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Strategic management
1 Strategic management
Abstract: Modern society which is characterized by large turbulence and complexity of environment, as well as rapid and massive changes due to sudden development of technique and information systems influence the necessity of using strategic management. The very existence and success of production–business system depends on environment, abilities and constant innovations. Key words: strategy, strategic management, schools of strategy formation, vision, mission
1.1 Strategy The term “strategy” (Greek: stratos = army, ago = lead, strategos = general) was taken from military terminology; it implies the army leadership, together with appropriate course of action towards which appropriate activities are directed. Strategy and tactics (Greek: taktikos = readiness for line-up, takto = orders) are closely connected. Both of them refer to a regular usage of certain devices in time and space, where strategy refers to the aim and tactics to the ways certain goal is achieved. Strategy establishes the course and shape of organization for a long period of time. It’s aim is to establish competitive advantages in the circumstances of changeable business environment through adequate configuration of resources and competences aiming to fulfill the expectations of key interest groups. Business strategy is a term used in economy not before the mid-1950s. Every company anticipates changes, responds to challenges and tries to survive in changeable environment. Below are few definitions of strategy: ●
●
Alfred Chandler (1962) defines strategy as setting long-term aims and purposes of a production–business system (PBS), the choice of courses of actions and allocation of devices necessary to realize its aims. According to Kenneth Richmond Andrews (1986), strategy consists of aims, purposes, and main policies and plans for achieving these
1
2
Strategic management in the garment industry
●
●
goals, thus giving a precise definition as to what the company is, or is not, at that moment (in business sense) and what it wants to be/ achieve in the future. Igor H. Ansoff (1988) defines strategy as set of courses for management which gives a detailed explanation of company’s position in the market, directions in which the company tends to grow and develop, instruments to be use in the competitive fight, devices to search new markets, the way to shape its devices, the power to try to use up and the weaknesses to try to overcome. According to Michael Porter (1988) strategy means being different. It refers to the systemic choice of set of activities aiming to achieve a unique mixture of values.
According to Alfred Chandler, strategy is a concept defined by the management about: ● ●
●
long-term purpose and aims of PBS, measures and policies which limit the activities of PBS in a certain situation, series of current plans and short-term tasks set by the purpose of achieving goals of PBS.
On the basis of the study of 70 largest US companies, Chandler gave a few hypotheses about relationships between strategy and structure: (1) structure follows strategy (structure–strategy), (2) strategy and structure develop through many phases, (3) production–business systems do not change its structure until their own inefficiency forces them to. Based on Chandler’s study, there have been many other works, such as “broadened Chandler’s model”, shown in Figure 1.1.
S T R AT EG Y
STRUCTURE
PERFO RM ANCE
C O M P E T IT IO N
1.1 Broadened Chandlers model
Strategic management
3
Chandler gave four specific studies of development of US companies: (1) (2) (3) (4)
Growth within local area Expansion out of local area Vertically-integrated development Diversification development (based on production or space diversification)
James D. Thompson (1967) claimed that every PBS makes his “domain”, which is a sociological term for strategy. Spreading of Chandler’s thesis into European countries was helped by Wrigley (1970), Channon (1971), Pooley–Dias (1972), Pavan (1972) and Thanheiser (1972). Richard P. Rumelt (1974) confirmed Chandler’s hypotheses of strategy– structure and set a ‘universal thesis’ according to which organizational structure also influences the structure. Strategy can be observed in a narrower or in a wider sense. Talking about a wider meaning of the term “strategy”, most of the authors imply an essential managing decision which includes aims and policies. In a narrower sense, they think that forming a strategy starts after the aims and policies of PBS are defined. It is a certain planned decision which sets the ways of realizing the aims of PBS. Henry Mintzberg (1992) defines strategy from different aspects or, to be more precise, “5 Ps for strategy”, where Ps refer to starting conditions for strategy: ●
●
●
●
●
Plan – Strategy is a plan or a course, a marker of the directions of future activity, the path to follow in order to go from one position to another, i.e. to achieve strategic aims, mission and vision of organization. Pattern – Strategy is a pattern, i.e. a consistency in actions within a certain period of time. Position – Strategy, as a position, means locating or positioning an organization in its market or some other environment. Perspective – Strategy, as a perspective, observes the strategy as the main vision of a strategist and the way on which an organization works. Ploy – Strategy is set as a specific “maneuver” intended to outsmart the opponent or competition.
Ralph Stacey’s (2007) concept of strategy is not based on “traditional wisdom”, which is a dominant approach of the managers in the West today. In Stacey’s opinion, strategy is not about decreasing the level of surprise and increasing the level of prediction thus improving the ability of a top management, but is about facing the unpredictable and its usage, colliding
4
Strategic management in the garment industry
with non-complementary cultures, lack of consensus, contradiction, conflict and inconsistency. According to many authors, there are four basic components of strategy: ●
●
●
●
Area of doing business makes the market where PBS is going to compete. Arrangement of resources is the part of strategy which marks the way of their allocation in different areas (into which areas to invest and how much, or not). Specific competences make PBS particularly different from their opponents. These are basic competences that give competitive advantage – superiority in researches, leadership in technology, efficiency in production and distribution, etc. Synergy is the expected result of decisions in the field of business, arrangement of resources and specific competences. In that sense, it should show how different areas of business can be complementary, creating the additional effect.
