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Strategic Management Essay Sample

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Introduction of TOPIC

I. Executive Summary
Strategic management has been given significant attention for this few decades, because of its mass contribution to the success of the company’s long term goal. The word “Strategy” has its roots of military science, deriving from the Greek’s word “Strategos” meaning plan the destruction of one’ enemies through effective use of resources.” (Calingo, n.d, as cited in Ting, 2012a, p. 8). A successful company has a very practical strategy. NIRON ADEC, one of the microfinance institutions in Cambodia, also has its own weapon – the strategy – to compete in this market. In 4 years time, NIRON has 41 branches located all around Cambodia, with 925 staffs, 53,120 clients, and a gross loan portfolio of over USD 5,000,000. For 2012 strategy, NIRON wants to be the easiest accessible financial product to all customers around Cambodia. With this view, NIRON has a very clear vision and mission, objective, and SWOT analysis. It has decided to shape their focus on three points in order to achieve their objectives which are to expand their operational coverage to 45 branches, use a direct collection and disbursement method, and to be the fastest loan provider. In doing so, they have uses the following tools: * Opening new branches

* Developing new policies and procedures
* Training and recruiting people
After implementing the strategies NIRON has met most of its objectives. This happens because the strategic makers understand well where they are and where they want to be in the future and they have come up with a very competitive strategy which is to provide the most convenient services to customer. Despite having met their objectives, a few flaws have been found. Firstly, it has been operated with a very high operational cost and a poor productivity rate. Secondly, they have not considered about their resources limitation before implementing the strategy, which leads to a low staff capacity and low productivity. In addition, they do not even have clear control guidelines for staffs to evaluate the strategy.

Therefore, in order to make the best use out of this strategy, I recommend the following points to be implemented. First, they should be more concern about the productivity and their cost analysis. Second, they have to identify all available resources such as financial, human, physical, and technical resources, before coming into implementation. Next, they should build their staff capacity through selecting the right person for the right job, which means select a well educated on to work. Furthermore, they also should introduce a pay for performance systems and profit sharing system in order to motivate their staffs to achieve the objectives. A strategic control should also be put along with the balance scorecard so that it will act as a tool to illustrate and deliver all strategy into practical implementation process

II. Background of NIRON ADEC
NIRON ADEC is an emerging financial institution which provides micro-loan to poor and medium class Cambodian citizen everywhere in Cambodia. Despite having just been opened in 2008, NIRON has gained dramatic recognition from other local financial institutions for their excellent market penetration strategy. By the end of September 2012, NIRON has 41 branches located all around Cambodia, 925 staffs, 53,120 clients, and a gross loan portfolio of USD 5,157,143. Table 1: Operational and Financial Highlight of NIRON

Source: NIRON ADEC, September, 2012a, p. 5

III. Strategic Management Process
To stay competitive and sustainable in this hyper competitive era, NIRON has to be creative and innovative with their strategy, despite having gained a large market share. 1. Vision and Mission

Unlike some companies in developing countries, NIRON has a clear vision and mission in doing this business. Table 2: NIRON ADEC’s Vision and Mission

Source: NIRON ADEC, 2012a, p. 10

2. Analysis – SWOT Analysis
The SWOT of the company is analyzed and presented in order to help company find its own strengths and weaknesses in order to rebuild its internal part for a better future. Moreover, the opportunity and threat of the outside world are also pinpointed so that company can adjust to it.

Table 3: NIRON ADEC’s SWOT Analysis

Source: NIRON ADEC, 2012b, p. 18

3. Strategic Direction
The main strategic direction for NIRON is to provide the easiest accessible financial product to all customers around Cambodia. By accomplishing this objective, by the end of 2012, NIRON will be able to: * Increase their net income by 10% per year

* Have a total asset of over 7,000,000 USD
* Have a country-wide operational offices
* Have over 50,000 clients with a gross loan portfolio of about 5,000,000 USD 4. Strategic Choice
Since 2008 till 2011, NIRON has put much effort in product development strategy, in which they have strived to developed unique financial products to meet the demand of poor people. Knowing that in order to reach their main vision and mission, NIRON has to step further and should rather put more attention to expand their operational coverage. Therefore, for the 2012 strategy, NIRON has decided to shape their focus on 3 critical areas: * Easiest Accessible: Expanding the operational offices to everywhere in the country – around 45 branches. * Direct Collection: Collecting the repayment back at customer’s premises * Fastest Loan Provider: Providing financial loan to customer no more than 2 days for new client and no more than 1 day for old client. 5. Implementation

In order to achieve the desired objectives and to be successful in delivering the strategic choices, the following implementation has been done. 6.1. Operational Areas Expansion
In order to become the easiest accessible Microfinance in Cambodia, NIRON must have the countrywide operational area coverage. By the end of 2011, there were 20 branches and sub-branches countrywide. By the end of September 2012, NIRON ADEC has opened 21 more branches and sub-branches as shown below. Table 4: NIRON’s New Operational Areas by September 2012

