Strategic management
Encyclopedia
Strategic management is a field that deals with the major intended and emergent initiatives taken by general manager
s on behalf of owners, involving utilization of resources
, to enhance the performance of firms
in their external environments. It entails specifying the organization
's mission
, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs. A balanced scorecard
is often used to evaluate the overall performance of the business
and its progress towards objectives. Recent studies and leading management theorists have advocated that strategy needs to start with stakeholders expectations and use a modified balanced scorecard which includes all stakeholders.
Strategic management is a level of managerial activity under setting goals and over Tactics. Strategic management provides overall direction to the enterprise and is closely related to the field of Organization Studies. In the field of business administration it is useful to talk about "strategic alignment" between the organization and its environment or "strategic consistency." According to Arieu (2007), "there is strategic consistency when the actions of an organization are consistent with the expectations of management, and these in turn are with the market and the context." Strategic management includes not only the management team but can also include the Board of Directors and other stakeholders of the organization. It depends on the organizational structure.
Following the devising of a mission statement, a firm would then undertake an environmental scanning within the purview of the statement.
Strategic formation is a combination of three main processes which are as follows:
These options, once identified, have to be vetted and screened by an organization. In addition to ascertaining the suitability, feasibility and acceptability of an option, the actual modes of progress have to be determined. These pertain to:
In corporate strategy, Johnson, Scholes and Whittington present a model in which strategic options are evaluated against three key success criteria:
Tools that can be used to evaluate suitability include:
Tools that can be used to evaluate feasibility include:
Tools that can be used to evaluate acceptability include:
The exact option depends on the given resources of the firm, in addition to the nature of products' performance in given industries. A generally well-performing organisation may seek to harvest a product, if via portfolio analysis it was performing poorly comparative to others in the market.
Additionally, the exact means of implementing a strategy needs to be considered. These points range from:
The chosen option in this context is dependent on the strategic capabilities of a firm. A company may opt for an acquisition (actually buying and absorbing a smaller firm), if it meant speedy entry into a market or lack of time in internal development. A strategic alliance (such as a network, consortium or joint venture) can leverage on mutual skills between companies. Some countries, such as India and China, specifically state that FDI in their countries should be executed via a strategic alliance arrangement.
Strategic management techniques can be viewed as bottom-up, top-down, or collaborative processes. In the bottom-up approach, employees submit proposals to their managers who, in turn, funnel the best ideas further up the organization. This is often accomplished by a capital budgeting process. Proposals are assessed using financial criteria such as return on investment
or cost-benefit analysis
. Cost underestimation and benefit overestimation are major sources of error. The proposals that are approved form the substance of a new strategy, all of which is done without a grand strategic design or a strategic architect. The top-down approach is the most common by far. In it, the CEO, possibly with the assistance of a strategic planning team, decides on the overall direction the company should take. Some organizations are starting to experiment with collaborative strategic planning techniques that recognize the emergent nature of strategic decisions.
Strategic decisions should focus on Outcome, Time remaining, and current Value/priority. The outcome comprises both the desired ending goal and the plan designed to reach that goal. Managing strategically requires paying attention to the time remaining to reach a particular level or goal and adjusting the pace and options accordingly. Value/priority relates to the shifting, relative concept of value-add. Strategic decisions should be based on the understanding that the value-add of whatever you are managing is a constantly changing reference point. An objective that begins with a high level of value-add may change due to influence of internal and external factors. Strategic management by definition, is managing with a heads-up approach to outcome, time and relative value, and actively making course corrections as needed.
Simulation strategies are also used by managers in an industry. The purpose of simulation gaming is to prepare managers make well rounded decisions. There are two main focuses of the different simulation games, generalized games and functional games. Generalized games are those that are designed to provide participants with new forms of how to adapt to an unfamiliar environment and make business decisions when in doubt. On the other hand, functional games are designed to make participants more aware of being able to deal with situations that bring about one or more problems that are encountered in a corporate function within an industry.
Corporate strategy refers to the overarching strategy of the diversified firm. Such a corporate strategy answers the questions of "which businesses should we be in?" and "how does being in these businesses create synergy and/or add to the competitive advantage of the corporation as a whole?"
Business strategy refers to the aggregated strategies of single business firm or a strategic business unit (SBU) in a diversified corporation. According to Michael Porter
, a firm must formulate a business strategy that incorporates either cost leadership
, differentiation
, or focus to achieve a sustainable competitive advantage and long-term success. Alternatively, according to W. Chan Kim and Renée Mauborgne, an organization can achieve high growth and profits by creating a Blue Ocean Strategy
that breaks the previous value-cost trade off by simultaneously pursuing both differentiation and low cost.
Functional strategies include marketing strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, supply-chain strategies, and information technology management strategies. The emphasis is on short and medium term plans and is limited to the domain of each department’s functional responsibility. Each functional department attempts to do its part in meeting overall corporate objectives, and hence to some extent their strategies are derived from broader corporate strategies.
Many companies feel that a functional organizational structure is not an efficient way to organize activities so they have reengineered
according to processes or SBUs. A strategic business unit is a semi-autonomous unit that is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting. An SBU is treated as an internal profit centre by corporate headquarters. A technology strategy
, for example, although it is focused on technology as a means of achieving an organization's overall objective(s), may include dimensions that are beyond the scope of a single business unit, engineering organization or IT department.
An additional level of strategy called operational strategy was encouraged by Peter Drucker
in his theory of management by objectives
(MBO). It is very narrow in focus and deals with day-to-day operational activities such as scheduling criteria. It must operate within a budget but is not at liberty to adjust or create that budget. Operational level strategies are informed by business level strategies which, in turn, are informed by corporate level strategies.
Since the turn of the millennium, some firms have reverted to a simpler strategic structure driven by advances in information technology. It is felt that knowledge management
systems should be used to share information and create common goals. Strategic divisions are thought to hamper this process. This notion of strategy has been captured under the rubric of dynamic strategy, popularized by Carpenter and Sanders's textbook http://www.prenhall.com/carpenter/. This work builds on that of Brown and Eisenhart as well as Christensen and portrays firm strategy, both business and corporate, as necessarily embracing ongoing strategic change, and the seamless integration of strategy formulation and implementation. Such change and implementation are usually built into the strategy through the staging and pacing facets.
' dating back thousands of years.
Alfred Chandler
recognized the importance of coordinating the various aspects of management under one all-encompassing strategy. Prior to this time the various functions of management were separate with little overall coordination or strategy. Interactions between functions or between departments were typically handled by a boundary position, that is, there were one or two managers that relayed information back and forth between two departments. Chandler also stressed the importance of taking a long term perspective when looking to the future. In his 1962 ground breaking work Strategy and Structure, Chandler showed that a long-term coordinated strategy was necessary to give a company structure, direction, and focus. He says it concisely, “structure follows strategy
.”
In 1957, Philip Selznick
introduced the idea of matching the organization's internal factors with external environmental circumstances. This core idea was developed into what we now call SWOT analysis
by Learned, Andrews, and others at the Harvard Business School General Management Group. Strengths and weaknesses of the firm are assessed in light of the opportunities and threats from the business environment.
Igor Ansoff
built on Chandler's work by adding a range of strategic concepts and inventing a whole new vocabulary. He developed a strategy grid that compared market penetration strategies, product development strategies, market development strategies and horizontal
and vertical integration
and diversification strategies. He felt that management could use these strategies to systematically prepare for future opportunities and challenges. In his 1965 classic Corporate Strategy, he developed the gap analysis
still used today in which we must understand the gap between where we are currently and where we would like to be, then develop what he called “gap reducing actions”.
Peter Drucker
was a prolific strategy theorist, author of dozens of management books, with a career spanning five decades. His contributions to strategic management were many but two are most important. Firstly, he stressed the importance of objectives. An organization without clear objectives is like a ship without a rudder. As early as 1954 he was developing a theory of management based on objectives. This evolved into his theory of management by objectives (MBO). According to Drucker, the procedure of setting objectives and monitoring your progress towards them should permeate the entire organization, top to bottom. His other seminal contribution was in predicting the importance of what today we would call intellectual capital. He predicted the rise of what he called the “knowledge worker” and explained the consequences of this for management. He said that knowledge work is non-hierarchical. Work would be carried out in teams
with the person most knowledgeable in the task at hand being the temporary leader.
In 1985, Ellen-Earle Chaffee summarized what she thought were the main elements of strategic management theory by the 1970s:
The PIMS study was a long term study, started in the 1960s and lasted for 19 years, that attempted to understand the Profit Impact of Marketing Strategies (PIMS), particularly the effect of market share. Started at General Electric
, moved to Harvard in the early 1970s, and then moved to the Strategic Planning Institute in the late 1970s, it now contains decades of information on the relationship between profitability and strategy. Their initial conclusion was unambiguous: The greater a company's market share, the greater will be their rate of profit. The high market share provides volume and economies of scale
. It also provides experience and learning curve
advantages. The combined effect is increased profits. The studies conclusions continue to be drawn on by academics and companies today: "PIMS provides compelling quantitative evidence as to which business strategies work and don't work" – Tom Peters.
The benefits of high market share naturally lead to an interest in growth strategies. The relative advantages of horizontal integration
, vertical integration
, diversification, franchise
s, mergers and acquisitions
, joint ventures, and organic growth were discussed. The most appropriate market dominance strategies were assessed given the competitive and regulatory environment.
There was also research that indicated that a low market share strategy could also be very profitable. Schumacher (1973), Woo and Cooper (1982), Levenson (1984), and later Traverso (2002) showed how smaller niche players obtained very high returns.
By the early 1980s the paradoxical conclusion was that high market share and low market share companies were often very profitable but most of the companies in between were not. This was sometimes called the “hole in the middle” problem. This anomaly would be explained by Michael Porter in the 1980s.
The management of diversified organizations required new techniques and new ways of thinking. The first CEO to address the problem of a multi-divisional company was Alfred Sloan at General Motors. GM was decentralized into semi-autonomous “strategic business units” (SBU's), but with centralized support functions.
One of the most valuable concepts in the strategic management of multi-divisional companies was portfolio theory. In the previous decade Harry Markowitz
and other financial theorists developed the theory of portfolio analysis
. It was concluded that a broad portfolio of financial assets could reduce specific risk
. In the 1970s marketers extended the theory to product portfolio decisions and managerial strategists extended it to operating division portfolios. Each of a company’s operating divisions were seen as an element in the corporate portfolio. Each operating division (also called strategic business units) was treated as a semi-independent profit center with its own revenues, costs, objectives, and strategies. Several techniques were developed to analyze the relationships between elements in a portfolio. B.C.G. Analysis, for example, was developed by the Boston Consulting Group
in the early 1970s. This was the theory that gave us the wonderful image of a CEO sitting on a stool milking a cash cow. Shortly after that the G.E. multi factoral model was developed by General Electric. Companies continued to diversify until the 1980s when it was realized that in many cases a portfolio of operating divisions was worth more as separate completely independent companies.
of high technical quality. If you produced a product that worked well and was durable, it was assumed you would have no difficulty selling them at a profit. This was called the production orientation and it was generally true that good products could be sold without effort, encapsulated in the saying "Build a better mousetrap and the world will beat a path to your door." This was largely due to the growing numbers of affluent and middle class people that capitalism had created. But after the untapped demand caused by the second world war was saturated in the 1950s it became obvious that products were not selling as easily as they had been. The answer was to concentrate on selling
. The 1950s and 1960s is known as the sales era and the guiding philosophy of business
of the time is today called the sales orientation. In the early 1970s Theodore Levitt
and others at Harvard argued that the sales orientation had things backward. They claimed that instead of producing products then trying to sell them to the customer, businesses should start with the customer, find out what they wanted, and then produce it for them. The customer became the driving force behind all strategic business decisions. This marketing
orientation, in the decades since its introduction, has been reformulated and repackaged under numerous names including customer orientation, marketing philosophy, customer intimacy
, customer focus, customer driven, and market focused.
(FTC) and U.S. Department of Justice (DOJ). In 1975 the FTC reached a settlement with Xerox Corporation in its anti-trust lawsuit. (At the time, the FTC was under the direction of Frederic M. Scherer
). The 1975 Xerox consent decree
forced the licensing of the company’s entire patent
portfolio, mainly to Japanese competitors. (See "compulsory license
.") This action marked the start of an activist approach to managing competition by the FTC and DOJ, which resulted in the compulsory licensing of tens of thousands of patent from some of America's leading companies, including IBM
, AT&T
, DuPont
, Bausch & Lomb
, and Eastman Kodak
.
Within four years of the consent decree, Xerox's share of the U.S. copier market dropped from nearly 100% to less than 14%. Between 1950 and 1980 Japanese companies consummated more than 35,000 foreign licensing agreements, mostly with U.S. companies, for free or low-cost licenses made possible by the FTC and DOJ. The post-1975 era of anti-trust initiatives by Washington D.C. economists at the FTC corresponded directly with the rapid, unprecedented rise in Japanese competitiveness and a simultaneous stalling of the U.S. manufacturing economy.
Gary Hamel
and C. K. Prahalad
declared that strategy needs to be more active and interactive; less “arm-chair planning” was needed. They introduced terms like strategic intent and strategic architecture. Their most well known advance was the idea of core competency
. They showed how important it was to know the one or two key things that your company does better than the competition.
Active strategic management required active information gathering and active problem solving. In the early days of Hewlett-Packard (HP), Dave Packard and Bill Hewlett devised an active management style that they called management by walking around (MBWA). Senior HP managers were seldom at their desks. They spent most of their days visiting employees, customers, and suppliers. This direct contact with key people provided them with a solid grounding from which viable strategies could be crafted. The MBWA concept was popularized in 1985 by a book by Tom Peters
and Nancy Austin
. Japanese managers employ a similar system, which originated at Honda, and is sometimes called the 3 G's (Genba
, Genbutsu, and Genjitsu, which translate into “actual place”, “actual thing”, and “actual situation”).
Probably the most influential strategist of the decade was Michael Porter
. He introduced many new concepts including; 5 forces analysis, generic strategies, the value chain, strategic groups, and clusters. In 5 forces analysis
he identifies the forces that shape a firm's strategic environment. It is like a SWOT analysis
with structure and purpose. It shows how a firm can use these forces to obtain a sustainable competitive advantage
. Porter modifies Chandler's dictum about structure following strategy by introducing a second level of structure: Organizational structure follows strategy, which in turn follows industry structure. Porter's generic strategies
detail the interaction between cost minimization strategies, product differentiation strategies, and market focus strategies. Although he did not introduce these terms, he showed the importance of choosing one of them rather than trying to position your company between them. He also challenged managers to see their industry in terms of a value chain
. A firm will be successful only to the extent that it contributes to the industry's value chain. This forced management to look at its operations from the customer's point of view. Every operation should be examined in terms of what value it adds in the eyes of the final customer.
In 1993, John Kay
took the idea of the value chain to a financial level claiming “ Adding value is the central purpose of business activity”, where adding value is defined as the difference between the market value of outputs and the cost of inputs including capital, all divided by the firm's net output. Borrowing from Gary Hamel and Michael Porter, Kay claims that the role of strategic management is to identify your core competencies, and then assemble a collection of assets that will increase value added and provide a competitive advantage. He claims that there are 3 types of capabilities that can do this; innovation, reputation, and organizational structure.
The 1980s also saw the widespread acceptance of positioning theory
. Although the theory originated with Jack Trout
in 1969, it didn’t gain wide acceptance until Al Ries
and Jack Trout
wrote their classic book “Positioning: The Battle For Your Mind” (1979). The basic premise is that a strategy should not be judged by internal company factors but by the way customers see it relative to the competition. Crafting and implementing a strategy involves creating a position in the mind of the collective consumer. Several techniques were applied to positioning theory, some newly invented but most borrowed from other disciplines. Perceptual mapping
for example, creates visual displays of the relationships between positions. Multidimensional scaling, discriminant analysis, factor analysis
, and conjoint analysis
are mathematical techniques used to determine the most relevant characteristics (called dimensions or factors) upon which positions should be based. Preference regression
can be used to determine vectors of ideal positions and cluster analysis
can identify clusters of positions.
Others felt that internal company resources were the key. In 1992, Jay Barney, for example, saw strategy as assembling the optimum mix of resources, including human, technology, and suppliers, and then configure them in unique and sustainable ways.
Michael Hammer
and James Champy felt that these resources needed to be restructured. This process, that they labeled reengineering
, involved organizing a firm's assets around whole processes rather than tasks. In this way a team of people saw a project through, from inception to completion. This avoided functional silos where isolated departments seldom talked to each other. It also eliminated waste due to functional overlap and interdepartmental communications.
