Strategic Management

Processes
Strategic management is a combination of three main processes which are as follows:

Strategy formulation

Performing a situation analysis, self-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental. Concurrent with this assessment, ob ectives are set. !hese ob ectives should be parallel to a timeline; some are in the short-term and others on the long-term. !his involves crafting vision statements "long term view of a possible future#, mission statements "the role that the organi$ation gives itself in society#, overall corporate ob ectives "both financial and strategic#, strategic business unit ob ectives "both financial and strategic#, and tactical ob ectives. !hese ob ectives should, in the light of the situation analysis, suggest a strategic plan. !he plan provides the details of how to achieve these ob ectives.

!his three-step strategy formulation process is sometimes referred to as determining where you are now, determining where you want to go, and then determining how to get there. !hese three %uestions are the essence of strategic planning. S&'! (nalysis: )*' +conomics for the external factors and ,-. for the internal factors.

Strategy implementation

(llocation and management of sufficient resources "financial, personnel, time, technology support# +stablishing a chain of command or some alternative structure "such as cross functional teams# (ssigning responsibility of specific tas/s or processes to specific individuals or groups )t also involves managing the process. !his includes monitoring results, comparing to benchmar/s and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and ma/ing ad ustments to the process as necessary. &hen implementing specific programs, this involves ac%uiring the re%uisite resources, developing the process, training, process testing, documentation, and integration with "and*or conversion from# legacy processes.

Strategy evaluation

0easuring the effectiveness of the organi$ational strategy. )t1s extremely important to conduct a S&'! analysis to figure out the strengths, wea/nesses, opportunities and threats "both internal and external# of the entity in %uestion. !his may re%uire to ta/e certain precautionary measures or even to change the entire strategy.

General approaches
)n general terms, there are two main approaches, which are opposite but complement each other in some ways, to strategic management:

The Industrial Organizational Approach o based on economic theory 2 deals with issues li/e competitive rivalry, resource allocation, economies of scale o assumptions 2 rationality, self discipline behaviour, profit maximi$ation The Sociological Approach o deals primarily with human interactions o assumptions 2 bounded rationality, satisfying behaviour, profit sub-optimality. (n example of a company that currently operates this way is 3oogle

Strategic management techni%ues can be viewed as bottom-up, top-down, or collaborative processes. )n the bottom-up approach, employees submit proposals to their managers who, in turn, funnel the best ideas further up the organi$ation. !his is often accomplished by a capital budgeting process. Proposals are assessed using financial criteria such as return on investment or cost-benefit analysis. Cost underestimation and benefit overestimation are ma or sources of error. !he proposals that are approved form the substance of a new strategy, all of which is done without a grand strategic design or a strategic architect. !he top-down approach is the most common by far. )n it, the C+', possibly with the assistance of a strategic planning team, decides on the overall direction the company should ta/e. Some organi$ations are starting to experiment with collaborative strategic planning techni%ues that recogni$e the emergent nature of strategic decisions.

The strategy hierarchy

)n most "large# corporations there are several levels of strategy. Strategic management is the highest in the sense that it is the broadest, applying to all parts of the firm. )t gives direction to corporate values, corporate culture, corporate goals, and corporate missions. 4nder this broad corporate strategy there are often functional or business unit strategies. Functional strategies include mar/eting strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, supply-chain strategies, and information technology management strategies. !he emphasis is on short and medium term plans and is limited to the domain of each department5s functional responsibility. +ach functional department attempts to do its part in meeting overall corporate ob ectives, and hence to some extent their strategies are derived from broader corporate strategies. 0any companies feel that a functional organi$ational structure is not an efficient way to organi$e activities so they have reengineered according to processes or strategic business units "called S-4s#. ( strategic business unit is a semi-autonomous unit within an organi$ation. )t is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting. (n S-4 is treated as an internal profit centre by corporate head%uarters. +ach S-4 is responsible for developing its business strategies, strategies that must be in tune with broader corporate strategies. !he 6lowest7 level of strategy is operational strategy. )t is very narrow in focus and deals with day-to-day operational activities such as scheduling criteria. )t must operate within a budget but is not at liberty to ad ust or create that budget. 'perational level strategy was encouraged by Peter 8ruc/er in his theory of management by ob ectives "0-'#. 'perational level strategies are informed by business level strategies which, in turn, are informed by corporate level strategies. usiness strategy, which refers to the aggregated operational strategies of single business firm or that of an S-4 in a diversified corporation refers to the way in which a firm competes in its chosen arenas.

!orporate strategy, then, refers to the overarching strategy of the diversified firm. Such corporate strategy answers the %uestions of 9in which businesses should we compete:9 and 9how does being in one business add to the competitive advantage of another portfolio firm, as well as the competitive advantage of the corporation as a whole:9 Since the turn of the millennium, there has been a tendency in some firms to revert to a simpler strategic structure. !his is being driven by information technology. )t is felt that /nowledge management systems should be used to share information and create common goals. Strategic divisions are thought to hamper this process. 0ost recently, this notion of strategy has been captured under the rubric of dynamic strategy, populari$ed by the strategic management textboo/ authored by Carpenter and Sanders ;<=. !his wor/ builds on that of -rown and +isenhart as well as Christensen and portrays firm strategy, both business and corporate, as necessarily embracing ongoing strategic change, and the seamless integration of strategy formulation and implementation. Such change and implementation are usually built into the strategy through the staging and pacing facets.