Basic types of strategy, concerning the organizational level on which strategies are made, are the following: (1) Social responsibility strategy – the concept in which companies integrate to take care of society and environment with their efficiency. It is the key element of the strategy of company aiming to maintain and improve competition, thus making new partnerships and spreading existing cooperation within companies concerning social dialogue, gaining skills, equal possibilities, predictions and managing of changes. It strengthens the economic and social cohesion on a local or a national level. On a global level, it contributes to the protection of environment and respecting basic human rights. (2) Corporate strategy – the strategy of establishing the mission of PBS as a set of organizational goals which give a detailed description of the purpose of existence and a desired direction of PBS. It is connected to the choice of business orientation of PBS, i.e. to choose the ways of “entering” the system into business activities, as well as ways of doing business in a chosen activity. This level of strategy is characterized by two approaches: main strategy and business portfolio. Main strategy is a general set of activities developed on a PBS level. It is mostly used when a PBS competes in a market or in few connected markets. There are three types of it: (a) Stable strategy – it is directed towards maintaining and is a characteristic of PBS which forms its future on a solid continuity,
Strategic management
5
without changes. That is possible only within a stable or slowly changeable environment. (b) Strategy of growth – it is a characteristic of PBS trying to increase the scope of business activities (production, selling, activa, market, etc.), having the motto “growth is the condition of survival”. (c) Degressive strategy – it is a characteristic of reduction of scope and level of business activities by decreasing production abilities, withdrawing from some markets and stopping some production lines. It is directed towards decreasing of current operations, reduction in all fields or complete elimination of unprofitable operations. Business portfolio is a characteristic of PBS which has many different jobs (often not connected). It coordinates the flow of resources with diversification of risk among strategic business as whole. It is necessary to secure a relatively permanent existence and development of each of these units, as well as the whole system. There are four types of business portfolio: ●
●
●
●
Simple – dynamic organizing of activities into four strategic areas within which there are strategic business units. It shows a present role or a potential future role of each strategic business unit. Differentiated – arranged on three strategic areas within which there are three subareas, differentiated on the basis of two criteria: market attraction and competitive forces of a strategic whole. Portfolio of competitive advantages – oriented towards setting strategic advantages of PBS and their strategic wholes by combining two dimensions: number and size of strategic possibilities. Strategic domino – a palette of potential strategic choices for each strategic business unit, related to the answer of two questions: “Where to compete?” and “How to compete?”
(3) Business strategy – a specific type of strategy which establishes norms and actions of PBS aiming to achieve goals within a chosen business activity. It is directed towards achieving strategic competitive advantages using different models, among which the most famous ones are Porter’s model and a model of life cycle of product. (4) Functional strategy – a strategy which deals with operationalization of business strategy. It is formed on the level of certain business (organizational) units, as well as on the level of strategic business units: ●
Marketing strategy. Market segmentation, product positioning, marketing mix, distribution channels, selling promotion and price policy.
6
Strategic management in the garment industry ●
●
●
●
Financial strategy. Capital structure, capital acquisition, capital allocation, dividend policy and activa management. Production strategy. Production improvement, production planning, equipment location, control and quality. Research and development strategy. Product development, production development, organization development, technological prediction, patents and licenses. Human potentials resources. Performance quality, recruiting policy, development and promotion of employees and compensation policy.
Figure 1.2 shows basic types of strategies. While doing business every PBS must choose its strategy which will respond not only to its goals, but also to its abilities. Most commonly used strategies are the following: (1) Offensive strategy – the aim of this strategy is to enable PBS to take the lead in the production of clothes offering a new product to the market. This strategy can make a big profit but is highly risky. (2) Defensive strategy – the aim is to defend PBS from competition and to keep its market share. This strategy does not make a big profit. (3) Imitation strategy – PBS wants to keep its position behind the leader in the production of clothes, i.e. to copy the models of new clothes. (4) Subordinate (dependent) strategy – one producer depends upon the other. (5) Traditionalist (conservative) strategy – PBS does not want to change the characteristics of its product but it tends to keep it in its old, recognizable form.
Social R esponsibility Strategy
C orporate Strategy
C O R P O R ATE LE VE L C O R P O R ATE LE VE L
S TR AT EG IC U N IT S TR AT EG IC U N IT
P R O D U C TIO N
FIN AN C E
S TR AT EG IC IC U NUITN IT S TR AT EG
M AR K ET IN G
S TR AT EG IC IC U NUITN IT S TR AT EG
R ES EA R C H AND D EV EL O P M EN T
B usiness Strategy
HUM AN R ES O U R C ES
Functional Strategy
1.2 Basic types of strategies
Strategic management
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(6) Opportunistic strategy – PBS demands for some free space on the market to use up the opportunity that market gives.
1.2 Strategic management The term strategy is connected to the term strategic management, i.e. strategy is an inseparable segment of strategic management. Once-planned and applied strategy often requires modifications in accordance with changes in environment or organization itself. These changes are tough or almost impossible to predict, therefore it is necessary for the managers to carry out strategic management. Strategic management was defined as a new scientific discipline back in 1950s due to the need of organizations to exist, grow or develop in a turbulent and complex environment. Sub-processes of management were not possible without a defined organizational strategy. In that context Robert Kreitner (2004) defines strategic management as: Strategic management = Strategic planning + Implementation of strategic plans + Strategic control Strategic management is a process through which managers establish long-term directions of PBS, set specific goals of future performances, develop strategies in order to achieve these goals which include all relevant internal and external circumstances, and take actions aiming to carry out given plans, i.e. the process in which organizations estimate their strengths and weaknesses, identify present and future needs of customers, and authorize managers and employees to ensure products and services to satisfy all these needs. Management should answer the following strategic questions: ● ● ●
Where are we now? Where we want to be? How to get there?
