Formation of the goals of the business organization

To prepare a strategic plan, management must first analyze the external influences and diagnose the internal state of the company. A useful tool for achieving this task is the SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis, which means: strengths, weaknesses, opportunities, and threats.

Strengths and weaknesses are characterized as an internal environment for the research object, which directly depends on the decisions made in it, and the opportunities and threats are determined by the external environment and in most cases, the research object cannot directly influence them.

Analysis of the expectations of the stakeholders gravitating around the business organization.

Stakeholder groups are internal entities based on the common interests of their members. They arise both between the individual units of a business unit and between different business units, even between different hierarchical levels of the business organization. A particular individual may belong to several interest groups.

Influential groups around the business organization (shareholders, banks, owners, etc.) also influence the choice of goals to a greater or lesser extent. This is done, through the connections of the members of these groups, with interested individuals and groups within the business organization.

Analysis of conflicts due to the different expectations of individuals and groups within and around the business organization

As the expectations of different individuals and groups are different, conflicts over the chosen goals and strategy are inevitable. When analyzing conflicts, care should be taken to ensure that one of the following situations has not occurred:

  • the parts are more important than the whole;
  • the whole is more important than the parts;
  • external influences are of the utmost importance.

Identification of stakeholders in the business organization

In addition to determining the influence of stakeholders on the business organization’s strategy, they need to be identified. In many cases, this is quite difficult because researchers adhere to the formal organizational structure of the business organization in their research.

In most cases, however, stakeholders are informal, so identifying them is very difficult, but no less important.

There is another problem in identifying stakeholders. Very often some of the employees of the business organization are members of more than one interested group. On the other hand, individual stakeholders are involved in building other groups in and around the business organization.

Analysis of the influences in the business organization

When analyzing the individual and group expectations in the business organization, it is established how they are structured. This analysis allows making another parallel analysis – the analysis of the influences in the business organization.

Influences are a mechanism through which the expectations of different groups influence management policies and organizational culture.
In most business organizations, power (and the associated ability to exert influence) is distributed among various stakeholders. In other words, management policies are formed mostly by the most influential group in the business organization.

This is usually the group of managers, but not necessarily. Therefore, it is necessary to analyze in detail the structure of influences in the business organization.

Analysis of the sources of influence within the business organization.

The influences within the business organization can be grouped in different ways, but the most important is the grouping according to the possibility to influence the management policies and the organizational culture. From this point of view, there are six groups of sources of influence:

  • Hierarchical influences;
  • Influences of authority;
  • Influences from powers to control strategic resources;
  • Influences based on professional knowledge and skills;
  • Influences caused by access to information about the external environment of the business organization;
  • Influences from granted freedom of disposal.

Analysis of the sources of influence around the business organization

In addition to within the business organization, many influences arise from interest groups that gravitate around the business organization. These influences can be grouped into four main groups:

  • Impacts caused by dependence on the supply of resources;
  • Influences caused by joint participation in the implementation of the strategy;
  • Influences caused by dependence on foreign key knowledge and skills;
  • Influences are caused by the involvement of external groups in the development of the strategy.

Analysis of the strategic orientation of the business organization

The choice of strategy is the essence of strategic management. It is related to deciding on the future development of the business organization.
The choice of the strategy includes the following elements:

  • Discovering alternative guidelines (strategic opportunities) for future development;
  • Evaluation of the revealed alternative directions for the future development;
  • The final choice of direction for future development.
  • When revealing alternative guidelines for future development of the business organization, it is important to pay attention to the following three points:
  • Choice of basic (typical) strategy to be followed by the business organization in the future, ie. choosing the basis on which the organization will compete;
  • Selection of alternative guidelines within the selected basic (standard) strategy, which allows achieving competitive advantage;
  • Choice of alternative methods by which the chosen direction for future development can be successfully realized.

Choice of basic strategy

Before developing alternative strategies for the future development of the business organization, it is necessary to clarify the question of the basis on which the organization will compete or the choice of so. “Basic (typical)” strategy.

