Strategic Intent

Strategic Intent

Strategic Intent is the elevated degree of proclamation or plan which is created to accomplish an essential vision. It is one of the progressive ideas in essential administration. It is casual in nature – it isn’t obligatory like a mission and vision explanation to be made.

Even when a firm is pursuing a clear, logical strategy, the firm may never have publicly articulated it. Typically, the company’s annual report and its other public disclosures describe some elements of the strategy. In the United States, for example, a publicly held firm’s annual report and its other filings with the Securities and Exchange Commission usually say something about the scope of the firm and its competitive advantage.

However, those documents generally do not lay out long-term goals (except perhaps in a vague and not strategically meaningful way), and, more importantly, they do not explain how the firm intends to tie the pieces together to outperform its competition. The absence of a public, explicit strategy statement is in sharp contrast to the mission statement, which the firm often takes pains to disseminate widely.

The reason for this difference is, of course, that the firm often wishes to keep its strategic intentions hidden from its rivals, whereas the mission statement is intended to communicate core values, purpose, and mission to employees, investors, suppliers, customers, and the general public.

While it is understandable that a firm would refrain from publishing its strategy, some firms do not even explicitly articulate their strategy privately. Perhaps the most common reason for not articulating a strategy is that the senior general managers have a mutual understanding of what the strategy is and need not bother to formulate an explicit strategy statement.

A second reason is that the firm may be pursuing its strategy unself-consciously. That is, it may be operating within a clear scope and successfully outperforming its rivals with a clear source of competitive advantage without ever having analyzed why it is successful or what the logic of its actions and policies might be. Whether the firm originally embarked on its strategy by following a grand design or stumbled on it through a process of incremental change or pure chance, the key to its competitive advantage may long ago have become embodied in its routines, policies, and organizational structure.

Once a firm has hit (or stumbled) on a recipe for success, it can replicate its success without even analyzing why it is successful, provided its environment does not change. In such an organization, each part plays its role as shaped by the firm’s history. When individuals within those roles leave, others who continue that function replace them.

The various parts work together, like a well-oiled machine, similarly ignorant of how the pieces fit together or how the whole functions. In such cases it is sometimes easier for an outsider to divine what the firm’s strategy actually is than it is for an insider who is blinded or biased by the idiosyncratic nature of the role he or she performs.

The third reason for a firm not to have an explicit, articulated strategy is that the firm is confused about its strategy or has a strategy that has no compelling logic. Since the process of precisely articulating the strategy reveals these inconsistencies, often accompanied by disagreement and conflict among senior management, such firms often prefer to focus on the details of the next year’s business plan rather than to confront the fundamentals of their strategy.

The hierarchy of strategic intent includes various aspects like: Mission, Vision, Goals, Action Plans and Objectives along with logic, scope. It can also include analysis of one’s own resources.

Goals

The first element of a coherent strategic intent is a clear set of long-term goals toward which strategy is directed. These long-term goals typically refer to the market position or status that the firm hopes to achieve through its strategy.

For example, long-term goals might be to “dominate the market,” to be “the technology leader,” or to be “the premium quality firm.” By “long term” we mean that these goals are enduring. They are different from the specific tar- gets that a firm might set for a particular planning period. A long-term goal, such as having the highest quality products in the industry, is not one that can be achieved and then checked off a list. Rather, it is a goal that may take a long time to attain and once achieved, it must be actively maintained.

By including long-term goals within the strategy, we may seem to be confusing ends (long-term goals) with means (strategy). But the two are closely intertwined. “Market dominance” is a goal because it states what the firm hopes to achieve. Yet it is also part of the strategy because it has implications for the plan of action the firm should pursue.

A strategy designed to support market dominance will usually imply a different set of activities from a strategy intended to support being one of many equal competitors. Being the “lowest price” producer, for example, is consistent with market dominance. Setting a price that matches competitors’ prices is more likely to be consistent with a strategy of sharing the market.

The goals should be clearly directional. Goals can be thought of as the “where” of the strategy: Where do the managers of the firm want it to be? To be directional, goals must be more specific than the overarching edict of “maximize profit.”

A long-term goal like profit maximisation is too broad to have much strategic content. In some circumstances, dominating the market might maximize a firm’s profits; in others, a firm will maximize its profit by being a niche player in an industry dominated by another firm. In sum, long-term goals should provide guidance for what actions the firm should take.

Scope

The scope of a business defines the activities in which it will engage. This includes a definition of the products, markets, geographies, technologies, and processes with which it will be involved. The scope nearly always defines the products and services the firm will provide and the markets (demographic, sectoral, or geographic) it targets.

