Describe and account for the strategy development process and the current strategic position of a named organisation of your choice.
I would like to thank Mr. SUNIL THAWANI, my course leader for Strategic Management for his continuing interest, encouragement, and support in helping me complete this assignment.
We are all influenced by the thoughts and ideas of other people which tend to drift into the subconscious and are not always distinguished clearly from one’s own. I have attempted to give references for sources of work by other writers but apologise to any concerned if acknowledgement has inadvertently not been recorded.
2. List of Figures
5. The Organisation
6. Strategy Development and Strategic Position of Fashion Textiles
7. Formal Planning
8. Natural Selection
9. Logical Incrementalism
10.Cultural, Political and Visionary View
list OF Figures
1. Profile of strategy development at Fashion Textiles
2. The firm’s total environment
3. A model for structural analysis
4. Strategic advantage profile of Fashion Textiles
5. The risk of strategic drift
“Strategy is to do with matching the activities of an organisation to the environment in which it operates.” (Johnson, G. and Scholes, K., 1997). There is no one best way of creating strategy. The development of strategies is influenced by a variety of factors. It may be imposed by the environment, brought about by political negotiation or as a result of a leader’s vision. The development process contains elements of both intended and emergent strategies. At Fashion Textiles Trading Ltd. the development of strategy has been tilted towards a cultural view. This is not to suggest that absolutely no planning, analysis, or negotiation takes place. Fashion Textiles being a sole proprietorship form of organisation is highly influenced by attitudes, values and beliefs and most importantly the vision of its founder. The founder tends to have a highly powerful position that determines the future direction of the organisation. The results so far have shown good progress but the biggest question is can continued success be ensured in the dynamic environment with the traditional image and paradigm. An adaptive strategy development does encapsulate the founder’s experience and at the same time changes are made within familiar lines, but these may not be enough to avoid a strategic drift. By identifying the weaknesses and overcoming them by building on the strengths, Fashion Textiles can successfully develop a strong culture with a learning and participative approach to strategy development which will surely help in achieving clearer strategies that generate commitment of all members, and long term success of the enterprise.
The modern business world is highly dynamic. To survive gallantly and to experience the sweet smell of entrepreneurial success in the long term “organisations must learn to think of themselves not as producing goods or services but as buying customers” (Levitt, T, 1984, p34). To accomplish this, organisations must find suitable ways for creating and adding value for their customers; and not merely serving as a transit point in the supply chain. This can be achieved only through a consolidated sense of purpose and order in the form of a strategy. “Strategy is the broad collection of decision rules and guidelines that define a business scope and growth direction.” (Ansoff, H.I., 1965). Organisations succeed “if their strategies are appropriate for the circumstances they face, feasible in respect of their resources, skills and capabilities, and desirable to their stakeholders”. (Thompson, J.L., 1997). The process employed in the development of various strategies is often complex and is based on various external and internal factors. In this assignment the strategy development process and the current strategic position of Fashion Textiles Trading Ltd. has been analysed.
Fashion Textiles Trading Ltd. is a sole proprietorship organisation based in Sharjah. It was started in the year 1973 and has since expanded with four branches- two in Sharjah and one each in Dubai and Ajman. The organisation mainly deals in the retail trade of a variety of fabrics catering to the diverse clothing needs of the expatriate as well as the local population. However in the past few years diversification in the fields of semi-wholesaling and in-house tailoring have also been undertaken and presently options of garments manufacturing are being considered. The organisation faces direct competition from other retailers in the textiles as well as garments trade. The founder’s experience is considered the most influential and has the major impact on how problems of growth and survival are solved. However as the different branches focus on different market segments, some decisions of competitive strategies are developed through a co-ordinated effort of the founder and branch managers.
Strategy Development and Strategic Position of Fashion Textiles
Organisational strategy do not necessarily develop through one-off major changes. Having developed and adopted a particular strategy organisations tend to incrementally develop from and within that strategy, rather than fundamentally changing strategy - thus there is a tendency towards a certain “momentum of strategy” (Miller, D. and Friesan, P, 1980 cited by Johnson, G. and Scholes, K., 1993, p35). The real world strategies combine the dimensions of leadership intentions with the environment. We are unlikely to find a “perfectly deliberate strategy or a perfectly emergent strategy” (Wit, B.D. and Meyer, R., 1994, p13) in organisations. The strategy development at Fashion Textiles is influenced by the following:
· The Natural Selection
· Formal Planning
· Organisation’s Culture
· Founder’s Vision
· Political Process
· Logical Incrementalism
The formation of strategy at Fashion Textiles can be best described as “Entrepreneurial Strategy” (Mintzberg, H. and Waters, H., 1985 and Mintzberg, H., 1994). The founder of the organisation operates from a high level of power and control and the development of strategies is based on the founder’s deliberate intentions and vision; and changes in strategy are directly related to the founder’s perceived need for change. Though the other factors do play their role but the degree of pressure exerted by these influencing variables differs.