Source: NIRON ADEC, September, 2012b, p. 5

6.2. Policies and Procedures Development
In order to be a fastest loan provider and most convenient repayment collector, NIRON ADEC has developed and implemented policies regarding that: * Except clients whom houses are 3 Kilometers from offices, our credit officers must go to their premises to collect and disburse loan. * Without any unexpected problems, all loans must be disbursed to clients no more than 2 days for new customers and no more than 1 day for previous customers. 6.3. Training

Training is very crucial if we want to be successful in delivering the message – our strategy and policy. Having known this, NIRON has put responsibilities on the HR Department and Operation Department to go hand in hand in designing and delivering knowledge to all staffs. Areas which have been

educated are: * How to be the best service provider * How to be

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the best loan analysis
* How to communicate effectively
* How to maintain old clients and attract new customers
6.4. Human Resources Needs
Just so you know that NIRON have opened 21 new branches and sub-branches in just nine months in 2012, which is why a very tough time recruiting people. For one branch, we need a total of at least 10 people, which means around 210 staffs in overall. Some branches have recruited even more staffs than that in order to meet the target. Table 5: Staffs Needed for Each Branch or Sub-branches

Source: NIRON ADEC, 2012b, p. 25

IV. Critical Evaluation and Recommendation
After 9 months of implementing, I have seen that this is a very good strategy with fewer flaws. For one thing, the strategic makers have known exactly what they want to be, which illustrates clearly in their vision, mission, and objective. Just as Seneca said, if we do not even know what we want to achieve, despite having top human resources, enormous resources… we will not be able to achieve anything (as cited in Ting , 2012a, p. 51). Secondly, they have come up with a very practical competitive advantage strategy identified by Treacy & Wiersema (as cited in Ting, 2012a, p. 173), which is to provide the most convenient services to customer. Customer Intimacy makes client addict to NIRON, despite a bit high in interest rate, because they feel very comfortable with our service. Finally, after only 9 months they have achieved their objective tremendously. The following table clearly illustrates this. Table 6: Plan vs. Actual Result by September 2012

Although, NIRON has achieved most of their objectives, several critical issues must be dealt with so that this financial institution can be sustainable in the long run. 1. Strategic Measurement

2.1. High Operational Cost
As stated in Hubbard & Beamish (2011, p. 36), a company gains competitive advantage over it rivalry only when they can get higher profit than their rivalry, considering that they are performing the same or equivalent activities. NIRON ADEC has a large yield on loan after implementing the strategy, but we also have a high operational expense. The figure below shows that the Yield Gap of Loan drops down significantly, from 73.76% in May, 2012 to 54.49% in September 2012. Therefore, despite considering about expanding the coverage and providing convenient services to customers, what they should pay more attention to is operational costs if they want to survive in the long run.

Figure 1: Yield Gap and Operating Expense Ratio for the Last 5 Months

Source: NIRON ADEC, September, 2012a, p. 17
2.2. Low Productivity Rate
The following figure illustrates the amount of borrowers per loan officer and per staff, compared from May to September-2012. This figure surely tells the downfallen of the company’s productivity. Borrowers per CO are 97 and Borrowers per Staff is 68 in May 2012 and it falls to 79 and 57 respectively in September 2012. Figure 2: Number of Borrowers per Credit Officer and per Staff

Source: NIRON ADEC, September, 2012a, p. 19

This happens mainly because we have hired more staffs in order to meet the objectives. As the table above has shown, currently there are 925 staffs working in NIRON ADEC, which is about 125 staffs over-plan, while the borrowers per CO is only 79 and per staff is only 57. Most branch managers just want to achieve the objectives and they do not pay attention to any fallback. Moreover, top management has not put any warning to alert them about such issues, and have not tried to find any prevention and solution to deal with situations. “Strategy is about long-term impacts of important decisions for the organization,” said Hubbard & Beamish (2011, p. 3). Therefore, NIRON must pay more attention to the long-term impacts, if they want to be sustainable. 2. Resources Identification

HR department do not have much time recruiting people, which leads to the selection of not well-educated staffs. NIRON has not concerned about this issue at all, before implementing the strategy. As cited from Ting (2012c, p. 23), there are 4 types of resources to be identified before choosing a strategy: * Financial Resources: Whether the company has enough capital and financing sources to operate the strategy or not. * Physical Resources: This can be the fixed assets, training materials, and so on, that are needed to implement the strategy. * Human Resources: Do we have enough people to work? Are they capable enough to do it? Can we hire a capable people on time? Those are the questions which should be considered before jumping to the strategy selection. * Technological Resources: It is the most important factor for the current era, since without strong technology we will not be able to compete with others. 3. Staff Capabilities

Only a capable organization can sustain and have a competitive advantage. In building a capable company, the first step is to select people with relevant skills/knowledge to the job, which is far from the implementation of NIRON (Ting, 2012b, p. 33). If I were to develop the strategy, I will strive for a well-educated and strong committed staffs. Then I will help building their working related skills, core competencies, managerial talents, and competitive capabilities just as shown in the following figure. Figure 3: Building a Capable Organization Framwork