Samuel Certo and Paul Peter (1991) are the authors who define strategic management as a continuing, interactive process whose aim is to keep organization fully capable of meeting the demands of its environment, including (Figure 1.3): ● ● ● ● ●
analyzing the environment, directing the organization (mission and goals), setting strategy, implementing strategy and strategizing control
8
Strategic management in the garment industry STEP 1
STEP 2
A n a lysis of e nviro nm e nt - in tern al - e xte rna l
D irectin g of o rg a niza tio n - visio n - m issio n - g oa ls
STEP 3
STEP 4
STEP 5
S e tting stra te gy
Im p le m e n ta tion o f stra te g y
Stra te gic co ntro l
M ain steps in strategic m anag em ent process
1.3 Main steps in strategic management process.
Igor Asnoff, an eminent professor, who is widely known as a guru of strategic management, defines strategic management as a system approach, main and increased important responsibilities of general management: position and connection of organization with its surroundings on such way that will ensure its continuing success and avoiding surprises. According to Bill and Roy Richardson (1992) strategic management is the management of changes, whereas Dess, Lumpkin and Eisner (2007) see strategic management as a set of analyses, decisions and actions that some organizations undertake in order to create and maintain competitive advantages. Cole (1998) defines strategic management as a procedure controlled by top management, which makes fundamental directions and goals of organization in order to ensure the achievement of these longterm goals and directions. He suggests a model for defining the process of strategic management, which consists of the following six phases: (1) (2) (3) (4) (5) (6)
Strategic analysis Prediction of future Defining of mission and strategic goals Forming and choosing strategy Application of strategy Control of application of strategy
The task of strategic management is to enable organization to respond rationally and promptly to the changes in its surroundings. Strategic management includes strategic planning as its essential part (strategic analysis and strategic choice), as well as strategic change (strategic implementation and control). Key attributes of strategic management are the following: ●
●
It directs organization towards overall ultimate goals (vision, mission, strategic goals). It takes into consideration numerous stakeholders while decision-making.
Strategic management ● ●
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It includes short-term and long-term perspectives. It recognizes a compromise between effectiveness and efficiency.
Strategic management usually opposes to operative management. Operative management is basically short-term and detailed; it takes place in the context of immediate or close future events. Strategic management includes ideas and actions focused on future of whole organization, carried out in conditions of significant uncertainty. Strategic management is, above all, the responsibility of top management, whereas operative management is the responsibility of intermediate and operative management. All the functions of strategic management are done by managers, so time and effort dedicated to each of them depends directly on the level of management and personal abilities and skills of a manager (his conceptional, individual and technical knowledge). In recent years there have been many different schools of strategy formation. Schools of strategy formation are a model of thinking about the process of strategic management, strategy, its importance, role and influence on business. Differences among these schools of management are different understanding of components which are the main ones in forming the process. Mintzberg, Ahlstrand and Lampe (1998) are the authors who suggest 10 schools of strategy formation: ● ● ● ● ● ● ● ● ● ●
Design school – forming strategy as a process of conception, Planning school – forming strategy as a formal process, Positioning school – forming strategy as an analytic process, Entrepreneurial school – forming strategy as a visionary process, Cognitive school – forming strategy as a mental process, Learning school – forming strategy as an on-going process, Political school – forming strategy as a negotiating process, Cultural school – forming strategy as a collective process, Environmental school – forming strategy as a reactive process and Configuration school – forming strategy as a process of transformation.
McKiernan (1996) observes four schools of strategy formation (normative school, learning school, positioning school and school based on resources and abilities), whereas Richard Whittington (2000) divides schools into: classical school, processing school, systemic school and evolutionary school of strategy formation. The evaluation of choosing a school helps PBS in better understanding of the rules of doing business in certain environment, and it serves as a starting point for adjusting to trends of competition in a modern business world. PBS which does not accept such understandings appears in the market as a “lone player”.
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Strategic management in the garment industry
1.3 Vision, mission and goals Vision is the first assumption of strategy direction of PBS. While being a frame to the development of main goals and policies of PBS, the means of communication according to interest-influential groups has a direct influence on employees’ motivation. By giving out an image of an ideal future of PBS, vision is defined as an idea of future events, i.e. a longterm expected result. Vision should help PBS to foresee itself in the future and start preparing for it by changing a current organizational structure. Creating a good vision requires serious researches, with the emphasis on connecting vision with the essence of competence of PBS. Strategic vision of PBS should: (1) be turned towards the future, (2) identify the essence of competence of PBS and critical factors of success, (3) take stakeholders’ priorities seriously, (4) stimulate consistent action of management of PBS, (5) be specific, permanent and flexible. Mission is the main function or main task of PBS, intention, reason of existence, actions and development. It is the base for setting aims, policies and strategies of a new business venture. It is the mission that differs PBS from other business participants, especially from competitive producers of clothes. Mission gives identity and directs decisions on strategic vision, goals and strategies. Mission must be: ● ●
● ● ●
Compatible with environment and aspirations of main stakeholders, Realistic so that it is in accordance with business activities and resources of PBS, Recognizable, Inspiring for all the employees and Appropriate for setting goals and policies.
