Tests Of A Winning Strategy
Three tests can be used to evaluate the merits of one strategy over another and to gauge how good a strategy is:
- The Goodness of Fit Test
- A good strategy is well matched to the company's situation - both internal and external factors and its own capabilities and aspirations.
- The Competitive Advantage Test
- A good strategy leads to sustainable competitive advantage. The bigger the competitive edge that a strategy helps build, the more powerful and effective it is.
- The Performance Test
- A good strategy boosts company performance. Two kinds of performance improvements are the most telling: gains in profitability and gains in the company's long-term business strength and competitive position.
The Concept Of Strategy - Summary
This chapter contains a discussion of the key concept in strategic decision making: strategy.
Strategy refers to the managerial action plan for achieving organizational objectives. In effect, strategy is a management tool for achieving strategic targets. It is the mechanism used to align firms with their environments. Therefore, in order to survive and prosper firms must answer the many important questions. Some of these are: What is our business? What should it be? What products should we produce, and at what level of quality? Who are our customers, and what types of customers do we want to serve?. When the questions are answered, a strategy is formulated.
Strategies exist at least at three levels: the corporate level, the business unit level, and the functional level. A corporate strategy is needed to achieve corporate-level objectives; business strategies to achieve the business-unit performance objectives; functional strategies are needed to achieve the performance targets set for each functional department. The idea of strategic fit assumes that these three levels of strategy are consistent. Moreover, lower-level strategy supports and complements higher-level strategy and contributes to the achievement of organization objectives.
As with other important pursuit, the strategic management process requires competent individuals to ensure its success. Different strategic issues are addressed at each level of managerial strategy-making.
Responsibility for strategy normally rest with a small number of strategic managers within the organization.
Strategic managers are responsible for the overall performance of the organization. Functional managers, on the other hand, bear responsibility for specific business functions within the organization. In its final form, a strategic decision is molded from the stream of inputs, decisions, and actions of many people, including the board of directors, president, and various line and staff managers.
In formulating a strategy, the effective strategic manager makes strategic choices which are consistent with environmental threats and opportunities, organizational resources, and managerial preferences and values. However, strategy is not a once-in-a-lifetime decision or activity of a firm, but is being continuously revised, examined, and revised.
Organizations that are unable to develop successful strategies do not succeed, because they lack a focus for their efforts.