoidable in the world of business. Hence, the decision makers need
a package of relevant information to analyse and interpret and act. The
information is not easily available which costs in terms of treasure, time and
talent.
h.
Critical Success
Factors and Distinctive Competencies:
Critical success factors are
the key factors required for the success of an organisation. Distinctive
competency is a specific ability possessed by an organisation. Strategists
should look at specific qualities and strengths possessed by the organisation
for making a strategic choice. They should also consider the critical success
factors for their organisation while making a strategic choice.
1. Factors Affecting Portfolio Strategy
2. Factors Affecting Portfolio Strategy- Internal Factors
3. Factors Affecting Portfolio Strategy- External Factors
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