Select able people for key positions Develop skills, core competencies, managerial talents, competitive capabilities

Organize business processes, value chain activities, and decision-making to promote successful strategy execution

Source: Ting, 2012b, p. 17

4. Staffs Motivation
Having a poor motivation policy can also be the indicator in answering why staffs do not follow the policies and procedures. NIRON has only a basic salary policy and end of year bonus. There is no motivation strategy which links individual performance to the benefits they will gain. A linking pay/performance to strategy should be adopted, so that everyone will pay more attention to their performance. As suggested in Ting (2012c, pp. 50-51), we can use the following strategies:

* Pay for Performance Systems
* Dual Bonus Systems
* Profit Sharing Systems
* Gain Sharing Systems

To me the following motivation strategies should be adopted, if we want to achieve the strategy: * Pay for Performance Systems: If any credit agent reaches their monthly target, they will get a 10% to 30% plus their basic salary. * Profit Sharing Systems: By the end of the year, if any branches or sub-branches have reached their target, they will get a 20% of profit sharing to all staffs worked in that branch or sub-branch. 5. Strategic Control

Every strategic plan must have a control – assessment, evaluation, and feedback; otherwise, we will not be able to know how far we have reached, our weaknesses, and what we should do to better the process. As suggested by Voljoen (as cited in O’Neill, 2009, p. 215), a company should develop a checklist of evaluation criteria in order to better understand the performance of the strategy. However, for NIRON ADEC, they have set a plan which has no control at all. 6. Recommended Implementation Process

NIRON has not yet performed their best as we have seen from the above data. This happens because of their lack of practical implementation process. Just as Kaplan and Norton said “Business success is not achieved through brilliant strategy. It is achieved through brilliant implementation strategy.” (as cited in Ting, 2012d, p.2) A Balance Scorecard, a framework used to translate the strategy into operational objectives in order to get the best performance, should be the best for a brilliant implementation strategy (Ting, 2012d, p. 5). Therefore, I would like to recommend NIRON to use a below balance scorecard in order to deliver their message across.

Figure 3: NIRON’s Recommended Balance Scorecard
Strategy Map| Balance Scorecard|
Process: Operation management & customer managementTheme: Customer solution| Objectives| Measurement| Target| Increase Profit
Financial PerspectiveIncrease Loan Outstanding

Increase
Assets
| * Increase Profit * Increase Assets * Increase Loan Outstanding| * Net Income * Assets Balance at the end of the year * Loan Outstanding Balance at the end of the year| * 10% per year * 7,000,000 USD * 5,000,000 USD| Attract & Retain more Clients

CustomersPerspectiveConvenient
Relationship
| * Attract & Retain More Clients * Manage good relationship with customer * Make customers feel convenient with the product| * # of new clients * # of repeat clients * Customer ranking * Customer ranking|
* 30% per year * 90% per year * # 1 in ranking * # 1 in ranking| Easiest Accessible

Fastest Loan Provider
Direct Collection
InternalPerspective| * Easiest Accessible * Direct Collection * Fastest Loan Provider| * Numbers of Offices * # of Client’s Collection at their premises * # of Days Disburse Loan| * 45 branches * 90% * No more than 2 days for New Clients and 1 day for Old Client| Strategy Job

Credit Officer
Strategic Systems

Green Technology System
Credit officer alignment
Learning &GrowthPerspective| * Develop the necessary skills * Develop the support system * Align employee and the strategy| * Strategic job readiness * Info system availability * Strategic awareness| * 80 % job readiness * 50 % of system developed * 100 % strategic awareness|

References

1. Hubbard, G. and Beamish, P., 2011. Strategic management: Thinking, analysis, action. 4th ed. Australia: Pearson Australia. 2. NIRON ADEC, 2012a. Organizational overview report. Phnom Penh: NIRON ADEC. 3. NIRON ADEC, 2012b. 2012 Strategic Plan. Phnom Penh: NIRON ADEC. 4. NIRON ADEC, September, 2012a. Monthly master financial report. Phnom Penh: NIRON ADEC. 5. NIRON ADEC, September, 2012b. Monthly strategic report. Phnom Penh: NIRON ADEC. 6. Ting, L. P., 2012a. Strategic management, MGT510 Strategic management. Charles Sturt University, unpublished. 7. Ting, L. P., 2012b. Implementing strategy: Resources, capabilities and structure, MGT510 Strategic management. Charles Sturt University, unpublished. 8. Ting, L. P., 2012c. Implementing strategies: Management & operations issues, MGT510 Strategic management. Charles Sturt University, unpublished. 9. Ting, L. P., 2012d. Creating strategy-focused organizations using the balance scorecard,
MGT510 Strategic management. Charles Sturt Univeristy, unpublished. 10. Voljoen, J., 1994. Developing a strategic plan. In G. O’Neill, ed. 2009. Strategic management. New South Wales: Charles Sturt University. Reading 1.6.

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