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From Wikipedia, the free encyclopedia Jump to: navigation, search "business strategy" redirects here. For other uses, see business process. [hide]This article has multiple issues. Please help improve it or discuss these issues on the talk page. This article needs additional citations for verification. (August 2011) This article includes a list of references, but its sources remain unclear because it has insufficient inline citations. (September 2012) Strategic management analyzes the major initiatives taken by a company's top management on behalf of owners, involving resources and performance in internal and 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.
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1 Overview 2 Concepts/approaches of strategic management 3 Strategy formation (Classical school)
3.1 Strategy evaluation and choice 3.2 Strategic implementation and control
4 Whittington's perspectives
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4.1 Processual 4.2 Evolutionary 4.3 Systemic
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5 General approaches 6 The strategy hierarchy 7 Historical development of strategic management
7.1 Origin 7.2 Growth and portfolio theory
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7.3 Move from sales focus to marketing 7.4 The Japanese challenge 7.5 Competitive advantage 7.6 Military strategy 7.7 Strategic change 7.8 Information- and technology-driven strategy 7.9 Strategic decision making processes
8 Non-strategic management 9 Limitations of strategic management 10 "Creative" vs analytic approaches 11 See also 12 References 13 External links
Strategic management is a level of managerial activity below setting goals and above 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 consistency" 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 the management team and possibly the Board of Directors and other stakeholders.
"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."  Strategic Management can also be defined as "the identification of the purpose of the organisation and the plans and actions to achieve the purpose. It is that set of managerial decisions and actions that determine the long term performance of a business enterprise. It involves formulating and implementing strategies that will help in aligning the organization and its environment to achieve organisational goals."
as well as possessing fewer resources. due to its size. Whittington (2001) highlighted four approaches to strategic management. • • • No single strategic managerial method dominates. scope of operations. in essence. Additionally. and the proclivity to change of its business environment. An SME's CEO (or general top management) may simply outline a mission. An SME (Small and Medium Enterprise) may employ an entrepreneurial approach. and pursue all activities under that mission. This outlines.[clarification needed] Concurrent with this assessment. These points are highlighted below: • A global/transnational organization may employ a more structured strategic management model. Implementation plans then detail how the objectives are to be achieved. it specifies the organization's scope of activities and the markets a firm wishes to serve. Processual. These are Classical.and long-term objectives are set. both micro-environmental and macro-environmental. These objectives should include completion dates. Mintzberg stated there are prescriptive (what should be) and descriptive (what is) approaches. self-evaluation and competitor analysis: both internal and external. Prescriptive schools are "one size fits all" approaches that designate "best practice" while descriptive schools describe how strategy is implemented in specific contexts. Strategy evaluation and choice . Evolutionary and Systemic approaches. short. Follow-on strategy formation is a combination of three main processes which are as follows: • • • Performing a situation analysis. This is due to its comparatively smaller size and scope of operations. and remains a subjective and contextdependent process. the raison d'etre of an organization. and need to encompass stakeholder views and requirements. Strategy formation (Classical school) The initial task in strategic management is typically the compilation and dissemination of the vision and the mission statement.Concepts/approaches of strategic management Strategic management can depend upon the size of an organization.
or other aspects of the business. Such an occurrence will also uncover areas to capitalise on. In addition to ascertaining the suitability. whether external or sector/industry-based. time. market access and expertise. Suitability Suitability deals with the overall rationale of the strategy. Feasibility Feasibility is concerned with whether the organization has the resources required to implement the strategy. have to be vetted and screened by an organization. threat (SWOT) analysis. Segmentation. in which products are tailored for the unique needs of a specific market.An environmental scan will highlight all pertinent aspects that affect an organization. instead of trying to serve all consumers. These pertain to: The basis of competition Companies derive competitive advantage from how an organization produces its products. Specific approaches may include: • • • Differentiation. in addition to areas in which expansion may be unwise. weakness. people. Resources include capital. feasibility and acceptability of an option. opportunity. how it acts within a market relative to its competitors. Cost. in which products compete by offering a unique combination of features. in which products compete to offer an acceptable list of features at the lowest possible cost. once identified. These options. Evaluation tools include : • • • cash flow analysis and forecasting break-even analysis resource deployment analysis this has to be inline with demand forecasting. the actual modes of progress have to be determined. Acceptability . • • • Does the strategy address the mission? Does it reflect the organization's capabilities? Does it make economic sense? Evaluation tools include strength.