By depicting one or another basic (type) strategy, the goal is to achieve and maintain a competitive advantage. The purpose of choosing a basic strategy is to make a well-thought-out decision between the following three options: cost leadership, differentiation, focus.

Choice of basic (standard) cost leadership strategy.

Many business organizations maintain their competitive advantage by increasingly managing their cost structure according to the behavior of their competitors. If a business organization manages to maintain successful cost leadership of the value chain of its products, it achieves this by optimizing the individual units of this chain. This can be done, for example, by acquiring resources at very low prices from competitors.

In other business organizations, cost leadership can be achieved at the expense of the specific structure of business processes. In many business organizations, marketing is what provides cost leadership. This is achieved through the skills, experience, and talent of sales and advertising staff or by reaching mutually beneficial agreements with distributors, consumers, and others.

Therefore, within a basic (model) cost leadership strategy, there may be many guidelines for achieving such leadership and ultimately competitive advantage.

Choice of basic (standard) differentiation strategy.

The differentiation of a chain from the chains of competitors is the most powerful source for achieving a competitive advantage.

Differentiation can be achieved in different ways, both within the value chain within the business organization and through different types of relationships with the counterparties of the business organization (suppliers of resources, distributors, or consumers) of the global value chain.

The strongest differentiation is achieved by making unique connections between the activities in the value chain within the business organization. The strategy of the business organization must allow strengthening the uniqueness of these relationships.

Choice of basic (typical) focusing strategy

In many cases, the basic (standard) strategy is not aimed at the entire market in the industry, but at certain parts of it (niches). In these cases, it is important for the success of the business organization how well the basic (standard) strategy is properly focused.

When focusing involves cost leadership and differentiation, different variants of the basic (typical) focusing strategy can be obtained. Creating a product for a specific user group, industry segment or geographic region are the most common causes of focusing. The main thing that the business organization has to decide when focusing is whether, in the selected small part of the market, it will compete through cost leadership or differentiation.

Analysis of the mechanism for forming the goals of the business organization

Most, but not all, business organizations officially declare their goals. The goals of the business organization are formulated by someone (individual or group). Officially announced or not, the goals express the expectations and perceptions of the most influential individuals and groups within and around the business organization.

The opinion of this most influential stakeholder group will be greatly influenced by the expectations and perceptions of the other stakeholders, as most often the stakeholders do not impose certain goals, but rather impose certain restrictions on the choice of goals.

The goals of the business organization can be divided into 3 main groups: the mission of the business organization, corporate goals, and the goals of the business unit of the business organization.

Analyzing the mission of the business organization.

The mission of the business organization is its most generalized goal, an expression of the reason for the existence of the business organization. It is a synthesized expression of the corporate vision (conceptual model) of the business organization.

There is usually great disagreement about the mission of the business organization, which subsequently raises serious problems in determining the future course for the development of the organization. Therefore, the extent to which the mission meets the expectations of stakeholders within and around the business organization needs to be analyzed in detail.

Analyzing the corporate goals of the business organization

Corporate goals are mostly expressed in financial terms. They can be expressed by desired sales volume, desired profit amount, desired growth rate, etc.
Corporate goals are a concrete official expression of the expectations of stakeholders. They are most often formulated by the top managers in the central management, by the members of the board of directors, or by the executive director.

Objectives of business units

The goals of the individual business unit differ from the corporate goals. They have the following more important characteristics:

Apply only to a separate part of the business organization;
Have a financial expression that applies only to the relevant part of the business organization, so they are more operational;
They are simpler than corporate goals because they deal with concepts at the operational level.

References

Analyzing the adequacy of the goals of the business organization

It was initially thought that the goals of a business organization would not be useful if they could not be quantified. If a goal is quantifiable, it is possible to estimate how long it would take to reach it.

Some goals are not quantifiable but are no less important. A goal such as a mission, which is not quantified, can guide the future course of development of the business organization. Such goals help to find the focus of the strategy, not to determine when it will be implemented.

Objectives that are quantified, which is almost impossible to pinpoint, are also important for strategy selection and should not be overlooked.

By Samantha Rhine

Samantha Rhine, Editor-in-Chief of BusinessPad.org

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