Why do we require Strategies and Strategic Management

 

Need for Strategy

 

Star Struck

 

Iridium is named after the 77th element to signify the 77 satellites that were supposed to beam signals around the world, creating a worldwide mobile satellite telephone service (MSS). However, things did not work out as planned. Motorola, Iridium's chief sponsor, has vowed not to invest any more than the $1.6 billion it has already invested in the venture, unless other investors do so too. Iridium was chasing a very modest goal in terms of number of subscribers - 27,000 by end of July, from 10,000 at the end of March.

 

These two events are symptoms of deeper problems within the Iridium network, as people try to work out what went wrong. Were its estimates of MSS market (between 32 million and 45 million subscribers within ten years) unrealistic? Or, are Iridium's problems due to a poor vision and poor planning? Mobile telephony in general has been a growth market, with subscribers expected to reach 600 million within the next two years. MSS providers plan to capture 2.5% of the market by offering handsets that operate as a land-based cellular phone and a satellite telephone when cellular service is unavailable. Apart from business executives, other specialized users include truckers, civil engineers, field scientists, disaster-relief agencies, news organizations, extractive industries, and geologists. Shipping and aviation, as well as operations in less developed countries, which lack traditional telephone infrastructure, are also potential markets. Yet Iridium has not been able to sign up many subscribers. The technology is quite sound - the problem has been poor forecasting, marketing, production glitches, and some unexpected competitive moves.

 

Iridium's market size forecast and value did not materialize. This may be due to several marketing problems. Iridium's handsets cost more than $3,000, and call charges range from $2 to $7 a minute. Iridium's handset is large (7 inches), and weighs 1 pound, limiting its portability. Manufacturing delays at Motorola and Kyocera left customers waiting to get their telephones. In any case, its marketing partners, Sprint, and Telecom Italia were not prepared to sell the telephones. Its generic "schmoozy and generic" lifestyle marketing (according to John Richardson, Iridium's new CEO) was not suitable for its specialized target market.

Competitive entry also hurt Iridium's already weak network. Two new entrants to the MSS market, Globalstar and ICO have been able to promise the same service at a lower cost. At a volume of 1 billion minutes per year for instance, the cost of a minute using Iridium's system is $1.28, compared to 51 cents a minute for Globalstar, and 35 cents for ICO. The difference arises mainly because of Iridium's numerous satellites and their use of more power to maintain their low earth orbit. This also shortens their lifespan to 5-7 years. ICO's satellites, on the other hand, fly about 6000 miles higher in medium-earth orbit and have a life span of 12 years. With Iridium being forced to charge prices far lower than it had planned, and two low cost operators about to enter the market, Iridium's future is uncertain.

 

Those in favour of setting strategies argue that strategies are needed to give companies direction.  Without strategies, incorporating objectives, companies would be adrift.  If companies do not decide where they want to go, any direction and any activity is fine.  People in companies would not know what they were working towards and therefore would not be able to judge what constitutes effective managerial behaviour. 

 

However, those not in favour argue that direction-setting strategies can also block out peripheral vision, keeping companies sharply, yet myopically, focused on one course of action.  Thus, strategies may limit the companies' ability to be open to new opportunities and threats as these unfold and to deviate from a set course as the company interacts with its environment and learns.

 

Strategists hit back arguing that early commitment to a course of action is highly beneficial.  By setting objectives and drawing up a strategy to accomplish these, companies can invest resources; trains people, build up production capacity and take a clear position within their environment.  Strategies allow companies to mobilise themselves and to dare to take actions that are difficult to reverse and have a long payback period. We need to point out that commitment has a flip side, inflexibility, especially when mechanisms to change course midway are not in place. The absence of strategies does give the company flexibility to easily change course.

 

Strategic plan also has the benefit of co-ordinating all strategic initiatives within a company into a single cohesive pattern.  A company-wide master strategy can ensure that differences of opinion are ironed out and one consistent course of action is followed throughout the entire company, avoiding overlapping, conflicting and contradictory behaviour. But the flip side is that developing a master strategy may lead to the squashing of initiative, either purposely or inadvertently.

 

Strategists also point out that strategies also facilitate optimal resource allocation.  Drawing up a strategy disciplines strategists to explicitly consider all available information and consciously evaluate all available options before committing to a course of action.  Documented strategies also permit corporate-level strategists to compare the courses of action proposed by their various business units and to allocate scarce resources to the most promising initiatives. However, strategies sometimes place a disproportionate emphasis on thinking over action.  Enormous amount of time and effort are put into analyses, paperwork, meetings and presentations, trying to arrive at the optimal strategy. Often the result is that producing a strategy becomes an end in itself.  Action is seen merely as operationalizing the strategy, instead of as the primary input into further strategy formation.  The absence of explicit strategies, therefore, gives strategists the opportunity to merge thinking and acting, and to form strategies through learning.

 

Last, but not least, strategies are a means for programming all organisational activities in advance.  Having detailed strategies allows companies to be run with the clockwork precision, reliability and efficiency of a machine.  Activities that might otherwise be plagued by poor company, inconsistencies, redundant routines, random behaviour, helter-skelter fire-fighting and chaos, can be programmed and controlled if strategies are drawn up. However, using strategies to pre-program all activities within a company grossly overestimates the extent to which a company can be run like a machine.  For adaptation, experimentation and learning to take place and for new ideas to emerge from within the company, a certain measure of chaos might actually be beneficial. The absence of detailed top-down strategies encourages employees to be responsible, entrepreneurial and combine thinking and action. In this way, new strategic initiatives are not organised and controlled top-down, but emerge spontaneously through bottom-up processes of self-company.

 

What clearly comes out of these conflicting views is that strategies are required but should not be walled iron-clad into the one fixed set and not be changed, for that is the major objection against the requirement of strategies. They should be adaptable as the circumstances warrant and under the light of new developments as they keep on happening in the dynamic and hyper competitive world of business today. Having established the need of strategies (whether explicitly written down or not) we now turn our attention to the formal strategic management process.