"istorical development of strategic management

irth of strategic management
Strategic management as a discipline originated in the <>?@s and A@s. (lthough there were numerous early contributors to the literature, the most influential pioneers were (lfred 8. Chandler, Br., Philip Sel$nic/, )gor (nsoff, and Peter 8ruc/er. Alfred !handler recogni$ed the importance of coordinating the various aspects of management under one all-encompassing strategy. Prior to this time the various functions of management were separate with little overall coordination or strategy. )nteractions between functions or between departments were typically handled by a boundary position, that is, there were one or two managers that relayed information bac/ and forth between two departments. Chandler also stressed the importance of ta/ing a long term perspective when loo/ing to the future. )n his <>AC groundbrea/ing wor/ Strategy and Structure, Chandler showed that a long-term coordinated strategy was necessary to give a company structure, direction, and focus. De says it concisely, 6structure follows strategy.7;E= )n <>?F, Philip Sel$nic/ introduced the idea of matching the organi$ation1s internal factors with external environmental circumstances.;G= !his core idea was developed into what we now call S&'! analysis by Hearned, (ndrews, and others at the Darvard -usiness School 3eneral 0anagement 3roup. Strengths and wea/nesses of the firm are assessed in light of the opportunities and threats from the business environment. )gor (nsoff built on Chandler1s wor/ by adding a range of strategic concepts and inventing a whole new vocabulary. De developed a strategy grid that compared mar/et penetration strategies, product development strategies, mar/et development strategies and hori$ontal and vertical integration and diversification strategies. De felt that management could use these strategies to systematically prepare for future opportunities and challenges. )n his <>A? classic Corporate Strategy, he developed the gap analysis still used today in which we must understand the gap between where we are currently and where we would li/e to be, then develop what he called 6gap reducing actions7.;?= Peter 8ruc/er was a prolific strategy theorist, author of do$ens of management boo/s, with a career spanning five decades. Dis contributions to strategic management were many but two are most important. Iirstly, he stressed the importance of ob ectives. (n organi$ation without clear

ob ectives is li/e a ship without a rudder. (s early as <>?G he was developing a theory of management based on ob ectives.;A= !his evolved into his theory of management by ob#ectives "0-'#. (ccording to 8ruc/er, the procedure of setting ob ectives and monitoring your progress towards them should permeate the entire organi$ation, top to bottom. Dis other seminal contribution was in predicting the importance of what today we would call intellectual capital. De predicted the rise of what he called the 6/nowledge wor/er7 and explained the conse%uences of this for management. De said that /nowledge wor/ is non-hierarchical. &or/ would be carried out in teams with the person most /nowledgeable in the tas/ at hand being the temporary leader. )n <>J?, +llen-+arle Chaffee summari$ed what she thought were the main elements of strategic management theory by the <>F@s:;F=

Strategic management involves adapting the organi$ation to its business environment. Strategic management is fluid and complex. Change creates novel combinations of circumstances re%uiring unstructured non-repetitive responses. Strategic management affects the entire organi$ation by providing direction. Strategic management involves both strategy formation "she called it content# and also strategy implementation "she called it process#. Strategic management is partially planned and partially unplanned. Strategic management is done at several levels: overall corporate strategy, and individual business strategies. Strategic management involves both conceptual and analytical thought processes.

Gro$th and portfolio theory

)n the <>F@s much of strategic management dealt with si$e, growth, and portfolio theory. !he P)0S study was a long term study, started in the <>A@s and lasted for <> years, that attempted to understand the Profit )mpact of 0ar/eting Strategies "P)0S#, particularly the effect of mar/et share. Started at 3eneral +lectric, moved to Darvard in the early <>F@s, and then moved to the Strategic Planning )nstitute in the late <>F@s, it now contains decades of information on the relationship between profitability and strategy. !heir initial conclusion was unambiguous: !he greater a company1s mar/et share, the greater will be their rate of profit. !he high mar/et share provides volume and economies of scale. )t also provides experience and learning curve advantages. !he combined effect is increased profits.;J= !he studies conclusions continue to be drawn on by academics and companies today: 9P)0S provides compelling %uantitative evidence as to which business strategies wor/ and don1t wor/9 - !om Peters. !he benefits of high mar/et share naturally lead to an interest in growth strategies. !he relative advantages of hori$ontal integration, vertical integration, diversification, franchises, mergers and ac%uisitions, oint ventures, and organic growth were discussed. !he most appropriate mar/et dominance strategies were assessed given the competitive and regulatory environment. !here was also research that indicated that a low mar/et share strategy could also be very profitable. Schumacher "<>FE#,;>= &oo and Cooper "<>JC#,;<@= Hevenson "<>JG#,;<<= and later !raverso "C@@C#;<C= showed how smaller niche players obtained very high returns. -y the early <>J@s the paradoxical conclusion was that high mar/et share and low mar/et share companies were often very profitable but most of the companies in between were not. !his was sometimes called the 6hole in the middle7 problem. !his anomaly would be explained by 0ichael Porter in the <>J@s.

!he management of diversified organi$ations re%uired new techni%ues and new ways of thin/ing. !he first C+' to address the problem of a multi-divisional company was (lfred Sloan at 3eneral 0otors. 30 was decentrali$ed into semi-autonomous 6strategic business units7 "S-41s#, but with centrali$ed support functions. 'ne of the most valuable concepts in the strategic management of multi-divisional companies was portfolio theory. )n the previous decade Darry 0ar/owit$ and other financial theorists developed the theory of portfolio analysis. )t was concluded that a broad portfolio of financial assets could reduce specific ris/. )n the <>F@s mar/eters extended the theory to product portfolio decisions and managerial strategists extended it to operating division portfolios. +ach of a company5s operating divisions were seen as an element in the corporate portfolio. +ach operating division "also called strategic business units# was treated as a semi-independent profit center with its own revenues, costs, ob ectives, and strategies. Several techni%ues were developed to analy$e the relationships between elements in a portfolio. -.C.3. (nalysis, for example, was developed by the -oston Consulting 3roup in the early <>F@s. !his was the theory that gave us the wonderful image of a C+' sitting on a stool mil/ing a cash co$. Shortly after that the 3.+. multi factoral model was developed by 3eneral +lectric. Companies continued to diversify until the <>J@s when it was reali$ed that in many cases a portfolio of operating divisions was worth more as separate completely independent companies.

The mar%eting revolution

!he <>F@s also saw the rise of the mar/eting oriented firm. Irom the beginnings of capitalism it was assumed that the /ey re%uirement of business success was a product of high technical %uality. )f you produced a product that wor/ed well and was durable, it was assumed you would have no difficulty selling them at a profit. !his was called the production orientation and it was generally true that good products could be sold without effort, encapsulated in the saying 9-uild a better mousetrap and the world will beat a path to your door.9 !his was largely due to the growing numbers of affluent and middle class people that capitalism had created. -ut after the untapped demand caused by the second world war was saturated in the <>?@s it became obvious that products were not selling as easily as they had been. !he answer was to concentrate on selling. !he <>?@s and <>A@s is /nown as the sales era and the guiding philosophy of business of the time is today called the sales orientation. )n the early <>F@s !heodore Hevitt and others at Darvard argued that the sales orientation had things bac/ward. !hey claimed that instead of producing products then trying to sell them to the customer, businesses should start with the customer, find out what they wanted, and then produce it for them. !he customer became the driving force behind all strategic business decisions. !his mar/eting orientation, in the decades since its introduction, has been reformulated and repac/aged under numerous names including customer orientation, mar/eting philosophy, customer intimacy, customer focus, customer driven, and mar/et focused.