Change management . etc. divestment to another firm. Resourcing Implementation may require significant budget shifts. Employees are particularly likely to have concerns about non-financial issues such as working conditions and outsourcing. those that don't must also be addressed. such as creating new units. Evaluation tools include: • • what-if analysis stakeholder mapping Implementation While products and services that fit the strategy may receive additional investment.Acceptability is concerned with the expectations of the identified stakeholders (shareholders. impacting human resources and capital expenditure. the exact means of implementing a strategy needs to be considered. Risk deals with the probability and consequences of failure. Organizing Implementing a strategy may require organizational changes. These points range from: • • • Alliances with other firms to fill capability/technology/legal gaps Investment in internal development Mergers/acquisitions of products or firms to reduce time to market Countries such as India and China require market entrants to operate via partnerships with local firms. Return deals with stakeholder benefits. employees and customers. resourcing and employing change management procedures. Strategic implementation and control Implementing a strategy involves organising. either via consolidation with another product/service. Additionally. Organizing also involves bringing together factors and arranging them in the preferred order and also setting things straight.) with the expected financial and non-financial outcomes. immediate retirement or harvesting without further investment. merging existing ones or even switching from a geographical structure to a functional one or vice versa.
the business environment including technology. Processual With the advent of stagflation in the 1970s. rising oil prices.[clarification needed] For some firms. which is a visual representation of strategy measured against the level of understanding and implementation of various parts of the organization. while not optimal for a particular environment. in which firms in an industry are seen akin to a population of animals. Evolutionary approaches. etc. Evolutionary Evolutionary strategic management attempts to accelerate strategy development by breaking it into multiple smaller changes. conflict and contention. with ongoing review enabling more rapid adjustments to the original plan. focused on measuring strategic alignment of organizations. A major facet of evolutionary strategic management is a population ecology model. a spin-off of this cooperation. a rational approach (as per the classical school) could not be implemented without acknowledgment and incorporation of different and disparate viewpoints. They have in common responsiveness to factors other than the profit maximization and market position goals of the classic approach. rising trade union actions in some countries. Processual strategic management incorporates steps to manage/resolve such conflicts via negotiation and compromise. Processual strategic management also emphasised negotiation since business environments became enriched with disagreement. Alignment In 2010 the Rotterdam School of Management together with the Erasmus School of Economics introduced the S-ray Alignment Scan. In this context. coupled with the emergence of Information and Communications Technology into mainstream business operations and society . In 2011 Erasmus University of Rotterdam introduced S-ray Diagnostics..Implementing a strategy may have effects that ripple across an organization. Whittington's perspectives Whittington outlined three other approaches to strategic management thinking. Minimizing disruption can reduce costs and save time. Objections by other stakeholders could obstruct or even prevent implementation. allowed the organization greater flexibility to adapt to unexpected change. finance and regulation change too quickly and unpredictably for multi-year planning processes to address effectively. strategy development began to explicitly consider stakeholders other than the firm's executives. One approach is to appoint an individual to champion the changes. The evolutionary school became prominent in the 1980s. address and eventually enlist opponents and proactively identify and mitigate problems. widescale regional conflicts.
In it. given increases in consumer power. employees submit proposals to their managers who funnel the best ideas up the ladder. but "adapt or die" in an almost Darwinian sense. and the application of zoologically-derived population ecology models to business environments. The aforecited perspectives also highlight how the business environment has morphed over several decades. Proposals are assessed using financial criteria such as return on investment or cost-benefit analysis. . The Industrial Organizational approach is based on economic theory and deals with issues such as competition. satisficing behaviour and lower profits. Contemporary aspects such as Corporate Social Responsibility rest on this strategic paradigm. and greater applications of consumer power. the CEO and the Board of Directors. Due to the rise of a more complex business environment. and global events such as the end of the Cold War. accounting for its internal and external environment. The school is termed 'evolutionary' with respect to its resemblance to classical Darwinian theory. awareness and expectations. Whittington's perspectives are founded on altering environmental factors and circumstances. It assumes rationality and targets profit maximization. This is often part of a capital budgeting process. firms could not afford to plan rationally.at large. In the bottom-up approach. An example of the second approach is Google. The systemic approach involves explicitly considering social forces beyond the organization and its markets and competitors. It must thus appraise the best method available to co-ordinate its activities and produce value in its given situation. The top-down approach is the most common by far. The Sociological Approach deals primarily with human interactions and assumes bounded rationality. General approaches The two main approaches are opposite but complement each other. as an organisation can only make strategy pertinent to its given context and needs. top-down. resource allocation and economies of scale. The strategy flows down through the organization as each unit adapts to the new approach. Strategic management can be viewed as bottom-up. It also stresses that a rational approach cannot always be followed. which impact on how managers can devise strategic paths for their organisations. Incorrect estimates of costs and benefits are common errors. Systemic Systemic strategy views the organisation as an open system. The systemic school rests on greater consumer awareness. Approved proposals implicitly form the substance of the strategy without a strategic design or architect. from a simple/static environment in the 1950s/60s to a complex and highly changing model at the turn of the century. or collaborative. decides on the overall direction the company should take. These points are crucial. taking inputs from society as well as impacting it.