An online retailer of baby products, for example, might define its scope as advice and products for expectant and new mothers in the United States. It may also define which of the activities in the value chain for these products and services it will do in-house. Will development of the Web site be conducted in-house to ensure the desired interface or outsourced to a Web development specialist that can reduce cost by achieving economies of scale?

As we shall see, for some companies the scope may also include a definition of what technological capabilities the firm intends to master. Scope is the “what” of the strategy: What kinds of products will the firm produce, what activities will it carry out in-house, and what markets will it target?

The scope also defines (implicitly) the activities the firm will not undertake. Much of the bite of the strategy comes from this feature. Companies are bombarded with opportunities to venture out of their current scope of activities and with arguments from line managers about the merits of bringing currently outsourced activities in-house.

Some business advisors argue that firms will be better off if they sharply focus their activity, while others emphasize the importance of expanding the firm’s scope to embrace new opportunities. The statement of scope defines the firm’s position with respect to these broad and controversial strategic issues. The scope of the firm’s strategy minimizes time-consuming confusion about what activities the firm should pursue and allows it to focus on performing well within that scope.

Competitive Advantage

It is the “how” of strategy. It defines how the firm intends to achieve its long-term goals within its chosen scope. Since the firm faces actual or potential competitors, it must have a compelling reason to expect that it will be able to compete effectively against them. As the phrase “competitive advantage” suggests, a high-performance firm must achieve an advantage over its competitors. To be successful, a firm does not need to have an advantage over all its competitors.

Many markets have room for several firms that have parity in their ability to compete. However, a firm will do better if its source of competitive advantage is unique. There is great variety in the potential sources of competitive advantage. These include lower manufacturing costs than one’s competitors, higher quality products, greater customer loyalty, the capacity to innovate more quickly, a superior service capability, a better business location, an information technology system that enables the firm to replenish inventory more quickly and efficiently than rivals, and so on.

While the list is long, most forms of competitive advantage mean either that a firm can produce some service or product that its customers value more than those produced by competitors or that it can produce its service or product at a lower cost than its competitors. A firm that is better at something than most of its actual or potential competitors has an advantage in that activity. But this can be a competitive ­ advantage only if being better at that activity contributes to the firm’s ability to meet its long-term goals.

A firm that is best in its industry at filing documents has an advantage in document filing. This will not provide it a competitive advantage, however, unless document filing speed is somehow linked to the basis on which firms compete. For a hospital, document filing speed might be related to service quality; the more rapidly patient records are re-filed, the more likely they will be available the next time the patient comes in for treatment. For a mining company, it is hard to imagine that the speed at which it files its documents will have much effect on its ability to compete effectively.

Logic

Perhaps the most important element of a strategy is the logic by which the firm intends to achieve its goals. To see why, consider the following (simplistic) example:

Our strategy is to dominate the U.S. market for inexpensive coffee mugs by being the low-cost, mass-market producer.

This strategy contains a long-term goal and a simple description of both scope and competitive advantage. The goal is to dominate the coffee mug market. The scope is to produce inexpensive mugs for the U.S. mass market. The competitive advantage is the firm’s low cost. Yet the example omits a crucial element of any strategy: an explanation of why this strategy will work. Why will this product scope and this competitive advantage result in high performance for this particular firm in this particular industry? The “why” is the logic of the strategy.

To see what logic contributes to a strategy, consider the following expanded strategy.

Our strategy is to dominate the U.S. market for inexpensive coffee mugs by being the low-priced manufacturer selling through mass-market channels. Our low price in these channels will generate high volume and, because there are economies of scale in the production of mugs, will make us the low-cost producer enabling us to achieve favorable margins even with a low price.

This more complete strategy does two things. First, it answers the “why” question. In particular, it explains the linkage among the “low cost,” the “low prices,” and the goal of “dominating the market.” Low costs enable the firm to charge low prices, which generate large volumes.

Economies of scale in production imply that the large volumes enable the firm to produce at low costs. If the firm has the largest market share (which it will if it “dominates the market”) and if economies of scale persist at these very large volumes, the firm has a competitive advantage over its rivals. This is what enables it to charge lower prices than its competitors.

Second, the more complete strategy makes explicit some of the assumptions about the firm and its environment that must be true if the strategy is to ­ succeed. For example, it must be true that economies of scale are sufficient to give the firm the cost advantage it believes it will have over smaller competitors.

Obviously, even this “more complete” strategy is a simplified example. In practice, the firm’s strategic goals are often more complex, its scope is more detailed, its sources of competitive advantage are more numerous and specific, and its logic is more intricate. Our purpose here has been to describe the components of a strategy rather than to provide a complete or realistic one.

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Vision

To develop a strategy with a coherent internal logic, the strategist needs to understand where the firm and the industry are headed. The general manager must have some sense about technological trajectories, competitors’ likely actions, and developing market opportunities. Because these cannot be precisely and definitively described, the manager has to make some assumptions about them, about the way they interact, and about what outcomes are likely.

