IMPACT OF STRATEGIC MANAGEMENT ON PRODUCTIVITY AND PROFITABILITY OF A BUSINESS ORGANIZATION
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
In today’s turbulent business environment, managers increasingly need reliable navigational tools to achieve competitive advantage. Many academics and practitioners consider strategic management to be such a tool, that today’s managers have to think strategically about their company’s position and about the impact of changing business environment. Strategic management, according to Kotler (2012), is defined as the managerial process of developing and maintaining a viable fit between organization objective, skills resources and its changing market opportunities. In any organization, strategic management occurs in two phases which include the decision on the products to produce and or the services to render. Also, it includes deciding on the marketing and or the manufacturing strategy to follow in getting the intended product or service to the proper user.
Strategic management decisions will have long term impact on the organization. Similarly, Mintzberg (2011) argued that strategic management attempts to combine short-term planning and long-term planning. Organizations conducting Strategic management typically commit themselves to a formal process in which a group of planners articulate a mission statement, set goals and objectives, audits the organization for internal strengths and weaknesses, assesses the external environment for opportunities and threats, evaluates strategic options, and then select and operationalize an organizational strategy. The basic aim of strategic management is to link daily organizational decisions with a vision of where the organization wants to be at some point in future, usually five years. Hence, strategic management is not a single panacea but is instead an adaptable set of concepts, procedures, tools and practices intended to assist organizations determine where they are, what they are doing, how to do it and why. Porter (2010) argued that strategic management is the process of devising a plan of both offensive and defensive action intended to maintain and build competitive advantage over the competitors through strategic and organizational innovation.
The three issues that Strategic management should address include; what to do, to identify the customers and how to do better than the competitors. Blackerby Associates (2010), said that strategic management is a continuous and systematic process where people make decisions about intended future outcomes, how outcomes are to be accomplished, and how success is to be measured. McDonald (2013) further developed a frame work arguing that strategic management process delivers a set of defined initiatives (projects) that achieve a desired set of business goals. Renger and Titcomb (2012), were of the opinion that strategic management is an organizational process of defining its strategy or direction and making decisions on allocating its resources to pursue this strategy. In order to determine the direction of the organization, it is necessary to understand its current position and the possible avenue through which it can pursue in particular its course of action. In addition, Amit and Zott (2010) averred that strategic management spells out the basic mission of the organization and decides the resources that will be used to accomplish the stated mission. It is the master plan of the organization from where all the departments in an organization derive their functions and directions.
For these managers, the trick is knowing which levers to pull, and when to pull these levers to produce the desired and significant results in term of increased productivity which leads to high profitability of their organizations. We may identify these critical levers as organizational strategies. Strategy and strategic management in the context of business organizations refer the major action programmes that are used by organizations to achieve their mission and goals. The focus of all business organization is viability and profitability. The first requirement of the spirit of organization is high productivity standards for the group as well as for individuals in the organization. A successful organization is most often an efficient enterprise and one of the major focuses of management by objectives is to have managers set high productivity standards for themselves. A manager performs his functions by allocating and integrating of human and economic resources through the process of planning, organizing, directing, and controlling, for the purpose of producing outputs (goods and services) desired by its customers, so that the organization’s objectives are achieved. A manager works with and through people and other resources to realize these organizational objectives.
As modern business activities widen, environmental scanning and planning become difficult and more relevant today’s business conditions have continuous to change so fast to emphasize a growing need for continuous business intelligence activities and strategic management as the only option to anticipate failure, problem and opportunities. Strategic management provides all employees with clear goals and directions to the future of the organization. It also provides a standard against which future productivity can be compared. And all this makes it complicated in many highly technical firms that are subject to the “law of acceleration” which suggests an increasing rate of change. Since strategic management aids at finding how a company competes successfully within it environment, it is therefore said to be based on the principles of comparative competitive advantage necessary for survival and growth under competitive conditions. A firm cannot survive or grow unless it maintains one or more comparative competitive advantages, which provide the basic rationale by which customers will prefer that firm to others.
Organizational productivity and profitability is concerned with how an organization has fared in its quest to achieve competitive advantage position and expands its market share relative to their Competitors in the market place. Notable international businesses and multinational corporations (MNCs) across the globe, have for a long period of time achieved and sustained competitive advantage through consistently profitable business operation. Therefore, a business that is more profitable than its rivals by exploiting some form of strategic advantage is believed to be performing well. The source of the advantage can be something the business does that is distinctive and difficult to replicate, also known as a core competency (Colotla, Chrisman and Carroll, 2013). A firm’s core competencies are things that a firm can do well and that meet the following three conditions specified by Prahalad and Hamel (2010) which are, first, it provides customer benefits; second, it is hard for competitors to imitate; and third, it can be leveraged widely unto many products and market.