Corporate strategy answers the questions. Functional strategies are specific to a functional area. supply-chain and information technology. Functional strategies are derived from and must comply with broader corporate strategies. functional and operational levels. The emphasis is on short and medium term plans. legal. Simulation gaming is a tool for thinking through the ramifications of a particular strategy. product development. "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 is the corporate strategy of single firm or a strategic business unit (SBU) in a diversified corporation. Defining an operational strategy was encouraged by Peter Drucker. The strategy hierarchy Most corporations have multiple levels of management. Historical development of strategic management Origin The strategic management discipline originated in the 1950s and 1960s. Alfred Chandler recognized the importance of coordinating management activity under an allencompassing strategy. It is felt that knowledge management systems should be used to share information and create common goals. This work builds on that of Brown and Eisenhart as well as Christensen and portrays strategic management as the seamless integration of strategy formulation and implementation. the most influential were Alfred Chandler. popularized by Carpenter and Sanders. Interactions between functions were typically handled by managers who relayed information back and forth between departments. and Peter Drucker. human resources. This notion of strategy has been captured under the rubric of dynamic strategy. business. Strategic management can occur at corporate. finance. Generalized games allow employees to experiment with an unfamiliar environment and try out ways to make decisions in accord with the strategy.Some organizations employ collaborative techniques that surface new ideas in the process leveraging advances in information technology. Chandler stressed the importance of . It deals with operational activities such as scheduling criteria. Among the numerous early contributors. such as marketing. Philip Selznick. Igor Ansoff. Functional games create problematic situations and enable employees to explore ways to address them. Strategic divisions are thought to hamper this process. The discipline draws from earlier thinking and texts on 'strategy' dating back thousands of years.
He says it concisely. product development. He developed a grid that compared strategies for market penetration. In his 1962 ground breaking work Strategy and Structure. market development and horizontal and vertical integration and diversification. and individual business strategies. he developed gap analysis to clarify the gap between the current reality and the goals and to develop what he called “gap reducing actions”. W. Strategy theorist Michael Porter argued that strategy target either cost leadership.” In 1957. . Chandler showed that a long-term coordinated strategy was necessary to give a company structure. This evolved into his theory of management by objectives (MBO). direction and focus. Peter Drucker was a prolific strategy theorist. and others at the Harvard Business School General Management Group. Strategic management affects the entire organization by providing direction. These are known as Porter's three generic strategies and can be applied to any size or form of business. 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. Change creates novel combinations of circumstances requiring unstructured non-repetitive responses. the procedure of setting objectives and monitoring progress towards them should permeate the entire organization. Strategic management is done at several levels: overall corporate strategy. Strengths and weaknesses of the firm are assessed in light of the opportunities and threats in the business environment. Chan Kim and Renée Mauborgne countered that an organization can achieve high growth and profits by creating a Blue Ocean Strategy that breaks the trade off by pursuing both differentiation and low cost. Strategic management is fluid and complex. Igor Ansoff built on Chandler's work by adding concepts and inventing a vocabulary.taking a long term perspective when looking to the future. He felt that management could use the grid to systematically prepare for the future. differentiation. Philip Selznick formalized the idea of matching the organization's internal factors with external environmental circumstances. Kenneth R. with a career spanning five decades. “structure follows strategy. This core idea was developed into what we now call SWOT analysis by Learned. author of dozens of management books. Porter claimed that a company must only choose one of the three or risk that the business would waste precious resources. Strategic management is partially planned and partially unplanned. or focus. Andrews. In 1985. He stressed the value of managing by targeting well-defined objectives. According to Drucker. In his 1965 classic Corporate Strategy. Strategic management involves both strategy formation (she called it content) and also strategy implementation (she called it process).
In the 1970s marketers extended the theory to product portfolio decisions and managerial strategists extended it to operating division portfolios. The management of diversified organizations required additional techniques and ways of thinking. This was sometimes called the “hole in the middle” problem. It started at General Electric. They concluded that a broad portfolio of financial assets could reduce specific risk.G. objectives and strategies. Their initial conclusion was unambiguous: the greater a company's market share.• Strategic management involves both conceptual and analytical thought processes. Each operating division was treated as a semi-independent profit center with its own revenues. and then moved to the Strategic Planning Institute in the late 1970s. Growth and portfolio theory In the 1970s much of strategic management dealt with size. the greater their rate of profit. Market share provides economies of scale. Woo and Cooper (1982). diversification. In the previous decade Harry Markowitz and other financial theorists developed modern portfolio theory. B. Levenson (1984). vertical integration. and later Traverso (2002) showed how smaller niche players obtained very high returns. 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. Analysis. mergers and acquisitions. Other research indicated that a low market share strategy could still be very profitable. and portfolio theory. particularly the effect of market share. moved to Harvard in the early 1970s. The first CEO to address the problem of a multi-divisional company was Alfred Sloan at General Motors. 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. The relative advantages of horizontal integration. franchises. Shortly after that the G. The benefits of high market share naturally led to an interest in growth strategies. for example. Schumacher (1973). The long-term PIMS study. multi factoral model was developed by General Electric. started in the 1960s and lasting for 19 years. with centralized support functions. It also provides experience curve advantages. Each of a company’s operating divisions were seen as an element in the firm's portfolio. Move from sales focus to marketing . Several techniques were developed to analyze the relationships between elements in a portfolio. One of the most valuable concepts in the strategic management of multi-divisional companies was portfolio theory. joint ventures and organic growth were discussed. The combined effect is increased profits. attempted to understand the Profit Impact of Marketing Strategies (PIMS). growth. Porter explained this anomaly in the 1980s.E. was developed by the Boston Consulting Group in the early 1970s. It now contains decades of information on the relationship between profitability and strategy. costs. GM employed semi-autonomous “strategic business units” (SBU's).C.