The &apanese challenge

-y the late F@s people had started to notice how successful Bapanese industry had become. )n industry after industry, including steel, watches, ship building, cameras, autos, and electronics, the Bapanese were surpassing (merican and +uropean companies. &esterners wanted to /now why. Kumerous theories purported to explain the Bapanese success including:

Digher employee morale, dedication, and loyalty; Hower cost structure, including wages; +ffective government industrial policy; 0oderni$ation after &&)) leading to high capital intensity and productivity;

+conomies of scale associated with increased exporting; ,elatively low value of the Len leading to low interest rates and capital costs, low dividend expectations, and inexpensive exports; Superior %uality control techni%ues such as !otal Muality 0anagement and other systems introduced by &. +dwards 8eming in the <>?@s and A@s.;<E=

(lthough there was some truth to all these potential explanations, there was clearly something missing. )n fact by <>J@ the Bapanese cost structure was higher than the (merican. (nd post &&)) reconstruction was nearly G@ years in the past. !he first management theorist to suggest an explanation was ,ichard Pascale. )n <>J< ,ichard Pascale and (nthony (thos in The Art of Japanese Management claimed that the main reason for Bapanese success was their superior management techni%ues.;<G= !hey divided management into F aspects "which are also /nown as 0cNinsey FS Iramewor/#: Strategy, Structure, Systems, S/ills, Staff, Style, and Supraordinate goals "which we would now call shared values#. !he first three of the F S1s were called hard factors and this is where (merican companies excelled. !he remaining four factors "s/ills, staff, style, and shared values# were called soft factors and were not well understood by (merican businesses of the time "for details on the role of soft and hard factors see &ic/ens P.8. <>>?.# (mericans did not yet place great value on corporate culture, shared values and beliefs, and social cohesion in the wor/place. )n Bapan the tas/ of management was seen as managing the whole complex of human needs, economic, social, psychological, and spiritual. )n (merica wor/ was seen as something that was separate from the rest of one1s life. )t was %uite common for (mericans to exhibit a very different personality at wor/ compared to the rest of their lives. Pascale also highlighted the difference between decision ma/ing styles; hierarchical in (merica, and consensus in Bapan. De also claimed that (merican business lac/ed long term vision, preferring instead to apply management fads and theories in a piecemeal fashion. 'ne year later The Mind of the Strategist was released in (merica by Nenichi 'hmae, the head of 0cNinsey O Co.1s !o/yo office.;<?= ")t was originally published in Bapan in <>F?.# De claimed that strategy in (merica was too analytical. Strategy should be a creative art: )t is a frame of mind that re%uires intuition and intellectual flexibility. De claimed that (mericans constrained their strategic options by thin/ing in terms of analytical techni%ues, rote formula, and step-bystep processes. De compared the culture of Bapan in which vagueness, ambiguity, and tentative decisions were acceptable, to (merican culture that valued fast decisions. (lso in <>JC !om Peters and ,obert &aterman released a study that would respond to the Bapanese challenge head on.;<A= Peters and &aterman, who had several years earlier collaborated with Pascale and (thos at 0cNinsey O Co. as/ed 6&hat ma/es an excellent company:7. !hey loo/ed at AC companies that they thought were fairly successful. +ach was sub ect to six performance criteria. !o be classified as an excellent company, it had to be above the ?@th percentile in G of the A performance metrics for C@ consecutive years. Iorty-three companies passed the test. !hey then studied these successful companies and interviewed /ey executives. !hey concluded in In Search of Excellence that there were J /eys to excellence that were shared by all GE firms. !hey are:

( bias for action 2 8o it. !ry it. 8on5t waste time studying it with multiple reports and committees. Customer focus 2 3et close to the customer. Nnow your customer. +ntrepreneurship 2 +ven big companies act and thin/ small by giving people the authority to ta/e initiatives.

Productivity through people 2 !reat your people with respect and they will reward you with productivity. .alue-oriented C+'s 2 !he C+' should actively propagate corporate values throughout the organi$ation. Stic/ to the /nitting 2 8o what you /now well. Neep things simple and lean 2 Complexity encourages waste and confusion. Simultaneously centrali$ed and decentrali$ed 2 Dave tight centrali$ed control while also allowing maximum individual autonomy.

!he basic blueprint on how to compete against the Bapanese had been drawn. -ut as B.+. ,ehfeld "<>>G# explains it is not a straight forward tas/ due to differences in culture.;<F= ( certain type of alchemy was re%uired to transform /nowledge from various cultures into a management style that allows a specific company to compete in a globally diverse world. De says, for example, that Bapanese style /ai$en "continuous improvement# techni%ues, although suitable for people sociali$ed in Bapanese culture, have not been successful when implemented in the 4.S. unless they are modified significantly.