Formal Planning: Fashion Textiles does not boast of a corporate planning department which generates and evaluates various strategic options. No extensive analysis is undertaken to assist in the development of strategies. However individual branch objectives as well as sales targets are set to assist in the achievement of overall growth objectives set by the head office.
Natural selection: The size and power of Fashion Textiles in relation to its operating environment is so insignificant that it can merely buffer from, or respond to changes in the external environment. The diversity and uncertainty of the dominating influences poses a variety of threats; but at the same time it has provided Fashion Textiles with some strategy development opportunities. The key environmental issues for Fashion Textiles can be gathered by a “competitive intelligence” (Fritz, M., 1988, p37 cited by Miller, A. and Dess, G.G., 1996, p81) linked with an overall external environmental scanning.
+ Political / Legal: The government policies in the UAE are highly conducive to growth and development. The current strategic plans by Fashion Textiles to diversify into garments manufacturing has been supported, among other factors, by the various incentives given by the Sharjah Free Zone Authority. The new employment laws announced by the government in 1995, to legalise the labour market led to the development of an ‘opportunistic strategy’. Fashion Textiles saw the emergence of a price sensitive market segment which could not afford to buy better quality goods and would choose the ‘cheap and nasty’ option. For this a separate branch was opened in Sharjah.
+ Economic: The high per-capita income and the huge disposable income in the hands of the people of UAE has led to growth in the total market. However the huge disparity in the exchange rates of the Asian currencies in relation to the local Dirham has led to reduced per-head expenditure. Moreover the current oil crisis has led to the speculation about the imposition of Corporate Income Tax. The lack of a strictly regulated financial sector has led to a liquidity crisis in the textile industry and this has somewhat delayed the entry of Fashion Textiles into new ventures.
+ Socio-cultural: Changes in the demographics and lifestyles of the population has led to changes in consumer tastes and behaviour. Fashion Textiles adopted a generic strategy of focused differentiation at two of its branches to add value to the product through enhanced customer service. Through its internal development of in-house tailoring facilities, for example, it has provided a unique feature to its customers and at the same time added to it’s source of revenue.
+ Technological: The technological facet of the environment is the sum total of all machines, material and the knowledge which ensure the availability of goods and their sale to customers. The role of computers and data processing machines have helped Fashion Textiles a long way in ensuring adequate logistics solutions and timely delivery to their customers. Technology played a major role in the introduction of Fashion Textiles Customer Loyalty Cards and Special Customer Service Cards to enhance the image and increase its goodwill.
Just as the external environment, the immediate or competitive environment also plays a major influence in the development of strategy.
+ Threat of entry: The capital requirements for entry in the retail textile industry is very limited and the cut-throat competition between the more than 1200 wholesalers in Dubai has led to the easy availability of goods at credit terms extending upto 180 days. Moreover new trade licences and employment visas are easily available with little government intervention. The only advantage that Fashion Textiles can boast of is its experience and the focused differentiation through increased customer service.
+ Power of buyers and suppliers: The competitive rivalry between the wholesalers has ensured that Fashion Textiles always has an alternative source of supply. This is also because the product, apart from a few strong branded fabrics, is little differentiated. However there was a backward integration by Fashion Textiles in 1985 in the dealership of Cotton Tetoron and Satin fabrics. This strategic development was deemed necessary because the volume purchases of these goods were particularly high and the limited sources of supply demanded higher margins.
The provision of finance turned out to be crucial for Fashion Textiles as it had all its deposits in the now defunct Bank of Credit and Commerce International. However the required funds were raised through internal family resources.
+ Threat of substitutes: Fashion Textiles faces a threat of direct substitution from garments traders. Moreover changes in life styles and social values has meant that clothes are losing their appeal as an item of gift, and therefore increasing substitution by other gift items is also a cause of concern. Current strategic options of garments manufacturing has also been with a view to have an integrated trade in textile and garments.
+ Competitive rivalry: The existence of a few organisations of roughly the equal size of Fashion Textiles, and the current slow growth in the total market, combined with the regular entry of smaller players has led to a situation of intense competitive rivalry.
Strategic Advantage Profile: It is also important to see that the strength and weaknesses of an organisation are capable of dealing with the changes in the business environment. This can be done by building a “strategic advantage profile” (Jauch, L.R. and Glueck, W.R., 1988, p180) for Fashion Textiles .
The extent of its core competence has reduced over time due to the relatively higher labour turnover, difficulty in transferability of competence to other branches and imitation by competitors. Inspite of these problems, Fashion Textiles continuous focus on its customer’s satisfaction and its reputation earned over the years has helped it earn consistent profits through repeat business.
