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Strategy

Strategy – What is it? – an article designed to highlight the various approaches to strategy and its development.

There are numerous definitions of what strategy is or indeed is not. Burns states: "like many other concepts in the field of management, there is no agreed, all-embracing definition of strategy. Indeed, even one of the pioneers of business strategy, Igor Ansoff warned that strategy is an elusive and somewhat abstract concept" Johnson and Scholes define strategy as: "the direction and scope of an organization over the long term: which achieves advantage for the organization through its configuration of resources within a changing environment, to meet the needs of markets and to fulfill stakeholder expectations". Quinn states: "A strategy is the pattern or plan that integrates an organisation's major goals, policies and action sequences into a cohesive whole. A well formulated strategy helps to marshal and allocate an organisation's resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment and contingent moves by intelligent opponents" This is a good robust definition, and includes both the outcome and the process. Both of these definitions mention resources and environment. Both are fairly traditional views of strategy. Andrews states: "corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be and the nature of the economic and non-economic contribution it intends to be and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers and communities…" Here we have the concept of strategy as a pattern.

Mintzberg also refers to strategy (in some instances) as a pattern, he states: "strategy is a pattern – specifically, a pattern in a stream of actions. By this definition, when Picasso painted in blue for a tie, that was a strategy, just as was the behaviour of the Ford Motor Company when Henry Ford offered his Model T only in black. In other words, by this definition, strategy is consistency in behaviour, whether or not intended". Quinn makes the distinction between strategy and strategic decisions. He states: "strategic decisions are those that determine the overall direction of an enterprise and its ultimate viability in light of the predictable, the unpredictable and the unknowable changes that may occur in its most important surrounding environments. They intimately shape the true goals of the enterprise". Do decisions shape the goals or does the environment determine the decisions made?

Hamel & Prahalad refer in their competing for the future book to strategy in terms of the "un-learned" past behaviours, development of "foresight", creation of strategic "architecture", stretch goals, resource "leverage", core competences and coalitions. They state their view of strategy: "recognizes that product failures are often inevitable, but nevertheless provide the opportunity to learn more about just where the mother lode of future demand may lie. It is a view of strategy that recognizes that to capitalize on foresight, and core competence leadership, a company must ultimately pre-empt competitors in critical global markets; that the issue is not so much time to market, but time to global pre-emption" Their understanding of strategy is not so much a plan as a mind set based upon flexibility and second sight! This seems to fall into the Porter school.

Mintzberg observes that: "definitions of strategy as plan and pattern can be quite independent of each other; plans may go unrealized, while patterns may appear without preconception. To paraphrase Hayek, strategies may result from human actions but not human designs. If we label the first definition intended strategy and the second realized strategy, then we can distinguish deliberate strategies, where intentions that existed previously were realized, from emergent strategies"

Mintzberg takes issue with the competitive forces school, he goes on to state: "strategy is not just a notion of how to deal with an enemy or a set of competitors or a market, as it is treated in so much of the literature and in its popular usage. It also draws us into some of the most fundamental issues about organizations as instruments for collective perception and action" Burns asks two interesting questions in relation to the task of defining strategy, he asks: "(1) Is strategy a process or the outcome of a process? (2) Is strategy an economic/rational phenomenon or is it an organizational/social phenomenon?".

We can see from this that strategy cannot be viewed as a simplistic, mechanistic process. Just because people and organizations set themselves objectives and devise strategies does not mean the objectives will be achieved. It might be a cliché, but nevertheless "a plan never survives contact with the enemy". The plan in itself is nothing, but planning is everything. Quinn also recognizes this fact, he states: "the essence of strategy – whether military, diplomatic, business, sports (or) political … - is to build a posture that is so strong (and potentially flexible) in selective ways that the organization can achieve its goals despite the unforeseeable ways external forces may actually interact when the time comes. It seems that a definition of strategy is often derived from the various schools of thought as to what the strategic development/formulation process is. Whittington states: "thus each perspective has its own view of strategy and how it matters for managerial practice. Classicists broadly see strategy as a rational process of long-term planning. Evolutionists concentrate on maximising chances of survival today. Processualists as an emergent process of learning and goals of strategy-making depend particularly on social context. The Systematic perspective also suggests that strategy matters in a different sense. Because strategies reflect the social systems in which they are enacted, firms from different systems will vary in their characteristic approaches to strategy, with potential consequences for national economic performance"

To help us put these four views "into context, head produced a framework that provides perspective. The two dimensions of his map are Processes and Outcomes. (see Fig 1)

He goes on to provide a useful summary of implications of these four perspectives (see Fig 2)

Mintzberg also talks about what is strategy from 4 distinct perspectives. He refers to his 4 P's of strategy. A strategy can be as defined as a plan, pattern, position or perspective.

Strategic Development Process

Underpinning its strategy formulation is a firm's perception of the market they are in. Oracle is now challenging the most basic assumption of its market – what exactly is a PC? It encourages managers to separate form from function in the PC. So far they've established that consumers don't want a PC; they want an information utility, that enables them to use the Internet.

