Diagnosing Strategic Problems

Often many companies go off track from what their original objective of being in business was. Now it might not be their entire fault, it could be the economical/social factors are working against them. For this reason shareholders pay top dollars to the managers the keep the ship a float. What is that job? It is called strategic management. Strategic management is the art and science of formulating, implementing and evaluating variety decisions that will enable an organization to achieve its objectives. It is the process of specifying the original objectives, developing policies and plans to achieve these objectives, and allocating resources to implement the policies and plans to achieve the organization's objectives. So, why do many companies fail? It is because the management forgets or fails to implement this definition. Lets look a couple of early indicators of strategic problems.

Firm needs to create a solid image for it self if it wants to achieve a lasting profitability. They often get bad press in the media for a lawsuit or any questionable action on the hands of the management. A company like wal-mart is the exceptional example. It has done nothing wrong but to implement their strategy of cost leadership and growth. They have been so successful at this that they a seen as to small business destroyers. In other words, wal-mart has trouble opening new stores because they are seen to be anticompetitive on their price, much so that they will drive out their small competitors out of business. Wal-mart have become a victim of their success. They are so good at what they do, the media and the public persona has given them a bad name. Personally, I think that if a merchant is offering an identical product at a lower price, then why you would want to buy it any where else.

A company needs to be focused on their direct business. That is why many economists disapprove companies diversifying. They argue that, a business needs to focus on what they a selling when they look to diversify that business they lose that niche focus leading into financial distress. A company like GE, which is involved in so many unrelated and related businesses, is a perfect example. How can the board of directors hire a management team which has experience in all of their businesses from finance to aviation to media? GE competes in many markets which mean its earnings are well protected from a decline, many diversification supporters say. But it a company offer so many different products and services that are miles apart how can it focus on each a every one item to maintain and expand its market share? Shareholders may diversify companies within their portfolio at a lower cost than a company trying to diversify buy buying another unrelated business. Shareholders want to company to excel in the market it competes in and if the management has too much on their plates they might not be able to achieve that goal.

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Business Strategy

The most important decision facing the management of a firm is the business strategy of their firm. Not only they have to be original but they have to be creative and be innovativing their strategy to gain market share over time because that is the point of being is business. There are number of ways the firm can gain market share; lowest price, first player in the market, technology, uniqueness of the product or service. etc.

It is important for a firm to be different from its competitors. What Apple computers did earlier part of this decade transformed to digital music players industry. Although they were not the very first player into the digital music market, in the fall of 2001, they created a unique product and defined the market. If you have been living under a rock for a couple of years, this product is Ipod which is a digital music player that plays your downloaded digital files from computer. Now you might think why would a computer maker get into a different market in which they have no experience? The answer is simple to diversify their products and to take advantage of the new opportunities in the market place. Apple knew that this industry may be profitable and created a business strategy to create a product and a complementary service iTunes.com which allows one to buy all types of media to put into Ipod. In this way they are helping out the struggling music companies by selling their music and at the other end selling Ipod to enjoy that music to go. Now there were many other digital music players makers in the industry before Ipod was introduced, then how did Apple attract market share? through innovation of deigning. Music player were ugly back then with less functions while Ipod looked sleek (sexy) with multi function and could store hundreds of songs. The design attracted the buyers and the iTune service made them royal customers. Ipod's design have succeeded so much that it is regarded as a fashion statement more than a digital music player.

Cost is essential to most people. In other words, If you could buy the same product from a different retailor at a lower price, why won't you. In the world that I live in under normal circumstances, a person will always do to the cheaper retailer. This business strategy is executed perfectly by Walmart. Lets not confuse walmart as being the lowest price retailer but how they are focused on the costs of running the business through their regional warehouse channels that enables them to maintain the best prices. Since walmart buys items in largest quantity, they have regional warehouses where it stores and ships the inventory to its retail locations. Some of these warehouses are more than 50 foot ball fields. Because of this strategy walmart is major customer to individual companies and to thousands of their customers around the world. Another firm I could think of that used similar cost strategy by using just in time inventory was Dell. Their business strategy of selling directly to customers lead them to be dominant player in their industry while at the same time offering the most competitive prices in the industry. By using just in time inventory and directly selling to buyers of their products, they didn't have to worry about volatile computer component price, since they didn't have lots of inventory costs that lead them to offer the best prices. The company is struggling because they did not innovate through time and lost market share to rivals. However, since the founder Michael Dell took over the CEO position, they have been innovating their business model and now started to sell their products in retail stores.

As I have pointed out business strategy is essential in the success of a company. In addition, it had to been creative and innovative for one firm for it to maintain competitiveness and market share. Some companies have diversified their businesses at the same time innovated different business strategies and enjoined great profits while other like Dell have a great business plan but they have recently struggled because they did not innovate.