Organizational productivity and profitability can take various forms, including technical and/or subject matter know-how, a reliable process, and close relationships with customers and suppliers (Mascarenhas, Lewin and Minton,2015). It may also include product development or culture such as employee dedication and determination. If productivity yields a long term advantage to the business, it is said to be a sustainable competitive advantage. In order to put up a desirable productivity and compete successfully, locally and globally, businesses must not only excel in their area but also persevere in the long run. Achieving such a “sustainable competitive advantage” status is not an easy task without a proper road map or strategy being outlined and put into practice. Hence this is where strategic management becomes germane in the foregoing.
Interestingly, much of our understanding of the notion of successful organizational productivity and profitability has been drawn from the experience of Western and multinational organizations (Peng and Tan, 2011). By and large organizational productivity is examined as resulting from and being associated with a long list of contributing factors. Such as operational efficiencies, levels of diversification, types of diversification, organizational structures, top management team composition and style, human resource management, manipulation of the political and/or social influences intruding upon the market, conformity to various interpretations of socially responsible behaviours, international or cross-cultural activities of expansion and adaptation, and various other organizational and/or industry level phenomena (Flint and Van Fleet, 2012; King, 2014).
1.2 Statement of the problem
In Nigeria, most organizations attribute their failure to lack of funds, market situation and product unacceptability. Meanwhile, Ikemefuna (2010), observed that lack of vision; mission, and improper planning are the principal causes of business failure. However, Mintzberg (2011) argued that strategic planning is an involved, intricate and complex process that takes an organization into the uncharted territory. It does not provide a ready to use prescription for success; instead, it takes the organization through a journey and helps develop a framework and context within which the answers will emerge. The main problem of this study is therefore concerned with issues of haphazard planning; issues of not attaching adequate importance to business environment; and issue of engaging unqualified managers that can undertake effective strategic management in order to meet up with the productivity and profitability of Business organisation in Nigeria.
1.3 Aim and Objectives of the Study
The main aim of this work is to assess the impact of strategic management on productivity and profitability of a business organization in Nigeria. Specific objectives are to:
Investigate the role of strategic management on organizations productivity.
find out if strategic management is an important function of management
examine if the success of Nigeria breweries is based on strategic management.
find out if strategic management gives Nigeria breweries an edge over another
1.4 Relevant Research Questions
The following research questions would be asked in the course of this study:
What is the role of strategic management on organizational productivity and profitability?
Is strategic management an important function of management?
Is the success of Nigeria breweries based on strategic management?
Does strategic management gives Nigeria breweries an edge over another?
1.5 Relevant Research Hypotheses
The following hypotheses are formulated for this study.
Hypothesis I
Ho: Strategic management plays no significant role on organizational productivity
Hi: Strategic management plays significant role on organizational productivity.
Hypothesis II
Ho: Strategic management is not an important function of management
Hi: Strategic management is an important function of management.
Hypothesis III
Ho: The productivity and profitability of an organization is not based on strategic management
Hi: The productivity and profitability of an organization is based on strategic management
Hypothesis IV
Ho: Strategic management does not give Nigeria breweries an edge over another
Hi: Strategic management gives Nigeria breweries an edge over another.
1.6 Significance of the Study
It is envisaged that the findings of this work will enable organizations to adopt .Strategic management in their management process. The recommendations made will be of immense help to future researchers on strategic management and organizational productivity. Similarly, the study will enlist the importance of strategic management in organizational productivity and profitability, which will serve as a reference for future studies.
1.7 Scope of the Study
The study will examine the relevance of strategic management and organizational productivity and profitability in Nigerian Breweries Plc Ikeja Lagos. During the study, emphasis will be laid on the top and middle level management and few other employees who can give relevant information needed for the research. However, this will be achieved through the use of questionnaires and personal interviews.
1.8 Definition of Terms
Functional strategy: it focuses on the short run, “how to” issues of implementing strategies.
Strategic managers: These are individuals who bear responsibility for the overall productivity of the organization or for one of its major self-contained divisions.
Strategic adult: This is concerned with analyzing and assessing what has been achieved in the past and what the organization is capable of achieving in the future.
Strategic gap: This is the difference in the level of productivity called for in the firm’s state objective and the level of productivity that seems likely to result from the continuation of current operations.
Scenarios: This is a form of educated guesses made by planners. Objective: a statement of what is to be achieved.
Goal: This is synonymous with objective; a statement of what is to be achieved.
Mission: This defines the basic purpose or purposes of the organization; usually includes a description of the organization’s basic products and/or services and a definition of its market and/or sources of revenue.
Productivity: This is an economic measure of efficiency including what is produced relative to resources used to produce it.
Aggregate productivity: This is the total level of productivity achieved by a country.
Industry productivity: This is the total level of productivity achieved by the firms in a particular industry.
Company productivity: This is the level of productivity achieved by an individual company.
Individual productivity: This is the level of productivity attained by a single individual.
Total factor productivity: This is an overall indication of how well an organization uses all of its resources to create all of its products and services.
Partial productivity: This ratio uses only one category of resources.
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