Strategic Management

Philosophical foundations of strategic thinking

Machiavelli

> Conflicts over power are at the center of all strategic considerations
> Whoever has the power determines the policy
> Power conflicts are unavoidable
> Indulgence and generosity do away with themselves
> The early sending of conflicts and its consistent handling is the key to maintaining power and thus to successful
strategies
> Leadership focuses exclusively on the conduct or war, its preparation, planning, order and execution

Von Clasewitz

> Tactics: “The doctrine of the use of forces in battle”

> Strategy “is the doctrine of the use of individual engagements for the purpose of war”
> War is the continuation of politics by other means

Quotes strategy 

͐ “You have to be fast on your feet and adaptive or else a strategy is useless” – Charles de Gaulle
͐ “Vision without execution is daydreaming” – Bill Gates
͐ “The biggest risk is not taking any risk. In a world changing really quickly, the only strategy that Special
… is guaranteed to fail is not taking risks” – Mark Zuckerberg Action
͐ “Perception is strong and sight weak. In strategy it is important to see distant things as if they
were close and to take a distanced view of close things” – Miyamoto Musashi
͐ “Strategy is a commodity; execution is an art” – Peter Drucker

͐ “Strategy is simply resource allocation. When you strip away all the noise, that´s what it comes
down to. Strategy means making clear cut choices about how to compete. You cannot be
Take
everything, everybody, no matter what the size of your business or how …” – Jack Welch
decisions
͐ “… You have to look at the competition and say you´re going to do it differently”- Steve Jobs but be
unique
͐ “If you´re competitor-focused, you have to wait until there is a competitor doing something.
Being customer-focused allows you to be mor pioneering”- Jeff Bezos

Definition: Michael Porter

 Strategy is creating fit among a company´s activities. The success of a strategy depends on doing many things well – not just
a few – and integrating among them. If there is no fit among activities, there is no distinctive strategy and little
sustainability. Management reverts to the simpler task of overseeing independent functions, and operational effectiveness
determines an organization´s relative performance
 The essence of strategy is choosing what not to do

What is strategy?

How Managers think about competition  Competing to be the Best Competing to be Unique

The worst error in strategy is to compete with rivals on the same dimensions

Operation Effectiveness is NOT Strategy  Operation effectiveness means performing similar activities better than rivals
perform them. In contrast, strategic positioning means performing different activities from rival´s or performing similar
activities in different ways
 Operational effectiveness Strategic Positions
Assimilating, attaining, and extending Creating a unique and sustainable
best practices competitive position
Run the same race faster Choose to run a different race

Strategy rests on unique activities  Strategic positions can be based on customer´s needs, customer´s accessibility or
the variety of a company´s products or service

1. Variety-based positioning: It based on the choice of product or service varieties rather than customer segments
2. Needs-based positioning: A tailored set of activities can serve customer needs best. Differences in needs will not
translate into meaningful positions unless the best ser of activities to satisfy them also differs
3. Access-based positioning: Access can be function of customers geography or customer scale – or of anything that
requires a different set of activities to reach customers in the best way

A sustainable strategic position requires trade-off  The essence of strategy is choosing what not to do: without trade-
offs, there would be no need for choice and thus no need for strategy. Any good idea could and would be quickly
imitated. Again, performance would once again depend wholly on operational effectiveness

Fit drives both competitive advantage and sustainability  Competitive advantage grows out of the entire system of
activities: The fit among activities substantially reduces cost or increases differentiation

1. First-order fit is simple consistency between each activity (function) and the overall strategy. Consistency ensures
that the competitive advantages of activities cumulate and do not erode or cancel themselves out
2. Second-order fit occurs when activities are reinforcing
3. Third-order fit is optimization of effort

Finding a unique strategic position  migrate toward the chosen strategic position

Segmenting the industry

(not just the market) -
Creatively segmenting
product varieties, customer
groups (needs) and purchase
occasions (acces)
Exploiting Trade-offs -
Identifying trade-offs in the
value proposition or in the
value chain

Leveraging Unique Activities Capitalization on Industry

- Building off activities with Dynamics - Identifyung
true uniqueness - Looking for strategic positions opened
new activity configurations up by industry structural
and combinations changes

What is a Strategy?

⸸ A unique value proposition compared to other organizations

⸸ A different tailored value chain
⸸ Clear tradeoffs, and choosing what not to do
⸸ Activities that fit together and reinforce each other
⸸ Strategic continuity with continual improvement in realizing the strategy

What is NOT a Strategy?