Many organisations spend a great deal of time considering the key issue of "what business are we in?". The answer to that question is a key driver in the strategic development process.

The most typical approaches to setting strategy are:

> the planned – following an (overly) formalised set of steps analysts undertake an intensive environmental analysis based on complex forecasting models; the risk – that creativity, responsiveness and flexibility are squashed.

> The intuitive – the leaders follow gut feel and insight developing an entrepreneurial vision with dramatic decisions the risk: that the strategies will die with their leader.

Andrews states: "corporate strategy is an organisation process, in many ways inseparable from the structure, behaviour and culture of the company in which it takes place. Nevertheless, we may abstract from the process two important aspects, interrelated in real life but separable for the purposes of analysis. The first of these we may call formulation, the second implementation. Deciding what strategy should be may be approached as a rational undertaking, even if in life emotional attachments … may complicate choice among future alternatives

Eisenhardt & Sull state that the formation process should be driven by the business environment, they state: "in stable markets, managers can rely on complicated strategies built on detailed predictions of the future. But in complicated, fast-moving markets where significant growth and wealth creation can occur, unpredictability reigns. It makes sense to follow the lead of entrepreneurs and underdogs – seize opportunities in the here and now with a handful of rules and a few key processes. In other words, when business becomes complicated, strategy should be simple".

DPSS has considerable affinity with this approach, as do many small founder-led organisations. We have to keep it simple because we do not have the resources to make it complicated and complex. Stacey states: "in order to formulate a long-term plan, managers must first identify and agree upon the performance levels, both financial and operational, that they are going to achieve by some point in the long-term future; that is, they must set the quantitative and qualitative objectives that they are going to strive for".

Lean organisations have tended not to spend time debating and agreeing performance levels, they have simply striven to increase the value of the business by as much as possible, in the shortest time. Eisenhardt and Sull have produced a useful summary of the fundamental approaches to developing strategy. These are Position, Resources (or as they advocate) "simple rules". Their approach is based upon the premise that the formulation of strategy should be based upon a set of simple rules, designed to help the organisation pursue opportunities in turbulent markets (see Fig 3). They state: "in traditional strategy, advantage comes from exploiting resources or stable market positions. In strategy as simple rules, by contrast, advantage comes from successfully seizing fleeting opportunities".

Eisenhardt and Sull state: "in turbulent markets, managers should flexibly seize opportunities – but flexibility must be disciplined. Smart companies focus on key processes and simple rules. Different types of rules help executives manage different aspects of seizing opportunities". (See table 1)

RULES

Type	Purpose
How-to rules	They spell out key features of how a process is executed – "What makes our process unique?"
Boundary rules	They focus managers on which opportunities can be pursued and which are outside the pale.
Priority rules	They help managers rank the accepted opportunities.
Timing rules	They synchronize managers with the pace of emerging opportunities and other parts of the company.
Exit rules	They help managers decide when to pull out of yesterday's opportunities.

Table 1

It is interesting to note that whatever process is used by an organisation, the result is often a strategic plan, which contains:

> introduction – scope of the plan and its relationship with any other departmental plans

> assumptions – eg any forecasting premises, timings

> primary objective – normally the chief profit goal presented as a statement of expected results

> environment context – including audits of firm's market position using eg SWOT, PEST, five-forces, Boston box

> risk and sensitivity analysis, plus likelihood of occurrence

> the actual strategy – the course(s) of action the firm is to take eg key ways to increase sales to teenagers

> contingencies – that may be forced on the firm eg those reliant on environmental

> technological advances

It is interesting to note that Japanese companies have rarely developed distinct strategic positions – most imitate each other, with all rivals offering most if not all product features, varieties, and matching one anothers' plan configurations. But now that the gap in operational effectiveness is starting to close – the rewards from JIT, TQM and quality initiatives are beginning to diminish – as more and more USA and European organisations successfully adopt these techniques. It is also interesting to note that in World War 2, some Japanese military strategies failed because they were too complex and complicated.

Andrews states: "the determination of strategy also requires consideration of what alternatives are preferred by the chief executive and perhaps by his or her immediate associates as well, quite apart from economic considerations. Personal values, aspirations and ideals do, and in our judgement quite properly should, influence the final choice of purposes". Porter advocates that strategy formation is driven by competitive forces. He states: "the essence of strategy formulation is coping with competition. Yet it is easy to view competition too narrowly and too pessimistically. While one sometimes hears executives complaining to the contrary, intense competition in an industry are neither coincidence nor bad luck". He takes a "positional" view of strategy, based upon competitive forces. He states: "the key to growth – even survival – is to stake out a position that is less vulnerable to attack from head-to-head opponents, whether established or new, and less vulnerable to erosion from the direction of buyers, suppliers, and substitute goods. Establishing such a position can take many forms – solidifying relationships with favourable customers, differentiating the product either substantively or psychologically through marketing, integrating forward or backward, establishing technological leadership"

Mintzburg states that "strategy is pushed along by the sheer creativity of managers, because they explore new ways of doing things". Here we can see the influence of the individual in the strategy process. He goes on to classify two other people centred schools, these are Cognitive and Entrepreneurial. These are 2 of 10 schools (see Fig 5).