In 1989 Richard Lester
and the researchers at the MIT Industrial Performance Center identified seven best practices and concluded that firms must accelerate the shift away from the mass production of low cost standardized products. The seven areas of best practice were:
The search for “best practices” is also called benchmarking
. This involves determining where you need to improve, finding an organization that is exceptional in this area, then studying the company and applying its best practices in your firm.
A large group of theorists felt the area where western business was most lacking was product quality. People like W. Edwards Deming
, Joseph M. Juran
, A. Kearney, Philip Crosby, and Armand Feignbaum suggested quality improvement techniques like total quality management
(TQM), continuous improvement
(kaizen), lean manufacturing
, Six Sigma
, and return on quality (ROQ).
An equally large group of theorists felt that poor customer service was the problem. People like James Heskett (1988), Earl Sasser (1995), William Davidow, Len Schlesinger, A. Paraurgman (1988), Len Berry, Jane Kingman-Brundage, Christopher Hart, and Christopher Lovelock (1994), gave us fishbone diagramming, service charting, Total Customer Service (TCS), the service profit chain, service gaps analysis, the service encounter, strategic service vision, service mapping, and service teams. Their underlying assumption was that there is no better source of competitive advantage than a continuous stream of delighted customers.
Process management
uses some of the techniques from product quality management and some of the techniques from customer service management. It looks at an activity as a sequential process. The objective is to find inefficiencies and make the process more effective. Although the procedures have a long history, dating back to Taylorism, the scope of their applicability has been greatly widened, leaving no aspect of the firm free from potential process improvements. Because of the broad applicability of process management techniques, they can be used as a basis for competitive advantage.
Some realized that businesses were spending much more on acquiring new customers than on retaining current ones. Carl Sewell, Frederick F. Reichheld, C. Gronroos, and Earl Sasser showed us how a competitive advantage could be found in ensuring that customers returned again and again. This has come to be known as the loyalty effect after Reicheld's book of the same name in which he broadens the concept to include employee loyalty, supplier loyalty, distributor loyalty, and shareholder loyalty. They also developed techniques for estimating the lifetime value of a loyal customer, called customer lifetime value
(CLV). A significant movement started that attempted to recast selling and marketing techniques into a long term endeavor that created a sustained relationship with customers (called relationship selling, relationship marketing
, and customer relationship management
). Customer relationship management (CRM) software (and its many variants) became an integral tool that sustained this trend.
James Gilmore and Joseph Pine found competitive advantage in mass customization
. Flexible manufacturing techniques allowed businesses to individualize products for each customer without losing economies of scale
. This effectively turned the product into a service. They also realized that if a service is mass customized by creating a “performance” for each individual client, that service would be transformed into an “experience”. Their book, The Experience Economy, along with the work of Bernd Schmitt
convinced many to see service provision as a form of theatre. This school of thought is sometimes referred to as customer experience management (CEM).
Like Peters and Waterman a decade earlier, James Collins and Jerry Porras spent years conducting empirical research on what makes great companies. Six years of research uncovered a key underlying principle behind the 19 successful companies that they studied: They all encourage and preserve a core ideology that nurtures the company. Even though strategy and tactics change daily, the companies, nevertheless, were able to maintain a core set of values. These core values encourage employees to build an organization that lasts. In Built To Last (1994) they claim that short term profit goals, cost cutting, and restructuring will not stimulate dedicated employees to build a great company that will endure. In 2000 Collins coined the term “built to flip” to describe the prevailing business attitudes in Silicon Valley. It describes a business culture where technological change inhibits a long term focus. He also popularized the concept of the BHAG (Big Hairy Audacious Goal).
Arie de Geus
(1997) undertook a similar study and obtained similar results. He identified four key traits of companies that had prospered for 50 years or more. They are:
A company with these key characteristics he called a living company because it is able to perpetuate itself. If a company emphasizes knowledge rather than finance, and sees itself as an ongoing community of human beings, it has the potential to become great and endure for decades. Such an organization is an organic entity capable of learning (he called it a “learning organization”) and capable of creating its own processes, goals, and persona.
There are numerous ways by which a firm can try to create a competitive advantage – some will work but many will not. To help firms avoid a hit and miss approach to the creation of competitive advantage, Will Mulcaster suggests that firms engage in a dialogue that centres around the question "Will the proposed competitive advantage create Perceived Differential Value?" The dialogue should raise a series of other pertinent questions, including:
stretching back thousands of years that they had barely examined. They turned to military strategy
for guidance. Military strategy books such as The Art of War by Sun Tzu
, On War by von Clausewitz
, and The Red Book by Mao Zedong
became instant business classics. From Sun Tzu, they learned the tactical side of military strategy and specific tactical prescriptions. From Von Clausewitz, they learned the dynamic and unpredictable nature of military strategy. From Mao Zedong, they learned the principles of guerrilla warfare. The main marketing warfare
books were:
Philip Kotler
was a well-known proponent of marketing warfare strategy.
There were generally thought to be four types of business warfare theories.
They are:
The marketing warfare literature also examined leadership and motivation, intelligence gathering, types of marketing weapons, logistics, and communications.
By the turn of the century marketing warfare strategies had gone out of favour. It was felt that they were limiting. There were many situations in which non-confrontational approaches were more appropriate. In 1989, Dudley Lynch and Paul L. Kordis published Strategy of the Dolphin: Scoring a Win in a Chaotic World. "The Strategy of the Dolphin” was developed to give guidance as to when to use aggressive strategies and when to use passive strategies. A variety of aggressiveness strategies
were developed.
In 1993, J. Moore used a similar metaphor. Instead of using military terms, he created an ecological theory of predators and prey (see ecological model of competition
), a sort of Darwinian management strategy in which market interactions mimic long term ecological stability
.
(1969) coined the phrase Age of Discontinuity to describe the way change forces disruptions into the continuity of our lives. In an age of continuity attempts to predict the future by extrapolating from the past can be somewhat accurate. But according to Drucker, we are now in an age of discontinuity and extrapolating from the past is hopelessly ineffective. We cannot assume that trends that exist today will continue into the future. He identifies four sources of discontinuity: new technologies, globalization
, cultural pluralism
, and knowledge capital
.
In 1970, Alvin Toffler
in Future Shock described a trend towards accelerating rates of change. He illustrated how social and technological norms had shorter lifespans with each generation, and he questioned society's ability to cope with the resulting turmoil and anxiety. In past generations periods of change were always punctuated with times of stability. This allowed society to assimilate the change and deal with it before the next change arrived. But these periods of stability are getting shorter and by the late 20th century had all but disappeared. In 1980 in The Third Wave, Toffler characterized this shift to relentless change as the defining feature of the third phase of civilization (the first two phases being the agricultural and industrial waves). He claimed that the dawn of this new phase will cause great anxiety for those that grew up in the previous phases, and will cause much conflict and opportunity in the business world. Hundreds of authors, particularly since the early 1990s, have attempted to explain what this means for business strategy.
In 2000, Gary Hamel
discussed strategic decay, the notion that the value of all strategies, no matter how brilliant, decays over time.
In 1978, Dereck Abell (Abell, D. 1978) described strategic windows and stressed the importance of the timing (both entrance and exit) of any given strategy. This has led some strategic planners to build planned obsolescence into their strategies.
In 1989, Charles Handy
identified two types of change. Strategic drift is a gradual change that occurs so subtly that it is not noticed until it is too late. By contrast, transformational change is sudden and radical. It is typically caused by discontinuities (or exogenous
shocks) in the business environment. The point where a new trend is initiated is called a strategic inflection point by Andy Grove. Inflection points can be subtle or radical.
In 2000, Malcolm Gladwell
discussed the importance of the tipping point, that point where a trend or fad acquires critical mass and takes off.
In 1983, Noel Tichy
wrote that because we are all beings of habit we tend to repeat what we are comfortable with. He wrote that this is a trap that constrains our creativity
, prevents us from exploring new ideas, and hampers our dealing with the full complexity
of new issues. He developed a systematic method of dealing with change that involved looking at any new issue from three angles: technical and production, political and resource allocation, and corporate culture.
In 1990, Richard Pascale (Pascale, R. 1990) wrote that relentless change requires that businesses continuously reinvent themselves. His famous maxim is “Nothing fails like success” by which he means that what was a strength yesterday becomes the root of weakness today, We tend to depend on what worked yesterday and refuse to let go of what worked so well for us in the past. Prevailing strategies become self-confirming. To avoid this trap, businesses must stimulate a spirit of inquiry and healthy debate. They must encourage a creative process of self renewal based on constructive conflict.
Peters and Austin (1985) stressed the importance of nurturing champions and heroes. They said we have a tendency to dismiss new ideas, so to overcome this, we should support those few people in the organization that have the courage to put their career and reputation on the line for an unproven idea.
In 1996, Adrian Slywotzky
showed how changes in the business environment are reflected in value migration
s between industries, between companies, and within companies. He claimed that recognizing the patterns behind these value migrations is necessary if we wish to understand the world of chaotic change. In “Profit Patterns” (1999) he described businesses as being in a state of strategic anticipation as they try to spot emerging patterns. Slywotsky and his team identified 30 patterns that have transformed industry after industry.
In 1997, Clayton Christensen (1997) took the position that great companies can fail precisely because they do everything right since the capabilities of the organization also defines its disabilities. Christensen's thesis is that outstanding companies lose their market leadership when confronted with disruptive technology
. He called the approach to discovering the emerging markets for disruptive technologies agnostic marketing, i.e., marketing under the implicit assumption that no one – not the company, not the customers – can know how or in what quantities a disruptive product can or will be used before they have experience using it.
A number of strategists use scenario planning
techniques to deal with change. The way Peter Schwartz
put it in 1991 is that strategic outcomes cannot be known in advance so the sources of competitive advantage cannot be predetermined. The fast changing business environment is too uncertain for us to find sustainable value in formulas of excellence or competitive advantage. Instead, scenario planning is a technique in which multiple outcomes can be developed, their implications assessed, and their likeliness of occurrence evaluated. According to Pierre Wack
, scenario planning is about insight, complexity, and subtlety, not about formal analysis and numbers.
In 1988, Henry Mintzberg
looked at the changing world around him and decided it was time to reexamine how strategic management was done. He examined the strategic process and concluded it was much more fluid and unpredictable than people had thought. Because of this, he could not point to one process that could be called strategic planning
. Instead Mintzberg concludes that there are five types of strategies:
In 1998, Mintzberg developed these five types of management strategy into 10 “schools of thought”. These 10 schools are grouped into three categories. The first group is prescriptive or normative. It consists of the informal design and conception school, the formal planning school, and the analytical positioning school. The second group, consisting of six schools, is more concerned with how strategic management is actually done, rather than prescribing optimal plans or positions. The six schools are the entrepreneurial, visionary, or great leader school, the cognitive or mental process school, the learning, adaptive, or emergent process school, the power or negotiation school, the corporate culture or collective process school, and the business environment or reactive school. The third and final group consists of one school, the configuration or transformation school, an hybrid of the other schools organized into stages, organizational life cycles, or “episodes”.
In 1999, Constantinos Markides also wanted to reexamine the nature of strategic planning itself. He describes strategy formation and implementation as an on-going, never-ending, integrated process requiring continuous reassessment and reformation. Strategic management is planned and emergent, dynamic, and interactive. J. Moncrieff (1999) also stresses strategy dynamics
. He recognized that strategy is partially deliberate and partially unplanned. The unplanned element comes from two sources: emergent strategies (result from the emergence of opportunities and threats in the environment) and Strategies in action (ad hoc actions by many people from all parts of the organization).
Some business planners are starting to use a complexity theory approach to strategy. Complexity can be thought of as chaos with a dash of order. Chaos theory
deals with turbulent systems that rapidly become disordered. Complexity is not quite so unpredictable. It involves multiple agents interacting in such a way that a glimpse of structure may appear.
had theorized the rise of the “knowledge worker” back in the 1950s. He described how fewer workers would be doing physical labor, and more would be applying their minds. In 1984, John Nesbitt theorized that the future would be driven largely by information: companies that managed information well could obtain an advantage, however the profitability of what he calls the “information float” (information that the company had and others desired) would all but disappear as inexpensive computers made information more accessible.
Daniel Bell
(1985) examined the sociological consequences of information technology, while Gloria Schuck and Shoshana Zuboff looked at psychological factors. Zuboff, in her five year study of eight pioneering corporations made the important distinction between “automating technologies” and “infomating technologies”. She studied the effect that both had on individual workers, managers, and organizational structures. She largely confirmed Peter Drucker's predictions three decades earlier, about the importance of flexible decentralized structure, work teams, knowledge sharing, and the central role of the knowledge worker. Zuboff also detected a new basis for managerial authority, based not on position or hierarchy, but on knowledge (also predicted by Drucker) which she called “participative management”.
In 1990, Peter Senge
, who had collaborated with Arie de Geus at Dutch Shell, borrowed de Geus' notion of the learning organization, expanded it, and popularized it. The underlying theory is that a company's ability to gather, analyze, and use information is a necessary requirement for business success in the information age. (See organizational learning
.) To do this, Senge claimed that an organization would need to be structured such that:
Senge identified five disciplines of a learning organization. They are:
Since 1990 many theorists have written on the strategic importance of information, including J.B. Quinn, J. Carlos Jarillo, D.L. Barton, Manuel Castells, J.P. Lieleskin, Thomas Stewart, K.E. Sveiby, Gilbert J. Probst, and Shapiro and Varian to name just a few.
Thomas A. Stewart
, for example, uses the term intellectual capital to describe the investment an organization makes in knowledge. It is composed of human capital (the knowledge inside the heads of employees), customer capital (the knowledge inside the heads of customers that decide to buy from you), and structural capital (the knowledge that resides in the company itself).
Manuel Castells
, describes a network society characterized by: globalization, organizations structured as a network, instability of employment, and a social divide between those with access to information technology and those without.
Geoffrey Moore
(1991) and R. Frank and P. Cook also detected a shift in the nature of competition. In industries with high technology content, technical standards become established and this gives the dominant firm a near monopoly. The same is true of networked industries in which interoperability
requires compatibility between users. An example is word processor documents. Once a product has gained market dominance, other products, even far superior products, cannot compete. Moore showed how firms could attain this enviable position by using E.M. Rogers five stage adoption process
and focusing on one group of customers at a time, using each group as a base for marketing to the next group. The most difficult step is making the transition between visionaries and pragmatists (See Crossing the Chasm
). If successful a firm can create a bandwagon effect in which the momentum builds and its product becomes a de facto standard.
Evans and Wurster describe how industries with a high information component are being transformed. They cite Encarta's demolition of the Encyclopædia Britannica
(whose sales have plummeted 80% since their peak of $650 million in 1990). Encarta’s reign was speculated to be short-lived, eclipsed by collaborative encyclopedias like Wikipedia
that can operate at very low marginal costs. Encarta's service was subsequently turned into an on-line service and dropped at the end of 2009. Evans also mentions the music industry which is desperately looking for a new business model
. The upstart information savvy firms, unburdened by cumbersome physical assets, are changing the competitive landscape, redefining market segments, and disintermediating
some channels. One manifestation of this is personalized marketing
. Information technology allows marketers to treat each individual as its own market, a market of one. Traditional ideas of market segment
s will no longer be relevant if personalized marketing is successful.
The technology sector has provided some strategies directly. For example, from the software development industry agile software development
provides a model for shared development processes.
Access to information systems have allowed senior managers to take a much more comprehensive view of strategic management than ever before. The most notable of the comprehensive systems is the balanced scorecard
approach developed in the early 1990s by Drs. Robert S. Kaplan
(Harvard Business School
) and David Norton
(Kaplan, R. and Norton, D. 1992). It measures several factors financial
, marketing
, production
, organizational development, and new product development
to achieve a 'balanced' perspective.
In such a world, differentiation
, as elucidated by Michael Porter, Botten and McManus is the only way to maintain economic or market superiority (i.e., comparative advantage
) over competitors. A company must OWN the thing that differentiates it from competitors. Without IP ownership and protection, any product, process or scale advantage can be compromised or entirely lost. Competitors can copy them without fear of economic or legal consequences, thereby eliminating the advantage.
