Critical analysis of strategic development process

STRATEGIC MANAGEMENT IN ACTION: AL-KBOUS INDUSTRIAL TRADING & INVESTMENT GROUP

This paper is a critical analysis of the strategic development process of Al-Kbous Industrial Trading & Investment Group. The structure of the paper is as follows:

  • Executive summary - This section provides a summary of the findings of the critical assessment of the strategy development process and also includes the conclusions and recommendations.
  • Overview of Al-Kbous Industrial Trading & Investment Group - This part introduces the firm in focus in this paper and gives a background and context of the business.
  • Critical assessment of strategy development - The critical assessment of the strategy development process of the firm is presented in this section. The strategic development process is touched on lightly given the focus on the critical assessment versus a description of the strategic development process.
  • Conclusions - The final section presents the conclusions resulting from the critical assessment of the strategic development process of Al-Kbous Industrial Trading & Investment Group

EXECUTIVE SUMMARY

Al-Kbous Industrial Trading & Investment Group is a Yemen firm which has grown from being an international trader of coffee and tea into a large diversified manufacturer and exporter with a large business in Yemen and other overseas markets.

While it has grown relatively well in its seven decades of existence, it has not grown as much as it could possibly have and has not captured the opportunities that has been present in its markets and businesses. One area that it has been deficient in is its strategy development process. Its key areas of weaknesses are the following:

  • Use of Design School concept of strategy
  • Ineffective use of Human Resources Management (HRM)
  • Minimal inclusion of assessment of external environment
  • Focus on revenue growth versus formal business strategy
  • Limited leverage of information across the firm
  • Top-down design of strategy

Going forward, the following are the recommendations that could help position the firm into continued success and capture even greater opportunities:

  • Establish formal process of strategy development
  • Hire people with strategic expertise to establish process
  • Develop process which leverages information and knowledge
  • Develop process which has bottom up input
  • Incorporate environmental assessment

The recommendations are expected to result in the firm having a robust strategy development process with strong inputs across the firm, and will position the firm in good stead in the challenging market sand environment.

OVERVIEW OF AL-KBOUS INDUSTRIAL TRADING & INVESTMENT GROUP

This section provides a short summary of the firm and its products and services. The firm was established in 1938 as an international trader of coffee and tea (Kbous Group, 2005). In 1951, the firm started manufacturing mechanical coffee roasters and grinders in Yemen. Before long, the company had become a national manufacturer and positioned itself as a manufacturer of various products of international standards.

The firm has grown into a large business with the following as its main lines of businesses:

  • Distribution agent - The firm acts as an agent and distributor of various international products into Yemen such as household electrical appliances and laboratory equipment
  • Large-scale Manufacturer - The company is a manufacturer of food as well electrical tools and appliances
  • Export and trading - The company continues to engage in the international trading of coffee and tea (and thus export of these Yemen products)
  • Industrial and real estate investment - Finally, the company engages as well in industrial and real estate investments in Yemen and in selected overseas markets

It is important to note that the firm operates in various markets globally and not just in Yemen. Also, the firm is engaged in different products and services and thus has a diversified breadth of business being managed by the owners and managers. This context is important in understanding the critical assessment of the strategy development process of the firm.

CRITICAL ASSESSMENT OF STRATEGY DEVELOPMENT

In assessing the strategy development process in Al-Kbous Industrial Trading & Investment Group, the following key issues stand out:

Use of Design School concept of strategy - Given the internal capabilities of the firm, this school of though as an approach has become a limiting factor for the firm in its strategy development. The weakness is in the firm's internal capabilities and not a critique of the school of thought as an approach to strategy development.

Ineffective use of Human Resources Management (HRM) - The HRM is the function responsible for the failure of the firm to develop strong internal capability in strategy development.

Minimal inclusion of assessment of external environment - There is a clear lack of formal process in Al-Kbous to be able to include the assessment of the external environment in the development of its strategy.

Focus on revenue growth versus formal business strategy - The firm has been successful in growing the business but the lack of a formal business strategy development process could impact on the firm when the markets become more challenging. The focus has been on developing revenue targets and pursuing these targets in lieu of a formal strategy development process.

Limited leverage of information across the firm - The information flow for the Al-Kbous firm is relatively limited and thus managers do not always benefit from the information that exists within the senior management core and also the leaders of the business. There is a great opportunity to leverage the information which exists in the firm.