customer orientation.[who?] In the early 1970s Theodore Levitt and others at Harvard argued that the sales orientation had things backward. The 1980s and early 1990s produced theories explaining exactly how this could be done. K. They claimed that instead of producing products then trying to sell them to the customer.S. From the beginnings of capitalism it was assumed that the key requirement of business success was a product of high technical quality. 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 U. Prahalad declared that strategy needs to be more active and interactive. If you produced a product that worked well and was durable. This was called the production orientation. AT&T Corporation. Department of Justice (DOJ).S. The Japanese challenge In 2009. Their most well known advance was the idea of core . companies. Gary Hamel and C. customer focus. manufacturing economy. which resulted in the compulsory licensing of tens of thousands of patent from some of America's leading companies. businesses should start with the customer. it was assumed you would have no difficulty profiting. Between 1950 and 1980 Japanese companies consummated more than 35. Federal Trade Commission (FTC) and U.000 foreign licensing agreements. unprecedented rise in Japanese competitiveness and a simultaneous stalling of the U. the FTC settled its anti-trust lawsuit against Xerox Corporation. copier market dropped from nearly 100% to less than 14%. and then produce it for them. mostly with U. The 1950s and 1960s was described as the "sales era". has been reformulated and repackaged under names including market orientation. Scherer. The post-1975 era of anti-trust initiatives by Washington D. Bausch & Lomb and Eastman Kodak. less “arm-chair planning” was needed. Within four years of the consent decree. customer-driven and market focus. In 1975. This marketing concept. DuPont. customer intimacy. but detailed comparisons of the two management styles and examinations of successful businesses convinced westerners that they could overcome the threat. The consent decree forced the licensing of the company’s entire patent portfolio. economists at the FTC corresponded directly with the rapid. under the direction of Frederic M. The customer became the driving force behind all strategic business decisions.S. Its guiding philosophy of business is today called the "sales orientation". This action marked the start of an activist approach to managing competition by FTC and DOJ. find out what they wanted.S.C. for free or low-cost licenses made possible by the FTC and DOJ. Xerox's share of the U.  Competitive advantage See also: Competitive advantage Japanese successes shook the confidence of the western business elite. including IBM. in the decades since its introduction. mainly to Japanese competitors. They cannot all be detailed here. but some of the more important strategic advances of the decade are explained below.The 1970s also saw the rise of the marketing oriented firm.S.
Several techniques enabled the practical use of positioning theory. where the value added is the difference between the market value of outputs and the cost of inputs including capital. Kay claimed that the role of strategic management is to identify core competencies. reputation and organizational structure. customers. product differentiation strategies. which originated at Honda. He also challenged managers to see their industry in terms of a value chain. factor analysis and conjoint analysis are mathematical techniques used to determine the most relevant characteristics (called . Multidimensional scaling. In 1993. Although the theory originated with Jack Trout in 1969. it in turn follows industry structure. Although he did not introduce these terms. He introduced many new concepts including. Porter modifies Chandler's dictum about structure following strategy by introducing a second level of structure: while organizational structure follows strategy. Senior HP managers were seldom at their desks. In the early days of Hewlett-Packard (HP). John Kay expressed the value chain concept in financial terms. innovation. Active strategic management required active information gathering and active problem solving. creates visual displays of the relationships between positions. strategic groups and clusters. This direct contact with key people provided them with a solid grounding from which viable strategies could be crafted. discriminant analysis. Waterman had used the term in their 1982 book In Search of Excellence: lessons from America's best-run companies.competency. and then assemble assets that will increase value added and provide a competitive advantage. Dave Packard and Bill Hewlett devised an active management style that they called management by walking around (MBWA). letting others go. It is like a SWOT analysis with structure and purpose. Porter's generic strategies detail the interaction between cost minimization strategies. management consultants Tom Peters and Robert H. and market focus strategies. He claimed that there are 3 types of capabilities that can do this. It shows how a firm can use these forces to obtain a sustainable competitive advantage. and is sometimes called the 3 G's (Genba. Crafting and implementing a strategy involves creating a position in the mind of the collective consumer. Probably the most influential strategist of the decade was Michael Porter. it didn’t gain wide acceptance until Al Ries and Jack Trout wrote their classic book “Positioning: The Battle For Your Mind” (1979). generic strategies. the value chain. and Genjitsu. They spent most of their days visiting employees. which translate into “actual place”. In 5 forces analysis he identified the forces that shape the strategic environment. all divided by the firm's net output. “actual thing”. Some Japanese managers employ a similar system. and “actual situation”). he showed the importance of choosing one of them rather than trying to position your company between them. and suppliers. 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. This forced management to look at its operations from the customer's point of view. Genbutsu. claiming “Adding value is the central purpose of business activity”. Perceptual mapping for example. A firm will be successful only to the extent that it contributes to its industry's value chain. 5 forces analysis. the idea that each organization has some functional area in which it excels and that the business should focus on opportunities in that area. The 1980s also saw the widespread acceptance of positioning theory. Borrowing from Hamel and Porter.