This principle is based on the idea of evolution: differentiation, selection, amplification and repetition. It is a form of strategy to deal with complex adaptive systems which individuals, businesses, the economy are all based on. The principle is based on the survival of the "fittest". The fittest strategy employed after trail and error and combination is then employed to run the company in its current market. Failed strategic plans are either discarded or used for another aspect of a business. The trade off between risk and return is taken into account when deciding which strategy to take. Cynefin model and the adaptive cycles of businesses are both good ways to develop KAS, reference Panarchy
and Cynefin
. Analyze the fitness landscapes for a product, idea, or service to better develop a more adaptive strategy.
(For an explanation and elucidation of the "post-industrial" worldview, see George Ritzer
and Daniel Bell
.)
, that was based on his own experience as a business executive, sees the process as informal, intuitive, non-routinized, and involving primarily oral, 2-way communications. Bernard says “The process is the sensing of the organization as a whole and the total situation relevant to it. It transcends the capacity of merely intellectual methods, and the techniques of discriminating the factors of the situation. The terms pertinent to it are “feeling”, “judgement”, “sense”, “proportion”, “balance”, “appropriateness”. It is a matter of art rather than science.”
In 1973, Henry Mintzberg
found that senior managers typically deal with unpredictable situations so they strategize in ad hoc, flexible, dynamic, and implicit ways. . He says, “The job breeds adaptive information-manipulators who prefer the live concrete situation. The manager works in an environment of stimulous-response, and he develops in his work a clear preference for live action.”
In 1982, John Kotter
studied the daily activities of 15 executives and concluded that they spent most of their time developing and working a network of relationships that provided general insights and specific details for strategic decisions. They tended to use “mental road maps” rather than systematic planning techniques.
Daniel Isenberg
's 1984 study of senior managers found that their decisions were highly intuitive. Executives often sensed what they were going to do before they could explain why. He claimed in 1986 that one of the reasons for this is the complexity of strategic decisions and the resultant information uncertainty.
Shoshana Zuboff
(1988) claims that information technology is widening the divide between senior managers (who typically make strategic decisions) and operational level managers (who typically make routine decisions). She claims that prior to the widespread use of computer systems, managers, even at the most senior level, engaged in both strategic decisions and routine administration, but as computers facilitated (She called it “deskilled”) routine processes, these activities were moved further down the hierarchy, leaving senior management free for strategic decision making.
In 1977, Abraham Zaleznik identified a difference between leaders and managers. He describes leadershipleaders as visionaries who inspire. They care about substance. Whereas managers are claimed to care about process, plans, and form. He also claimed in 1989 that the rise of the manager was the main factor that caused the decline of American business in the 1970s and 80s.The main difference between leader and manager is that, leader has followers and manager has subordinates. In capitalistic society leaders make decisions and manager usually follow or execute. Lack of leadership is most damaging at the level of strategic management where it can paralyze an entire organization.
According to Corner, Kinichi, and Keats, strategic decision making in organizations occurs at two levels: individual and aggregate. They have developed a model of parallel strategic decision making. The model identifies two parallel processes that both involve getting attention, encoding information, storage and retrieval of information, strategic choice, strategic outcome, and feedback. The individual and organizational processes are not independent however. They interact at each stage of the process.
.
Many theories of strategic management tend to undergo only brief periods of popularity. A summary of these theories thus inevitably exhibits survivorship bias
(itself an area of research in strategic management). Many theories tend either to be too narrow in focus to build a complete corporate strategy on, or too general and abstract to be applicable to specific situations. Populism or fad
dishness can have an impact on a particular theory's life cycle and may see application in inappropriate circumstances. See business philosophies and popular management theories for a more critical view of management theories.
In 2000, Gary Hamel coined the term strategic convergence to explain the limited scope of the strategies being used by rivals in greatly differing circumstances. He lamented that strategies converge more than they should, because the more successful ones are imitated by firms that do not understand that the strategic process involves designing a custom strategy for the specifics of each situation.
Ram Charan, aligning with a popular marketing tagline, believes that strategic planning must not dominate action. "Just do it!" while not quite what he meant, is a phrase that nevertheless comes to mind when combatting analysis paralysis.
But in the world where strategies must be implemented, the three elements are interdependent. Means are as likely to determine ends as ends are to determine means. The objectives that an organization might wish to pursue are limited by the range of feasible approaches to implementation. (There will usually be only a small number of approaches that will not only be technically and administratively possible, but also satisfactory to the full range of organizational stakeholders.) In turn, the range of feasible implementation approaches is determined by the availability of resources.
And so, although participants in a typical “strategy session” may be asked to do “blue sky” thinking where they pretend that the usual constraints – resources, acceptability to stakeholders, administrative feasibility – have been lifted, the fact is that it rarely makes sense to divorce oneself from the environment in which a strategy will have to be implemented. It’s probably impossible to think in any meaningful way about strategy in an unconstrained environment. Our brains can’t process “boundless possibilities”, and the very idea of strategy only has meaning in the context of challenges or obstacles to be overcome. It’s at least as plausible to argue that acute awareness of constraints is the very thing that stimulates creativity by forcing us to constantly reassess both means and ends in light of circumstances.
The key question, then, is, "How can individuals, organizations and societies cope as well as possible with ... issues too complex to be fully understood, given the fact that actions initiated on the basis of inadequate understanding may lead to significant regret?"
The answer is that the process of developing organizational strategy must be iterative. Such an approach has been called the Strategic Incrementalisation Perspective. It involves toggling back and forth between questions about objectives, implementation planning and resources. An initial idea about corporate objectives may have to be altered if there is no feasible implementation plan that will meet with a sufficient level of acceptance among the full range of stakeholders, or because the necessary resources are not available, or both.
Even the most talented manager would no doubt agree that "comprehensive analysis is impossible" for complex problems. Formulation and implementation of strategy must thus occur side-by-side rather than sequentially, because strategies are built on assumptions that, in the absence of perfect knowledge, are never perfectly correct. Strategic management is necessarily a "...repetitive learning cycle [rather than] a linear progression towards a clearly defined final destination." While assumptions can and should be tested in advance, the ultimate test is implementation. You will inevitably need to adjust corporate objectives and/or your approach to pursuing outcomes and/or assumptions about required resources. Thus a strategy will get remade during implementation because "humans rarely can proceed satisfactorily except by learning from experience; and modest probes, serially modified on the basis of feedback, usually are the best method for such learning."
It serves little purpose (other than to provide a false aura of certainty sometimes demanded by corporate strategists and planners) to pretend to anticipate every possible consequence of a corporate decision, every possible constraining or enabling factor, and every possible point of view. At the end of the day, what matters for the purposes of strategic management is having a clear view – based on the best available evidence and on defensible assumptions – of what it seems possible to accomplish within the constraints of a given set of circumstances. As the situation changes, some opportunities for pursuing objectives will disappear and others arise. Some implementation approaches will become impossible, while others, previously impossible or unimagined, will become viable.
The essence of being “strategic” thus lies in a capacity for "intelligent trial-and error" rather than linear adherence to finally honed and detailed strategic plans. Strategic management will add little value—indeed, it may well do harm—if organizational strategies are designed to be used as a detailed blueprints for managers. Strategy should be seen, rather, as laying out the general path—but not the precise steps—an organization will follow to create value. Strategic management is a question of interpreting, and continuously reinterpreting, the possibilities presented by shifting circumstances for advancing an organization's objectives. Doing so requires strategists to think simultaneously about desired objectives, the best approach for achieving them, and the resources implied by the chosen approach. It requires a frame of mind that admits of no boundary between means and ends.
It may not be so limiting as suggested in "The linearity trap" above. Strategic thinking/ identification takes place within the gambit of organizational capacity and Industry dynamics. The two common approaches to strategic analysis are value analysis and SWOT analysis. Yes Strategic analysis takes place within the constraints of existing/potential organizational resources but its would not be appropriate to call it a trap. For e.g., SWOT tool involves analysis of the organization's internal environment (Strengths & weaknesses) and its external environment (opportunities & threats). The organization's strategy is built using its strengths to exploit opportunities, while managing the risks arising from internal weakness and external threats. It further involves contrasting its strengths & weaknesses to determine if the organization has enough strengths to offset its weaknesses. Applying the same logic, at the external level, contrast is made between the externally existing opportunities and threats to determine if the organization is capitalizing enough on opportunities to offset emerging threats.
James Bandrowski
declared in 1990 that strategy development should no longer be just an analytical exercise, but should be highly creative with an aim to conceiving and executing an innovative strategy that creates competitive distinction and elates customers. He introduced a sine wave approach that amplifies the strategic thinking of all participants in the development and execution of strategy. It can be used at the corporate level, for every function in the organization, as well as in mergers, acquisitions, divestitures, and turnarounds. He states, the bigger the amplitude (measure of the height and depth of a sine wave) of one’s thinking and feeling, the greater the chance of value-added breakthrough thinking and achieving stretch goals. In 2009, he declared that a small amplitude both positively and negatively in one’s thinking is the metaphorical “box” in thinking outside the box
.
General manager
General manager is a descriptive term for certain executives in a business operation. It is also a formal title held by some business executives, most commonly in the hospitality industry.-Generic usage:...
s on behalf of owners, involving utilization of resources
Factors of production
In economics, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function...
, to enhance the performance of firms
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
in their external environments. It entails specifying the organization
Organization
An organization is a social group which distributes tasks for a collective goal. The word itself is derived from the Greek word organon, itself derived from the better-known word ergon - as we know `organ` - and it means a compartment for a particular job.There are a variety of legal types of...
's mission
Mission statement
A mission statement is a statement of the purpose of a company or organization. The mission statement should guide the actions of the organization, spell out its overall goal, provide a path, and guide decision-making...
, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs. A balanced scorecard
Balanced scorecard
The Balanced Scorecard is a strategic performance management tool - a semi-standard structured report, supported by proven design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the...
is often used to evaluate the overall performance of the business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
and its progress towards objectives. Recent studies and leading management theorists have advocated that strategy needs to start with stakeholders expectations and use a modified balanced scorecard which includes all stakeholders.
Strategic management is a level of managerial activity under setting goals and over Tactics. Strategic management provides overall direction to the enterprise and is closely related to the field of Organization Studies. In the field of business administration it is useful to talk about "strategic alignment" between the organization and its environment or "strategic consistency." According to Arieu (2007), "there is strategic consistency when the actions of an organization are consistent with the expectations of management, and these in turn are with the market and the context." Strategic management includes not only the management team but can also include the Board of Directors and other stakeholders of the organization. It depends on the organizational structure.
“Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment.” (Lamb, 1984:ix)
Concepts/approaches of strategic management
Strategic management can depend upon the size of an organization, and the proclivity to change of its business environment. These points are highlighted below:- as A global/transnational organization may employ a more structured strategic management model, due to its size, scope of operations, and need to encompass stakeholder views and requirements.
- An SME (Small and Medium Enterprise) may employ an entrepreneurial approach. This is due to its comparatively smaller size and scope of operations, as well as possessing fewer resources. An SME's CEO (or general top management) may simply outline a mission, and pursue all activities under that mission.
Strategy formation
The initial task in strategic management is typically the compilation and dissemination of a mission statement. This document outlines, in essence, the raison d'etre of an organization. Additionally, it specifies the scope of activities an organization wishes to undertake, coupled with the markets a firm wishes to serve.Following the devising of a mission statement, a firm would then undertake an environmental scanning within the purview of the statement.
Strategic formation is a combination of three main processes which are as follows:
- Performing a situation analysis, self-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental.
- Concurrent with this assessment, objectives are set. These objectives should be parallel to a time-line; some are in the short-term and others on the long-term. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives.
Strategy evaluation and choice
An environmental scan will highlight all pertinent aspects that affect an organization, whether external or sector/industry-based. Such an occurrence will also uncover areas to capitalise on, in addition to areas in which expansion may be unwise.These options, once identified, have to be vetted and screened by an organization. In addition to ascertaining the suitability, feasibility and acceptability of an option, the actual modes of progress have to be determined. These pertain to:
The basis of competition
The basis of competition relates to how an organization will produce its product offerings, together with the basis as to how it will act within a market structure, and relative to its competitors. Some of these options encompass:- A differentiation approach, in which a multitude of market segments are served on a mass scale. An example will include the array of products produced by Unilever, or Procter and Gamble, as both forge many of the world's noted consumer brands serving a variety of market segments.
- A cost-based approach, which often concerns economy pricing. An example would be dollar stores in the United States.
- A focus (or niche) approach. In this paradigm, an organization would produce items for a niche market, as opposed to a mass market. An example is Aston Martin cars.
Mode of action
- Measuring the effectiveness of the organizational strategy, it's extremely important to conduct a SWOT analysisSWOT analysisSWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses/Limitations, Opportunities, and Threats involved in a project or in a business venture...
to figure out the internal strengths and weaknesses, and external opportunities and threats of the entity in business. This may require taking certain precautionary measures or even changing the entire strategy.
In corporate strategy, Johnson, Scholes and Whittington present a model in which strategic options are evaluated against three key success criteria:
- Suitability; would it work?
- Feasibility; can it be made to work?
- Acceptability; will they work it?
Suitability
Suitability deals with the overall rationale of the strategy. The key point to consider is whether the strategy would address the key strategic issues underlined by the organisation's strategic position.- Does it make economic sense?
- Would the organization obtain economies of scaleEconomies of scaleEconomies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
or economies of scopeEconomies of scopeEconomies of scope are conceptually similar to economies of scale. Whereas 'economies of scale' for a firm primarily refers to reductions in average cost associated with increasing the scale of production for a single product type, 'economies of scope' refers to lowering average cost for a firm in...
? - Would it be suitable in terms of environment and capabilities?
Tools that can be used to evaluate suitability include:
- Ranking strategic options
- Decision treeDecision treeA decision tree is a decision support tool that uses a tree-like graph or model of decisions and their possible consequences, including chance event outcomes, resource costs, and utility. It is one way to display an algorithm. Decision trees are commonly used in operations research, specifically...
s
Feasibility
Feasibility is concerned with whether the resources required to implement the strategy are available, can be developed or obtained. Resources include funding, people, time, and information. or cash flow in the marketTools that can be used to evaluate feasibility include:
- cash flowCash flowCash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.Cash flow...
analysis and forecastingForecastingForecasting is the process of making statements about events whose actual outcomes have not yet been observed. A commonplace example might be estimation for some variable of interest at some specified future date. Prediction is a similar, but more general term... - break-evenBreak-evenBreak-even is a point where any difference between plus or minus or equivalent changes side.-In economics:A technique for which identifying the point where the total revenue is just sufficient to cover the total cost...
analysis - resource deployment analysis
Acceptability
Acceptability is concerned with the expectations of the identified stakeholders (mainly shareholders, employees and customers) with the expected performance outcomes, which can be return, risk and stakeholder reactions.- Return deals with the benefits expected by the stakeholders (financial and non-financial). For example, shareholders would expect the increase of their wealth, employees would expect improvement in their careers and customers would expect better value for money.
- Risk deals with the probability and consequences of failure of a strategy (financial and non-financial).
- Stakeholder reactions deals with anticipating the likely reaction of stakeholders. Shareholders could oppose the issuing of new shares, employees and unions could oppose outsourcing for fear of losing their jobs, customers could have concerns over a merger with regards to quality and support.
Tools that can be used to evaluate acceptability include:
- what-if analysis
- stakeholder mapping
The direction of action
Strategic options may span a number of options, including:- Growth-based (inspired by Igor Ansoff's matrix – market development, product development, market penetration, diversification)
- Consolidation
- Divestment
- Harvesting
The exact option depends on the given resources of the firm, in addition to the nature of products' performance in given industries. A generally well-performing organisation may seek to harvest a product, if via portfolio analysis it was performing poorly comparative to others in the market.
Additionally, the exact means of implementing a strategy needs to be considered. These points range from:
- Strategic alliances
- CAPEX
- Internal development
- M&A (Mergers and Acquisitions)
The chosen option in this context is dependent on the strategic capabilities of a firm. A company may opt for an acquisition (actually buying and absorbing a smaller firm), if it meant speedy entry into a market or lack of time in internal development. A strategic alliance (such as a network, consortium or joint venture) can leverage on mutual skills between companies. Some countries, such as India and China, specifically state that FDI in their countries should be executed via a strategic alliance arrangement.
Strategic implementation and control
Once a strategy has been identified, it must then be put into practice. This may involve organising, resourcing and utilising change management procedures:Organizing
Organizing relates to how an organizational design of a company can fit with a chosen strategy. This concerns the nature of reporting relationships, spans of control, and any strategic business units (SBUs) that require to be formed. Typically, an SBU will be created (which often has some degree of autonomous decision-making) if it exists in a market with unique conditions, or has/requires unique strategic capabilities .Resourcing
Resourcing is literally the resources required to put the strategy into practice, ranging from human resources, to capital equipment, and to ICT-based implements.Change management
In the process of implementing strategic plans, an organization must be wary of forces that may legitimately seek to obstruct such changes. It is important then that effectual change management practices are instituted. These encompass:- The appointment of a change agent, as an individual who would champion the changes and seek to reassure and allay any fears arising.
