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Making Managers More Effective - Applications of Strategic Management

Making Managers More Effective - Applications of Strategic Management

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Published by Priscilla Morales

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Published by: Priscilla Morales on Apr 26, 2011
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Page 1March 1995F:\WPData\IPCWEB\MSWord\WP-9-MS.DOC
Working Papers
A publication of USAID’s Implementing Policy Change Project
Working Paper No. 9March 1995
By Arthur A. Goldsmith, Professor of Management,University of Massachusetts at Boston
I would like to thank Derick Brinkerhoff, Ben Crosby, and David Levy for comments. This paper reflects myviews, and is not an official statement of the IPC project.This paper reviews a family of procedures, groupedunder the umbrella term strategic management, thathelping managers to get to their important objectives.Strategic management is the process by whichmanagers set an organization’s (or severalorganizations’) long-term course, develop plans in thelight of internal and external circumstances, andundertake appropriate action to reach those goals.Although strategic management as a consciousenterprise emerged first in the private, profit-makingsector, managers in other sectors are beginning to useits methods to try to improve their effectiveness.This literature review is commissioned by theImplementing Policy Change (IPC) project, whichhelps developing country managers to apply a strategicmanagement approach to policy change. The goal of the paper is to identify the main elements of thestrategic management framework, and to weigh theirapplicability for ventures such as the IPC project. Wewill start by reviewing the evolution of strategicmanagement, and evaluate the strategic managementparadigm for explaining organization success. Thenwe will go over the many uses of strategic managementmethods, before turning in the concluding sections of the paper to a description of those methods themselves.
The “Field” of Strategic Management
Strategic management is not a field or discipline,strictly speaking—it is part of the study of organizations (Snow, 1986). Strategic management ismeant to be useful for managers and tends to seeorganizations from the top downward, from themanager’s point of view. Its main teachings are four:First, look to the future. Know what markets you are inand want to be in. Second, pay ongoing attention toexternal factors—technological, economic, political,and social—that affect the organization’s ability to getwhere it wants to go. Third, establish and keep a matchamong those external factors and internal organizationvariables— its finances, employees, special skills, and
Implementing Plicy Change
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so on. Fourth, strategic management is iterative. It isnot something that can be done at the front end of anoperation and then dropped; it entails feedback andlearning.These teachings may seem like commonsense, but that does not make them easy to follow.Because managing strategy (the organization gameplan) is a process, not an event, it demands action andfollow-up. Determined strategic managers always aretrying to build on the organization’s strengths andcapitalize on favorable circumstances, whileminimizing weaknesses and overcoming threats to theorganization. Quantum changes in strategy are rare,but fine-tuning takes place continuously, whenevernew information is received.As a self-identified area of inquiry, strategicmanagement is still young. The first major conferencedevoted to the subject was only held in 1977 at theUniversity of Pittsburgh. The Strategic ManagementJournal and the Journal of Business Strategy eachpublished their first issue three years later. MichaelPorter’s landmark study, Competitive Strategy,appeared in 1980. The Academy of Management, theprofessional association of business school teachers,organized its Business Policy and Strategy division ataround the same time.Despite its youth, strategic management has bred alarge (though repetitive) and coherent (though thin)practical literature. The strategic managementparadigm remains a simple one, however (Daft andBuenger, 1990). Distinct schools of thought,equivalent to the human relations and scientificmanagement view points in organization theory, or toKeynesians and monetarists in macroeconomics, haveyet to emerge. Most of strategic management’s advicestill involves simple check lists, typologies, and rulesof thumb. These have been gleaned from anecdotesand casual observation as often as from rigorous study.
History of Strategic Management
To understand what strategic management is about, it ishelpful to look at its history and review its core ideas.Strategic management grew out of both teaching andresearch in business administration. On the teachingside, the roots were the business policy or generalmanagement classes that by the 1960s most businessschools required as the “capstone” course at the end of the business curriculum. These courses directedstudents’ attention to the “big picture,” and tried tobreak down the conventional boundaries amongadministrative functions (marketing, finance,personnel, and so on). The focus was decision makingby top executives in Fortune 500 companies.As officers charged with broad responsibility for thewell-being of whole companies, top executivesnaturally spend much of their time strategizing—that isthey concern themselves with the general direction andlong-term policy of their enterprises. Business policyprofessors thus were forced to try to think systematically about companies’ strategies, whicheventually led to them into the self-styled study of strategic management (Schendel and Cool, 1988).