Cultural, Political and Visionary View: By organisational culture is meant the “deeper level of basic assumptions and beliefs that are shared by members of an organisation.” (Schein, E., 1985, p6). The various external forces and the organisation’s capabilities in dealing with these are made sense of through the beliefs and assumptions of an organisation called the paradigm. The paradigm plays a very important role in the development of strategy. The initial set-up of a paradigm is associated with the vision of a founder. “The leader not only creates the rational and tangible aspects of the organisation, such as structure and technology, but also is the creator of symbols, ideologies, language, beliefs, rituals and myths.” (Pettigrew, A.M., 1976, p11 cited by Peters, T. and Waterman Jr., R.H., 1995, p104) that form part of the paradigm. The founder of Fashion Textiles had his own notion, based on his own cultural insights and personality. In the initial years of operation the strategy development at Fashion Textiles can be described as visionary strategic management. The textile market was growing and the external environment was relatively stable during this period, hence success was easily achieved. The current strategic options are increasingly being based on a logical incrementalism view. Moreover there are other cultural factors that affect strategy development.
+ Values of society: The attitudes to work , authority , equality etc. change and adjust overtime. Failure to acknowledge these issues was the primary reason for a higher labour turnover at Fashion Textiles. The current strategic options of setting up a manufacturing unit will certainly raise the importance of these issues as Fashion Textiles will now have to deal with an increased number and variety of staff.
+ Organised groups: Trade unions are not allowed in the UAE, but informal groups do exist in almost every organisation. Membership of Fashion Textiles in TEXMAS (Textile merchants Association) does not restrict strategic freedom but has certain operational implications.
+ Stakeholders: There are various external and internal stakeholders of Fashion Textiles which have a bearing on the development of strategy. Fashion Textiles being a sole proprietorship does not face the conflicting problems between powerful shareholders. The role of suppliers, bankers has also been limited. Indeed by building linkages with some of its key suppliers Fashion Textiles has been able to add value in the organisation’s “value chain” (Porter, M.E., 1985). This has helped in achieving cost advantages in transportation charges for its suppliers, quicker delivery for its customers and higher margins for itself.
The internal influence of the paradigm, is by far the most important influence in the strategy development. In Fashion Textiles the strategic direction is strongly influenced by the needs, expectations, values, beliefs and experience of the founder which critically affects the decision making process and makes up his “worldview” (Ellis, K., 1998, p34). This surely required a high degree of personal commitment to business as well as strategic management. “But in the strength of the entrepreneurial approach lies entrepreneurship’s weakness”. (Mintzberg, H. et. al., 1998, p612). As the scope of operation at Fashion Textiles grew the assumptions and beliefs were slightly modified. Strategies now started to emerge through a process of negotiation between the founder and other branch managers in a political perspective. This need was increasingly felt to deal with changed circumstances. However the founder still has the biggest impact on the ultimate choice of a strategy. In other words a change in strategy development process has taken place but is still in line with the traditional paradigm. This has led to the development of a distinctive, but not a strong culture at Fashion Textiles. “A strong culture is easily shared and accepted by all individuals within the organisation and organisational ideals and mission are commonly held by all.” (Brown, S., 1996, p47). The culture at Fashion Textiles had developed through a variety of explicit and implicit mechanisms ‘taught’ by the founder.
Though the incremental changes in strategy have addressed the changes in the environment, it may prevent Fashion Textiles from investing in the right market development or in innovative opportunities. “In the long run, this tendency could seriously affect the flexibility, the need for change and the competence of the firm.” (Wagen, M., July 1996, p26) which in turn may increase the risk of strategic drift.
The situation may be further worsened if the autocratic style and conservative attitude would force the persons who would be willing to innovate to withdraw their support. Thus the “culture can outlive its usefulness and affect the performance of the organisation.” (Gibbon, S. and Twidle, J., 1998, p31). What is required is the increased possibility of creating and developing a commitment to change throughout the entire organisation. Only a co-ordinated and concerted action of a number of people can accomplish something that individual action cannot. The distinct culture at Fashion Textiles can be built into a strong culture only through a learning approach to strategy development.
Thus we can see that the strategy development process as well as the current strategic position of Fashion Textiles Trading Ltd. is influenced by a variety of factors. The role of the external environment as well as the matching of the various environmental factors with the inner resource capabilities does play a significant role. The operation of Fashion Textiles in a limited number of markets with an extensive range of products has so far helped it achieve continued success through the development of strategies within the traditional paradigm. The dynamic nature of the environment, both external and immediate as well as growing cost constraint means that a more broader view of the strategy development may be necessary in the long run. Policies involving strategic considerations would need wider debate and analysis to view alternatives fully and proceed carefully. It is crucial to identify the weaknesses and work to overcome them by building on the strength through a strong culture. Such a step will clearly be a positive move for Fashion Textiles to develop a proactive approach to the challenges and will help ensure its gallant survival through a vigorous leadership well ahead into the next millennium.
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