Gaining competitive advantage

!he Bapanese challenge shoo/ the confidence of the western business elite, but detailed comparisons of the two management styles and examinations of successful businesses convinced westerners that they could overcome the challenge. !he <>J@s and early <>>@s saw a plethora of theories explaining exactly how this could be done. !hey cannot all be detailed here, but some of the more important strategic advances of the decade are explained below. 3ary Damel and C. N. Prahalad declared that strategy needs to be more active and interactive; less 6arm-chair planning7 was needed. !hey introduced terms li/e strategic intent and strategic architecture.;<J=;<>= !heir most well /nown advance was the idea of core competency. !hey showed how important it was to /now the one or two /ey things that your company does better than the competition.;C@= (ctive strategic management re%uired active information gathering and active problem solving. )n the early days of Dewlett-Pac/ard "D-P#, 8ave Pac/ard and -ill Dewlett devised an active management style that they called Management y 'al%ing Around "0-&(#. Senior D-P managers were seldom at their des/s. !hey spent most of their days visiting employees, customers, and suppliers. !his direct contact with /ey people provided them with a solid grounding from which viable strategies could be crafted. !he 0-&( concept was populari$ed in <>J? by a boo/ by !om Peters and Kancy (ustin.;C<= Bapanese managers employ a similar system, which originated at Donda, and is sometimes called the E 31s "3enba, 3enbutsu, and 3en itsu, which translate into 6actual place7, 6actual thing7, and 6actual situation7#. Probably the most influential strategist of the decade was 0ichael Porter. De introduced many new concepts including; ? forces analysis, generic strategies, the value chain, strategic groups, and clusters. )n ? forces analysis he identifies the forces that shape a firm1s strategic environment. )t is li/e a S&'! analysis with structure and purpose. )t shows how a firm can use these forces to obtain a sustainable competitive advantage. Porter modifies Chandler1s dictum about structure following strategy by introducing a second level of structure: 'rgani$ational structure follows strategy, which in turn follows industry structure. Porter1s generic strategies detail the interaction between cost minimization strategies, product differentiation strategies, and mar%et focus strategies. (lthough he did not introduce these terms, he showed the importance of choosing one of them rather than trying to position your company between them. De also challenged managers to see their industry in terms of a value chain. ( firm will be

successful only to the extent that it contributes to the industry1s value chain. !his forced management to loo/ at its operations from the customer1s point of view. +very operation should be examined in terms of what value it adds in the eyes of the final customer. )n <>>E, Bohn Nay too/ the idea of the value chain to a financial level claiming 6 (dding value is the central purpose of business activity7, where adding value is defined as the difference between the mar/et value of outputs and the cost of inputs including capital, all divided by the firm1s net output. -orrowing from 3ary Damel and 0ichael Porter, Nay claims that the role of strategic management is to identify your core competencies, and then assemble a collection of assets that will increase value added and provide a competitive advantage. De claims that there are E types of capabilities that can do this; innovation, reputation, and organi$ational structure. !he <>J@s also saw the widespread acceptance of positioning theory. (lthough the theory originated with Bac/ !rout in <>A>, it didn5t gain wide acceptance until (l ,ies and Bac/ !rout wrote their classic boo/ 6Positioning: !he -attle Ior Lour 0ind7 "<>F>#. !he basic premise is that a strategy should not be udged by internal company factors but by the way customers see it relative to the competition. Crafting and implementing a strategy involves creating a position in the mind of the collective consumer. Several techni%ues were applied to positioning theory, some newly invented but most borrowed from other disciplines. Perceptual mapping for example, creates visual displays of the relationships between positions. 0ultidimensional scaling, discriminant analysis, factor analysis, and con oint analysis are mathematical techni%ues used to determine the most relevant characteristics "called dimensions or factors# upon which positions should be based. Preference regression can be used to determine vectors of ideal positions and cluster analysis can identify clusters of positions. 'thers felt that internal company resources were the /ey. )n <>>C, Bay -arney, for example, saw strategy as assembling the optimum mix of resources, including human, technology, and suppliers, and then configure them in uni%ue and sustainable ways.;CC= 0ichael Dammer and Bames Champy felt that these resources needed to be restructured.;CE= !his process, that they labeled reengineering, involved organi$ing a firm1s assets around whole processes rather than tas/s. )n this way a team of people saw a pro ect through, from inception to completion. !his avoided functional silos where isolated departments seldom tal/ed to each other. )t also eliminated waste due to functional overlap and interdepartmental communications. )n <>J> ,ichard Hester and the researchers at the 0)! )ndustrial Performance Center identified seven best practices and concluded that firms must accelerate the shift away from the mass production of low cost standardi$ed products. !he seven areas of best practice were:;CG=

Simultaneous continuous improvement in cost, %uality, service, and product innovation -rea/ing down organi$ational barriers between departments +liminating layers of management creating flatter organi$ational hierarchies. Closer relationships with customers and suppliers )ntelligent use of new technology 3lobal focus )mproving human resource s/ills

!he search for 6best practices7 is also called benchmar/ing.;C?= !his involves determining where you need to improve, finding an organi$ation that is exceptional in this area, then studying the company and applying its best practices in your firm.

( large group of theorists felt the area where western business was most lac/ing was product %uality. People li/e &. +dwards 8eming,;CA= Boseph 0. Buran,;CF= (. Nearney,;CJ= Philip Crosby,;C>= and (rmand Ieignbaum;E@= suggested %uality improvement techni%ues li/e !otal Muality 0anagement "!M0#, continuous improvement, lean manufacturing, Six Sigma, and ,eturn on Muality ",'M#. (n e%ually large group of theorists felt that poor customer service was the problem. People li/e Bames Des/ett "<>JJ#,;E<= +arl Sasser "<>>?#, &illiam 8avidow,;EC= Hen Schlesinger,;EE= (. Paraurgman "<>JJ#, Hen -erry,;EG= Bane Ningman--rundage,;E?= Christopher Dart, and Christopher Hoveloc/ "<>>G#, gave us fishbone diagramming, service charting, !otal Customer Service "!CS#, the service profit chain, service gaps analysis, the service encounter, strategic service vision, service mapping, and service teams. !heir underlying assumption was that there is no better source of competitive advantage than a continuous stream of delighted customers. Process management uses some of the techni%ues from product %uality management and some of the techni%ues from customer service management. )t loo/s at an activity as a se%uential process. !he ob ective is to find inefficiencies and ma/e the process more effective. (lthough the procedures have a long history, dating bac/ to !aylorism, the scope of their applicability has been greatly widened, leaving no aspect of the firm free from potential process improvements. -ecause of the broad applicability of process management techni%ues, they can be used as a basis for competitive advantage. Some reali$ed that businesses were spending much more on ac%uiring new customers than on retaining current ones. Carl Sewell,;EA= Irederic/ ,eicheld,;EF= C. 3ronroos,;EJ= and +arl Sasser;E>= showed us how a competitive advantage could be found in ensuring that customers returned again and again. !his has come to be /nown as the loyalty effect after ,eicheld1s boo/ of the same name in which he broadens the concept to include employee loyalty, supplier loyalty, distributor loyalty, and shareholder loyalty. !hey also developed techni%ues for estimating the lifetime value of a loyal customer, called customer lifetime value "CH.#. ( significant movement started that attempted to recast selling and mar/eting techni%ues into a long term endeavor that created a sustained relationship with customers "called relationship selling, relationship mar/eting, and customer relationship management#. Customer relationship management "C,0# software "and its many variants# became an integral tool that sustained this trend. Bames 3ilmore and Boseph Pine found competitive advantage in mass customi$ation.;G@= Ilexible manufacturing techni%ues allowed businesses to individuali$e products for each customer without losing economies of scale. !his effectively turned the product into a service. !hey also reali$ed that if a service is mass customi$ed by creating a 6performance7 for each individual client, that service would be transformed into an 6experience7. !heir boo/, The Experience Economy,;G<= along with the wor/ of -ernd Schmitt convinced many to see service provision as a form of theatre. !his school of thought is sometimes referred to as customer experience management "C+0#. Hi/e Peters and &aterman a decade earlier, Bames Collins and Berry Porras spent years conducting empirical research on what ma/es great companies. Six years of research uncovered a /ey underlying principle behind the <> successful companies that they studied: !hey all encourage and preserve a core ideology that nurtures the company. +ven though strategy and tactics change daily, the companies, nevertheless, were able to maintain a core set of values. !hese core values encourage employees to build an organi$ation that lasts. )n Built To Last "<>>G# they claim that short term profit goals, cost cutting, and restructuring will not stimulate dedicated employees to build a great company that will endure.;GC= )n C@@@ Collins coined the