⸸ Best practice improvement ⸸ A vision learning agility

⸸ Execution ⸸ Flexibility
⸸ Aspirations ⸸ Innovation
⸸ The internet (or any technology) ⸸ Alliances/Partnering
⸸ Downsizing ⸸ Outsourcing
⸸ Restructuring ⸸ Internalizing
⸸ Mergers/Consolidation

Henry Mintzberg is one of the most important living management theorists. In Notes:
addition to his work on strategic planning, Mintzberg explores the actual  He questioned many assumptions of
functions and activities of a manager. He questioned many assumptions of strategy
strategic planning in the 1970s and 80s. In doing so, he generated controversy  To be pulled for the concerns
and gained widespread attention. He claimed that strategic planning was often outside
just an empty ritual and that its value for strategy development could often not  Examine not only the parts but the
be proven. “We need to ask better questions and hypothesize less - we need to whole body
allow ourselves to be pulled by the concerns outside rather than driven by the  Holistic perspective for a good
“outcome”
concepts inside. And we need to think more broadly – we need to engage with
 Strategy: Everyone wants to get the
process and content, with static and dynamic, with the cognitive and the
company alive, for that you need a
collective, with the planned and the learned, with the economic and the strategy
political. In other words: We need to examine not only the parts but the whole
body of strategy development”
Mintzberg´s Ps of strategy: Different perspectives to consider to develop a robust and successful strategy

PERSPECTIVE
PLAN - Stragy-asStrategy
a deliberate,
as attitude
predetermined,
or shared beliefs,
long-term
valuesaction
and in a
POSITION - Strategy
PATTERNPLOY derived
- Strategy from
pattern the
specific
of
as a sequence position
situation
action
of tactic, of the
actionsa that company
consciously in or
its
- Strategy a a specific specific trick
enviroment
unconsciously results in a pattern

“Strategy making needs to function beyond the boxes, to encourage the informal learning that produces and new
combinations” – Henry Mintzberg
Intend
Planned and emerging (emergent) Strategies ed Str
ategy
Cons
cious
Strat
eg y
Unrealised
Strategy
Realised Strategy
gy
St rate
er ging
Em
TEN STRATEGY SCHOOLS OF THOUGHT IN THREE GROUPS

PRESCRIPTIVE SCHOOLS  more philosophy, write everything in a paper by analyzing all you have

1. Design school: Strategy formation as a process of conception

Conceptual process: “in simple terms, the design school propose a strategy development model that seeks an alignment
of internal capabilities with external opportunities, or a harmonization between the two…Strategy is tailored to the
business” “The motto of the design school is to adapt, to create a match” (create the perfect match to be successful)
The 7 Premises:
1- Strategy development should be a deliberate, conscious process (you can control everything)
͐ Effective strategies emerge in a strictly controlled process of human thought
2- Responsibility for ensuring that conscious control remains with the business leader: This person is the strategist
͐ At the end of the day, there is only one real strategist: The one at the top of the organization (the top management
is responsible (only) for taking influence in strategy)
3- The model of strategy development must be kept simple and informal
͐ The goal is to increase the possibility of control through this simplicity
4- Strategies should be of one piece: The best ones result from a process of individualized design
͐ Strategies are tailored to a specific situation  respond to the individual case  design school focuses on the
process of developing the strategy (this is for individual design strategy situation)
5- The design process is complete when the strategy is available as a perspective
͐ The strategy is a perspective formulated at a defined point in time as final and ready for implementation (when you
formulate the strategy is done, action in not part)
6- The strategies should be explicit, so they must be kept simple
͐ The strategy should also be understood by all other members of the organization. To this end, it must be kept
simple
7- These unique, comprehensive, explicit, and simple strategies cannot be implemented until they are finally
formulated
͐ Design school follows the rational, classical ideas: Diagnosis  Prescription  Measures
Example

SWOT  Strength/ Weaknesses/Opportunities/Threats. Assessment of the external and internal situation

Extern Intern
Threats: threats from the Strength: In what things is
extern market strong the organization

Oppotunities: chances Weaknesses: In what things

from the extern market is weak the organization
 External Internal Strengths (S) Weaknesses (W)
Factors Factors ͐ Quality culture ͐ No marketing structures
͐ Large experience in mapping ͐ Divisional structure
operations ͐ No flexible system
͐ Availability of hard/software ͐ Lack of operations management
͐ Well trained personnel/staff
development