- Ascertaining the causes of the resistance to organizational change (whether from employees, perceived loss of job security, etc.)
- Via change agency, slowly limiting the negative effects that a change may uncover.
General approaches
In general terms, there are two main approaches, which are opposite but complement each other in some ways, to strategic management:- The Industrial Organizational Approach
- based on economic theoryMacroeconomicsMacroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...
— deals with issues like competitive rivalry, resource allocationResource allocationResource allocation is used to assign the available resources in an economic way. It is part of resource management. In project management, resource allocation is the scheduling of activities and the resources required by those activities while taking into consideration both the resource...
, economies of scaleEconomies of scaleEconomies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit... - assumptions — rationality, self discipline behaviour, profit maximization
- based on economic theory
- The Sociological Approach
- deals primarily with human interactions
- assumptions — bounded rationality, satisficing behaviour, profit sub-optimality. An example of a company that currently operates this way is GoogleGoogleGoogle Inc. is an American multinational public corporation invested in Internet search, cloud computing, and advertising technologies. Google hosts and develops a number of Internet-based services and products, and generates profit primarily from advertising through its AdWords program...
. The stakeholder focused approach is an example of this modern approach to strategy.
Strategic management techniques can be viewed as bottom-up, top-down, or collaborative processes. In the bottom-up approach, employees submit proposals to their managers who, in turn, funnel the best ideas further up the organization. This is often accomplished by a capital budgeting process. Proposals are assessed using financial criteria such as return on investment
Return on investment
Return on investment is one way of considering profits in relation to capital invested. Return on assets , return on net assets , return on capital and return on invested capital are similar measures with variations on how “investment” is defined.Marketing not only influences net profits but also...
or cost-benefit analysis
Cost-benefit analysis
Cost–benefit analysis , sometimes called benefit–cost analysis , is a systematic process for calculating and comparing benefits and costs of a project for two purposes: to determine if it is a sound investment , to see how it compares with alternate projects...
. Cost underestimation and benefit overestimation are major sources of error. The proposals that are approved form the substance of a new strategy, all of which is done without a grand strategic design or a strategic architect. The top-down approach is the most common by far. In it, the CEO, possibly with the assistance of a strategic planning team, decides on the overall direction the company should take. Some organizations are starting to experiment with collaborative strategic planning techniques that recognize the emergent nature of strategic decisions.
Strategic decisions should focus on Outcome, Time remaining, and current Value/priority. The outcome comprises both the desired ending goal and the plan designed to reach that goal. Managing strategically requires paying attention to the time remaining to reach a particular level or goal and adjusting the pace and options accordingly. Value/priority relates to the shifting, relative concept of value-add. Strategic decisions should be based on the understanding that the value-add of whatever you are managing is a constantly changing reference point. An objective that begins with a high level of value-add may change due to influence of internal and external factors. Strategic management by definition, is managing with a heads-up approach to outcome, time and relative value, and actively making course corrections as needed.
Simulation strategies are also used by managers in an industry. The purpose of simulation gaming is to prepare managers make well rounded decisions. There are two main focuses of the different simulation games, generalized games and functional games. Generalized games are those that are designed to provide participants with new forms of how to adapt to an unfamiliar environment and make business decisions when in doubt. On the other hand, functional games are designed to make participants more aware of being able to deal with situations that bring about one or more problems that are encountered in a corporate function within an industry.
The strategy hierarchy
In most (large) corporations there are several levels of management. Corporate strategy is the highest of these levels in the sense that it is the broadest – applying to all parts of the firm – while also incorporating the longest time horizon. It gives direction to corporate values, corporate culture, corporate goals, and corporate missions. Under this broad corporate strategy there are typically business-level competitive strategies and functional unit strategies.Corporate strategy refers to the overarching strategy of the diversified firm. Such a corporate strategy answers the questions of "which businesses should we be in?" and "how does being in these businesses create synergy and/or add to the competitive advantage of the corporation as a whole?"
Business strategy refers to the aggregated strategies of single business firm or a strategic business unit (SBU) in a diversified corporation. According to Michael Porter
Michael Porter
Michael Eugene Porter is the Bishop William Lawrence University Professor at Harvard Business School. He is a leading authority on company strategy and the competitiveness of nations and regions. Michael Porter’s work is recognized in many governments, corporations and academic circles globally...
, a firm must formulate a business strategy that incorporates either cost leadership
Cost leadership
Cost leadership is a concept developed by Michael Porter, used in business strategy. It describes a way to establish the competitive advantage. Cost leadership, in basic words, means the lowest cost of operation in the industry...
, differentiation
Differentiation (economics)
Differentiation is a concept used in business strategy and describes one of the three ways to establish competitive advantage.Differentiation advantage occurs when a firm delivers greater services for a non-unlimited higher price than its competitors...
, or focus to achieve a sustainable competitive advantage and long-term success. Alternatively, according to W. Chan Kim and Renée Mauborgne, an organization can achieve high growth and profits by creating a Blue Ocean Strategy
Blue Ocean Strategy
Blue Ocean Strategy is a business strategy book first published in 2005 and written by W. Chan Kim and Renée Mauborgne of at INSEAD. The book illustrates what the authors believe is the high growth and profits an organization can generate by creating new demand in an uncontested market space, or...
that breaks the previous value-cost trade off by simultaneously pursuing both differentiation and low cost.
Functional strategies include marketing strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, supply-chain strategies, and information technology management strategies. The emphasis is on short and medium term plans and is limited to the domain of each department’s functional responsibility. Each functional department attempts to do its part in meeting overall corporate objectives, and hence to some extent their strategies are derived from broader corporate strategies.
Many companies feel that a functional organizational structure is not an efficient way to organize activities so they have reengineered
Business process reengineering
Business process re-engineering is the analysis and design of workflows and processes within an organization.According to Davenport a business process is a set of logically related tasks performed to achieve a defined business outcome....
according to processes or SBUs. A strategic business unit is a semi-autonomous unit that is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting. An SBU is treated as an internal profit centre by corporate headquarters. A technology strategy
Technology strategy
A Technology strategy is a particular generation of an organization's overall objective, principles and tactics relating to the technologies that the organization uses. Such strategies primarily focus on the technologies themselves and in some cases the people who directly manage those technologies...
, for example, although it is focused on technology as a means of achieving an organization's overall objective(s), may include dimensions that are beyond the scope of a single business unit, engineering organization or IT department.
An additional level of strategy called operational strategy was encouraged by Peter Drucker
Peter Drucker
Peter Ferdinand Drucker was an influential writer, management consultant, and self-described “social ecologist.”-Introduction:...
in his theory of management by objectives
Management by objectives
Management by Objectives is a process of defining objectives within an organization so that management and employees agree to the objectives and understand what they need to do in the organization....
(MBO). It is very narrow in focus and deals with day-to-day operational activities such as scheduling criteria. It must operate within a budget but is not at liberty to adjust or create that budget. Operational level strategies are informed by business level strategies which, in turn, are informed by corporate level strategies.
Since the turn of the millennium, some firms have reverted to a simpler strategic structure driven by advances in information technology. It is felt that knowledge management
Knowledge management
Knowledge management comprises a range of strategies and practices used in an organization to identify, create, represent, distribute, and enable adoption of insights and experiences...
systems should be used to share information and create common goals. Strategic divisions are thought to hamper this process. This notion of strategy has been captured under the rubric of dynamic strategy, popularized by Carpenter and Sanders's textbook http://www.prenhall.com/carpenter/. This work builds on that of Brown and Eisenhart as well as Christensen and portrays firm strategy, both business and corporate, as necessarily embracing ongoing strategic change, and the seamless integration of strategy formulation and implementation. Such change and implementation are usually built into the strategy through the staging and pacing facets.
Birth of strategic management
The Strategic management discipline is originated in the 1950s and 60s. Although there were numerous early contributors to the literature, the most influential pioneers were Alfred D. Chandler, Philip Selznick, Igor Ansoff, and Peter Drucker. The discipline draws from earlier thinking and texts on 'strategyStrategy
Strategy, a word of military origin, refers to a plan of action designed to achieve a particular goal. In military usage strategy is distinct from tactics, which are concerned with the conduct of an engagement, while strategy is concerned with how different engagements are linked...
' dating back thousands of years.
Alfred Chandler
Alfred D. Chandler, Jr.
Alfred DuPont Chandler, Jr. was a professor of business history at Harvard Business School and Johns Hopkins University, who wrote extensively about the scale and the management structures of modern corporations. His works redefined business and economic history of industrialization...
recognized the importance of coordinating the various aspects of management under one all-encompassing strategy. Prior to this time the various functions of management were separate with little overall coordination or strategy. Interactions between functions or between departments were typically handled by a boundary position, that is, there were one or two managers that relayed information back and forth between two departments. Chandler also stressed the importance of taking a long term perspective when looking to the future. In his 1962 ground breaking work Strategy and Structure, Chandler showed that a long-term coordinated strategy was necessary to give a company structure, direction, and focus. He says it concisely, “structure follows strategy
Structure follows strategy
The historian Alfred Chandler substantiated his Structure follows Strategy thesis based on four case studies of American conglomerates that dominated their industry from the 1920s onward...
.”
In 1957, Philip Selznick
Philip Selznick
Philip Selznick was professor of law and society at the University of California, Berkeley. A noted author in organizational theory, sociology of law and public administration, Selznick's work has been groundbreaking in several fields in such books as The Moral Commonwealth, TVA and the Grass...
introduced the idea of matching the organization's internal factors with external environmental circumstances. This core idea was developed into what we now call SWOT analysis
SWOT analysis
SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses/Limitations, Opportunities, and Threats involved in a project or in a business venture...
by Learned, Andrews, and others at the Harvard Business School General Management Group. Strengths and weaknesses of the firm are assessed in light of the opportunities and threats from the business environment.
Igor Ansoff
Igor Ansoff
H. Igor Ansoff was a Russian American, applied mathematician and business manager. He is known as the father of Strategic management....
built on Chandler's work by adding a range of strategic concepts and inventing a whole new vocabulary. He developed a strategy grid that compared market penetration strategies, product development strategies, market development strategies and horizontal
Horizontal integration
In microeconomics and strategic management, the term horizontal integration describes a type of ownership and control. It is a strategy used by a business or corporation that seeks to sell a type of product in numerous markets...
and vertical integration
Vertical integration
In microeconomics and management, the term vertical integration describes a style of management control. Vertically integrated companies in a supply chain are united through a common owner. Usually each member of the supply chain produces a different product or service, and the products combine to...
and diversification strategies. He felt that management could use these strategies to systematically prepare for future opportunities and challenges. In his 1965 classic Corporate Strategy, he developed the gap analysis
Gap analysis
In business and economics, gap analysis is a tool that helps companies compare actual performance with potential performance. At its core are two questions: "Where are we?" and "Where do we want to be?" If a company or organization does not make the best use of current resources, or forgoes...
still used today in which we must understand the gap between where we are currently and where we would like to be, then develop what he called “gap reducing actions”.
Peter Drucker
Peter Drucker
Peter Ferdinand Drucker was an influential writer, management consultant, and self-described “social ecologist.”-Introduction:...
was a prolific strategy theorist, author of dozens of management books, with a career spanning five decades. His contributions to strategic management were many but two are most important. Firstly, he stressed the importance of objectives. An organization without clear objectives is like a ship without a rudder. As early as 1954 he was developing a theory of management based on objectives. This evolved into his theory of management by objectives (MBO). According to Drucker, the procedure of setting objectives and monitoring your progress towards them should permeate the entire organization, top to bottom. His other seminal contribution was in predicting the importance of what today we would call intellectual capital. He predicted the rise of what he called the “knowledge worker” and explained the consequences of this for management. He said that knowledge work is non-hierarchical. Work would be carried out in teams
Cross-functional team
A cross-functional team is a group of people with different functional expertise working toward a common goal. It may include people from finance, marketing, operations, and human resources departments. Typically, it includes employees from all levels of an organization...
with the person most knowledgeable in the task at hand being the temporary leader.
In 1985, Ellen-Earle Chaffee summarized what she thought were the main elements of strategic management theory by the 1970s:
- Strategic management involves adapting the organization to its business environment.
- Strategic management is fluid and complex. Change creates novel combinations of circumstances requiring unstructured non-repetitive responses.
- Strategic management affects the entire organization by providing direction.
- Strategic management involves both strategy formation (she called it content) and also strategy implementation (she called it process).
- Strategic management is partially planned and partially unplanned.
- Strategic management is done at several levels: overall corporate strategy, and individual business strategies.
- Strategic management involves both conceptual and analytical thought processes.
Growth and portfolio theory
In the 1970s much of strategic management dealt with size, growth, and portfolio theory.The PIMS study was a long term study, started in the 1960s and lasted for 19 years, that attempted to understand the Profit Impact of Marketing Strategies (PIMS), particularly the effect of market share. Started at General Electric
General Electric
General Electric Company , or GE, is an American multinational conglomerate corporation incorporated in Schenectady, New York and headquartered in Fairfield, Connecticut, United States...
, moved to Harvard in the early 1970s, and then moved to the Strategic Planning Institute in the late 1970s, it now contains decades of information on the relationship between profitability and strategy. Their initial conclusion was unambiguous: The greater a company's market share, the greater will be their rate of profit. The high market share provides volume and economies of scale
Economies of scale
Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
. It also provides experience and learning curve
Learning curve
A learning curve is a graphical representation of the changing rate of learning for a given activity or tool. Typically, the increase in retention of information is sharpest after the initial attempts, and then gradually evens out, meaning that less and less new information is retained after each...
advantages. The combined effect is increased profits. The studies conclusions continue to be drawn on by academics and companies today: "PIMS provides compelling quantitative evidence as to which business strategies work and don't work" – Tom Peters.
The benefits of high market share naturally lead to an interest in growth strategies. The relative advantages of horizontal integration
Horizontal integration
In microeconomics and strategic management, the term horizontal integration describes a type of ownership and control. It is a strategy used by a business or corporation that seeks to sell a type of product in numerous markets...
, vertical integration
Vertical integration
In microeconomics and management, the term vertical integration describes a style of management control. Vertically integrated companies in a supply chain are united through a common owner. Usually each member of the supply chain produces a different product or service, and the products combine to...
, diversification, franchise
Franchising
Franchising is the practice of using another firm's successful business model. The word 'franchise' is of anglo-French derivation - from franc- meaning free, and is used both as a noun and as a verb....
s, mergers and acquisitions
Mergers and acquisitions
Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...
, joint ventures, and organic growth were discussed. The most appropriate market dominance strategies were assessed given the competitive and regulatory environment.
There was also research that indicated that a low market share strategy could also be very profitable. Schumacher (1973), Woo and Cooper (1982), Levenson (1984), and later Traverso (2002) showed how smaller niche players obtained very high returns.
By the early 1980s the paradoxical conclusion was that high market share and low market share companies were often very profitable but most of the companies in between were not. This was sometimes called the “hole in the middle” problem. This anomaly would be explained by Michael Porter in the 1980s.
The management of diversified organizations required new techniques and new ways of thinking. The first CEO to address the problem of a multi-divisional company was Alfred Sloan at General Motors. GM was decentralized into semi-autonomous “strategic business units” (SBU's), but with centralized support functions.
One of the most valuable concepts in the strategic management of multi-divisional companies was portfolio theory. In the previous decade Harry Markowitz
Harry Markowitz
Harry Max Markowitz is an American economist and a recipient of the John von Neumann Theory Prize and the Nobel Memorial Prize in Economic Sciences....
and other financial theorists developed the theory of portfolio analysis
Modern portfolio theory
Modern portfolio theory is a theory of investment which attempts to maximize portfolio expected return for a given amount of portfolio risk, or equivalently minimize risk for a given level of expected return, by carefully choosing the proportions of various assets...
. It was concluded that a broad portfolio of financial assets could reduce specific risk
Specific risk
In finance, a specific risk is a risk that affects a very small number of assets. This is sometimes referred to as "unsystematic risk". In a balanced portfolio of assets there'd be a spread between general market risk and risks specific to individual components of that portfolio...