lean manufacturing. felt that poor customer service was the problem. 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 service profit chain. Earl Sasser (1995). This avoided functional silos where isolated departments seldom talked to each other. Process management uses some of the techniques from product quality management and some of the techniques from customer service management. Preference regression can be used to determine vectors of ideal positions and cluster analysis can identify clusters of positions. This involves determining where you need to improve. service gaps analysis. A large group of theorists felt the area where western business was most lacking was product quality. Philip Crosby and Armand Feignbaum suggested quality improvement techniques such total quality management (TQM). Len Berry. Their underlying assumption was that there is no better source of competitive advantage than a continuous stream of delighted customers. Six Sigma. and then configuring them in unique and sustainable ways. quality. James Heskett (1988). from inception to completion. It looks at an activity as a sequential process. then studying the company and applying its best practices in your firm. A. The seven areas of best practice were: • • • • • • • Simultaneous continuous improvement in cost. Total Customer Service (TCS). service charting. strategic service vision. the service encounter. service. Edwards Deming. In a process that they labeled reengineering. including human. William Davidow. . Kearney. Joseph M. Len Schlesinger. and return on quality (ROQ). firm's reorganized their assets around whole processes rather than tasks. They gave us fishbone diagramming. and product innovation Breaking down organizational barriers between departments Eliminating layers of management creating flatter organizational hierarchies. In 1992 Jay Barney saw strategy as assembling the optimum mix of resources. Paraurgman (1988). Michael Hammer and James Champy felt that these resources needed to be restructured. 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. A. and service teams. and Christopher Lovelock (1994). technology and suppliers. It also eliminated waste due to functional overlap and interdepartmental communications. Christopher Hart.dimensions or factors) upon which positions should be based. Contrarily. W. finding an organization that is exceptional in this area. service mapping. continuous improvement (kaizen). Juran. Jane Kingman-Brundage. In this way a team of people saw a project through.
Customer relationship management (CRM) software became integral to many firms. 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. Carl Sewell. Reicheld broadened the concept to include loyalty from employees. They also realized that if a service is mass-customized by creating a “performance” for each individual client. This effectively turned the product into a service. Because of the broad applicability of process management techniques. vision. Their book. dating back to Taylorism. He identified four key traits of companies that had prospered for 50 years or more. Even though strategy and tactics change daily. Flexible manufacturing techniques allowed businesses to individualize products for each customer without losing economies of scale. It describes a business culture where technological change inhibits a long term focus. and Earl Sasser observed that businesses were spending more on customer acquisition than on retention. The concepts begat attempts to recast selling and marketing into a long term endeavor that created a sustained relationship (called relationship selling. In Built To Last (1994) they claim that short term profit goals. that service would be transformed into an “experience”. These core values encourage employees to build an organization that lasts. were able to maintain a core set of values. This school of thought is sometimes referred to as customer experience management (CEM). and purpose Tolerance and decentralization — the ability to build relationships Conservative financing . relationship marketing. C. He also popularized the concept of the BHAG (Big Hairy Audacious Goal). distributors and shareholders. the scope of their applicability has been greatly widened. cost cutting. leaving no aspect of the firm free from potential process improvements. nevertheless. They are: • • • • Sensitivity to the business environment — the ability to learn and adjust Cohesion and identity — the ability to build a community with personality. Gronroos. Like Peters and Waterman a decade earlier. In 2000 Collins coined the term “built to flip” to describe the prevailing business attitudes in Silicon Valley. James Collins and Jerry Porras spent years conducting empirical research on what makes great companies. and customer relationship management). Although the procedures have a long history. they can be used as a basis for competitive advantage. Reichheld. and restructuring will not stimulate dedicated employees to build a great company that will endure. The Experience Economy. along with the work of Bernd Schmitt convinced many to see service provision as a form of theatre. the companies. Arie de Geus (1997) undertook a similar study and obtained similar results.The objective is to find inefficiencies and make the process more effective. Frederick F. suppliers. They showed how a competitive advantage could be found in ensuring that customers returned again and again. James Gilmore and Joseph Pine found competitive advantage in mass customization. They developed techniques for estimating customer lifetime value (CLV) for assessing long-term relationships.
They turned to military strategy for guidance. "The Strategy of the Dolphin” was developed to give guidance as to when to use aggressive strategies and when to use passive strategies. • Military strategy In the 1980s business strategists realized that there was a vast knowledge base stretching back thousands of years that they had barely examined. Will Mulcaster suggests that firms engage in a dialogue that centres around these questions: • • • Will the proposed competitive advantage create Perceived Differential Value?" 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. From Sun Tzu. If a company emphasizes knowledge rather than finance. goals. and sees itself as an ongoing community of human beings. On War by von Clausewitz. Military strategy books such as The Art of War by Sun Tzu. From Mao. and persona. intelligence gathering. In 1989. logistics and communications. Marketing Warfare by Al Ries and Jack Trout and Leadership Secrets of Attila the Hun by Wess Roberts. Will the product add value for the firm?" – Answering this question will require an examination of cost effectiveness and the pricing strategy. they learned the tactical side of military strategy and specific tactical prescriptions. they learned the dynamic and unpredictable nature of military action. Dudley Lynch and Paul L.A company with these key characteristics he called a living company because it is able to perpetuate itself. By the twenty-first century marketing warfare strategies had gone out of favour in favor of nonconfrontational approaches. product features and consumer perceptions. . The four types of business warfare theories are: • • • • Offensive marketing warfare strategies Defensive marketing warfare strategies Flanking marketing warfare strategies Guerrilla marketing warfare strategies The marketing warfare literature also examined leadership and motivation. types of marketing weapons. they learned the principles of guerrilla warfare. Kordis published Strategy of the Dolphin: Scoring a Win in a Chaotic World. Important marketing warfare books include Business War Games by Barrie James. From von Clausewitz. Such an organization is an organic entity capable of learning (he called it a “learning organization”) and capable of creating its own processes. A variety of aggressiveness strategies were developed. it has the potential to become great and endure for decades. and The Red Book by Mao Zedong became business classics.