Opportunities (O) SO Strategies WO Strategies

͐ Growing number of new
customers
͐ Established copyright
legislation
͐ Growth of E-Commers
͐ Enabling power of GI
technology
͐ Use internet for easier/cheaper
product dissemination
͐ Optimize production system making
use of available technology and staff
͐ Certify products protected by
copyright
͐ Develop marketing mechanisms to
better identify customer´s
requirement
͐ Re-engineer production system using
GY technology + ops. Mgt. techniques
to enable product diversity for E-
Commers
͐ Develop business units

Threats (T) ST Strategies WO Strategies

͐ Cut in government ͐ Find new market niches to recovered ͐ Develop marketing mechanisms to
budget part of costs (new users, new better identify customer´s
͐ Dissatisfaction of user products) requirements
community ͐ Make use of culture, capabilities and ͐ Re-engineer production system using
͐ Growing competition experience to satisfy users and to GI technology + Ops. Mgt. techniques
from private sector enter competition to enable product diversity to better
͐ Easy access to ͐ Do not oppose but co-operate with compete
easy/cheap technology private sector (partnership)
by competitors
Criticism:
 Assessing strengths and weaknesses: Bypassing the learning
> Strategy development as a process of conceptualization, not a process of learning
> Strengths and weaknesses are assessed by management considerations
> Question, however, is whether an organization can be truly sure of its strengths before it has tested them out
 Structure follows strategy: like one step following the other
> Strategy of a company takes precedence over its structure and thus over established capabilities of the company
> Past influences the development of the company. Therefore, the existing structure plays a very important role
> Structure may be malleable but cannot be changed arbitrarily structure and strategy are interdependent
 The explicit formulation of the strategy promotes inflexibility
> Design school demands explicit articulation  SW – They are not tested,
> However, when strategy is strictly and narrowly specified, it is because learning/action is not
difficult to deal with inflexibility part
> Explicit strategies are blinders  Very inflexible
 Separation of formulation and implementation  Only focus in the past (but
> Managers who develop strategies must also themselves seek contact things change)
with customers and operation, take care of details, etc
> Thinking and acting must occur in tandem and be closely linked
(learning processes)
Application
 Design school model may best be applied at the intersection of a huge shift for an organization, coming out of a
period of changing circumstances and into a stable circumstance
 The model is applicable in a new organization. It will set clear sense of direction for it to compete against its more
established competitors
 It is useful when something is changing (to adapt)
2. Planning school: Strategy formation as a formal process

Formal process: “The main messages of the planning school (…): formal procedures, formal training, formal analysis and
lots of numbers” “Take the SWOT model, break it down into clear steps, supplement those steps with lots of check lists
(clear steps) techniques, and put special emphasis on putting goals at the beginning and developing budgets and
operational plans at the end. Don´t forget at least one general flowchart”

It doesn´t work because the ones that make it don´t talk to the staff, so it´s far away from reality

The 3 Premises:

1. Strategies result from a controlled, deliberate process of formal planning; they are divided into individual steps,
each of which is specified by checklists and can be carried out using concrete techniques
2. In principle, responsibility for this general process lies with the company manager, in practice, responsibility for its
execution lies with the staff experts in the planning development
3. The strategies resulting from this process are ready formulated and must be explicitly recorded so that they can be
implemented with detailed consideration of objectives, budgets, programs, and operating plans of various kinds

Steps in creating an effective strategic

plan:
 Objective setting stage
 External audit stage
 Internal audit stage
 Strategy evaluation stage
 Strategy operationalization stage

The seven deadly sins (pecados capitales)

of strategic planning according to Wilson
(1994):
1. The staff units dominated the process
2. The process dominates the staff units
3. Planning systems were virtually designed to produce no results. The “implementers” distanced themselves from the
guidance from the staff offices
4. Planning focused on the far more exciting game of mergers, acquisitions, and spin-offs at the expense of core
business development
5. Planning processes were unable to demonstrate real strategic choices. “Planners” took the first-best strategy that
corresponded vs. the “best”
6. Planning ignored organizational and cultural imperatives related to strategy
7. Isolated forecasts were an inappropriate basis for planning in a time of restructuring and uncertainly

Disadvantages
⸸ Can be too static
⸸ Risk of groupthink
⸸ Predicting is difficult
⸸ Top management must create strategy from an ivory tower
 Criticism: “Because analysis and synthesis are not the same thing, strategic planning was not the same thing as
strategy development. Analysis can precede and support synthesis by providing certain necessary inputs. Analyses
can follow synthesis and take it further by illuminating and formalizing its consequences. But analyses cannot
replace synthesis. No amount of elaboration and refinement will ever enable formal procedures to forecast
discontinuities, inform reality-impaired, isolated managers, or bring about new strategies. That is, not only can
planning not produce new strategies, but planning is not possible unless strategies first exist”
3. Positioning school: Strategy formation as an analytical process