. In the 1970s marketers extended the theory to product portfolio decisions and managerial strategists extended it to operating division portfolios. Each of a company’s operating divisions were seen as an element in the corporate portfolio. Each operating division (also called strategic business units) was treated as a semi-independent profit center with its own revenues, costs, objectives, and strategies. Several techniques were developed to analyze the relationships between elements in a portfolio. B.C.G. Analysis, for example, was developed by the Boston Consulting Group
Boston Consulting Group
The Boston Consulting Group is a global management consulting firm with offices in 42 countries. It is recognized as one of the most prestigious management consulting firms in the world. It is one of only three companies to appear in the top 15 of Fortunes "Best Companies to Work For" report for...
in the early 1970s. This was the theory that gave us the wonderful image of a CEO sitting on a stool milking a cash cow. Shortly after that the G.E. multi factoral model was developed by General Electric. Companies continued to diversify until the 1980s when it was realized that in many cases a portfolio of operating divisions was worth more as separate completely independent companies.
The marketing revolution
The 1970s also saw the rise of the marketing oriented firm. From the beginnings of capitalism it was assumed that the key requirement of business success was a productProduct (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
of high technical quality. If you produced a product that worked well and was durable, it was assumed you would have no difficulty selling them at a profit. This was called the production orientation and it was generally true that good products could be sold without effort, encapsulated in the saying "Build a better mousetrap and the world will beat a path to your door." This was largely due to the growing numbers of affluent and middle class people that capitalism had created. But after the untapped demand caused by the second world war was saturated in the 1950s it became obvious that products were not selling as easily as they had been. The answer was to concentrate on selling
Selling
Selling is offering to exchange something of value for something else. The something of value being offered may be tangible or intangible. The something else, usually money, is most often seen by the seller as being of equal or greater value than that being offered for sale.Another person or...
. The 1950s and 1960s is known as the sales era and the guiding philosophy of business
Philosophy of business
The Development of management theory and philosophy considers the fundamental principles that underlie the formation and operation of a business enterprise; the nature and purpose of a business, for example, is it primarily property or a social institution; its role in society; and the moral...
of the time is today called the sales orientation. In the early 1970s Theodore Levitt
Theodore Levitt
Theodore Levitt was an American economist and professor at Harvard Business School. He was also editor of the Harvard Business Review and an editor who was especially noted for increasing the Review's circulation and for popularizing the term globalization...
and others at Harvard argued that the sales orientation had things backward. They claimed that instead of producing products then trying to sell them to the customer, businesses should start with the customer, find out what they wanted, and then produce it for them. The customer became the driving force behind all strategic business decisions. This marketing
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
orientation, in the decades since its introduction, has been reformulated and repackaged under numerous names including customer orientation, marketing philosophy, customer intimacy
Customer intimacy
Customer intimacy is a concept from marketing, which describes the ability of a supplier to become accepted and known as the regular partner with its customer...
, customer focus, customer driven, and market focused.
The Japanese challenge
In 2009, industry consultants Mark Blaxill and Ralph Eckardt suggested that much of the Japanese business dominance that began in the mid 1970s was the direct result of competition enforcement efforts by the Federal Trade CommissionFederal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
(FTC) and U.S. Department of Justice (DOJ). In 1975 the FTC reached a settlement with Xerox Corporation in its anti-trust lawsuit. (At the time, the FTC was under the direction of Frederic M. Scherer
Frederic M. Scherer
Frederic Michael Scherer is an American economist. His research specialties include industrial economics and the economics of technological change, on which he has many much-cited works. Since 2006 he has been Emeritus Professor of Public Policy and Corporate Management in the Aetna Chair, in the...
). The 1975 Xerox consent decree
Consent decree
A consent decree is a final, binding judicial decree or judgment memorializing a voluntary agreement between parties to a suit in return for withdrawal of a criminal charge or an end to a civil litigation...
forced the licensing of the company’s entire patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
portfolio, mainly to Japanese competitors. (See "compulsory license
Compulsory license
A compulsory license, also known as statutory license or mandatory collective management, provides that the owner of a patent or copyright licenses the use of their rights against payment either set by law or determined through some form of arbitration.- Copyright law :In a number of countries...
.") This action marked the start of an activist approach to managing competition by the FTC and DOJ, which resulted in the compulsory licensing of tens of thousands of patent from some of America's leading companies, including IBM
IBM
International Business Machines Corporation or IBM is an American multinational technology and consulting corporation headquartered in Armonk, New York, United States. IBM manufactures and sells computer hardware and software, and it offers infrastructure, hosting and consulting services in areas...
, AT&T
AT&T
AT&T Inc. is an American multinational telecommunications corporation headquartered in Whitacre Tower, Dallas, Texas, United States. It is the largest provider of mobile telephony and fixed telephony in the United States, and is also a provider of broadband and subscription television services...
, DuPont
DuPont
E. I. du Pont de Nemours and Company , commonly referred to as DuPont, is an American chemical company that was founded in July 1802 as a gunpowder mill by Eleuthère Irénée du Pont. DuPont was the world's third largest chemical company based on market capitalization and ninth based on revenue in 2009...
, Bausch & Lomb
Bausch & Lomb
Bausch & Lomb, an American company based in Rochester, New York, is one of the world's leading suppliers of eye health products, such as contact lenses and lens care products today. In addition to this main activity, in recent years the area of medical technology has been developed...
, and Eastman Kodak
Eastman Kodak
Eastman Kodak Company is a multinational imaging and photographic equipment, materials and services company headquarted in Rochester, New York, United States. It was founded by George Eastman in 1892....
.
Within four years of the consent decree, Xerox's share of the U.S. copier market dropped from nearly 100% to less than 14%. Between 1950 and 1980 Japanese companies consummated more than 35,000 foreign licensing agreements, mostly with U.S. companies, for free or low-cost licenses made possible by the FTC and DOJ. The post-1975 era of anti-trust initiatives by Washington D.C. economists at the FTC corresponded directly with the rapid, unprecedented rise in Japanese competitiveness and a simultaneous stalling of the U.S. manufacturing economy.
Competitive advantage
The Japanese challenge shook the confidence of the western business elite, but detailed comparisons of the two management styles and examinations of successful businesses convinced westerners that they could overcome the challenge. The 1980s and early 1990s saw a plethora of theories explaining exactly how this could be done. They cannot all be detailed here, but some of the more important strategic advances of the decade are explained below.Gary Hamel
Gary Hamel
Dr. Gary P. Hamel is an American management expert. He is a founder of Strategos, an international management consulting firm based in Chicago.-Early life:...
and C. K. Prahalad
C. K. Prahalad
Coimbatore Krishnarao Prahalad was the Paul and Ruth McCracken Distinguished University Professor of Corporate Strategy at the Stephen M...
declared that strategy needs to be more active and interactive; less “arm-chair planning” was needed. They introduced terms like strategic intent and strategic architecture. Their most well known advance was the idea of core competency
Core competency
A core competency is a concept in management theory originally advocated by CK Prahalad, and Gary Hamel, two business book writers. In their view a core competency is a specific factor that a business sees as being central to the way it, or its employees, works...
. They showed how important it was to know the one or two key things that your company does better than the competition.
Active strategic management required active information gathering and active problem solving. In the early days of Hewlett-Packard (HP), Dave Packard and Bill Hewlett devised an active management style that they called management by walking around (MBWA). Senior HP managers were seldom at their desks. They spent most of their days visiting employees, customers, and suppliers. This direct contact with key people provided them with a solid grounding from which viable strategies could be crafted. The MBWA concept was popularized in 1985 by a book by Tom Peters
Tom Peters
Thomas J. "Tom" Peters is an American writer on business management practices, best-known for In Search of Excellence .-Life and career:Peters was born in Baltimore, Maryland...
and Nancy Austin
Nancy Austin
Nancy Kimball Austin is an American writer and business consultant, best known for co-writing the bestsellers A Passion for Excellence and The Assertive Woman . Her books have sold approximately one million copies, and been published in seven languages.- Biography :Austin was born c. 1949 in...
. Japanese managers employ a similar system, which originated at Honda, and is sometimes called the 3 G's (Genba
Gemba
is a Japanese term meaning "the real place." Japanese detectives call the crime scene genba, and Japanese TV reporters may refer to themselves as reporting from genba. In business, genba refers to the place where value is created; in manufacturing the genba is the factory floor...
, Genbutsu, and Genjitsu, which translate into “actual place”, “actual thing”, and “actual situation”).
Probably the most influential strategist of the decade was Michael Porter
Michael Porter
Michael Eugene Porter is the Bishop William Lawrence University Professor at Harvard Business School. He is a leading authority on company strategy and the competitiveness of nations and regions. Michael Porter’s work is recognized in many governments, corporations and academic circles globally...
. He introduced many new concepts including; 5 forces analysis, generic strategies, the value chain, strategic groups, and clusters. In 5 forces analysis
Porter 5 forces analysis
Porter's five forces analysis is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon industrial organization economics to derive five forces that determine the competitive intensity and therefore...
he identifies the forces that shape a firm's strategic environment. It is like a SWOT analysis
SWOT analysis
SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses/Limitations, Opportunities, and Threats involved in a project or in a business venture...
with structure and purpose. It shows how a firm can use these forces to obtain a sustainable competitive advantage
Sustainable competitive advantage
Competitive advantage is defined as the strategic advantage one business entity has over its rival entities within its competitive industry. Achieving competitive advantage strengthens and positions a business better within the business environment....
. Porter modifies Chandler's dictum about structure following strategy by introducing a second level of structure: Organizational structure follows strategy, which in turn follows industry structure. Porter's generic strategies
Porter generic strategies
Michael Porter has described a category scheme consisting of three general types of strategies that are commonly used by businesses to achieve and maintain competitive advantage. These three generic strategies are defined along two dimensions: strategic scope and strategic strength. Strategic scope...
detail the interaction between cost minimization strategies, product differentiation strategies, and market focus strategies. Although he did not introduce these terms, he showed the importance of choosing one of them rather than trying to position your company between them. He also challenged managers to see their industry in terms of a value chain
Value chain
The value chain, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.-Firm Level:...
. A firm will be successful only to the extent that it contributes to the industry's value chain. This forced management to look at its operations from the customer's point of view. Every operation should be examined in terms of what value it adds in the eyes of the final customer.
In 1993, John Kay
John Kay (economist)
John Kay is a leading British business economist of centrist persuasion.Kay was educated at the Royal High School, Edinburgh University, and Nuffield College, Oxford...
took the idea of the value chain to a financial level claiming “ Adding value is the central purpose of business activity”, where adding value is defined as the difference between the market value of outputs and the cost of inputs including capital, all divided by the firm's net output. Borrowing from Gary Hamel and Michael Porter, Kay claims that the role of strategic management is to identify your core competencies, and then assemble a collection of assets that will increase value added and provide a competitive advantage. He claims that there are 3 types of capabilities that can do this; innovation, reputation, and organizational structure.
The 1980s also saw the widespread acceptance of positioning theory
Positioning (marketing)
In marketing, positioning has come to mean the process by which marketers try to create an image or identity in the minds of their target market for its product, brand, or organization....
. Although the theory originated with Jack Trout
Jack Trout
Jack Trout is among the world’s most famous marketing gurus. Over the 40 years of marketing consultancy work, Jack Trout has engaged in hundreds of assignments all over the globe...
in 1969, it didn’t gain wide acceptance until Al Ries
Al Ries
Al Ries is a marketing professional and author. He is also the co-founder and chairman of the Atlanta-based consulting firm Ries & Ries with his partner and daughter, Laura Ries...
and Jack Trout
Jack Trout
Jack Trout is among the world’s most famous marketing gurus. Over the 40 years of marketing consultancy work, Jack Trout has engaged in hundreds of assignments all over the globe...
wrote their classic book “Positioning: The Battle For Your Mind” (1979). The basic premise is that a strategy should not be judged by internal company factors but by the way customers see it relative to the competition. Crafting and implementing a strategy involves creating a position in the mind of the collective consumer. Several techniques were applied to positioning theory, some newly invented but most borrowed from other disciplines. Perceptual mapping
Perceptual mapping
Perceptual mapping is a graphics technique used by asset marketers that attempts to visually display the perceptions of customers or potential customers. Typically the position of a product, product line, brand, or company is displayed relative to their competition.Perceptual maps can have any...
for example, creates visual displays of the relationships between positions. Multidimensional scaling, discriminant analysis, factor analysis
Factor analysis
Factor analysis is a statistical method used to describe variability among observed, correlated variables in terms of a potentially lower number of unobserved, uncorrelated variables called factors. In other words, it is possible, for example, that variations in three or four observed variables...
, and conjoint analysis
Conjoint analysis (in marketing)
Conjoint analysis is a statistical technique used in market research to determine how people value different features that make up an individual product or service....
are mathematical techniques used to determine the most relevant characteristics (called dimensions or factors) upon which positions should be based. Preference regression
Preference regression (in marketing)
Preference regression is a statistical technique used by marketers to determine consumers’ preferred core benefits. It usually supplements product positioning techniques like multi dimensional scaling or factor analysis and is used to create ideal vectors on perceptual maps.-Application:Starting...
can be used to determine vectors of ideal positions and cluster analysis
Cluster analysis (in marketing)
Cluster analysis is a class of statistical techniques that can be applied to data that exhibit “natural” groupings. Cluster analysis sorts through the raw data and groups them into clusters. A cluster is a group of relatively homogeneous cases or observations. Objects in a cluster are similar to...
can identify clusters of positions.
Others felt that internal company resources were the key. In 1992, Jay Barney, for example, saw strategy as assembling the optimum mix of resources, including human, technology, and suppliers, and then configure them in unique and sustainable ways.
Michael Hammer
Michael Hammer
Michael Martin Hammer was an American engineer, management author, and a former professor of computer science at the Massachusetts Institute of Technology , known as one of the founders of the management theory of Business process reengineering .- Biography:Hammer, the child of Holocaust...
and James Champy felt that these resources needed to be restructured. This process, that they labeled reengineering
Business process reengineering
Business process re-engineering is the analysis and design of workflows and processes within an organization.According to Davenport a business process is a set of logically related tasks performed to achieve a defined business outcome....
, involved organizing a firm's assets around whole processes rather than tasks. In this way a team of people saw a project through, from inception to completion. This avoided functional silos where isolated departments seldom talked to each other. It also eliminated waste due to functional overlap and interdepartmental communications.
In 1989 Richard Lester
Richard Lester
Richard Lester is an American film director based in Britain. Lester is notable for his work with The Beatles in the 1960s and his work on the Superman film series in the 1980s.-Early years and television:...
and the researchers at the MIT Industrial Performance Center identified seven best practices and concluded that firms must accelerate the shift away from the mass production of low cost standardized products. The seven areas of best practice were:
- Simultaneous continuous improvement in cost, quality, service, and product innovation
- Breaking down organizational barriers between departments
- Eliminating layers of management creating flatter organizational hierarchies.
- Closer relationships with customers and suppliers
- Intelligent use of new technology
- Global focus
- Improving human resource skills
The search for “best practices” is also called benchmarking
Benchmarking
Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time and cost...
. This involves determining where you need to improve, finding an organization that is exceptional in this area, then studying the company and applying its best practices in your firm.
A large group of theorists felt the area where western business was most lacking was product quality. People like W. Edwards Deming
W. Edwards Deming
William Edwards Deming was an American statistician, professor, author, lecturer and consultant. He is perhaps best known for his work in Japan...
, Joseph M. Juran
Joseph M. Juran
Joseph Moses Juran was a 20th century management consultant who is principally remembered as an evangelist for quality and quality management, writing several influential books on those subjects. He was the brother of Academy Award winner Nathan H...
, A. Kearney, Philip Crosby, and Armand Feignbaum suggested quality improvement techniques like total quality management
Total Quality Management
Total quality management or TQM is an integrative philosophy of management for continuously improving the quality of products and processes....
(TQM), continuous improvement
Kaizen
, Japanese for "improvement", or "change for the better" refers to philosophy or practices that focus upon continuous improvement of processes in manufacturing, engineering, game development, and business management. It has been applied in healthcare, psychotherapy, life-coaching, government,...
(kaizen), lean manufacturing
Lean manufacturing
Lean manufacturing, lean enterprise, or lean production, often simply, "Lean," is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination...
, Six Sigma
Six Sigma
Six Sigma is a business management strategy originally developed by Motorola, USA in 1986. , it is widely used in many sectors of industry.Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects and minimizing variability in manufacturing and...
, and return on quality (ROQ).