On the research side, the area had its genesis in thefinding of business case studies in the 1950s and 1960sthat companies in the same industry could succeedfollowing different approaches, while other companiesthat followed approaches similar to each other werenot equally successful (Hammermesh, 1990: 292).Orthodox economic theory could not explain theseanomalies; corporate strategy could. For example,several companies might do well in one line of trade bystrategies of pursuing different market niches. Othercompanies might fail with similar strategies becausethe strategies did not match the unique assets andtalents these other firms brought to bear.What is this powerful force called corporate strategy?One of strategic management’s pioneers, KennethAndrews of Harvard Business School, offers thefollowing widely used definition:. . .corporate strategy is the pattern of majorobjectives, purposes, or goals and essentialpolicies and plans for achieving these goals,stated in such a way as to define whatbusiness the company is in or is to be in andthe kind of company it is or is to be(Andrews, 1971: 28).Subsequent writers have argued that you can substitutethe word “organization” for “corporate” in thisdefinition, and apply the notion of strategy to anyformal human collectivity.The analogy to military campaigns is obvious. Just asgenerals prevail on the battlefield by superior planningand logistics, so do business leaders prevail in themarketplace. Like armed combat, the contest forcustomers and profits brings organizations into conflictwith one another. Also like armed combat, there arewinners and losers in the economic arena, asdetermined by market share and return on investment.Victory goes to the side that is the best prepared.Whatever the context, most views of strategy sharefour underlying themes. First, strategy is forward-looking and instrumental. It combines the ends forwhich the organization is striving and the means(tactics) of getting there. Second, strategy is cross-
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cutting and holistic. It affects the health of the entireorganization and involves all the organization’s parts.Third, strategy entails the deployment of large amountsof resources and thus is not something to be takenlightly. There may be no turning back once a strategicdecision has been made. Fourth, is the assumption thata good strategy will lead to higher-than-averageperformance. It is believed that without a roadmap tofollow, no organization can flourish for long. Successis usually the result of being “proactive,” of trying toinfluence events and not just reacting to them.The basic choices of strategy are few. According toPorter (1980) there are but three generic approaches inthe private sector. Companies may choose to competebased on lower cost, aiming at a mass market andunderselling the competition. Or they may decide tofollow a differentiation strategy, also aimed at a broadmarket but delivering a product or service that is seenas unique. Companies may then charge a premium.Finally, firms may try a focus strategy, which is onethat concentrates on a particular geographic ordemographic market and attempts to serve only thisniche, to the exclusion of others. Yet within thesethree generic types an infinite variety of strategicoptions is possible. Strategic management offers amenu of processes by which to choose and exercisethese options.To understand what makes any given strategy “work”(i.e., confer a sustainable advantage), scholars borrowfrom many fields. One source of important ideas isthe industrial organization branch of microeconomics,which emphasizes the effects of industry structure onfirms. Also evolutionary economics, with notions likethe path dependency of organizations and the influenceof paradigms on decision-making, contributes usefulobservations (Teece, 1990). Organization contingencytheory, and its discovery that there are many ways toorganize successfully that depend on an organization’stask and environment, is another base of insight(Lawrence and Lorsch, 1967; Thompson, 1967). Fromwithin management studies, finance and marketingprovide many ideas. Strategic management expertshave pulled parts of these other fields under one rubricto guide working managers as they look for an edge inthe market place.
Moving from Long-Range Planning toStrategic Management
If organization strategy is a key to organizationperformance, it follows that savvy managers ought towork in a methodical way to develop sound strategiesfor their organizations. Too often managers have not.According to students of business practices in the1960s, like Bruce Henderson, founder of the BostonConsulting Group, most of the time strategy was basedon intuition or what worked in the past (Henderson,1979: 7). Surely, the chances of success could beimproved by embracing game plans that were based onaccurate and realistic assessments of the firm’s positionand the opportunities open to it. Thus the search was onto find robust procedures for designing schemes to beatthe competition.Managers had earlier started to do sophisticated long-term planning; this activity was rechristened strategicplanning in the 1970s to evoke the new concern withfiguring out how to gain an edge in the marketplace—and more important how to keep it.
Strategic planninginvolved more than forecasting. In the new approach,planners began to ask what kinds of businesses the firmshould seek to enter, and not just what the currentbusiness will be like down the road (Drucker, 1973:122).From strategic planning it was a small step to today’sarea of strategic management—with the stress onmanagement (Ansoff et al., 1976). Managing strategyis not just a matter of plotting actions in advance, as thestrategic planners soon learned. Prepared by staff orconsultants who lacked operating responsibility,strategic plans often were unrealistic or without supportamong line managers. To be more than a paperexercise, it was realized, the long-term course of anorganization could hardly be left to a planning unitalone. The plans had to percolate through the wholeorganization. They had to be drawn so they could beenacted, which meant among other things getting mostpeople’s approval of the proposed method of proceeding.Strategic management gave one answer to the problemof hollow plans. Rather than being preoccupied withanalysis of the firm and its environment and theformulation of strategies, the emerging subfield beganto feature implementationand evaluation as criticalcomponents of organization success. These are theaction and assessment phases of the strategicmanagement process. Without effective action andassessment, planning is apt to be a ritual with little real-world impact.

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