General – analytical process: “There are only a few, generic strategies that are ͐ Porter and Mintzberg are part of
desirable as market positions in a given industry: namely, those that can be this school
defended against existing and future competitors” ͐ Forces of Porter is an example
͐ Gives up the main premise of the design school – namely, that strategy must ͐ Everything ends up between
be unique and tailored to the organization- and develops a set of analytical uniqueness and the culture of the
tools to match the right strategy to the prevailing conditions organization
͐ Strategy development – as with design school and planning school – is a ͐ Focus on analyzation,
implementation is another part
controlled deliberate process
͐ At the end of the process, strategies are explicitly defined and then formally
implemented

The 5 Premises

1- Strategies are generic, specifically common, identifiable positions in the marketplace

2- That marketplace (the context) is economic and competitive
3- The strategy formation process is therefore one of selection of these generic positions based on analytical
calculation
4- Analysts play a major role in this process, feeding the results of their calculations to managers who officially control
the choices
5- Strategies thus come out from this process full blown and are then articulated and implemented; in effect, market
structure drives deliberate positional strategies that drive organizational structures

BCG´s Portfolio matrix

Porter´s five forces framework

Forces that influence competition

1. Threat from new market entrants

͐ High barriers to entry reduce the competitive situation
͐ Low barriers lead to intense competition
2. Negotiating power of the company´s suppliers
͐ The side that has more choices and less to lose if the relationship is resolved has an advantage
3. Negotiating power of the company´s customers
 ͐ Customers are anxious to achieve a reduction in price or an increase in quality. They achieve this through
the number of products they buy, through information, and through willingness to consider alternatives
4. Threat of substitute goods
͐ Rivalry depends on the extent to which the products of one industry can be substituted by other products of
another industry
5. Intensity of rivalry between competing firms
͐ Entrepreneurs vie for the best positions

Porter´s generic strategies: Where do you want to position your organization?

1. Cost leadership: Strategy aims to produce at the lowest cost in the industry
2. Differentiation: Strategy focused on developing unique products or services built on brand/customer loyalty. Higher
prices are justified by more quality and/or USP of products
3. Focus on key areas: This strategy is focused on serving a narrowed market segment. In these market segments, the
aim is again either cost leadership or differentiation

The value chain

Profit

Development

Profit

Criticism:

 Context: Positioning school favors traditional, large firms  concentrate market power, competition is least
effective, potential for political manipulation is greatest. Internal opportunities are rarely considered  focus on
externalizing, such as industry and competition
 Process: Process to strategy builds on “internal analysis” of strategy staff. Porter: “Strategy is something derived and
something calculable”. Focus on the purely quantifiable; even non-quantifiable economic factors are largely ignored
 Strategies: Focus leads to a narrow field of vision  in extreme cases, the process is reduced to a formula to select a
position from a limited list of conditions – “paralysis by analysis”

DESCRIPTIVE SCHOOLS  the action is part of these types of school. More dynamic vision: you don´t divide analyses and
the implementation. You are more flexible to change the strategy while things change

4. Entrepreneurial school: Strategy formation as a visionary process

Strategy development is “not only a unique (…) to a single leader (…), but also involves the most personal mental states
and processes such as intuition, judgment, wisdom, experience, and insight. Strategy is a perspective that comes with an
image and a direction to be taken – a vision”

Premises

1- Strategy exists in the mind of the leader as a perspective, specifically as a sense of long-term direction, as a vision of
the organization´s future
2- The process of strategy formation is semiconscious at best, rooted in the experience and intuition of the leader,
whether he or she conceives the strategy or adopts it from others and then internalizes it in his or her behavior.
What does she or he does? Very obsess with one person
3- The leader promotes the vision single-mindedly, even obsessionally, maintaining close personal control of the
implementation in order to be able to reformulate specific aspects as necessary
4- The strategy vision is thus malleable, and so entrepreneurial strategy tends to be deliberate and emergent –
deliberate in an overall vision and emergent in how the details of the vision unfold
5- The organization is likewise malleable, a simple structure responsive to the leader´s directives, whether an actual
startup, a company owned by an individual, or a turnaround in a large established organization many of whose
procedures and power relationships are suspended to allow the visionary leader considerable latitude for
maneuver. We must do whatever the leader said. They make all the rules and guides every single part
6- The entrepreneur´s strategy usually targets market niches that are protected from the direct forces of direct
competition.