term 6built to flip7 to describe the prevailing business attitudes in Silicon .alley. )t describes a business culture where technological change inhibits a long term focus. De also populari$ed the concept of the "AG "-ig Dairy (udacious 3oal#. (rie de 3eus "<>>F# undertoo/ a similar study and obtained similar results. De identified four /ey traits of companies that had prospered for ?@ years or more. !hey are:

Sensitivity to the business environment 2 the ability to learn and ad ust Cohesion and identity 2 the ability to build a community with personality, vision, and purpose !olerance and decentrali$ation 2 the ability to build relationships Conservative financing

( company with these /ey characteristics he called a living company because it is able to perpetuate itself. )f a company emphasi$es /nowledge rather than finance, and sees itself as an ongoing community of human beings, it has the potential to become great and endure for decades. Such an organi$ation is an organic entity capable of learning "he called it a 6learning organi$ation7# and capable of creating its own processes, goals, and persona.

The military theorists

)n the <>J@s some business strategists reali$ed that there was a vast /nowledge base stretching bac/ thousands of years that they had barely examined. !hey turned to military strategy for guidance. 0ilitary strategy boo/s such as The Art of War by Sun !$u, n War by von Clausewit$, and The !ed Boo" by 0ao Pedong became instant business classics. Irom Sun !$u they learned the tactical side of military strategy and specific tactical prescriptions. Irom .on Clausewit$ they learned the dynamic and unpredictable nature of military strategy. Irom 0ao Pedong they learned the principles of guerrilla warfare. !he main mar/eting warfare boo/s were:

Business War #ames by -arrie Bames, <>JG Mar"eting Warfare by (l ,ies and Bac/ !rout, <>JA Headership Secrets of (ttila the Dun by &ess ,oberts, <>JF

Philip Notler was a well-/nown proponent of mar/eting warfare strategy. !here were generally thought to be four types of business warfare theories. !hey are:

'ffensive mar/eting warfare strategies 8efensive mar/eting warfare strategies Ilan/ing mar/eting warfare strategies 3uerrilla mar/eting warfare strategies

!he mar/eting warfare literature also examined leadership and motivation, intelligence gathering, types of mar/eting weapons, logistics, and communications. -y the turn of the century mar/eting warfare strategies had gone out of favour. )t was felt that they were limiting. !here were many situations in which non-confrontational approaches were more appropriate. !he 6Strategy of the 8olphin7 was developed in the mid <>>@s to give guidance as to when to use aggressive strategies and when to use passive strategies. ( variety of aggressiveness strategies were developed.

)n <>>E, B. 0oore used a similar metaphor.;GE= )nstead of using military terms, he created an ecological theory of predators and prey "see ecological model of competition#, a sort of 8arwinian management strategy in which mar/et interactions mimic long term ecological stability.

Strategic change
)n <>F@, (lvin !offler in $uture Shoc" described a trend towards accelerating rates of change.;GG= De illustrated how social and technological norms had shorter lifespans with each generation, and he %uestioned society1s ability to cope with the resulting turmoil and anxiety. )n past generations periods of change were always punctuated with times of stability. !his allowed society to assimilate the change and deal with it before the next change arrived. -ut these periods of stability are getting shorter and by the late C@th century had all but disappeared. )n <>J@ in The Third Wa%e, !offler characteri$ed this shift to relentless change as the defining feature of the third phase of civili$ation "the first two phases being the agricultural and industrial waves#.;G?= De claimed that the dawn of this new phase will cause great anxiety for those that grew up in the previous phases, and will cause much conflict and opportunity in the business world. Dundreds of authors, particularly since the early <>>@s, have attempted to explain what this means for business strategy. )n <>>F, &atts &a/er and Bim !aylor called this upheaval a 9?@@ year delta.9;GA= !hey claimed these ma or upheavals occur every ? centuries. !hey said we are currently ma/ing the transition from the 6(ge of ,eason7 to a new chaotic Age of Access. Beremy ,if/in "C@@@# populari$ed and expanded this term, 6age of access7 three years later in his boo/ of the same name.;GF= )n <>AJ, Peter 8ruc/er "<>A># coined the phrase Age of (iscontinuity to describe the way change forces disruptions into the continuity of our lives.;GJ= )n an age of continuity attempts to predict the future by extrapolating from the past can be somewhat accurate. -ut according to 8ruc/er, we are now in an age of discontinuity and extrapolating from the past is hopelessly ineffective. &e cannot assume that trends that exist today will continue into the future. De identifies four sources of discontinuity: new technologies, globali$ation, cultural pluralism, and /nowledge capital. )n C@@@, 3ary Damel discussed strategic decay, the notion that the value of all strategies, no matter how brilliant, decays over time.;G>= )n <>FJ, 8erec/ (bell "(bell, 8. <>FJ# described strategic $indo$s and stressed the importance of the timing "both entrance and exit# of any given strategy. !his has led some strategic planners to build planned obsolescence into their strategies.;?@= )n <>J>, Charles Dandy identified two types of change.;?<= Strategic drift is a gradual change that occurs so subtly that it is not noticed until it is too late. -y contrast, transformational change is sudden and radical. )t is typically caused by discontinuities "or exogenous shoc/s# in the business environment. !he point where a new trend is initiated is called a strategic inflection point by (ndy 3rove. )nflection points can be subtle or radical. )n C@@@, 0alcolm 3ladwell discussed the importance of the tipping point, that point where a trend or fad ac%uires critical mass and ta/es off.;?C= )n <>JE, Koel !ichy recogni$ed that because we are all beings of habit we tend to repeat what we are comfortable with.;?E= De wrote that this is a trap that constrains our creativity, prevents us from exploring new ideas, and hampers our dealing with the full complexity of new issues. De