An equally large group of theorists felt that poor customer service was the problem. People like James Heskett (1988), Earl Sasser (1995), William Davidow, Len Schlesinger, A. Paraurgman (1988), Len Berry, Jane Kingman-Brundage, Christopher Hart, and Christopher Lovelock (1994), gave us fishbone diagramming, service charting, Total Customer Service (TCS), the service profit chain, service gaps analysis, the service encounter, strategic service vision, service mapping, and service teams. Their underlying assumption was that there is no better source of competitive advantage than a continuous stream of delighted customers.
Process management
Process management
Process management is the ensemble of activities of planning and monitoring the performance of a process. The term usually refers to the management of business processes and manufacturing processes...
uses some of the techniques from product quality management and some of the techniques from customer service management. It looks at an activity as a sequential process. The objective is to find inefficiencies and make the process more effective. Although the procedures have a long history, dating back to Taylorism, the scope of their applicability has been greatly widened, leaving no aspect of the firm free from potential process improvements. Because of the broad applicability of process management techniques, they can be used as a basis for competitive advantage.
Some realized that businesses were spending much more on acquiring new customers than on retaining current ones. Carl Sewell, Frederick F. Reichheld, C. Gronroos, and Earl Sasser showed us how a competitive advantage could be found in ensuring that customers returned again and again. This has come to be known as the loyalty effect after Reicheld's book of the same name in which he broadens the concept to include employee loyalty, supplier loyalty, distributor loyalty, and shareholder loyalty. They also developed techniques for estimating the lifetime value of a loyal customer, called customer lifetime value
Customer lifetime value
-Definition of Customer Lifetime Value:In marketing, customer lifetime value , lifetime customer value , or lifetime value is the net present value of the cash flows attributed to the relationship with a customer...
(CLV). A significant movement started that attempted to recast selling and marketing techniques into a long term endeavor that created a sustained relationship with customers (called relationship selling, relationship marketing
Relationship marketing
Relationship marketing was first defined as a form of marketing developed from direct response marketing campaigns which emphasizes customer retention and satisfaction, rather than a dominant focus on sales transactions....
, and customer relationship management
Customer relationship management
Customer relationship management is a widely implemented strategy for managing a company’s interactions with customers, clients and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing,...
). Customer relationship management (CRM) software (and its many variants) became an integral tool that sustained this trend.
James Gilmore and Joseph Pine found competitive advantage in mass customization
Mass customization
Mass customization, in marketing, manufacturing, call centres and management, is the use of flexible computer-aided manufacturing systems to produce custom output...
. Flexible manufacturing techniques allowed businesses to individualize products for each customer without losing economies of scale
Economies of scale
Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
. This effectively turned the product into a service. They also realized that if a service is mass customized by creating a “performance” for each individual client, that service would be transformed into an “experience”. Their book, The Experience Economy, along with the work of Bernd Schmitt
Bernd Schmitt
Bernd Schmitt is Robert D. Calkins Professor of International Business at Columbia Business School in New York, where he directs the Center on Global Brand Leadership...
convinced many to see service provision as a form of theatre. This school of thought is sometimes referred to as customer experience management (CEM).
Like Peters and Waterman a decade earlier, James Collins and Jerry Porras spent years conducting empirical research on what makes great companies. Six years of research uncovered a key underlying principle behind the 19 successful companies that they studied: They all encourage and preserve a core ideology that nurtures the company. Even though strategy and tactics change daily, the companies, nevertheless, were able to maintain a core set of values. These core values encourage employees to build an organization that lasts. In Built To Last (1994) they claim that short term profit goals, cost cutting, and restructuring will not stimulate dedicated employees to build a great company that will endure. In 2000 Collins coined the term “built to flip” to describe the prevailing business attitudes in Silicon Valley. It describes a business culture where technological change inhibits a long term focus. He also popularized the concept of the BHAG (Big Hairy Audacious Goal).
Arie de Geus
Arie de Geus
Arie de Geus was the head of Shell Oil Company's Strategic Planning Group and is a public speaker.-Background:De Geus was born in Rotterdam in 1930. He joined Royal Dutch/Shell in 1951 and remained there until his retirement in 1989. During his tenure as head of Shell's Strategic Planning Group,...
(1997) undertook a similar study and obtained similar results. He identified four key traits of companies that had prospered for 50 years or more. They are:
- Sensitivity to the business environment — the ability to learn and adjust
- Cohesion and identity — the ability to build a community with personality, vision, and purpose
- Tolerance and decentralization — the ability to build relationships
- Conservative financing
A company with these key characteristics he called a living company because it is able to perpetuate itself. If a company emphasizes knowledge rather than finance, and sees itself as an ongoing community of human beings, it has the potential to become great and endure for decades. Such an organization is an organic entity capable of learning (he called it a “learning organization”) and capable of creating its own processes, goals, and persona.
There are numerous ways by which a firm can try to create a competitive advantage – some will work but many will not. To help firms avoid a hit and miss approach to the creation of competitive advantage, Will Mulcaster suggests that firms engage in a dialogue that centres around the question "Will the proposed competitive advantage create Perceived Differential Value?" The dialogue should raise a series of other pertinent questions, including:
- "Will the proposed competitive advantage create something that is different from the competition?"
- "Will the difference add value in the eyes of potential customers?" – This question will entail a discussion of the combined effects of price, product features and consumer perceptions.
- "Will the product add value for the firm?" – Answering this question will require an examination of cost effectiveness and the pricing strategy.
The military theorists
In the 1980s some business strategists realized that there was a vast knowledge baseKnowledge base
A knowledge base is a special kind of database for knowledge management. A Knowledge Base provides a means for information to be collected, organised, shared, searched and utilised.-Types:...
stretching back thousands of years that they had barely examined. They turned to military strategy
Military strategy
Military strategy is a set of ideas implemented by military organizations to pursue desired strategic goals. Derived from the Greek strategos, strategy when it appeared in use during the 18th century, was seen in its narrow sense as the "art of the general", 'the art of arrangement' of troops...
for guidance. Military strategy books such as The Art of War by Sun Tzu
Sun Tzu
Sun Wu , style name Changqing , better known as Sun Tzu or Sunzi , was an ancient Chinese military general, strategist and philosopher who is traditionally believed, and who is most likely, to have authored The Art of War, an influential ancient Chinese book on military strategy...
, On War by von Clausewitz
Carl von Clausewitz
Carl Philipp Gottfried von Clausewitz was a Prussian soldier and German military theorist who stressed the moral and political aspects of war...
, and The Red Book by Mao Zedong
Mao Zedong
Mao Zedong, also transliterated as Mao Tse-tung , and commonly referred to as Chairman Mao , was a Chinese Communist revolutionary, guerrilla warfare strategist, Marxist political philosopher, and leader of the Chinese Revolution...
became instant business classics. From Sun Tzu, they learned the tactical side of military strategy and specific tactical prescriptions. From Von Clausewitz, they learned the dynamic and unpredictable nature of military strategy. From Mao Zedong, they learned the principles of guerrilla warfare. The main marketing warfare
Marketing warfare strategies
Marketing warfare strategies are a type of strategies, used in business and marketing, that try to draw parallels between business and warfare, and then apply the principles of military strategy to business situations, with competing firms considered as analogous to sides in a military conflict,...
books were:
- Business War Games by Barrie James, 1984
- Marketing Warfare by Al RiesAl RiesAl Ries is a marketing professional and author. He is also the co-founder and chairman of the Atlanta-based consulting firm Ries & Ries with his partner and daughter, Laura Ries...
and Jack TroutJack TroutJack Trout is among the world’s most famous marketing gurus. Over the 40 years of marketing consultancy work, Jack Trout has engaged in hundreds of assignments all over the globe...
, 1986 - Leadership Secrets of Attila the Hun by Wess Roberts, 1987
Philip Kotler
Philip Kotler
Philip Kotler is the S.C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Management at Northwestern University.-Early life:He received his master's degree at the University of Chicago...
was a well-known proponent of marketing warfare strategy.
There were generally thought to be four types of business warfare theories.
They are:
- Offensive marketing warfare strategiesOffensive marketing warfare strategiesIn marketing and strategic management, marketing warfare strategies are a type of marketing strategy that uses military metaphor to craft a businesses strategy. See marketing warfare strategies for background and an overview. Offensive marketing warfare strategies are a type of marketing warfare...
- Defensive marketing warfare strategiesDefensive marketing warfare strategiesIn marketing and strategic management, marketing warfare strategies are a type of marketing strategy that uses military metaphor to craft a businesses strategy. See marketing warfare strategies for background and an overview...
- Flanking marketing warfare strategiesFlanking marketing warfare strategiesIn marketing and strategic management, marketing warfare strategies are a type of marketing strategy that uses military metaphor to craft a businesses strategy. See marketing warfare strategies for background and an overview...
- Guerrilla marketing warfare strategiesGuerrilla marketing warfare strategiesIn marketing and strategic management, marketing warfare strategies are a type of marketing strategy that uses military strategy to form a marketing and advertising campaign...
The marketing warfare literature also examined leadership and motivation, intelligence gathering, types of marketing weapons, logistics, and communications.
By the turn of the century marketing warfare strategies had gone out of favour. It was felt that they were limiting. There were many situations in which non-confrontational approaches were more appropriate. In 1989, Dudley Lynch and Paul L. Kordis published Strategy of the Dolphin: Scoring a Win in a Chaotic World. "The Strategy of the Dolphin” was developed to give guidance as to when to use aggressive strategies and when to use passive strategies. A variety of aggressiveness strategies
Aggressiveness strategies (business)
Business strategies can be categorized in many ways. One popular method is to assess strategies based on their degree of aggressiveness. Aggressiveness strategies are rated according to their marketing assertiveness, their risk propensity, financial leverage, product innovation, speed of decision...
were developed.
In 1993, J. Moore used a similar metaphor. Instead of using military terms, he created an ecological theory of predators and prey (see ecological model of competition
Ecological model of competition
The ecological model of competition is a reassessment of the nature of competition in the economy. Traditional economics models the economy on the principles of physics . This can be seen in the economics lexicon: terms like labour force, market equilibrium, capital flows, and price elasticity...
), a sort of Darwinian management strategy in which market interactions mimic long term ecological stability
Ecological stability
Ecological stability can refer to types of stability in a continuum ranging from resilience to constancy to persistence. The precise definition depends on the ecosystem in question, the variable or variables of interest, and the overall context...
.
Strategic change
In 1968, Peter DruckerPeter Drucker
Peter Ferdinand Drucker was an influential writer, management consultant, and self-described “social ecologist.”-Introduction:...
(1969) coined the phrase Age of Discontinuity to describe the way change forces disruptions into the continuity of our lives. In an age of continuity attempts to predict the future by extrapolating from the past can be somewhat accurate. But according to Drucker, we are now in an age of discontinuity and extrapolating from the past is hopelessly ineffective. We cannot assume that trends that exist today will continue into the future. He identifies four sources of discontinuity: new technologies, globalization
Globalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...
, cultural pluralism
Cultural pluralism
Cultural pluralism is a term used when smaller groups within a larger society maintain their unique cultural identities, and their values and practices are accepted by the wider culture. Cultural pluralism is often confused with Multiculturalism...
, and knowledge capital
Knowledge capital
Knowledge capital is a concept which asserts that ideas have intrinsic value which can be shared and leveraged within and between organizations. Knowledge capital connotes that sharing skills and information is a means of sharing power...
.
In 1970, Alvin Toffler
Alvin Toffler
Alvin Toffler is an American writer and futurist, known for his works discussing the digital revolution, communication revolution, corporate revolution and technological singularity....
in Future Shock described a trend towards accelerating rates of change. He illustrated how social and technological norms had shorter lifespans with each generation, and he questioned society's ability to cope with the resulting turmoil and anxiety. In past generations periods of change were always punctuated with times of stability. This allowed society to assimilate the change and deal with it before the next change arrived. But these periods of stability are getting shorter and by the late 20th century had all but disappeared. In 1980 in The Third Wave, Toffler characterized this shift to relentless change as the defining feature of the third phase of civilization (the first two phases being the agricultural and industrial waves). He claimed that the dawn of this new phase will cause great anxiety for those that grew up in the previous phases, and will cause much conflict and opportunity in the business world. Hundreds of authors, particularly since the early 1990s, have attempted to explain what this means for business strategy.
In 2000, Gary Hamel
Gary Hamel
Dr. Gary P. Hamel is an American management expert. He is a founder of Strategos, an international management consulting firm based in Chicago.-Early life:...
discussed strategic decay, the notion that the value of all strategies, no matter how brilliant, decays over time.
In 1978, Dereck Abell (Abell, D. 1978) described strategic windows and stressed the importance of the timing (both entrance and exit) of any given strategy. This has led some strategic planners to build planned obsolescence into their strategies.
In 1989, Charles Handy
Charles Handy
Charles Handy is an Irish author/philosopher specialising in organisational behaviour and management. Among the ideas he has advanced are the "portfolio worker" and the "Shamrock Organization" .He has been rated among the Thinkers 50, a private...
identified two types of change. Strategic drift is a gradual change that occurs so subtly that it is not noticed until it is too late. By contrast, transformational change is sudden and radical. It is typically caused by discontinuities (or exogenous
Exogenous
Exogenous refers to an action or object coming from outside a system. It is the opposite of endogenous, something generated from within the system....
shocks) in the business environment. The point where a new trend is initiated is called a strategic inflection point by Andy Grove. Inflection points can be subtle or radical.
In 2000, Malcolm Gladwell
Malcolm Gladwell
Malcolm Gladwell, CM is a Canadian journalist, bestselling author, and speaker. He is currently based in New York City and has been a staff writer for The New Yorker since 1996...
discussed the importance of the tipping point, that point where a trend or fad acquires critical mass and takes off.
In 1983, Noel Tichy
Noel Tichy
Noel M. Tichy is an American management consultant, author and educator. He has co-authored, edited or contributed to over 30 books and was the director of global development at GE's Crotonville He has been named one of the top "Management Gurus"...
wrote that because we are all beings of habit we tend to repeat what we are comfortable with. He wrote that this is a trap that constrains our creativity
Creativity
Creativity refers to the phenomenon whereby a person creates something new that has some kind of value. What counts as "new" may be in reference to the individual creator, or to the society or domain within which the novelty occurs...
, prevents us from exploring new ideas, and hampers our dealing with the full complexity
Complexity
In general usage, complexity tends to be used to characterize something with many parts in intricate arrangement. The study of these complex linkages is the main goal of complex systems theory. In science there are at this time a number of approaches to characterizing complexity, many of which are...
of new issues. He developed a systematic method of dealing with change that involved looking at any new issue from three angles: technical and production, political and resource allocation, and corporate culture.
In 1990, Richard Pascale (Pascale, R. 1990) wrote that relentless change requires that businesses continuously reinvent themselves. His famous maxim is “Nothing fails like success” by which he means that what was a strength yesterday becomes the root of weakness today, We tend to depend on what worked yesterday and refuse to let go of what worked so well for us in the past. Prevailing strategies become self-confirming. To avoid this trap, businesses must stimulate a spirit of inquiry and healthy debate. They must encourage a creative process of self renewal based on constructive conflict.
Peters and Austin (1985) stressed the importance of nurturing champions and heroes. They said we have a tendency to dismiss new ideas, so to overcome this, we should support those few people in the organization that have the courage to put their career and reputation on the line for an unproven idea.
In 1996, Adrian Slywotzky
Adrian Slywotzky
Adrian J. Slywotzky is a consultant and author of several books on economic theory and management. Slywotzky graduated from Harvard College and holds a JD from Harvard Law School and an MBA from Harvard Business School...
showed how changes in the business environment are reflected in value migration
Value migration
In marketing, value migration is the shifting of value-creating forces. Value migrates from outmoded business models to business designs that are better able to satisfy customers' priorities....
s between industries, between companies, and within companies. He claimed that recognizing the patterns behind these value migrations is necessary if we wish to understand the world of chaotic change. In “Profit Patterns” (1999) he described businesses as being in a state of strategic anticipation as they try to spot emerging patterns. Slywotsky and his team identified 30 patterns that have transformed industry after industry.
In 1997, Clayton Christensen (1997) took the position that great companies can fail precisely because they do everything right since the capabilities of the organization also defines its disabilities. Christensen's thesis is that outstanding companies lose their market leadership when confronted with disruptive technology
Disruptive technology
A disruptive technology or disruptive innovation is an innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market and value network , displacing an earlier technology there...