Schools of Thought on Strategy Formation

School

View of Process

Design

Planning

Positioning

Cognitive

Entrepreneurial

Learning

Political

Cultural

Environmental

Configuration

Conceptual

Formal

Analytical

Mental

Visionary

Emergent

Power

Ideological

Passive

Episodic

Figure 5 (source Mintzberg 1999)

Mintzberg states: "the entrepreneurial school centred the process on the chief executive; but unlike the design school and opposite from the planning school, it rooted that process in the mysteries of intuition" He goes on to say: "this focused the process on particular contexts – start-up, niche, or private ownership, as well as "turnaround" by the forceful leader. In this view, the leader maintains such close control over implementing his or her formulated vision that the distinction central to the three prescriptive schools begins to break down". Stacey adds to the debate with: "the cognitivist basis of this theory is clear. Autonomous individuals are assumed to be able to model their organisations from the position of the objective observer. Just as with any cybernetic systems, the ability to predict is crucial to the system's ability to cope as a cybernetic system" The Cognitive school is the other highly people centred school of thought. Murtzberg states: "the origin of strategies generated considerable interest. If strategies developed in people's minds as frames, models, maps, concepts, or schemes, what could be understood about those mental processes" Here we are trying to understand the thought processes of those involved and the creative aspects of strategy formulation. Mintzberg again: "another, newer branch of this school adopted a more subjective interpretative or constructivist view of the strategy process: that cognition is used to construct strategies as creative interpretations, rather than simply to map reality in some more or less objective way, however distorted" . Again this approach to strategy could relate to some degree to the DPSS process. We encourage creative thinking in relation to strategy, as a means of producing original and innovative strategies, and not to fall into the me-too trap. As a niche business, that strategy could be fatal. The dimensions of both schools are neatly summarised by Mintzberg in his 1999 article (see Fig 6). Mintzberg also warns about the extremes of both approaches. In terms of entrepreneurial, he calls the illogical extreme idolatry, whereby the whole process is dominated by one person (normally the founder) to the exclusion of all others. This is a real danger and organisations have tried to compensate by the encouragement of an open and active debate, but it is an issue. The other, (cognitive) can become fantasy, without its base in reality or circumstances.

Dimensions

Entrepreneurial

Cognitive

Sources

J A Schumpeter, A H Cole, and

others in economics

H A Simon and

J G March

Base Discipline

None (although early writings come from economists)

Psychology (cognitive)

Champions

Popular business press, individualists small business

people everywhere, but most decidedly in Latin America and among overseas Chinese

Those with a psychological bent – pessimists in one wing, optimists in the other

Intended Message

Envision

Cope or create

Realised Message

Centralise (then hope)

Worry (being unable to cope in either case)

School Category

Descriptive (some prescriptive)

Descriptive

Associated Homily

"Take us to your leader"

"I'll see it when I believe it"

Figure 6

Another interesting aspect of the strategic development process is that who should be involved.

The Pennsylvania based utility PECO Energy has installed computer kiosks around the company to make it easier for staff to make suggestions on strategy, whereas Rupert Murdoch has managed to steer clear of involving outsiders in his strategy planning, and hasn't done too badly.

Bibliography & References

"Competing for the Future" by G Hamel & C K Prahalad, published by Harvard Business School Press, 1994.

"The Edge of Organisation" by Russ Marnn, published by Sage Publications, 1999.

"What is strategy and does it matter?" by Richard Whittington, 2^nd edition, published by Thomson Learning, 2001.

"The Strategy Process" by H Mintzberg, J B Quinn & S Ghoshal, revised European edition, published by Pearson Education Ltd, 1998.

"Strategic Management & Organisational Dynamics" by Ralph Stacey, 3^rd edition, published by Financial Time/Prentice Hall, 2000.

"Frontiers of Complexity" by P Coveney & R Highfield, published by Faber & Faber, 1995.

"Managing Change – A Strategic Approach to Organisational Dynamics" by Bernard Burns, 3^rd edition, published by Financial Time/Prentice Hal, 2000.

"The Rise and Fall of Strategic Planning" by H Mintzberg, published by Pearson Education Ltd, 1994.

"Exploring Corporate Strategy – Text & Cases" by G Johnson & K Scholes, 5^th edition, published by Prentice-Hall International, 1999.

"Strategy as simple rules" by K Eisenhardt and D N Sull, published by Harvard Business Review, Jan 2001, p107-116.

"Rise and Fall of Strategic Planning" by H Mintzberg, published by Harvard Business Review, Jan-Feb 1994, p108-114.

"Management Control & Systems" by R Anthony & C Govinslarajan, 10^th edition, published by McGraw-Hill International, 2001.

"Reflecting on the Strategy Process" by H Mintzberg & J Lampel, published by Sloan Management Review, Spring 1999, p21-30.

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