Mission should give answers to, at least, four questions: ● ●
● ●
Why does PBS exist? (clothes production) Whose interests and requirements does it fulfill? (satisfying the needs of customers) What does PBS do? (sportswear production) What are the essential values of PBS? (team work, cooperation, reliability, profitability, market orientation)
According to Philip Kotler (2002), mission of organization consists of four key elements:
Strategic management ● ● ● ●
11
Development of PBS, Current preferences of management and owners, Studying environment and tools that PBS owns, Specific capability of PBS.
Goals of PBS are the results that PBS wants to achieve, the way how to realize it and the time required for that. They are the future expectations, something the effort or ambition are directed to. Goals of PBS mark the aspirations undertaken to satisfy the mission of PBS, future-expected states and results which are necessary to realize by planned and organized activities of PBS structures. They are primaryplanned decisions in development of PBS, and individual plans and programs are submitted to them. Aims make a total activity of PBS to move on, and it is a device which controls work efficiency. On the basis of duration, goals can be divided into: ● ●
●
short-term, which refer to a 1-year period, medium-term, which are related to a period of between 1 and 5 years and long-term, which refer to a period of time longer than 5 years.
Goals and actions which result from mission are most frequently related to a 2 or 3-year period, but they are to be thought over and revised every year due to the changes in a dynamic environment of PBS and its organization. PBS is a complex economic, technological and sociological system and for that reason they must be made for every organizational unit and for every employee. Goals which are set rationally and are easy to achieve can ●
● ● ● ●
prevent conflicts because there will always be different interests and viewpoints on contributions to goals, represent the purpose of their existence, enable the choice of strategic options, lead to necessary actions and control effectiveness and efficiency.
Goals can be basic (general), such as: quality of life of employees, existence and development of PBS in the market and so on; and particular (specific), such as: growth of PBS share in the market, growth of social responsibility, realizing conditions for making an image of PBS, etc. Wellpresented goals must be precise, measurable, describing the result which will be visible for the employees, i.e. they must give answers to the questions below:
12 ● ● ●
Strategic management in the garment industry What is the expected outcome? Which conditions for its realization must be fulfilled? What is the standard which makes the realization of a goal successful?
While setting goals special care should be taken about the interest groups of the outer and inner environment interested in business activities of PBS, such as owners, syndicates, workers, managers, banks, customers and the state. Therefore it is important for PBS to make good relationships with them in order to achieve its goals more successfully. In recent years, some authors have connected mission and goals into a unit, and named it “strategic intent” due to the exceptional connections and interdependence. Creating a strategic intent as an element of strategic vision enables management to: ● ● ● ● ●
broaden the definition of its business activities, change the way used to manage PBS, set priorities, balance between the demands of stakeholders and express the values of management and employees.
References 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.
12. 13. 14. 15.
ANDREWS , K . R .
(1986). Concept of Corporate Strategy, Richard D Irwin. (1988). The New Corporate Strategy, Wiley. ANSOFF, H. I. (2007). Strategic Management Classic Edition, Palgrave Macmillan. CERTO, S . and PETER P. (1991). Strategic Management: Concepts and Applications, McGraw-Hill College. COLE , G . A . (1998). Strategic Management, Thomson Learning. CHANDLER , A . (1962). Strategy and Structure: Chapters in the History of the American Industrial Enterprise, MIT Press, Cambridge. DESS , G ., LUMPKIN , G . T . and EISNER A . (2007). Strategic Management: Creating Competitive Advantages, 4th edn., McGraw-Hill/Irwin. KOTLER , P . (2002). Marketing Management, 11th edn., Pearson Education. KREITNER , R . (2004). Management, 9th edn., Houghton Mifflin. M CKIERNAN, P . (1996). Historical Evolution of Strategic Management (History of Management Thought), Dartmouth Publishing Group. MINTZBERG , H . (1992). Five Ps for Strategy in the Strategy Process, (ed. Mintzberg, H. and Quinn, J. B.), Prentice-Hall International Editions, Englewood Cliffs New Jersey. MINTZBERG , H ., AHLSTRAND , J . and LAMPE , B . (1998). Strategy Safari: A Guided Tour Through The Wilds of Strategic Management, Free Press PORTER , M . (1998). Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press. RICHARDSON , B . and RICHARDSON , R . (1992). Business Planning: An Approach to Strategic Management, 2nd edn., Financial Times/ Prentice Hall. RUMELT , R . (1974). Strategy, Structure, and Economic Performance, Division of Research. ANSOFF , H . I .
Strategic management 16. 17. 18. 19. 20. 21. 22.