. He called the approach to discovering the emerging markets for disruptive technologies agnostic marketing, i.e., marketing under the implicit assumption that no one – not the company, not the customers – can know how or in what quantities a disruptive product can or will be used before they have experience using it.
A number of strategists use scenario planning
Scenario planning
Scenario planning, also called scenario thinking or scenario analysis, is a strategic planning method that some organizations use to make flexible long-term plans. It is in large part an adaptation and generalization of classic methods used by military intelligence.The original method was that a...
techniques to deal with change. The way Peter Schwartz
Peter Schwartz (futurist)
Peter Schwartz is a futurist, author, and cofounder of the Global Business Network , an elite corporate strategy firm, specializing in future-think and scenario planning...
put it in 1991 is that strategic outcomes cannot be known in advance so the sources of competitive advantage cannot be predetermined. The fast changing business environment is too uncertain for us to find sustainable value in formulas of excellence or competitive advantage. Instead, scenario planning is a technique in which multiple outcomes can be developed, their implications assessed, and their likeliness of occurrence evaluated. According to Pierre Wack
Pierre Wack
Pierre Wack was an unconventional French oil executive who was the first to develop the use of scenario planning in the private sector, at Royal Dutch Shell’s London headquarters in the 1970s...
, scenario planning is about insight, complexity, and subtlety, not about formal analysis and numbers.
In 1988, Henry Mintzberg
Henry Mintzberg
Professor Henry Mintzberg, is an internationally renowned academic and author on business and management. He is currently the Cleghorn Professor of Management Studies at the Desautels Faculty of Management of McGill University in Montreal, Quebec, Canada, where he has been teaching since...
looked at the changing world around him and decided it was time to reexamine how strategic management was done. He examined the strategic process and concluded it was much more fluid and unpredictable than people had thought. Because of this, he could not point to one process that could be called strategic planning
Strategic planning
Strategic planning is an organization's 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 avenues...
. Instead Mintzberg concludes that there are five types of strategies:
- Strategy as plan – a direction, guide, course of action – intention rather than actual
- Strategy as ploy – a maneuver intended to outwit a competitor
- Strategy as pattern – a consistent pattern of past behaviour – realized rather than intended
- Strategy as position – locating of brands, products, or companies within the conceptual framework of consumers or other stakeholders – strategy determined primarily by factors outside the firm
- Strategy as perspective – strategy determined primarily by a master strategist
In 1998, Mintzberg developed these five types of management strategy into 10 “schools of thought”. These 10 schools are grouped into three categories. The first group is prescriptive or normative. It consists of the informal design and conception school, the formal planning school, and the analytical positioning school. The second group, consisting of six schools, is more concerned with how strategic management is actually done, rather than prescribing optimal plans or positions. The six schools are the entrepreneurial, visionary, or great leader school, the cognitive or mental process school, the learning, adaptive, or emergent process school, the power or negotiation school, the corporate culture or collective process school, and the business environment or reactive school. The third and final group consists of one school, the configuration or transformation school, an hybrid of the other schools organized into stages, organizational life cycles, or “episodes”.
In 1999, Constantinos Markides also wanted to reexamine the nature of strategic planning itself. He describes strategy formation and implementation as an on-going, never-ending, integrated process requiring continuous reassessment and reformation. Strategic management is planned and emergent, dynamic, and interactive. J. Moncrieff (1999) also stresses strategy dynamics
Strategy dynamics
The word ‘dynamics’ appears frequently in discussions and writing about strategy, and is used in two distinct, though equally important senses.The dynamics of strategy and performance concerns the ‘content’ of strategy – initiatives, choices, policies and decisions adopted in an attempt to improve...
. He recognized that strategy is partially deliberate and partially unplanned. The unplanned element comes from two sources: emergent strategies (result from the emergence of opportunities and threats in the environment) and Strategies in action (ad hoc actions by many people from all parts of the organization).
Some business planners are starting to use a complexity theory approach to strategy. Complexity can be thought of as chaos with a dash of order. Chaos theory
Chaos theory
Chaos theory is a field of study in mathematics, with applications in several disciplines including physics, economics, biology, and philosophy. Chaos theory studies the behavior of dynamical systems that are highly sensitive to initial conditions, an effect which is popularly referred to as the...
deals with turbulent systems that rapidly become disordered. Complexity is not quite so unpredictable. It involves multiple agents interacting in such a way that a glimpse of structure may appear.
Information- and technology-driven strategy
Peter DruckerPeter Drucker
Peter Ferdinand Drucker was an influential writer, management consultant, and self-described “social ecologist.”-Introduction:...
had theorized the rise of the “knowledge worker” back in the 1950s. He described how fewer workers would be doing physical labor, and more would be applying their minds. In 1984, John Nesbitt theorized that the future would be driven largely by information: companies that managed information well could obtain an advantage, however the profitability of what he calls the “information float” (information that the company had and others desired) would all but disappear as inexpensive computers made information more accessible.
Daniel Bell
Daniel Bell
Daniel Bell was an American sociologist, writer, editor, and professor emeritus at Harvard University, best known for his seminal contributions to the study of post-industrialism...
(1985) examined the sociological consequences of information technology, while Gloria Schuck and Shoshana Zuboff looked at psychological factors. Zuboff, in her five year study of eight pioneering corporations made the important distinction between “automating technologies” and “infomating technologies”. She studied the effect that both had on individual workers, managers, and organizational structures. She largely confirmed Peter Drucker's predictions three decades earlier, about the importance of flexible decentralized structure, work teams, knowledge sharing, and the central role of the knowledge worker. Zuboff also detected a new basis for managerial authority, based not on position or hierarchy, but on knowledge (also predicted by Drucker) which she called “participative management”.
In 1990, Peter Senge
Peter Senge
Peter Michael Senge is an American scientist and director of the Center for Organizational Learning at the MIT Sloan School of Management. He is known as author of the book The Fifth Discipline: The art and practice of the learning organization from 1990...
, who had collaborated with Arie de Geus at Dutch Shell, borrowed de Geus' notion of the learning organization, expanded it, and popularized it. The underlying theory is that a company's ability to gather, analyze, and use information is a necessary requirement for business success in the information age. (See organizational learning
Organizational learning
Organizational learning is an area of knowledge within organizational theory that studies models and theories about the way an organization learns and adapts....
.) To do this, Senge claimed that an organization would need to be structured such that:
- People can continuously expand their capacity to learn and be productive,
- New patterns of thinking are nurtured,
- Collective aspirations are encouraged, and
- People are encouraged to see the “whole picture” together.
Senge identified five disciplines of a learning organization. They are:
- Personal responsibility, self reliance, and mastery — We accept that we are the masters of our own destiny. We make decisions and live with the consequences of them. When a problem needs to be fixed, or an opportunity exploited, we take the initiative to learn the required skills to get it done.
- Mental models — We need to explore our personal mental models to understand the subtle effect they have on our behaviour.
- Shared vision — The vision of where we want to be in the future is discussed and communicated to all. It provides guidance and energy for the journey ahead.
- Team learning — We learn together in teams. This involves a shift from “a spirit of advocacy to a spirit of enquiry”.
- Systems thinkingSystems thinkingSystems thinking is the process of understanding how things influence one another within a whole. In nature, systems thinking examples include ecosystems in which various elements such as air, water, movement, plants, and animals work together to survive or perish...
— We look at the whole rather than the parts. This is what Senge calls the “Fifth discipline”. It is the glue that integrates the other four into a coherent strategy. For an alternative approach to the “learning organization”, see Garratt, B. (1987).
Since 1990 many theorists have written on the strategic importance of information, including J.B. Quinn, J. Carlos Jarillo, D.L. Barton, Manuel Castells, J.P. Lieleskin, Thomas Stewart, K.E. Sveiby, Gilbert J. Probst, and Shapiro and Varian to name just a few.
Thomas A. Stewart
Thomas A. Stewart
Thomas A. Stewart is the Chief Marketing and Knowledge Officer of Booz & Company, a global management consulting firm. Prior to joining Booz & Company, he was the editor and managing director of Harvard Business Review from 2002-2008...
, for example, uses the term intellectual capital to describe the investment an organization makes in knowledge. It is composed of human capital (the knowledge inside the heads of employees), customer capital (the knowledge inside the heads of customers that decide to buy from you), and structural capital (the knowledge that resides in the company itself).
Manuel Castells
Manuel Castells
Manuel Castells is a sociologist especially associated with information society and communication research....
, describes a network society characterized by: globalization, organizations structured as a network, instability of employment, and a social divide between those with access to information technology and those without.
Geoffrey Moore
Geoffrey Moore
Geoffrey Moore is a Silicon Valley based high technology consultant, venture partner at Mohr Davidow Ventures and author.His books are derived from his Silicon Valley consulting work at The McKenna Group and The Chasm Group , and earlier work by Everett Rogers on adopter categories and diffusion...
(1991) and R. Frank and P. Cook also detected a shift in the nature of competition. In industries with high technology content, technical standards become established and this gives the dominant firm a near monopoly. The same is true of networked industries in which interoperability
Interoperability
Interoperability is a property referring to the ability of diverse systems and organizations to work together . The term is often used in a technical systems engineering sense, or alternatively in a broad sense, taking into account social, political, and organizational factors that impact system to...
requires compatibility between users. An example is word processor documents. Once a product has gained market dominance, other products, even far superior products, cannot compete. Moore showed how firms could attain this enviable position by using E.M. Rogers five stage adoption process
Diffusion (business)
Diffusion is the process by which a new idea or new product is accepted by the market. The rate of diffusion is the speed that the new idea spreads from one consumer to the next. Adoption is similar to diffusion except that it deals with the psychological processes an individual goes through,...
and focusing on one group of customers at a time, using each group as a base for marketing to the next group. The most difficult step is making the transition between visionaries and pragmatists (See Crossing the Chasm
Crossing the Chasm
Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers or simply Crossing the Chasm , is a marketing book by Geoffrey A. Moore that focuses on the specifics of marketing high tech products during the early start up period...
). If successful a firm can create a bandwagon effect in which the momentum builds and its product becomes a de facto standard.
Evans and Wurster describe how industries with a high information component are being transformed. They cite Encarta's demolition of the Encyclopædia Britannica
Encyclopædia Britannica
The Encyclopædia Britannica , published by Encyclopædia Britannica, Inc., is a general knowledge English-language encyclopaedia that is available in print, as a DVD, and on the Internet. It is written and continuously updated by about 100 full-time editors and more than 4,000 expert...
(whose sales have plummeted 80% since their peak of $650 million in 1990). Encarta’s reign was speculated to be short-lived, eclipsed by collaborative encyclopedias like Wikipedia
Wikipedia
Wikipedia is a free, web-based, collaborative, multilingual encyclopedia project supported by the non-profit Wikimedia Foundation. Its 20 million articles have been written collaboratively by volunteers around the world. Almost all of its articles can be edited by anyone with access to the site,...
that can operate at very low marginal costs. Encarta's service was subsequently turned into an on-line service and dropped at the end of 2009. Evans also mentions the music industry which is desperately looking for a new business model
Business model
A business model describes the rationale of how an organization creates, delivers, and captures value...
. The upstart information savvy firms, unburdened by cumbersome physical assets, are changing the competitive landscape, redefining market segments, and disintermediating
Disintermediation
In economics, disintermediation is the removal of intermediaries in a supply chain: "cutting out the middleman". Instead of going through traditional distribution channels, which had some type of intermediate , companies may now deal with every customer directly, for example via the Internet...
some channels. One manifestation of this is personalized marketing
Personalized marketing
Personalized marketing is an extreme form of product differentiation. Whereas product differentiation tries to differentiate a product from competing ones, personalization tries to make a unique product offering for each customer.-Internet marketing:Personalized marketing had been most practical...
. Information technology allows marketers to treat each individual as its own market, a market of one. Traditional ideas of market segment
Market segment
Market segmentation is a concept in economics and marketing. A market segment is a sub-set of a market made up of people or organizations with one or more characteristics that cause them to demand similar product and/or services based on qualities of those products such as price or function...
s will no longer be relevant if personalized marketing is successful.
The technology sector has provided some strategies directly. For example, from the software development industry agile software development
Agile software development
Agile software development is a group of software development methodologies based on iterative and incremental development, where requirements and solutions evolve through collaboration between self-organizing, cross-functional teams...
provides a model for shared development processes.
Access to information systems have allowed senior managers to take a much more comprehensive view of strategic management than ever before. The most notable of the comprehensive systems is the balanced scorecard
Balanced scorecard
The Balanced Scorecard is a strategic performance management tool - a semi-standard structured report, supported by proven design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the...
approach developed in the early 1990s by Drs. Robert S. Kaplan
Robert S. Kaplan
Robert S. Kaplan is Baker Foundation Professor at Harvard Business School, United States, and co-creator, together with David P. Norton, of the balanced scorecard, a means of linking a company's current actions to its long-term goals...
(Harvard Business School
Harvard Business School
Harvard Business School is the graduate business school of Harvard University in Boston, Massachusetts, United States and is widely recognized as one of the top business schools in the world. The school offers the world's largest full-time MBA program, doctoral programs, and many executive...
) and David Norton
David K. Norton
David Norton is Senior Executive Vice President and Chief Human Resources Officer of People's United Bank, responsible for all human resources functions, including Total Rewards, Staffing and Recruiting, Employee Relations, Learning & Development, HRIS, and Corporate Communications.Form 2006 until...
(Kaplan, R. and Norton, D. 1992). It measures several factors financial
FINANCIAL
FINANCIAL is the weekly English-language newspaper with offices in Tbilisi, Georgia and Kiev, Ukraine. Published by Intelligence Group LLC, FINANCIAL is focused on opinion leaders and top business decision-makers; It's about world’s largest companies, investing, careers, and small business. It is...
, marketing
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
, production
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
, organizational development, and new product development
New product development
In business and engineering, new product development is the term used to describe the complete process of bringing a new product to market. A product is a set of benefits offered for exchange and can be tangible or intangible...
to achieve a 'balanced' perspective.
Knowledge Adaptive Strategy
Most current approaches to business "strategy" focus on the mechanics of management—e.g., Drucker's operational "strategies" – and as such are not true business strategy. In a post-industrial world these operationally focused business strategies hinge on conventional sources of advantage have essentially been eliminated:- Scale used to be very important. But now, with access to capital and a global marketplace, scale is achievable by multiple organizations simultaneously. In many cases, it can literally be rented.
- Process improvement or “best practices” were once a favored source of advantage, but they were at best temporary, as they could be copied and adapted by competitors.
- Owning the customer had always been thought of as an important form of competitive advantage. Now, however, customer loyalty is far less important and difficult to maintain as new brands and products emerge all the time.
In such a world, differentiation
Differentiation (economics)
Differentiation is a concept used in business strategy and describes one of the three ways to establish competitive advantage.Differentiation advantage occurs when a firm delivers greater services for a non-unlimited higher price than its competitors...
, as elucidated by Michael Porter, Botten and McManus is the only way to maintain economic or market superiority (i.e., comparative advantage
Comparative advantage
In economics, the law of comparative advantage says that two countries will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods...
) over competitors. A company must OWN the thing that differentiates it from competitors. Without IP ownership and protection, any product, process or scale advantage can be compromised or entirely lost. Competitors can copy them without fear of economic or legal consequences, thereby eliminating the advantage.
This principle is based on the idea of evolution: differentiation, selection, amplification and repetition. It is a form of strategy to deal with complex adaptive systems which individuals, businesses, the economy are all based on. The principle is based on the survival of the "fittest". The fittest strategy employed after trail and error and combination is then employed to run the company in its current market. Failed strategic plans are either discarded or used for another aspect of a business. The trade off between risk and return is taken into account when deciding which strategy to take. Cynefin model and the adaptive cycles of businesses are both good ways to develop KAS, reference Panarchy
Panarchy
Panarchy is a conceptual term first coined by the Belgian botanist and economist Paul Emile de Puydt in 1860, referring to a specific form of governance that would encompass all others. The Oxford English Dictionary lists the noun as "chiefly poetic" with the meaning "a universal realm," citing...
and Cynefin
Cynefin
The Cynefin framework is a model used to describe problems, situations and systems. The model provides a typology of contexts that guides what sort of explanations and/or solutions may apply. Cynefin is a Welsh word, which is commonly translated into English as 'habitat' or 'place', although...
. Analyze the fitness landscapes for a product, idea, or service to better develop a more adaptive strategy.
