Current Trends in Strategic Management

OUTLIN E
The New Economy

New Directions in Strategic Thinking

Redesigning the Organization New Modes of Leadership

The Turbulent 21st Century

Collapse of New Economy
Dot.com bubble bursts TMT recession

Corporate Scandals
Enron, WorldCom, Parmalat Jack Welchs retirement package

International competition intensifies

China as Workshop of the World Outsourcing to LDCs

War
Invasion of Afghanistan & Iraq Civil wars in Congo, Liberia, Sudan, Somalia

The Curse of Terrorism Sept. 11, 2001

Suicide bombings in Israel, Iraq, Saudi Arabia, Turkey, Afghanistan

Decline of Multilateralism

Collapse of Doha round Trade wars between US, EU, China Weakening of UN

Age of Disbelief

Unstable Currencies

Fear of Disease
SARS, Mad Cow, Bird Flu

US$ declines by >50% against Euro 2002-04

Directions in Strategic Management PracticeTrends of the 1990s

Key Trends of the 1990s:
Quest for shareholder value Adjusting to increased turbulence & more intense competition

Major Themes of Business Strategy:

Cost cuttingsqueezing overhead, business process reengineering, increasing labor productivity Outsourcing/refocusing/ divestment Performance management and incentive alignment

Influential Strategy Concepts:

Modern financial analysis shareholder value, economic profit, option theory Core competences and intangible assets Dynamically competitive markets hypercompetition Competitive advantage through alliances, networks, and standards

Forces Shaping Company Strategies 2001-04

Future Sources of Profit
Limits of downsizing/cost cutting Where are future sources of profit?

The Business Environment

Uncertainty Stalling of economic liberalization Intense competition

Concepts & Theories

Technology Resources & capabilities as Continued advances in ICT basis for competitive advantage Knowledge-based theory of the firm Demands of society Option theory Social & environmental responsibility Complexity theory Ethics & fairness Quest for meaning

Emerging Developments
STRATEGY
Multiple competitive advantages/multiple capabilities Innovation / New Product Development / New Business Development Alliances & networks

MANAGEMENT SYSTEMS Knowledge management

(incl. best-practice transfer) Redesigning incentive systems Rethinking performance management Capturing human creativity

ORGANIZATION STRUCTURE
Reconciling flexibility & integration Modular structures Multidimensional structures Informal organization & self-organization

The Need to Redesign Organizations

THE PAST THE FUTURE

Emphasis on control
Single performance goal

Emphasis on co-ordination
Multiple performance goals

Decisions located centrally

Simple structures, unified line of command

Decisions located where relevant knowledge exists

Multidimensional structures Diffused authority, but clear responsibilities Self organization

Organization by design

Emerging Organizational Forms

Organizing for capability development From unitary to parallel structures Shifting emphasis of organization design from control to coordination Separate coordination structures for different processes. E.g. 3Ms product development structure; separate structures for TQM and change management Organizing around business processes Organizing around corporate processes - entrepreneurial process - competence building process - renewal process E.g. engineering cos., consulting firms, also manufacturing cos. e.g. Oticon E.g. electronics in Silicon Valley, clothing and packaging equipment in Italy

Process-based organizations

Project-based organization

Network and virtual organization

New Models of Leadership: What Competencies do Top Managers Need?

THE LEADERSHIP NEEDS OF ORGANIZATIONS The ability to: THE REQUIRED COMPETENCIES OF BUSINESS LEADERS business literacy creativity cross-cultural effectiveness empathy flexibility proactivity problem-solving relation-building teamwork vision

build confidence build enthusiasm cooperate deliver results form networks influence others use information

The Current Best-Seller

Raynor, The Strategy Paradox Corporate manages uncertainty (5+ year timeframe), divisions manage commitments/deliverables Corporate must create strategic options rather than growth options
Strategic Flexibility
identify scenarios, build capabilities, manage portfolios of options the ability to pursue alternative strategies that could be useful, depending on how key uncertainties are resolved the most appropriate exposure to strategic risk and opportunity

A strategic option is an option on an element of an alternative strategy that might or might not be implemented, not simply an option on further investment in a new business that might or might not succeed.

What is complexity theory?

Based on an agentan ant in a colony, an electron in an atom, a worker in a company... A complex system is defined as any network of interacting agents (or processes or elements) that exhibits a dynamic aggregate behavior as a result of the individual activities of its agents. An agent in such a system is adaptive if its actions can be given a value (performance, utility, payoff, fitness etc.) and the agent behaves so as to increase this value over time.

Complex Adaptive System

A complex adaptive system is one in which agents adapt to higher levels of fitness over time A fitness landscape is simply a visual representation of the payoffs from taking different strategies Fitness landscapes can be rugged (with many peaks or troughs) or smooth Co-evolution creates a dancing fitness landscape

Key Result Areas

Some key results in complexity theory have proved important for management
Emergence Agent-Based Search Patches

Emergence
Emergence
Simple rules can produce complex behavior!
See logistic equation, for example

Order for free no need for central control! Just find the right simple rules for agents to follow

Artificial Life Example

Craig Reynolds Boids Program

Eisenhardt uses this principle in Strategy as simple rules

How-to, boundary, priority, timing, exit rules

Agent-Based Search
Exploring a rugged fitness landscape by trial and error to try and find the highest peak can take a long time Using agents to explore the landscape and zero in on promising regions may be faster Beinhocker uses this principle in Robust Adaptive Strategies
Keep moving Deploy platoons of hikers Mix short and long jumps Populations of strategies

Patches
Stu Kauffman found that dividing an NK lattice into several patches and minimizing the energy in each patch without reference to the global energy level gave better solutions than global search on very rugged (i.e. complex) landscapes Having sub-units optimize their part of the problem may be better than trying to find an optimal solution for the whole organization
Kauffman suggests that multi-divisional organizations might benefit from less rather than more centralized control

Complexity as Metaphor
Complexity theory has been extended from biology and physics into other arenas Undoubtedly, societies, economies, and organizations are complex adaptive systems, too. If an organization is like an NK model then

Interpretation
Adaptation (biology) rather than efficiency (machine) should be promoted A variety of small experiments should be undertaken to explore the fitness landscape Rely less on central controls Recognize that change can yield big (or small) results and solutions can emerge from the interaction of agents (workers)

Case: Jack Welch

What were the principal strategic and organizational changes introduced by Welch at GE? Why has the strategy, structure, and systems created by Welch been successful in delivering shareholder value and insulating GE from the fashion for breakup to which most other conglomerates succumbed? Can you detect a theory of management or set of general principles that link together Welchs various initiatives? To what extent should other large, diversified corporations imitate the management systems and leadership style developed by Welch at GE?

Case: AES
Whats unusual about AESs structure, management systems, and leadership style? Has AESs success been because of, or despite, these practices? Given the current challenges that AES faces, should it adopt more conventional management systems and processes,or should it maintain the values, principles, and management methods established by Sant and Bakke? What can other firms learn from AES?

Conclusion
Strategy of the future:
Complexity theory Dynamic capabilities Blue ocean Strategic options Efficient design people, decisions, rewards, structure, process