But these periods of stability had all but disappeared by the late 20th century. 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). 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. he could not point to one process that could be called strategic planning. In 1980 in The Third Wave. They said we have a tendency to dismiss new ideas. and hampers our dealing with the full complexity of new issues. a sort of Darwinian management strategy in which market interactions mimic long term ecological stability. He illustrated how social and technical phenomena had shorter lifespans with each generation. In an age of continuity attempts to predict the future by extrapolating from the past can be accurate. 1978) described "strategic windows" and stressed the importance of the timing (both entrance and exit) of any given strategy. He developed a systematic method of dealing with change that involved looking at any new issue from three angles: technical and production. Moore used a similar metaphor. he created an ecological theory of predators and prey(see ecological model of competition). In 1983. Noel Tichy wrote that because we are all beings of habit we tend to repeat what we are comfortable with. guide. D.In 1993. and he questioned society's ability to cope with the resulting turmoil and accompanying anxiety. But according to Drucker. Alvin Toffler in Future Shock described a trend towards accelerating rates of change. Peters and Austin (1985) stressed the importance of nurturing champions and heroes. Strategic change In 1969. political and resource allocation. Because of this. In 1970. Peter Drucker coined the phrase Age of Discontinuity to describe the way change disrupts lives. we are now in an age of discontinuity and extrapolating is ineffective. He wrote that this is a trap that constrains our creativity. so to overcome this. In 1988. and corporate culture. J. Henry Mintzberg looked at the changing world around him and decided it was time to reexamine how strategic management was done. Instead of using military terms. He identifies four sources of discontinuity: new technologies. prevents us from exploring new ideas. This allowed society to assimilate the change before the next change arrived. course of action – intention rather than actual Strategy as ploy – a maneuver intended to outwit a competitor . This led some strategic planners to build planned obsolescence into their strategies. Instead Mintzberg concludes that there are five types of strategies: • • Strategy as plan – a direction. cultural pluralism and knowledge capital. He examined the strategic process and concluded it was much more fluid and unpredictable than people had thought. In past eras periods of change were always punctuated with times of stability. globalization. In 1978. Dereck Abell (Abell.
the formal planning. Adrian Slywotzky showed how changes in the business environment are reflected in value migrations between industries. "Strategic drift" is a gradual change that occurs so subtly that it is not noticed until it is too late. visionary. "transformational change" is sudden and radical. a hybrid of the other schools organized into stages. The second group. negotiation. The third and final group consists of one school. rather than prescribing optimal plans or positions. Richard Pascale (Pascale. i. organizational life cycles. . and analytical positioning. and within companies. In 1990. between companies. The first group is normative. Mintzberg developed these five types of management strategy into 10 “schools of thought” and grouped them into three categories. By contrast. or “episodes”. The point where a new trend is initiated is called a "strategic inflection point" by Andy Grove. In “Profit Patterns” (1999) he described businesses as being in a state of strategic anticipation as they try to spot emerging patterns. R. He called the approach to discovering the emerging markets for disruptive technologies agnostic marketing. 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. Charles Handy identified two types of change. It is typically caused by discontinuities (or exogenous shocks) in the business environment. We tend to depend on what worked yesterday and refuse to let go of what worked so well for us in the past. In 1996. consisting of six schools. His famous maxim is “Nothing fails like success” by which he means that what was a strength yesterday becomes the root of weakness today. products.• • Strategy as pattern – a consistent pattern of past behaviour – realized rather than intended Strategy as position – locating of brands. Clayton Christensen (1997) took the position that great companies can fail precisely because they do everything right since the capabilities of the organization also define its disabilities. marketing under the implicit assumption that no one – not the company. They must encourage a creative process of self-renewal based on constructive conflict. corporate culture and business environment. is more concerned with how strategic management is actually done. He claimed that recognizing the patterns behind these value migrations is necessary if we wish to understand the world of chaotic change. Christensen's thesis is that outstanding companies lose their market leadership when confronted with disruptive technology. learning/adaptive/emergent. It consists of the schools of informal design and conception. To avoid this trap. the configuration or transformation school. not the customers – can know how or in what quantities a disruptive product can or will be used without the experience of using it. Prevailing strategies become self-confirming.. In 1989.e. 1990) wrote that relentless change requires that businesses continuously reinvent themselves. In 1997. Inflection points can be subtle or radical. Slywotsky and his team identified 30 patterns that have transformed industry after industry. businesses must stimulate a spirit of inquiry and healthy debate. cognitive. The six schools are entrepreneurial.