Top-down design of strategy - The strategy effectively being pursued in the Al-Kbous organisation is developed by the Executive Committee and the Board, and is cascaded down t the businesses.

These key issues are discussed in greater detail below.

Use of Design School concept of strategy

The Design School concept of strategy is one of the ten schools of thought of strategy defined by Mintzberg as well as other industry thought leaders. Rather than compare this concept with other schools of thought, the reason this is a weakness for Al-Kbous can be seen from the definition of the Design School concept where strategic opportunities are based on "a fundamental fit between external opportunity and internal capability" (Mintzberg et al, 1998 from Pauin & Koplyay, 2007).

In utilising the Design School concept in the development of the strategy for Al-Kbous, there is a limitation set which is fitting the opportunity within the internal capabilities of the firm. While conceptually sound, the issue is explained in the following point and relates to the internal capabilities of the firm, as this is limited by the type of people that are hired by the firm in developing the business.

Ineffective use of Human Resources Management (HRM)

Al-Kbous has great people working in the firm, and the success of the firm in building the businesses is an indication of the type of people that have worked and are working in the firm. However, there is a deficiency in the strategy development process and also the skills and capabilities of the senior management in strategy development. The HRM function is largely to blame for this deficiency.

The HRM is such a critical function in expanding a firm's repository of knowledge and thus has a large influence in the outcome of it strategic development (McKenna, Singh & Richardson, 2008). The failure of the HRM function in Al-Kbous is in to areas: (1) hiring of enough relevant people with the requisite skills and capabilities in strategy and its development, and (2) the appointment of the people with these skills to the right positions in order to make a difference in the strategy development of the firm.

Minimal inclusion of assessment of external environment

A key factor in effective strategic management has been defined as the ability to incorporate external environmental assessment into the organisation's strategy development processes (Mintzberg, 1978 from Blumentritt & Danis, 2006). For a firm such as Al-Kbous where there is great autonomy among the senior managers, there is also a lack of formal process to properly incorporate external assessment from various markets that the firm operates in. This is a considerable deficiency in the firm as the senior managers in the various markets that Al-Kbous operates in are experienced and have considerable experience in various capacities.

The critical area of development for Al-Kbous is in being able to tap into these senior managers and utilise their skills, capabilities, and experience, and incorporating these into a formal process as part of the strategy development process of the firm. While the insights on the strategic implications may still fall short given the focus that the senior managers might have, the benefit of being able to understand the market opportunities available and the assessment of the external environment will be invaluable in the overall, strategy development process, once this has been formally and properly defined.

Focus on revenue growth versus formal business strategy

The lack of a formal business strategy process cannot be good for the business in the long-term. Evidently, a number of businesses are able to cope with growing revenues and following the market trends and growth (Horan, 2006). This seems to be the case with Al-Kbous which has grown with the developing economy of Yemen and has built out a good franchise within the country while also capturing some opportunities outside the Yemen market. Al-Kbous is not alone in this field as researchers have found other companies to have been able to be successful while apparently not following any sort of strategy (Voss, 1998).

The emerging issues for Al-Kbous involve the following: (1) how the firm can grow faster than the market and the opportunities that are presented in the environment, (2) how resilient the firm is against the backdrop of a challenging global economy and market, and (3) how the firm can capture opportunities that are not obviously evident from the current business being managed by the firm. These issues are at the core of a business strategy and with the firm lacking a formal business strategy, the issues will remain as issues and will be kept in the background as the firm establishes increased revenues as its targets to drive the growth of the business.

The problem with the revenue growth target approach as opposed to a formal business strategy is that this is deemed to be not effective over a consistent period and over the long-term. The advantage of firms such as Al-Kbous is that these firms are not subjected to public scrutiny as publicly-listed firms are and as such, are able to continue on with limited growth and limited pressure to even grow faster than, say, the growth of the economy. Also, this approach lends itself potentially to what has been termed as 'wasteful behaviour' given the lack of focus that this approach effectively builds on (Stern, 2007). Mintzberg as well argued that firms which are typically led by owner-managers manage businesses in a different way than theory suggests for a typical strategic planning process with these firms managed with "more personal and arbitrary forms of control" (Mintzberg, 1979 from Woods & Joyce, 2003).

Limited leverage of information across the firm

Mintzberg and some of his co-authors in selected books and articles have mentioned that managers work in an environment of limited information and thus have to make decisions based on these limited information (Sridharan, 2005). The important aspect of the statement is that managers will need to work with limited information existing but that managers with the greatest ability to manage the information will probably be best placed to succeed.