Forecasting how this related set of events will unfold requires foresight because the current situation often provides few hints about what the future holds. Because of the foresight that is required to imagine how events might unfold and the role the firm might play in shaping that future to the firm’s advantage, the term “vision” is often used to describe the strategist’s plan for closing the gap between current reality and a potential future.

Having a vision of the future might (and often does) contribute to formulating a good strategy and motivating the firm’s employees to achieve it. Indeed, as we saw, it is difficult to articulate a strategy without also indicating the long-term goals at which it is aimed.

Developing and communicating an envisioned future for a firm in a rapidly changing and uncertain world is a leadership function of general managers. The strategists, and even the firm’s, value added can sometimes depend on the creativity and innovation of the vision. Especially for a new organization or a firm involved in fundamentally changing its strategic direction, a clear (and clearly articulated) vision of where the strategy is intended to take the company and why it has a chance for success is important to attract and motivate employees and investors.

Managers themselves believe that vision is a key role of senior management. For example, one survey indicates that 98 percent of international senior managers believe that conveying a strong sense of vision is the most important role for a CEO, and that strategy formulation to achieve a vision is the CEO’s most important skill.

At the same time, a vision is not always necessary for strategy, and, more importantly, it is never sufficient. Some very boring strategies that require little creativity to formulate are successful. Particularly in industries in which change is slow and incremental, a successful strategy may require little vision.

Conversely, a great vision without a supporting strategy is unlikely to succeed. Hundreds of companies have been built on the founder’s vision of how consumers would use the Internet, and most have failed. Some have failed because the vision was wrong. Others have failed because they had no strategy enabling them to succeed. There was no strategy to guide the firm in its acquisition and deployment of assets that would provide it with a competitive advantage given the vision. At its best, vision can guide the formulation of strategy, but it is not a substitute for it.

Definition

We can define vision as the power to imagine. When you apply Vision to the future, you can create sketch of directing your vision. It serves as a guide.

What It Should and Should Not Include?

The vision should be simple and not unrealistic. One cannot achieve business goals if they do not have clear vision in mind. Also, the employees should be aware of the same, so that they can work accordingly and achieve the said goals.

One should avoid changing the vision statements every now and then, as this will only prove that the company has low confidence towards achieving their targets. Apart from that, the most important thing is to stay away from keeping vague statements as the vision like “we want to accelerate our revenues” etc.

Benefits of a Vision

Basically, the vision of strategic intent is like a blueprint for the company’s future position. It helps in setting future goals aligned with the intent for which the strategy is being designed.

• First, the mission statement can clarify the firm’s goals, reducing the tendency for people to work at cross-purposes. Some strategic management scholars, for example, stress the importance of consistency between the views of the company’s leaders and the company’s strategy. A mission statement may help promote this congruence.
  
  
• Second, in not-for-profit organizations, the mission statement can serve to inform the organizations’ external constituency (including potential donors) about the overarching goals of the organization. Because not-for-profit organisations tend to have more varied overarching goals than for-profits, this kind of statement may be critical to defining the organization’s goals.
  
  
• Third, to the extent that the firm can commit itself to a distinctive set of values, these may have positive effects on suppliers, customers, and employees. The device that enables the firm to commit to these values is its reputation. We will return to the role of values and reputation later in this book.

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Mission

Firms often commit their major goals and corporate philosophy to writing in a Mission Statement or a Statement of Purpose. Though varied in its structure and form, the statement typically describes the firm’s raison d’etre, its reason for existing. It also sometimes outlines the “core values” on which the company is based and to which it expects corporate behavior to conform.

Definition

The mission or purpose parts of the statements seldom contain the essential elements of a strategy. Although they sometimes define product scope and may refer to competitive advantage, they almost never clearly state the logic supporting the firm’s strategy. It’s the very reason which defines the reason of why a company exists.

Characteristics

The characteristics of vision statement of a strategic intent are:

• Clarity: The vision needs to be clear and not hazy at all.
  
  
• Concreteness: The number of quantifiable elements and degree of measurement in those elements.
  
  
• Lucidity: It should be unambiguous with a clear-cut vision statement. Attainability: It should be achievable with the number of resources in hand.

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Business Definition

Business is defined as an organization involved in a commercial activity, or professional or industrial.

It can be a profit or non-profit entity. It can be of various types likes:

Partnerships, Corporations or sole proprietorships. The two examples of successful business are Walmart and Apple.

Dimensions of Business Definition

Derek Abell defines business along three dimensions:

• Customer Functions
• Customer Groups
• Alternative Technologies

The Abell Matrix is a 3-dimensional tool which is used to analyze the scope of a business operation.