developed a systematic method of dealing with change that involved loo/ing at any new issue from three angles: technical and production, political and resource allocation, and corporate culture. )n <>>@, ,ichard Pascale "Pascale, ,. <>>@# wrote that relentless change re%uires that businesses continuously reinvent themselves.;?G= Dis famous maxim is 6Kothing fails li/e success7 by which he means that what was a strength yesterday becomes the root of wea/ness today, &e tend to depend on what wor/ed yesterday and refuse to let go of what wor/ed so well for us in the past. Prevailing strategies become self-confirming. )n order to avoid this trap, businesses must stimulate a spirit of in%uiry and healthy debate. !hey must encourage a creative process of self renewal based on constructive conflict. )n <>>A, (rt Nleiner "<>>A# claimed that to foster a corporate culture that embraces change, you have to hire the right people; heretics, heroes, outlaws, and visionaries;??=. !he conservative bureaucrat that made such a good middle manager in yesterday5s hierarchical organi$ations is of little use today. ( decade earlier Peters and (ustin "<>J?# had stressed the importance of nurturing champions and heroes. !hey said we have a tendency to dismiss new ideas, so to overcome this, we should support those few people in the organi$ation that have the courage to put their career and reputation on the line for an unproven idea. )n <>>A, (drian Slywots/y showed how changes in the business environment are reflected in value migrations between industries, between companies, and within companies.;?A= De claimed that recogni$ing the patterns behind these value migrations is necessary if we wish to understand the world of chaotic change. )n 6Profit Patterns7 "<>>># he described businesses as being in a state of strategic anticipation as they try to spot emerging patterns. Slywots/y and his team identified E@ patterns that have transformed industry after industry.;?F= )n <>>F, Clayton Christensen "<>>F# too/ the position that great companies can fail precisely because they do everything right since the capabilities of the organi$ation also defines its disabilities.;?J= Christensen1s thesis is that outstanding companies lose their mar/et leadership when confronted with disruptive technology. De called the approach to discovering the emerging mar/ets for disruptive technologies agnostic mar%eting, i.e., mar/eting under the implicit assumption that no one - not the company, not the customers - can /now how or in what %uantities a disruptive product can or will be used before they have experience using it. ( number of strategists use scenario planning techni%ues to deal with change. Nees van der Dei den "<>>A#, for example, says that change and uncertainty ma/e 6optimum strategy7 determination impossible. &e have neither the time nor the information re%uired for such a calculation. !he best we can hope for is what he calls 6the most s/illful process7.;?>= !he way Peter Schwart$ put it in <>>< is that strategic outcomes cannot be /nown in advance so the sources of competitive advantage cannot be predetermined.;A@= !he fast changing business environment is too uncertain for us to find sustainable value in formulas of excellence or competitive advantage. )nstead, scenario planning is a techni%ue in which multiple outcomes can be developed, their implications assessed, and their li/eliness of occurrence evaluated. (ccording to Pierre &ac/, scenario planning is about insight, complexity, and subtlety, not about formal analysis and numbers.;A<= )n <>JJ, Denry 0int$berg loo/ed at the changing world around him and decided it was time to reexamine how strategic management was done.;AC=;AE= De examined the strategic process and concluded it was much more fluid and unpredictable than people had thought. -ecause of this, he could not point to one process that could be called strategic planning. )nstead he concludes that there are five types of strategies. !hey are:

Strategy as plan - a direction, guide, course of action - intention rather than actual Strategy as ploy - a maneuver intended to outwit a competitor Strategy as pattern - a consistent pattern of past behaviour - reali$ed rather than intended Strategy as position - locating of brands, products, or companies within the conceptual framewor/ of consumers or other sta/eholders - strategy determined primarily by factors outside the firm Strategy as perspective - strategy determined primarily by a master strategist

)n <>>J, 0int$berg developed these five types of management strategy into <@ 6schools of thought7. !hese <@ schools are grouped into three categories. !he first group is prescriptive or normative. )t consists of the informal design and conception school, the formal planning school, and the analytical positioning school. !he second group, consisting of six schools, is more concerned with how strategic management is actually done, rather than prescribing optimal plans or positions. !he six schools are the entrepreneurial, visionary, or great leader school, the cognitive or mental process school, the learning, adaptive, or emergent process school, the power or negotiation school, the corporate culture or collective process school, and the business environment or reactive school. !he third and final group consists of one school, the configuration or transformation school, an hybrid of the other schools organi$ed into stages, organi$ational life cycles, or 6episodes7.;AG= )n <>>>, Constantinos 0ar/ides also wanted to reexamine the nature of strategic planning itself. ;A?= De describes strategy formation and implementation as an on-going, never-ending, integrated process re%uiring continuous reassessment and reformation. Strategic management is planned and emergent, dynamic, and interactive. B. 0oncrieff "<>>># also stresses strategy dynamics.;AA= De recogni$ed that strategy is partially deliberate and partially unplanned. !he unplanned element comes from two sources: emergent strategies "result from the emergence of opportunities and threats in the environment# and Strategies in action "ad hoc actions by many people from all parts of the organi$ation#. Some business planners are starting to use a complexity theory approach to strategy. Complexity can be thought of as chaos with a dash of order. Chaos theory deals with turbulent systems that rapidly become disordered. Complexity is not %uite so unpredictable. )t involves multiple agents interacting in such a way that a glimpse of structure may appear. (xelrod, ,.,;AF= Dolland, B.,;AJ= and Nelly, S. and (llison, 0.(.,;A>= call these systems of multiple actions and reactions comple) adaptive systems. (xelrod asserts that rather than fear complexity, business should harness it. De says this can best be done when 6there are many participants, numerous interactions, much trial and error learning, and abundant attempts to imitate each others1 successes7. )n C@@@, +. 8udi/ wrote that an organi$ation must develop a mechanism for understanding the source and level of complexity it will face in the future and then transform itself into a complex adaptive system in order to deal with it.;F@=