It is challenging enough not to have complete information, and even more challenging if that incomplete information is even less than the possible that could be retrieved. This is the issue with Al-Kbous as the information that managers have to work is not the maximum possible information that managers could be armed with as there is limited information and knowledge transfer within the firm. This lack of knowledge sharing and information transfer can be attributed to the lack of belief in a formal business strategy process as well as the lack of people and resources with the skills, capabilities, and relevant strategy focus.

The approach of Al-Kbous in developing its business and its growth is definitely in sharp contrast to the concepts proposed by Mintzberg who even referred to the successful firms as those with strategies that are 'creative, imaginative, and sometimes playful' (Mintzberg, Ahlstrand & Lampel, 2005 from Gratton, 2005).

Top-down design of strategy

The strategy of the firm is developed from the top essentially by the Executive Committee and also the Board. This strategy, largely in the form on revenue targets but also including some specifics on markets and products, defines the goals of the organisation for the coming year. This strategy or plan is cascaded to the organisation to be implemented in the various divisions and markets. While the key managers in the divisions have some input on their targets, the process in incorporating the bottom up plans is largely informal and not always incorporated in the decision-making process. Thus, the result is a largely top down strategy development process.

As mentioned in the first point of this section, it would seem that the firm follows a Design School concept of strategy development with senior management formulating the strategy in a deliberate process (Mintzberg, Ahlstrand & Lampel, 1999). In the case of Al-Kbous the deliberate strategy process is largely kept among the senior management and only discussed among them.

CONCLUSIONS

In improving the strategy development process in Al-Kbous, there are a number of recommendations that the firm can pursue which would be expected to lead to improved strategy development and also have a positive influence on the performance of the firm. The key recommendations, which are linked to the key issues identified as part of the critical assessment of the strategy development process of the firm, are the following:

  • Establish formal process of strategy development - The firm has operated for several decades without a formal strategy development process in place that this recommendation may prove difficult to implement, particularly in the near-term. However, if the firm wished to capture the opportunities that increasingly exist in the Yemen and also the global marketplace, then it would make sense to have a formal strategy development process in place in order to guide the firm and its actions in growing the business.
  • Hire people with strategic expertise to establish process - Given the lack of internal capability in strategy development, it would be important for Al-Kbous to identify and hire people with strategy development experience and strategy expertise in order to drive the initiative forward. The relevant person or team will be given the responsibility to establish the process for Al-Kbous and kick-start the initial round of strategy development. The use of a new hire has the following benefits: (1) no Al-Kbous legacy relationships to consider, (2) strategy experience and expertise to leverage for the development of the process in Al-Kbous, and (3) objective presence in dealing with senior leaders and manager (owners) of the firm
  • Develop process which leverages information and knowledge - Strategy development process to be established should be developed with greater leverage of information across the firm. This will allow the firm to maximise the opportunities that are present in various markets and to be able to make informed decision based on a greater amount of information. At the same time, the flow of information will allow managers to leverage each others' information and knowledge to do much better in their respective businesses.
  • Develop process which has bottom up input - The information and input from the people on the ground are important to the development of the strategy. Thus, it is critical to be able to develop a strategy development process that considers and incorporates the input from different levels. Effectively, a bottom up approach and component will be needed as part of the strategy development process in order to ascertain the contribution of the different businesses to the overall strategic plan, where the gaps could exist, and how the gaps in the businesses could be addressed as part of the strategy development process.
  • Incorporate environmental assessment - as part of the overall leverage of information which exists in the firm as well as the use of bottom up input, it is important to include the information from environmental assessment to form part of the analysis of the strategy development process. The use of external environment assessment could lead to the following insights: (1) scope of opportunity in existing markets and businesses, (2) understanding of competitor activities and key initiatives to build their business in the markets, (3) potential new opportunities that may make sense for the firm to pursue, and (4) identification of resources (e.g. people, facilities) that could be beneficial for the firm to tap, pursue, or acquire.

The recommendations mentioned above are based on the deficiencies cited for the firm in the critical assessment of the strategy development process. The recommendations follow actions that conform to the theories pf management and strategy development that have been highlighted in each of the points in the section on critical assessment of strategy development. In pursuing these recommendations, it is envisaged that the firm will be able to capture the opportunities that are presented to it by the market, address the challenges that confront it in various markets and in the current environment, and position itself well in the markets that it operates in and see even more success than that experienced in the previous seven decades of the firm's history.

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