S TA C E Y ,
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R . D . (2007). Strategic Management and Organisational Dynamics, Prentice Hall. THOMPSON , A . and STRICKLAND , A . J . (2003). Strategic Management, Concepts and Cases, McGraw-Hill, Irwin. THOMPSON , A . A . and STRICKLAND , A . J . (2004). Strategic Management, Concepts and Cases, 13th edn., McGraw-Hill, Boston. THOMPSON , J . D . (1967). Strategies, structures, and processes of organizational decision, Bobbs-Merrill. TODOROVIC , J ., DJURICIN , D . and JANOSEVIC , S . (2000). Strategijski menadzment, IZIT. WHITTINGTON , R . (2000). What Is Strategy and Does Its matter? 2nd edn., Cengage Learning Business Press. WILSON , I. (1992). Realizing the power of strategic vision, Long Range Planning, vol. 25, no. 5, pp. 18–28.
Abstract: Modern society which is characterized by large turbulence and complexity of environment, as well as rapid and massive changes due to sudden development of technique and information systems influence the necessity of using strategic management. The very existence and success of production–business system depends on environment, abilities and constant innovations. Key words: strategy, strategic management, schools of strategy formation, vision, mission
1.1 Strategy The term “strategy” (Greek: stratos = army, ago = lead, strategos = general) was taken from military terminology; it implies the army leadership, together with appropriate course of action towards which appropriate activities are directed. Strategy and tactics (Greek: taktikos = readiness for line-up, takto = orders) are closely connected. Both of them refer to a regular usage of certain devices in time and space, where strategy refers to the aim and tactics to the ways certain goal is achieved. Strategy establishes the course and shape of organization for a long period of time. It’s aim is to establish competitive advantages in the circumstances of changeable business environment through adequate configuration of resources and competences aiming to fulfill the expectations of key interest groups. Business strategy is a term used in economy not before the mid-1950s. Every company anticipates changes, responds to challenges and tries to survive in changeable environment. Below are few definitions of strategy: ●
●
Alfred Chandler (1962) defines strategy as setting long-term aims and purposes of a production–business system (PBS), the choice of courses of actions and allocation of devices necessary to realize its aims. According to Kenneth Richmond Andrews (1986), strategy consists of aims, purposes, and main policies and plans for achieving these
1
2
Strategic management in the garment industry
●
●
goals, thus giving a precise definition as to what the company is, or is not, at that moment (in business sense) and what it wants to be/ achieve in the future. Igor H. Ansoff (1988) defines strategy as set of courses for management which gives a detailed explanation of company’s position in the market, directions in which the company tends to grow and develop, instruments to be use in the competitive fight, devices to search new markets, the way to shape its devices, the power to try to use up and the weaknesses to try to overcome. According to Michael Porter (1988) strategy means being different. It refers to the systemic choice of set of activities aiming to achieve a unique mixture of values.
According to Alfred Chandler, strategy is a concept defined by the management about: ● ●
●
long-term purpose and aims of PBS, measures and policies which limit the activities of PBS in a certain situation, series of current plans and short-term tasks set by the purpose of achieving goals of PBS.
On the basis of the study of 70 largest US companies, Chandler gave a few hypotheses about relationships between strategy and structure: (1) structure follows strategy (structure–strategy), (2) strategy and structure develop through many phases, (3) production–business systems do not change its structure until their own inefficiency forces them to. Based on Chandler’s study, there have been many other works, such as “broadened Chandler’s model”, shown in Figure 1.1.
S T R AT EG Y
STRUCTURE
PERFO RM ANCE
C O M P E T IT IO N
1.1 Broadened Chandlers model
Strategic management
3
Chandler gave four specific studies of development of US companies: (1) (2) (3) (4)
Growth within local area Expansion out of local area Vertically-integrated development Diversification development (based on production or space diversification)
James D. Thompson (1967) claimed that every PBS makes his “domain”, which is a sociological term for strategy. Spreading of Chandler’s thesis into European countries was helped by Wrigley (1970), Channon (1971), Pooley–Dias (1972), Pavan (1972) and Thanheiser (1972). Richard P. Rumelt (1974) confirmed Chandler’s hypotheses of strategy– structure and set a ‘universal thesis’ according to which organizational structure also influences the structure. Strategy can be observed in a narrower or in a wider sense. Talking about a wider meaning of the term “strategy”, most of the authors imply an essential managing decision which includes aims and policies. In a narrower sense, they think that forming a strategy starts after the aims and policies of PBS are defined. It is a certain planned decision which sets the ways of realizing the aims of PBS. Henry Mintzberg (1992) defines strategy from different aspects or, to be more precise, “5 Ps for strategy”, where Ps refer to starting conditions for strategy: ●
●
●
●
●
Plan – Strategy is a plan or a course, a marker of the directions of future activity, the path to follow in order to go from one position to another, i.e. to achieve strategic aims, mission and vision of organization. Pattern – Strategy is a pattern, i.e. a consistency in actions within a certain period of time. Position – Strategy, as a position, means locating or positioning an organization in its market or some other environment. Perspective – Strategy, as a perspective, observes the strategy as the main vision of a strategist and the way on which an organization works. Ploy – Strategy is set as a specific “maneuver” intended to outsmart the opponent or competition.