and reconfigure internal and external competencies to address rapidly changing environments". however the profitability of what he called “information float” (information that the company had and others desired) would disappear as inexpensive computers made information more accessible. In 1984. A number of strategists use scenario planning techniques to deal with change. According to Pierre Wack. Strategic management is planned and emergent. integrated process requiring continuous reassessment and reformation. build. His 1997 paper (with Gary Pisano and Amy Shuen) "Dynamic Capabilities and Strategic Management" was the most cited paper in economics and business for the period from 1995 to 2005. Moncrieff (1999) stressed strategy dynamics. Information. . J. the notion that the value of every strategy. It involves multiple agents interacting in such a way that a glimpse of structure may appear. He claimed that strategy is partially deliberate and partially unplanned. Complexity is not quite so unpredictable. complexity. John Naisbitt theorized that the future would be driven largely by information: companies that managed information well could obtain an advantage. 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. scenario planning is about insight. never-ending.and technology-driven strategy Peter Drucker conceived of the “knowledge worker” in the 1950s. Some business planners are starting to use a complexity theory approach to strategy. that point where a trend or fad acquires critical mass and takes off. Chaos theory deals with turbulent systems that rapidly become disordered.In 1999. In 2000. Instead. He described how fewer workers would do physical labor. He described strategy formation and implementation as an on-going. Gary Hamel discussed strategic decay. and subtlety. David Teece pioneered research on resource-based strategic management and the dynamic capabilities perspective. Constantinos Markides reexamined the nature of strategic planning. decays over time. scenario planning is a technique in which multiple outcomes can be developed. and their likeliness of occurrence evaluated. no matter how brilliant. not about formal analysis and numbers. their implications assessed. The unplanned element comes from emergent strategies that result from the emergence of opportunities and threats in the environment and from "strategies in action" (ad hoc actions across the organization). Malcolm Gladwell discussed the importance of the tipping point. The fast changing business environment is too uncertain for us to find sustainable value in formulas of excellence or competitive advantage. defined as “the ability to integrate. Complexity can be thought of as chaos with a dash of order. dynamic and interactive. and more would apply their minds. In 2000.
Mental models — We need to explore our personal mental models to understand the subtle effect they have on our behaviour. It is the glue that integrates the other four into a coherent strategy. This involves a shift from “a spirit of advocacy to a spirit of enquiry”. Examples include Internet Explorer's and Amazon's early dominance of their respective industries. Zuboff distinguished between “automating technologies” and “infomating technologies”. In 1990. When a problem needs to be fixed. She largely confirmed Drucker's predictions about the importance of flexible decentralized structure. This is what Senge calls the “Fifth discipline”. Zuboff also detected a new basis for managerial authority. . B. we take the initiative to learn the required skills to get it done. while Gloria Schuck and Shoshana Zuboff looked at psychological factors. Cook also detected a shift in the nature of competition. New patterns of thinking are nurtured. (1987). Markets driven by technical standards or by "network effects" can give the dominant firm a near-monopoly. Collective aspirations are encouraged. It provides guidance and energy for the journey ahead. IE's later decline shows that such dominance may be only temporary. based on knowledge (also predicted by Drucker) which she called “participative management”. They are: • • • • • Personal responsibility. or an opportunity exploited. Geoffrey Moore (1991) and R. see Garratt. and mastery — We accept that we are the masters of our own destiny. Systems thinking — We look at the whole rather than the parts. Team learning — We learn together in teams. Senge claimed that an organization would need to be structured such that: • • • • People can continuously expand their capacity to learn and be productive. Senge identified five disciplines of a learning organization. We make decisions and live with the consequences of them. (See organizational learning.Daniel Bell (1985) examined the sociological consequences of information technology. self-reliance. People are encouraged to see the “whole picture” together. The theory is that gathering and analyzing information is a necessary requirement for business success in the information age. Shared vision — The vision of where we want to be in the future is discussed and communicated to all. popularized de Geus' notion of the "learning organization". For an alternative approach to the “learning organization”. work teams. The same is true of networked industries in which interoperability requires compatibility between users. knowledge sharing and the knowledge worker's central role. managers and organizational structures. who had collaborated with Arie de Geus at Dutch Shell. Peter Senge. She studied the effect that both had on workers.) To do this. Frank and P.