(For an explanation and elucidation of the "post-industrial" worldview, see George Ritzer
George Ritzer
George Ritzer is a sociologist who studies American patterns of consumption, globalization, metatheory, and modern and postmodern social theory...
and Daniel Bell
Daniel Bell
Daniel Bell was an American sociologist, writer, editor, and professor emeritus at Harvard University, best known for his seminal contributions to the study of post-industrialism...
.)
Strategic decision making processes
Will Mulcaster argues that while much research and creative thought has been devoted to generating alternative strategies, too little work has been done on what influences the quality of strategic decision making and the effectiveness with which strategies are implemented. For instance, in retrospect it can be seen that the financial crisis of 2008–9 could have been avoided if the banks had paid more attention to the risks associated with their investments, but how should banks change the way they make decisions to improve the quality of their decisions in the future? Mulcaster's Managing Forces framework addresses this issue by identifying 11 forces that should be incorporated into the processes of decision making and strategic implementation. The 11 forces are: Time; Opposing forces; Politics; Perception; Holistic effects; Adding value; Incentives; Learning capabilities; Opportunity cost; Risk; Style—which can be remembered by using the mnemonic 'TOPHAILORS'.The psychology of strategic management
Several psychologists have conducted studies to determine the psychological patterns involved in strategic management. Typically senior managers have been asked how they go about making strategic decisions. A 1938 treatise by Chester BarnardChester Barnard
Chester Irving Barnard was an American business executive, public administrator, and the author of pioneering work in management theory and organizational studies. His landmark 1938 book, Functions of the Executive, sets out a theory of organization and of the functions of executives in...
, that was based on his own experience as a business executive, sees the process as informal, intuitive, non-routinized, and involving primarily oral, 2-way communications. Bernard says “The process is the sensing of the organization as a whole and the total situation relevant to it. It transcends the capacity of merely intellectual methods, and the techniques of discriminating the factors of the situation. The terms pertinent to it are “feeling”, “judgement”, “sense”, “proportion”, “balance”, “appropriateness”. It is a matter of art rather than science.”
In 1973, Henry Mintzberg
Henry Mintzberg
Professor Henry Mintzberg, is an internationally renowned academic and author on business and management. He is currently the Cleghorn Professor of Management Studies at the Desautels Faculty of Management of McGill University in Montreal, Quebec, Canada, where he has been teaching since...
found that senior managers typically deal with unpredictable situations so they strategize in ad hoc, flexible, dynamic, and implicit ways. . He says, “The job breeds adaptive information-manipulators who prefer the live concrete situation. The manager works in an environment of stimulous-response, and he develops in his work a clear preference for live action.”
In 1982, John Kotter
John Kotter
John Paul Kotter is a professor at the Harvard Business School and author, who is regarded as an authority on leadership and change. He outlines eight steps that organizations need to implement to successfully change:1...
studied the daily activities of 15 executives and concluded that they spent most of their time developing and working a network of relationships that provided general insights and specific details for strategic decisions. They tended to use “mental road maps” rather than systematic planning techniques.
Daniel Isenberg
Daniel Isenberg
Daniel Isenberg is a Professor of Management Practice at Babson Global where he established the Babson Entrepreneurship Ecosystem Project...
's 1984 study of senior managers found that their decisions were highly intuitive. Executives often sensed what they were going to do before they could explain why. He claimed in 1986 that one of the reasons for this is the complexity of strategic decisions and the resultant information uncertainty.
Shoshana Zuboff
Shoshana Zuboff
Shoshana Zuboff is the Charles Edward Wilson Professor of Business Administration at the Harvard Business School . She was born in 1951 and is an American citizen. One of the first tenured women at the Harvard Business School, she earned her Ph.D. in social psychology from Harvard University and...
(1988) claims that information technology is widening the divide between senior managers (who typically make strategic decisions) and operational level managers (who typically make routine decisions). She claims that prior to the widespread use of computer systems, managers, even at the most senior level, engaged in both strategic decisions and routine administration, but as computers facilitated (She called it “deskilled”) routine processes, these activities were moved further down the hierarchy, leaving senior management free for strategic decision making.
In 1977, Abraham Zaleznik identified a difference between leaders and managers. He describes leadershipleaders as visionaries who inspire. They care about substance. Whereas managers are claimed to care about process, plans, and form. He also claimed in 1989 that the rise of the manager was the main factor that caused the decline of American business in the 1970s and 80s.The main difference between leader and manager is that, leader has followers and manager has subordinates. In capitalistic society leaders make decisions and manager usually follow or execute. Lack of leadership is most damaging at the level of strategic management where it can paralyze an entire organization.
According to Corner, Kinichi, and Keats, strategic decision making in organizations occurs at two levels: individual and aggregate. They have developed a model of parallel strategic decision making. The model identifies two parallel processes that both involve getting attention, encoding information, storage and retrieval of information, strategic choice, strategic outcome, and feedback. The individual and organizational processes are not independent however. They interact at each stage of the process.
Reasons why strategic plans fail
There are many reasons why strategic plans fail, especially:- Failure to execute by overcoming the four key organizational hurdles
- Cognitive hurdle
- Motivational hurdle
- Resource hurdle
- Political hurdle
- Failure to understand the customerCustomerA customer is usually used to refer to a current or potential buyer or user of the products of an individual or organization, called the supplier, seller, or vendor. This is typically through purchasing or renting goods or services...
- Why do they buy
- Is there a real need for the product
- inadequate or incorrect marketing researchMarketing researchMarketing research is "the function that links the consumer, customer, and public to the marketer through information — information used to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve...
- Inability to predict environmental reactionOligopolyAn oligopoly is a market form in which a market or industry is dominated by a small number of sellers . The word is derived, by analogy with "monopoly", from the Greek ὀλίγοι "few" + πόλειν "to sell". Because there are few sellers, each oligopolist is likely to be aware of the actions of the others...
- What will competitors do
- Fighting brandsBrand managementBrand management is the application of marketing techniques to a specific product, product line, or brand.The discipline of brand management was started at Procter & Gamble as a result of a famous memo by Neil H...
- Price wars
- Fighting brands
- Will government intervene
- What will competitors do
- Over-estimation of resource competence
- Can the staff, equipment, and processes handle the new strategy
- Failure to develop new employee and management skills
- Failure to coordinate
- Reporting and control relationships not adequate
- Organizational structure not flexible enough
- Failure to obtain senior management commitment
- Failure to get management involved right from the start
- Failure to obtain sufficient company resources to accomplish task
- Failure to obtain employee commitment
- New strategy not well explained to employees
- No incentives given to workers to embrace the new strategy
- Under-estimation of time requirements
- No critical path analysis done
- Failure to follow the plan
- No follow through after initial planning
- No tracking of progress against plan
- No consequences for above
- Failure to manage change
- Inadequate understanding of the internal resistance to change
- Lack of vision on the relationships between processes, technology and organization
- Poor communications
- Insufficient information sharing among stakeholders
- Exclusion of stakeholders and delegates
Limitations of strategic management
Although a sense of direction is important, it can also stifle creativity, especially if it is rigidly enforced. In an uncertain and ambiguous world, fluidity can be more important than a finely tuned strategic compass. When a strategy becomes internalized into a corporate culture, it can lead to group think. It can also cause an organization to define itself too narrowly. An example of this is marketing myopiaMarketing myopia
Marketing myopia is a term used in marketing as well as the title of an important marketing paper written by Theodore Levitt. This paper was first published in 1960 in the Harvard Business Review; a journal of which he was an editor...
.
Many theories of strategic management tend to undergo only brief periods of popularity. A summary of these theories thus inevitably exhibits survivorship bias
Systemic bias
Systemic bias is the inherent tendency of a process to favor particular outcomes. The term is a neologism that generally refers to human systems; the analogous problem in non-human systems is often called systematic bias, and leads to systematic error in measurements or estimates.-Bias in...
(itself an area of research in strategic management). Many theories tend either to be too narrow in focus to build a complete corporate strategy on, or too general and abstract to be applicable to specific situations. Populism or fad
FAD
In biochemistry, flavin adenine dinucleotide is a redox cofactor involved in several important reactions in metabolism. FAD can exist in two different redox states, which it converts between by accepting or donating electrons. The molecule consists of a riboflavin moiety bound to the phosphate...
dishness can have an impact on a particular theory's life cycle and may see application in inappropriate circumstances. See business philosophies and popular management theories for a more critical view of management theories.
In 2000, Gary Hamel coined the term strategic convergence to explain the limited scope of the strategies being used by rivals in greatly differing circumstances. He lamented that strategies converge more than they should, because the more successful ones are imitated by firms that do not understand that the strategic process involves designing a custom strategy for the specifics of each situation.
Ram Charan, aligning with a popular marketing tagline, believes that strategic planning must not dominate action. "Just do it!" while not quite what he meant, is a phrase that nevertheless comes to mind when combatting analysis paralysis.
The linearity trap
It is tempting to think that the elements of strategic management – (i) reaching consensus on corporate objectives; (ii) developing a plan for achieving the objectives; and (iii) marshalling and allocating the resources required to implement the plan – can be approached sequentially. It would be convenient, in other words, if one could deal first with the noble question of ends, and then address the mundane question of means.But in the world where strategies must be implemented, the three elements are interdependent. Means are as likely to determine ends as ends are to determine means. The objectives that an organization might wish to pursue are limited by the range of feasible approaches to implementation. (There will usually be only a small number of approaches that will not only be technically and administratively possible, but also satisfactory to the full range of organizational stakeholders.) In turn, the range of feasible implementation approaches is determined by the availability of resources.
And so, although participants in a typical “strategy session” may be asked to do “blue sky” thinking where they pretend that the usual constraints – resources, acceptability to stakeholders, administrative feasibility – have been lifted, the fact is that it rarely makes sense to divorce oneself from the environment in which a strategy will have to be implemented. It’s probably impossible to think in any meaningful way about strategy in an unconstrained environment. Our brains can’t process “boundless possibilities”, and the very idea of strategy only has meaning in the context of challenges or obstacles to be overcome. It’s at least as plausible to argue that acute awareness of constraints is the very thing that stimulates creativity by forcing us to constantly reassess both means and ends in light of circumstances.
The key question, then, is, "How can individuals, organizations and societies cope as well as possible with ... issues too complex to be fully understood, given the fact that actions initiated on the basis of inadequate understanding may lead to significant regret?"
The answer is that the process of developing organizational strategy must be iterative. Such an approach has been called the Strategic Incrementalisation Perspective. It involves toggling back and forth between questions about objectives, implementation planning and resources. An initial idea about corporate objectives may have to be altered if there is no feasible implementation plan that will meet with a sufficient level of acceptance among the full range of stakeholders, or because the necessary resources are not available, or both.
Even the most talented manager would no doubt agree that "comprehensive analysis is impossible" for complex problems. Formulation and implementation of strategy must thus occur side-by-side rather than sequentially, because strategies are built on assumptions that, in the absence of perfect knowledge, are never perfectly correct. Strategic management is necessarily a "...repetitive learning cycle [rather than] a linear progression towards a clearly defined final destination." While assumptions can and should be tested in advance, the ultimate test is implementation. You will inevitably need to adjust corporate objectives and/or your approach to pursuing outcomes and/or assumptions about required resources. Thus a strategy will get remade during implementation because "humans rarely can proceed satisfactorily except by learning from experience; and modest probes, serially modified on the basis of feedback, usually are the best method for such learning."
It serves little purpose (other than to provide a false aura of certainty sometimes demanded by corporate strategists and planners) to pretend to anticipate every possible consequence of a corporate decision, every possible constraining or enabling factor, and every possible point of view. At the end of the day, what matters for the purposes of strategic management is having a clear view – based on the best available evidence and on defensible assumptions – of what it seems possible to accomplish within the constraints of a given set of circumstances. As the situation changes, some opportunities for pursuing objectives will disappear and others arise. Some implementation approaches will become impossible, while others, previously impossible or unimagined, will become viable.
The essence of being “strategic” thus lies in a capacity for "intelligent trial-and error" rather than linear adherence to finally honed and detailed strategic plans. Strategic management will add little value—indeed, it may well do harm—if organizational strategies are designed to be used as a detailed blueprints for managers. Strategy should be seen, rather, as laying out the general path—but not the precise steps—an organization will follow to create value. Strategic management is a question of interpreting, and continuously reinterpreting, the possibilities presented by shifting circumstances for advancing an organization's objectives. Doing so requires strategists to think simultaneously about desired objectives, the best approach for achieving them, and the resources implied by the chosen approach. It requires a frame of mind that admits of no boundary between means and ends.
It may not be so limiting as suggested in "The linearity trap" above. Strategic thinking/ identification takes place within the gambit of organizational capacity and Industry dynamics. The two common approaches to strategic analysis are value analysis and SWOT analysis. Yes Strategic analysis takes place within the constraints of existing/potential organizational resources but its would not be appropriate to call it a trap. For e.g., SWOT tool involves analysis of the organization's internal environment (Strengths & weaknesses) and its external environment (opportunities & threats). The organization's strategy is built using its strengths to exploit opportunities, while managing the risks arising from internal weakness and external threats. It further involves contrasting its strengths & weaknesses to determine if the organization has enough strengths to offset its weaknesses. Applying the same logic, at the external level, contrast is made between the externally existing opportunities and threats to determine if the organization is capitalizing enough on opportunities to offset emerging threats.
Putting creativity and innovation into strategy
Given that companies of all sizes are competing on the global stage, and the pace of change and level of complexity have skyrocketed in the last decade, creative strategy development is needed more than ever. In 2010, IBM released a study summarizing three conclusions of 1500 CEOs around the world: 1) complexity is escalating, 2) enterprises are not equipped to cope with this complexity, and 3) creativity is now the single most important leadership competency. IBM said that it is needed in all aspects of leadership, including strategic thinking and planning.James Bandrowski
James F. Bandrowski
James F. Bandrowski is an author, global keynote speaker, trainer, and consultant with a that includes many among the most recognizable companies in the world. He authored Corporate Imagination—Plus: Five Steps to Translating Innovative Strategies into Action . He founded in 1984 in Danville,...
declared in 1990 that strategy development should no longer be just an analytical exercise, but should be highly creative with an aim to conceiving and executing an innovative strategy that creates competitive distinction and elates customers. He introduced a sine wave approach that amplifies the strategic thinking of all participants in the development and execution of strategy. It can be used at the corporate level, for every function in the organization, as well as in mergers, acquisitions, divestitures, and turnarounds. He states, the bigger the amplitude (measure of the height and depth of a sine wave) of one’s thinking and feeling, the greater the chance of value-added breakthrough thinking and achieving stretch goals. In 2009, he declared that a small amplitude both positively and negatively in one’s thinking is the metaphorical “box” in thinking outside the box
Thinking outside the box
Thinking outside the box is to think differently, unconventionally, or from a new perspective. This phrase often refers to novel or creative thinking....
.
See also
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Marketing Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments... Marketing plan A marketing plan may be part of an overall business plan.Solid marketing strategy is the foundation of a well-written marketing plan. While a marketing plan contains a list of actions, a marketing plan without a sound strategic foundation is of little use.... Management Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively... Management consulting Management consulting indicates both the industry and practice of helping organizations improve their performance primarily through the analysis of existing organizational problems and development of plans for improvement.... Military strategy Military strategy is a set of ideas implemented by military organizations to pursue desired strategic goals. Derived from the Greek strategos, strategy when it appeared in use during the 18th century, was seen in its narrow sense as the "art of the general", 'the art of arrangement' of troops... |
Overall equipment effectiveness Overall equipment effectiveness is a hierarchy of metrics which evaluates and indicates how effectively a manufacturing operation is utilized. The results are stated in a generic form which allows comparison between manufacturing units in differing industries... Proximity mapping In marketing and business strategy, proximity mapping is a technique used by IBM, McKinsey and other corporations to illustrate the relative closeness of market segments or characteristics in a two-dimensional space -- typically a sheet of paper or a presentation slide.-Adjacent Markets:Here, for... Strategic planning Strategic planning is an organization's 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 avenues... |
Value migration In marketing, value migration is the shifting of value-creating forces. Value migrates from outmoded business models to business designs that are better able to satisfy customers' priorities.... Six Forces Model The Six Forces Model is a market opportunities analysis model, as an extension to Porter five forces analysis and is more robust than a standard SWOT analysis.The following forces are identified:* Competition* New entrants* End users/buyers* Suppliers... International strategic management International Strategic Management is an ongoing management planning process aimed at developing strategies to allow an organization to expand abroad and compete internationally... |
External links
- The Journal of Business Strategies
- Strategic Planning Society
- The Association of Internal Management Consultants-The nationwide network of Strategic Management and Planning professionals