Ralph Stacey’s (2007) concept of strategy is not based on “traditional wisdom”, which is a dominant approach of the managers in the West today. In Stacey’s opinion, strategy is not about decreasing the level of surprise and increasing the level of prediction thus improving the ability of a top management, but is about facing the unpredictable and its usage, colliding
4
Strategic management in the garment industry
with non-complementary cultures, lack of consensus, contradiction, conflict and inconsistency. According to many authors, there are four basic components of strategy: ●
●
●
●
Area of doing business makes the market where PBS is going to compete. Arrangement of resources is the part of strategy which marks the way of their allocation in different areas (into which areas to invest and how much, or not). Specific competences make PBS particularly different from their opponents. These are basic competences that give competitive advantage – superiority in researches, leadership in technology, efficiency in production and distribution, etc. Synergy is the expected result of decisions in the field of business, arrangement of resources and specific competences. In that sense, it should show how different areas of business can be complementary, creating the additional effect.
Basic types of strategy, concerning the organizational level on which strategies are made, are the following: (1) Social responsibility strategy – the concept in which companies integrate to take care of society and environment with their efficiency. It is the key element of the strategy of company aiming to maintain and improve competition, thus making new partnerships and spreading existing cooperation within companies concerning social dialogue, gaining skills, equal possibilities, predictions and managing of changes. It strengthens the economic and social cohesion on a local or a national level. On a global level, it contributes to the protection of environment and respecting basic human rights. (2) Corporate strategy – the strategy of establishing the mission of PBS as a set of organizational goals which give a detailed description of the purpose of existence and a desired direction of PBS. It is connected to the choice of business orientation of PBS, i.e. to choose the ways of “entering” the system into business activities, as well as ways of doing business in a chosen activity. This level of strategy is characterized by two approaches: main strategy and business portfolio. Main strategy is a general set of activities developed on a PBS level. It is mostly used when a PBS competes in a market or in few connected markets. There are three types of it: (a) Stable strategy – it is directed towards maintaining and is a characteristic of PBS which forms its future on a solid continuity,
Strategic management
5
without changes. That is possible only within a stable or slowly changeable environment. (b) Strategy of growth – it is a characteristic of PBS trying to increase the scope of business activities (production, selling, activa, market, etc.), having the motto “growth is the condition of survival”. (c) Degressive strategy – it is a characteristic of reduction of scope and level of business activities by decreasing production abilities, withdrawing from some markets and stopping some production lines. It is directed towards decreasing of current operations, reduction in all fields or complete elimination of unprofitable operations. Business portfolio is a characteristic of PBS which has many different jobs (often not connected). It coordinates the flow of resources with diversification of risk among strategic business as whole. It is necessary to secure a relatively permanent existence and development of each of these units, as well as the whole system. There are four types of business portfolio: ●
●
●
●
Simple – dynamic organizing of activities into four strategic areas within which there are strategic business units. It shows a present role or a potential future role of each strategic business unit. Differentiated – arranged on three strategic areas within which there are three subareas, differentiated on the basis of two criteria: market attraction and competitive forces of a strategic whole. Portfolio of competitive advantages – oriented towards setting strategic advantages of PBS and their strategic wholes by combining two dimensions: number and size of strategic possibilities. Strategic domino – a palette of potential strategic choices for each strategic business unit, related to the answer of two questions: “Where to compete?” and “How to compete?”
(3) Business strategy – a specific type of strategy which establishes norms and actions of PBS aiming to achieve goals within a chosen business activity. It is directed towards achieving strategic competitive advantages using different models, among which the most famous ones are Porter’s model and a model of life cycle of product. (4) Functional strategy – a strategy which deals with operationalization of business strategy. It is formed on the level of certain business (organizational) units, as well as on the level of strategic business units: ●
Marketing strategy. Market segmentation, product positioning, marketing mix, distribution channels, selling promotion and price policy.
6
Strategic management in the garment industry ●
●
●
●
Financial strategy. Capital structure, capital acquisition, capital allocation, dividend policy and activa management. Production strategy. Production improvement, production planning, equipment location, control and quality. Research and development strategy. Product development, production development, organization development, technological prediction, patents and licenses. Human potentials resources. Performance quality, recruiting policy, development and promotion of employees and compensation policy.
Figure 1.2 shows basic types of strategies. While doing business every PBS must choose its strategy which will respond not only to its goals, but also to its abilities. Most commonly used strategies are the following: (1) Offensive strategy – the aim of this strategy is to enable PBS to take the lead in the production of clothes offering a new product to the market. This strategy can make a big profit but is highly risky. (2) Defensive strategy – the aim is to defend PBS from competition and to keep its market share. This strategy does not make a big profit. (3) Imitation strategy – PBS wants to keep its position behind the leader in the production of clothes, i.e. to copy the models of new clothes. (4) Subordinate (dependent) strategy – one producer depends upon the other. (5) Traditionalist (conservative) strategy – PBS does not want to change the characteristics of its product but it tends to keep it in its old, recognizable form.
Social R esponsibility Strategy
C orporate Strategy
C O R P O R ATE LE VE L C O R P O R ATE LE VE L
S TR AT EG IC U N IT S TR AT EG IC U N IT
P R O D U C TIO N
FIN AN C E
S TR AT EG IC IC U NUITN IT S TR AT EG
M AR K ET IN G
S TR AT EG IC IC U NUITN IT S TR AT EG
R ES EA R C H AND D EV EL O P M EN T
B usiness Strategy
HUM AN R ES O U R C ES
Functional Strategy
1.2 Basic types of strategies
Strategic management
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(6) Opportunistic strategy – PBS demands for some free space on the market to use up the opportunity that market gives.