Information and technology driven strategy

Peter 8ruc/er had theori$ed the rise of the 6/nowledge wor/er7 bac/ in the <>?@s. De described how fewer wor/ers would be doing physical labour, and more would be applying their minds. )n <>JG, Bohn Kesbitt theori$ed that the future would be driven largely by information: companies that managed information well could obtain an advantage, however the profitability of what he calls the 6information float7 "information that the company had and others desired# would all but disappear as inexpensive computers made information more accessible. 8aniel -ell "<>J?# examined the sociological conse%uences of information technology, while 3loria Schuc/ and Shoshana Puboff loo/ed at psychological factors.;F<= Puboff, in her five year

study of eight pioneering corporations made the important distinction between 6automating technologies7 and 6infomating technologies7. She studied the effect that both had on individual wor/ers, managers, and organi$ational structures. She largely confirmed Peter 8ruc/er1s predictions three decades earlier, about the importance of flexible decentrali$ed structure, wor/ teams, /nowledge sharing, and the central role of the /nowledge wor/er. Puboff also detected a new basis for managerial authority, based not on position or hierarchy, but on /nowledge "also predicted by 8ruc/er# which she called 6participative management7.;FC= )n <>>@, Peter Senge, who had collaborated with (rie de 3eus at 8utch Shell, borrowed de 3eus1 notion of the learning organization, expanded it, and populari$ed it. !he underlying theory is that a company1s ability to gather, analy$e, and use information is a necessary re%uirement for business success in the information age. "See organi$ational learning.# )n order to do this, Senge claimed that an organi$ation would need to be structured such that:;FE=

People can continuously expand their capacity to learn and be productive, Kew patterns of thin/ing are nurtured, Collective aspirations are encouraged, and People are encouraged to see the 6whole picture7 together.

Senge identified five components of a learning organi$ation. !hey are:

Personal responsibility, self reliance, and mastery 2 &e accept that we are the masters of our own destiny. &e ma/e decisions and live with the conse%uences of them. &hen a problem needs to be fixed, or an opportunity exploited, we ta/e the initiative to learn the re%uired s/ills to get it done. 0ental models 2 &e need to explore our personal mental models to understand the subtle effect they have on our behaviour. Shared vision 2 !he vision of where we want to be in the future is discussed and communicated to all. )t provides guidance and energy for the ourney ahead. !eam learning 2 &e learn together in teams. !his involves a shift from 6a spirit of advocacy to a spirit of en%uiry7. Systems thin/ing 2 &e loo/ at the whole rather than the parts. !his is what Senge calls the 6Iifth discipline7. )t is the glue that integrates the other four into a coherent strategy. Ior an alternative approach to the 6learning organi$ation7, see 3arratt, -. "<>JF#.

Since <>>@ many theorists have written on the strategic importance of information, including B.-. Muinn,;FG= B. Carlos Barillo,;F?= 8.H. -arton,;FA= 0anuel Castells,;FF= B.P. Hieles/in,;FJ= !homas Stewart,;F>= N.+. Sveiby,;J@= 3ilbert B. Probst,;J<= and Shapiro and .arian;JC= to name ust a few. !homas (. Stewart, for example, uses the term intellectual capital to describe the investment an organi$ation ma/es in /nowledge. )t is comprised of human capital "the /nowledge inside the heads of employees#, customer capital "the /nowledge inside the heads of customers that decide to buy from you#, and structural capital "the /nowledge that resides in the company itself#. 0anuel Castells, describes a net$or% society characteri$ed by: globali$ation, organi$ations structured as a networ/, instability of employment, and a social divide between those with access to information technology and those without. Stan 8avis and Christopher 0eyer "<>>J# have combined three variables to define what they call the *+, e-uation. !he speed of change, )nternet connectivity, and intangible /nowledge value, when multiplied together yields a society1s rate of -H4,. !he three variables interact and reinforce each other ma/ing this relationship highly non-linear.

,egis 0cNenna posits that life in the high tech information age is what he called a 6real time experience7. +vents occur in real time. !o ever more demanding customers 6now7 is what matters. Pricing will more and more become variable pricing changing with each transaction, often exhibiting first degree price discrimination. Customers expect immediate service, customi$ed to their needs, and will be prepared to pay a premium price for it. De claimed that the new basis for competition will be time based competition.;JE= 3eoffrey 0oore "<>><# and ,. Iran/ and P. Coo/;JG= also detected a shift in the nature of competition. )n industries with high technology content, technical standards become established and this gives the dominant firm a near monopoly. !he same is true of networ/ed industries in which interoperability re%uires compatibility between users. (n example is word processor documents. 'nce a product has gained mar/et dominance, other products, even far superior products, cannot compete. 0oore showed how firms could attain this enviable position by using +.0. ,ogers five stage adoption process and focusing on one group of customers at a time, using each group as a base for mar/eting to the next group. !he most difficult step is ma/ing the transition between visionaries and pragmatists "See Crossing the Chasm#. )f successful a firm can create a bandwagon effect in which the momentum builds and your product becomes a de facto standard. +vans and &urster describe how industries with a high information component are being transformed.;J?= !hey cite +ncarta1s demolition of the +ncyclopedia -ritannica "whose sales have plummeted J@Q since their pea/ of RA?@ million in <>>@#. 0any speculate that +ncarta5s reign will be short-lived, eclipsed by collaborative encyclopedias li/e &i/ipedia that can operate at very low marginal costs. +vans also mentions the music industry which is desperately loo/ing for a new business model. !he upstart information savvy firms, unburdened by cumbersome physical assets, are changing the competitive landscape, redefining mar/et segments, and disintermediating some channels. 'ne manifestation of this is personali$ed mar/eting. )nformation technology allows mar/eters to treat each individual as its own mar/et, a mar/et of one. !raditional ideas of mar/et segments will no longer be relevant if personali$ed mar/eting is successful. !he technology sector has provided some strategies directly. Ior example, from the software development industry agile software development provides a model for shared development processes. (ccess to information systems have allowed senior managers to ta/e a much more comprehensive view of strategic management than ever before. !he most notable of the comprehensive systems is the balanced scorecard approach developed in the early <>>@1s by 8rs. ,obert S. Naplan "Darvard -usiness School# and 8avid Korton "Naplan, ,. and Korton, 8. <>>C#. )t measures several factors financial, mar/eting, production, organi$ational development, and new product development in order to achieve a 1balanced1 perspective.