It transcends the capacity of merely intellectual methods. “proportion”. “balance”. 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. Politics.” In 1973. organizational development. Bernard says “The process is the sensing of the organization as a whole and the total situation relevant to it. and the techniques of discriminating the factors of the situation. using each group as a base for reaching the next group. The manager works in an environment of stimulous-response. Adding value. Information systems allow managers to take a much more analytical view of their business than before. Opposing forces. For instance. It is a matter of art rather than science. “judgement”. and he develops in his work a clear preference for live action. Perception. One such system is the balanced scorecard. Mintzberg found that senior managers typically deal with unpredictable situations so they strategize in ad hoc. It measures financial. The most difficult step is making the transition between introduction and mass acceptance. Holistic effects. too little work has been done on what influences the quality of strategic decision making and the effectiveness with which strategies are implemented. (See Crossing the Chasm). and implicit ways. Rogers' five stage adoption process and focusing on one group of customers at a time. production. Strategic decision making processes Will Mulcaster argued that while much research and creative thought has been devoted to generating alternative strategies. Encarta demolished Encyclopædia Britannica (whose sales have plummeted 80% since their peak of $650 million in 1990) before it was in turn. “The job breeds adaptive information-manipulators who prefer the live concrete situation. Non-strategic management A 1938 treatise by Chester Barnard. The technology sector has provided some strategies directly. flexible.M.” . The 11 forces are: Time. 2-way communications. For example. described the process as informal. Many industries with a high information component are being transformed. from the software development industry agile software development provides a model for shared development processes. Learning capabilities. Risk and Style.Moore showed how firms could attain this enviable position by using E. based on his own experience as a business executive. marketing. The music industry was similarly disrupted. If successful a firm can create a bandwagon effect in which the momentum builds and its product becomes a de facto standard. “appropriateness”. non-routinized and involving primarily oral. For example. Opportunity cost. He wrote. and new product development factors to achieve a 'balanced' perspective. eclipsed by collaborative encyclopedias like Wikipedia. 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 terms pertinent to it are “feeling”. dynamic. Incentives. “sense”. intuitive.
encoding information. It is used worldwide in selecting and developing people for strategic roles. Dr Maretha Prinsloo developed the Cognitive Process Profile (CPP) psychometric from the work of Elliott Jacques. but as computers facilitated (She called it “deskilled”) routine processes. But in the world where strategies must be implemented. The model identifies two parallel processes that involve getting attention. The CPP is a computer based psychometric which profiles a person's capacity for strategic thinking. Kinichi. even at the most senior level. They developed a model of parallel strategic decision making. He described leaders as visionaries who inspire. Limitations of strategic management In 2000. He claimed in 1986 that one of the reasons for this is the complexity of strategic decisions and the resultant information uncertainty. competition-oriented objectives are based on the knowledge of competing firms. According to Corner. Executives often sensed what they were going to do before they could explain why. (There will usually be only a small number of approaches that will not only be . strategic decision making in organizations occurs at two levels: individual and aggregate. 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. The individual and organizational processes interact at each stage. He claimed that the rise of managers was the main cause of the decline of American business in the 1970s and 1980s. storage and retrieval of information. while managers care about process. leaving senior management free for strategic decision making. the three elements are interdependent. managers. and Keats. Gary Hamel coined the term strategic convergence to explain the limited scope of the strategies being used by rivals in greatly differing circumstances. strategic outcome and feedback. Zuboff claimed that information technology was widening the divide between senior managers (who typically make strategic decisions) and operational level managers (who typically make routine decisions). Lack of leadership is most damaging at the level of strategic management where it can paralyze an entire organization. For instance. She alleged that prior to the widespread use of computer systems. such as their market share. The objectives that an organization might wish to pursue are limited by the range of feasible approaches to implementation. They tended to use “mental road maps” rather than systematic planning techniques.In 1982. strategic choice. these activities were moved further down the hierarchy. Daniel Isenberg's 1984 study of senior managers found that their decisions were highly intuitive. Abraham Zaleznik distinguished leaders from managers. engaged in both strategic decisions and routine administration. In 1977. He lamented that successful strategies are imitated by firms that do not understand that for a strategy for the specifics of each situation. Means are as likely to determine ends as ends are to determine means.
implementation and resources. issues too complex to be fully understood." Strategies must be able to adjust during implementation because "humans rarely can proceed satisfactorily except by learning from experience. but also satisfactory to the full range of organizational stakeholders.. I. given the fact that actions initiated on the basis of inadequate understanding may lead to significant regret?" Some theorists insist on an iterative approach. Another critique of strategic management is that it can overly constrains managerial discretion in a dynamic environment. usually are the best method for such learning. "Creative" vs analytic approaches In 2010. including strategic thinking and planning.repetitive learning cycle [rather than] a linear progression towards a clearly defined final destination. IBM released a study summarizing three conclusions of 1500 CEOs around the world: 1) complexity is escalating. .. and 3) creativity is now the single most important leadership competency. "How can individuals.. Mckeown argued that over-reliance on any particular approach to strategy is dangerous and that multiple methods can be used to combine the creativity and analytics to create an "approach to shaping the future". Strategy should be seen as laying out the general path rather than precise steps.) In turn.e. Similarly. IBM said that it is needed in all aspects of leadership. 2) enterprises are not equipped to cope with this complexity... considering in turn objectives. organizations and societies cope as well as possible with ." Woodhouse and Collins claim that the essence of being “strategic” lies in a capacity for "intelligent trial-and error" rather than strict adherence to finely-honed strategic plans.technically and administratively possible. and modest probes. a ". serially modified on the basis of feedback. that is difficult to copy. the range of feasible implementation approaches is determined by the availability of resources.
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