1.2 Strategic management The term strategy is connected to the term strategic management, i.e. strategy is an inseparable segment of strategic management. Once-planned and applied strategy often requires modifications in accordance with changes in environment or organization itself. These changes are tough or almost impossible to predict, therefore it is necessary for the managers to carry out strategic management. Strategic management was defined as a new scientific discipline back in 1950s due to the need of organizations to exist, grow or develop in a turbulent and complex environment. Sub-processes of management were not possible without a defined organizational strategy. In that context Robert Kreitner (2004) defines strategic management as: Strategic management = Strategic planning + Implementation of strategic plans + Strategic control Strategic management is a process through which managers establish long-term directions of PBS, set specific goals of future performances, develop strategies in order to achieve these goals which include all relevant internal and external circumstances, and take actions aiming to carry out given plans, i.e. the process in which organizations estimate their strengths and weaknesses, identify present and future needs of customers, and authorize managers and employees to ensure products and services to satisfy all these needs. Management should answer the following strategic questions: ● ● ●
Where are we now? Where we want to be? How to get there?
Samuel Certo and Paul Peter (1991) are the authors who define strategic management as a continuing, interactive process whose aim is to keep organization fully capable of meeting the demands of its environment, including (Figure 1.3): ● ● ● ● ●
analyzing the environment, directing the organization (mission and goals), setting strategy, implementing strategy and strategizing control
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Strategic management in the garment industry STEP 1
STEP 2
A n a lysis of e nviro nm e nt - in tern al - e xte rna l
D irectin g of o rg a niza tio n - visio n - m issio n - g oa ls
STEP 3
STEP 4
STEP 5
S e tting stra te gy
Im p le m e n ta tion o f stra te g y
Stra te gic co ntro l
M ain steps in strategic m anag em ent process
1.3 Main steps in strategic management process.
Igor Asnoff, an eminent professor, who is widely known as a guru of strategic management, defines strategic management as a system approach, main and increased important responsibilities of general management: position and connection of organization with its surroundings on such way that will ensure its continuing success and avoiding surprises. According to Bill and Roy Richardson (1992) strategic management is the management of changes, whereas Dess, Lumpkin and Eisner (2007) see strategic management as a set of analyses, decisions and actions that some organizations undertake in order to create and maintain competitive advantages. Cole (1998) defines strategic management as a procedure controlled by top management, which makes fundamental directions and goals of organization in order to ensure the achievement of these longterm goals and directions. He suggests a model for defining the process of strategic management, which consists of the following six phases: (1) (2) (3) (4) (5) (6)
Strategic analysis Prediction of future Defining of mission and strategic goals Forming and choosing strategy Application of strategy Control of application of strategy
The task of strategic management is to enable organization to respond rationally and promptly to the changes in its surroundings. Strategic management includes strategic planning as its essential part (strategic analysis and strategic choice), as well as strategic change (strategic implementation and control). Key attributes of strategic management are the following: ●
●
It directs organization towards overall ultimate goals (vision, mission, strategic goals). It takes into consideration numerous stakeholders while decision-making.
Strategic management ● ●
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It includes short-term and long-term perspectives. It recognizes a compromise between effectiveness and efficiency.
Strategic management usually opposes to operative management. Operative management is basically short-term and detailed; it takes place in the context of immediate or close future events. Strategic management includes ideas and actions focused on future of whole organization, carried out in conditions of significant uncertainty. Strategic management is, above all, the responsibility of top management, whereas operative management is the responsibility of intermediate and operative management. All the functions of strategic management are done by managers, so time and effort dedicated to each of them depends directly on the level of management and personal abilities and skills of a manager (his conceptional, individual and technical knowledge). In recent years there have been many different schools of strategy formation. Schools of strategy formation are a model of thinking about the process of strategic management, strategy, its importance, role and influence on business. Differences among these schools of management are different understanding of components which are the main ones in forming the process. Mintzberg, Ahlstrand and Lampe (1998) are the authors who suggest 10 schools of strategy formation: ● ● ● ● ● ● ● ● ● ●
Design school – forming strategy as a process of conception, Planning school – forming strategy as a formal process, Positioning school – forming strategy as an analytic process, Entrepreneurial school – forming strategy as a visionary process, Cognitive school – forming strategy as a mental process, Learning school – forming strategy as an on-going process, Political school – forming strategy as a negotiating process, Cultural school – forming strategy as a collective process, Environmental school – forming strategy as a reactive process and Configuration school – forming strategy as a process of transformation.
McKiernan (1996) observes four schools of strategy formation (normative school, learning school, positioning school and school based on resources and abilities), whereas Richard Whittington (2000) divides schools into: classical school, processing school, systemic school and evolutionary school of strategy formation. The evaluation of choosing a school helps PBS in better understanding of the rules of doing business in certain environment, and it serves as a starting point for adjusting to trends of competition in a modern business world. PBS which does not accept such understandings appears in the market as a “lone player”.