The psychology of strategic management

Several psychologists have conducted studies to determine the psychological patterns involved in strategic management. !ypically senior managers have been as/ed how they go about ma/ing strategic decisions. ( <>EJ treatise by Chester -arnard, that was based on his own experience as a business executive, sees the process as informal, intuitive, non-routini$ed, and involving primarily oral, C-way communications. -ernard says 6!he process is the sensing of the organi$ation as a whole and the total situation relevant to it. )t transcends the capacity of merely intellectual methods, and the techni%ues of discriminating the factors of the situation. !he terms

pertinent to it are 6feeling7, 6 udgement7, 6sense7, 6proportion7, 6balance7, 6appropriateness7. )t is a matter of art rather than science.7;JA= )n <>FE, Denry 0int$berg found that senior managers typically deal with unpredictable situations so they strategi$e in ad hoc, flexible, dynamic, and implicit ways. De says, 6!he ob breeds adaptive information-manipulators who prefer the live concrete situation. !he manager wor/s in an environment of stimulous-response, and he develops in his wor/ a clear preference for live action.7;JF= )n <>JC, Bohn Notter studied the daily activities of <? executives and concluded that they spent most of their time developing and wor/ing a networ/ of relationships from which they gained general insights and specific details to be used in ma/ing strategic decisions. !hey tended to use 6mental road maps7 rather than systematic planning techni%ues.;JJ= 8aniel )senberg1s <>JG study of senior managers found that their decisions were highly intuitive. +xecutives often sensed what they were going to do before they could explain why.;J>= De claimed in <>JA that one of the reasons for this is the complexity of strategic decisions and the resultant information uncertainty.;>@= Shoshana Puboff "<>JJ# claims that information technology is widening the divide between senior managers "who typically ma/e strategic decisions# and operational level managers "who typically ma/e routine decisions#. She claims that prior to the widespread use of computer systems, managers, even at the most senior level, engaged in both strategic decisions and routine administration, but as computers facilitated "She called it 6des/illed7# routine processes, these activities were moved further down the hierarchy, leaving senior management free for strategic decions ma/ing. )n <>FF, (braham Pale$ni/ identified a difference between leaders and managers. De describes leadershipleaders as visionaries who inspire. !hey care about substance. &hereas managers are claimed to care about process, plans, and form.;><= De also claimed in <>J> that the rise of the manager was the main factor that caused the decline of (merican business in the <>F@s and J@s. Hac/ of leadership is most damaging at the level of strategic management where it can paraly$e an entire organi$ation.;>C= (ccording to Corner, Ninichi, and Neats,;>E= strategic decision ma/ing in organi$ations occurs at two levels: individual and aggregate. !hey have developed a model of parallel strategic decision ma/ing. !he model identifies two parallel processes both of which involve getting attention, encoding information, storage and retrieval of information, strategic choice, strategic outcome, and feedbac/. !he individual and organi$ational processes are not independent however. !hey interact at each stage of the process.

,easons $hy strategic plans fail

!here are many reasons why strategic plans fail, especially:

Iailure to understand the customer o &hy do they buy o )s there a real need for the product o inade%uate or incorrect mar/eting research )nability to predict environmental reaction o &hat will competitors do

Iighting brands Price wars o &ill government intervene 'ver-estimation of resource competence o Can the staff, e%uipment, and processes handle the new strategy o Iailure to develop new employee and management s/ills Iailure to coordinate o ,eporting and control relationships not ade%uate o 'rgani$ational structure not flexible enough Iailure to obtain senior management commitment o Iailure to get management involved right from the start o Iailure to obtain sufficient company resources to accomplish tas/ Iailure to obtain employee commitment o Kew strategy not well explained to employees o Ko incentives given to wor/ers to embrace the new strategy 4nder-estimation of time re%uirements o Ko critical path analysis done Iailure to follow the plan o Ko follow through after initial planning o Ko trac/ing of progress against plan o Ko conse%uences for above Iailure to manage change o )nade%uate understanding of the internal resistance to change o Hac/ of vision on the relationships between processes, technology and organi$ation Poor communications o )nsufficient information sharing among sta/eholders o +xclusion of sta/eholders and delegates

!riticisms of strategic management

(lthough a sense of direction is important, it can also stifle creativity, especially if it is rigidly enforced. )n an uncertain and ambiguous world, fluidity can be more important than a finely tuned strategic compass. &hen a strategy becomes internali$ed into a corporate culture, it can lead to group thin/. )t can also cause an organi$ation to define itself too narrowly. (n example of this is mar/eting myopia. 0any theories of strategic management tend to undergo only brief periods of popularity. ( summary of these theories thus inevitably exhibits survivorship bias "itself an area of research in strategic management#. 0any theories tend either to be too narrow in focus to build a complete corporate strategy on, or too general and abstract to be applicable to specific situations. Populism or faddishness can have an impact on a particular theory1s life cycle and may see application in inappropriate circumstances. See business philosophies and popular management theories for a more critical view of management theories. )n C@@@, 3ary Damel coined the term strategic convergence to explain the limited scope of the strategies being used by rivals in greatly differing circumstances. De lamented that strategies converge more than they should, because the more successful ones get imitated by firms that do not understand that the strategic process involves designing a custom strategy for the specifics of each situation.;>G=

,am Charan, aligning with a popular mar/eting tagline, believes that strategic planning must not dominate action. 9Bust do itS9, while not %uite what he meant, is a phrase that nevertheless comes to mind when combatting analysis paralysis.