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Business Model

It is the plan and set of activities implemented by a company to offer unique value and generate revenue and make a profit from operations. A viable busi- ness model is a strategy that has a reasonable probability of succeeding if well executed. In the early stage, various business models compete.

General Motors’ business model involves transforming raw materials such as steel, rubber, and plastic into automobiles, all done at very large scale. eBay’s business model is to provide an electronic venue, or market, where buyers and sellers can come together.

Strategy scholars note that some business models have common elements or keys to success. They describe these commonal- ities as a dominant logic or “the way managers conceptualize the business and make critical resource allocation decisions—be it in technologies, product development, distribution, advertising, or human resource management.

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Objectives

The main objective of a business model is to generate revenues and profits. The business plan should include a well-thought-out logic in the form of a “business model” that explains how the firm will achieve its desired financial returns by pursuing its stated strategy.

Meaning

A business model is a method for enabling value to be created and exchanged between companies and their customers.

Role

• Provide unique value to a set of customers in the appropriate markets.
• Develop a set of resources and capabilities that allow the company to deliver that unique value to customers better than competitors.
• Sustain the competitive advantage by figuring out how to prevent imitation of the chosen strategy

Characteristics

While the research of several companies’ business models suggests that there is no such model which could be considered as the best in producing financial results; however, the comparatively successful models possess the 3 following aspects/characteristics.

• Unique value supplying: Mostly, this comes in the form of a new idea. The offering is in the form of a combination of a product and a service, same price greater benefit or low-price same benefit.
  
  
• Excellence is hard to mimic: This means that they develop a key differentiating factor like good execution; so, these models build barriers to entry in market that will protect their profit streams from other rivalries.
  
  
• Successful models are supported up hard by reality

Main Sources of Uncertainty in Emerging Markets

Entrepreneurs and investors face four main sources of uncertainty in emerg- ing markets: technological, market, organizational, and strategic.

• Technological uncertainty: Fundamental technological change can create new industries. The application of solid-state physics to electronic switching and amplifying created the semiconductor industry. The information tech- nology industry emerged from technological changes in computing. Because new technologies often give birth to new industries, early participants must place bets on which technologies will prevail.
  
  
  One part of this wager is purely technological: What technologies will work? In the discovery phases of innovation, the viability of a new technology is never obvious. Before the transistor was discovered, no one knew whether solid-state devices could amplify current. When the Department of Defense asked IBM and other research laboratories to develop a computing machine, no one was sure that it would lead to anything more useful than a mechanical adding machine.
  
  
  No one knows when or if a vaccine (let alone a cure) for the AIDS virus will be developed. The problem becomes more complex when there are com- peting technological designs. Then the question becomes not only whether anything will work, but also which design will work better than the others. ‰
  
  
• Market uncertainty: When a product is different from those currently on the market, it is difficult to anticipate how much demand it will com- mand. How much demand will there be for 500 cable television channels? How much will people pay for an electric car? IBM initially estimated that fewer than 20 computers would satisfy world demand.
  
  
  Similarly, EMI dramatically underestimated the demand for its CT scan technology. More often, however, firms overestimate eventual demand. Engineers become enamored of their new technology and became convinced that the world will embrace it. Uncertainty about how much the new technology will cost makes it even more complicated to estimate market acceptance. How much will companies need to charge for the new product? How quickly will costs (and prices) decline enough to attract a lot of buyers? Firms resolve demand uncertainty only when they overcome technological uncertainty and bring products to market.
  
  
• Organizational uncertainty: In the emerging stage, the relative capabili- ties of the participating firms and the optimal organization design are both uncertain. The technology may be feasible, but can my firm develop it? Will my firm develop it before another firm can? What organizational structure will be most successful?
  
  
  For new enterprises, organizational design is typically intertwined with financing issues. The start-up firm must decide how to accommodate the demands of key resource holders. For an established firm embarking on a new venture, organizational issues typically revolve around how the new venture should fit into the existing organization. Should an existing division manage the venture? Should the firm create an autonomous or semiautonomous new entity to purse the new opportunity?
  
  
• Strategic uncertainty: Selecting the best business model requires plac- ing strategic bets. What strategic logic will succeed in this market? Should the firm specialize and achieve economies of scale as Ford did, or should it pursue product differentiation and economies of scope as GM did? Is being first to market the most important source of competitive advantage, or can a superior but late product capture the market?

Different Business Model Eliminating: activities or steps in the value chain or using a different set of activities altogether may allow a firm to deliver a product or service at lower cost. There are two basic ways to create a new business model: to eliminate activities or steps in the value chain or to perform different activities altogether. The value chain refers to the sequence of all activities that are performed by a firm to turn raw materials into the finished product that is sold to a buyer. Each activity is designed to add value to the prior activity, which is why it is referred to as the value chain.