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Strategic management in the garment industry
1.3 Vision, mission and goals Vision is the first assumption of strategy direction of PBS. While being a frame to the development of main goals and policies of PBS, the means of communication according to interest-influential groups has a direct influence on employees’ motivation. By giving out an image of an ideal future of PBS, vision is defined as an idea of future events, i.e. a longterm expected result. Vision should help PBS to foresee itself in the future and start preparing for it by changing a current organizational structure. Creating a good vision requires serious researches, with the emphasis on connecting vision with the essence of competence of PBS. Strategic vision of PBS should: (1) be turned towards the future, (2) identify the essence of competence of PBS and critical factors of success, (3) take stakeholders’ priorities seriously, (4) stimulate consistent action of management of PBS, (5) be specific, permanent and flexible. Mission is the main function or main task of PBS, intention, reason of existence, actions and development. It is the base for setting aims, policies and strategies of a new business venture. It is the mission that differs PBS from other business participants, especially from competitive producers of clothes. Mission gives identity and directs decisions on strategic vision, goals and strategies. Mission must be: ● ●
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Compatible with environment and aspirations of main stakeholders, Realistic so that it is in accordance with business activities and resources of PBS, Recognizable, Inspiring for all the employees and Appropriate for setting goals and policies.
Mission should give answers to, at least, four questions: ● ●
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Why does PBS exist? (clothes production) Whose interests and requirements does it fulfill? (satisfying the needs of customers) What does PBS do? (sportswear production) What are the essential values of PBS? (team work, cooperation, reliability, profitability, market orientation)
According to Philip Kotler (2002), mission of organization consists of four key elements:
Strategic management ● ● ● ●
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Development of PBS, Current preferences of management and owners, Studying environment and tools that PBS owns, Specific capability of PBS.
Goals of PBS are the results that PBS wants to achieve, the way how to realize it and the time required for that. They are the future expectations, something the effort or ambition are directed to. Goals of PBS mark the aspirations undertaken to satisfy the mission of PBS, future-expected states and results which are necessary to realize by planned and organized activities of PBS structures. They are primaryplanned decisions in development of PBS, and individual plans and programs are submitted to them. Aims make a total activity of PBS to move on, and it is a device which controls work efficiency. On the basis of duration, goals can be divided into: ● ●
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short-term, which refer to a 1-year period, medium-term, which are related to a period of between 1 and 5 years and long-term, which refer to a period of time longer than 5 years.
Goals and actions which result from mission are most frequently related to a 2 or 3-year period, but they are to be thought over and revised every year due to the changes in a dynamic environment of PBS and its organization. PBS is a complex economic, technological and sociological system and for that reason they must be made for every organizational unit and for every employee. Goals which are set rationally and are easy to achieve can ●
● ● ● ●
prevent conflicts because there will always be different interests and viewpoints on contributions to goals, represent the purpose of their existence, enable the choice of strategic options, lead to necessary actions and control effectiveness and efficiency.
Goals can be basic (general), such as: quality of life of employees, existence and development of PBS in the market and so on; and particular (specific), such as: growth of PBS share in the market, growth of social responsibility, realizing conditions for making an image of PBS, etc. Wellpresented goals must be precise, measurable, describing the result which will be visible for the employees, i.e. they must give answers to the questions below:
12 ● ● ●
Strategic management in the garment industry What is the expected outcome? Which conditions for its realization must be fulfilled? What is the standard which makes the realization of a goal successful?
While setting goals special care should be taken about the interest groups of the outer and inner environment interested in business activities of PBS, such as owners, syndicates, workers, managers, banks, customers and the state. Therefore it is important for PBS to make good relationships with them in order to achieve its goals more successfully. In recent years, some authors have connected mission and goals into a unit, and named it “strategic intent” due to the exceptional connections and interdependence. Creating a strategic intent as an element of strategic vision enables management to: ● ● ● ● ●
broaden the definition of its business activities, change the way used to manage PBS, set priorities, balance between the demands of stakeholders and express the values of management and employees.
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12. 13. 14. 15.
ANDREWS , K . R .
(1986). Concept of Corporate Strategy, Richard D Irwin. (1988). The New Corporate Strategy, Wiley. ANSOFF, H. I. (2007). Strategic Management Classic Edition, Palgrave Macmillan. CERTO, S . and PETER P. (1991). Strategic Management: Concepts and Applications, McGraw-Hill College. COLE , G . A . (1998). Strategic Management, Thomson Learning. CHANDLER , A . (1962). Strategy and Structure: Chapters in the History of the American Industrial Enterprise, MIT Press, Cambridge. DESS , G ., LUMPKIN , G . T . and EISNER A . (2007). Strategic Management: Creating Competitive Advantages, 4th edn., McGraw-Hill/Irwin. KOTLER , P . (2002). Marketing Management, 11th edn., Pearson Education. KREITNER , R . (2004). Management, 9th edn., Houghton Mifflin. M CKIERNAN, P . (1996). Historical Evolution of Strategic Management (History of Management Thought), Dartmouth Publishing Group. MINTZBERG , H . (1992). Five Ps for Strategy in the Strategy Process, (ed. Mintzberg, H. and Quinn, J. B.), Prentice-Hall International Editions, Englewood Cliffs New Jersey. MINTZBERG , H ., AHLSTRAND , J . and LAMPE , B . (1998). Strategy Safari: A Guided Tour Through The Wilds of Strategic Management, Free Press PORTER , M . (1998). Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press. RICHARDSON , B . and RICHARDSON , R . (1992). Business Planning: An Approach to Strategic Management, 2nd edn., Financial Times/ Prentice Hall. RUMELT , R . (1974). Strategy, Structure, and Economic Performance, Division of Research. ANSOFF , H . I .
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