The basic model

Criticism:

 Strategy development is a process that happens in the behavior of an individual. Just watching what this
entrepreneur does, the company has a hole without it; it doesn´t have a personal strategy as a company. Always
waiting to see what move this person is going to make
 The process is essentially a “black box” from the outside
 The key decisions – of whatever impact – are made in the “head” of the entrepreneur. The advantage of “rapid
response” are offset by the disadvantage of “single person” risk
 Entrepreneurial approach risky because it depends on the physical and mental health and will of a single person
 Therefore: Collins & Porras advocate a visionary organization instead of a visionary leader: “Having a great idea or
being a charismatic leader is akin to reading time from the passage of the stars. Building an organization that can
succeed well beyond the lifetime of a single leader through many life cycles is like building a clock”
 Entrepreneurial school: strategy development for “entrepreneurial organizations” – small companies in the start-up
phase or companies in the start-up phase or companies in the “turnaround case”
5. Cognitive school: Strategy formation as a mental process

The philosophy  It is the study of cognition and the underlying mental process equal (=) of being aware, thinking,
learning, and judging. “What we perceive, what we believe”
Premises:
1. Strategy formation is a cognitive process that takes place in the mind of the strategist
2. Strategies thus emerge as perspectives – in the form of concepts, maps, schemas, and frames – that shape how
people deal with inputs from the environment
3. These inputs (according to the “objective” wing of the school) flow through all sorts of distorting filters before thar
are decoded by the cognitive maps, or else (according to the “subjective” wing) are merely interpretations of a
world that exists only in terms of how is perceives. The seen world, in other words, can be modeled, it can be
framed, and it can be constructed
4. As concepts, strategies are difficult to achieve in the first place, they are far from optimal when actually realized,
and they are difficult to change when they are no longer valid
Perception Concept Attainment Reconception Cognitive Style
Duality
 The focus here is on the question of how the “thinking” of strategists arises
 Strategists are more or less autodidacts
o The direct, own experience forms the knowledge…
o Which in turn influences the way of acting…
o And thus, accompanying experience

Objective Cognitive School

(Positiv wing): It deals with
the processing and
structuring of knowledge as
an attempt to create an
objective picture of the world
Subjective Cognitive School
(Constructivist Wing): Here the
strategy is an interpretation of the
world i.e. the school focuses on
the subjective reception of the
world in the mind of the observer

Objective cognitive school (Positivist Wing): Individuals and organizations operate on essentially identical principals 
> Information processing begins with attention
> Proceeds to encoding
> Enters the stage of storage and retrieval
> Culminates in decision making
> Ends with the evaluation of the result
> Attention: determines what information is processed and what is ignored
Coding  The coding gives meaning to the information
⸸ Match between the information and the categories available. At the heart of the process is a shared knowledge
structure among the group, through which a common framework of interpretation emerges
⸸ 2 types of frames: “existing” and “emerging” frames
Storage/Retrieval  thought processes begin with memory. Memory in the case og an organization are associations of
forms, rules, procedures, agreements, and technologies
Decision  Decisions “Emerge”; they do not take place in a defined and planned way
Results  Start of the feedback process, Importance of the decision flows in
Subjective School (Constructivist Wing): The vision as an interpretation of the world, transformed into a collective reality
⸸ Objective environment  Assumption “organization” is embedded in an “environment” that This is the environment
exists externally and independently. The schools (design, planning, positioning) imply this
assumption, especially that this environment is “concrete”, “objective”, and “externally”
⸸ Perceive environment  Assumption as above, BUT strategies fall into the trap of the limits of See this as an environment

rationality and their incomplete and erroneous perception of the “environment”

⸸ Environment as basis for action  Assumption as above is untenable as it is. What is called
“environment” is created by human action and human thinking. The strategist tries to establish I create my environment

relationships by translating connections and patterns into actions

6. Learning school: Strategy formation as an emergent process

“Strategies emerge as people learn about a situation as well as their organization´s ability to deal with the situation (…)
Strategic management is no longer just the management of change, but it is management through change (…) In stark
contrast to the other schools, the learning school thinks that the traditional picture of strategy formulation is a fantasy.
This fantasy may have its appeal to certain managers, but it does not reflect what actually happens within
organizations”

Premises:

1. The complex and unpredictable nature of the organization´s environment, often coupled with the diffusion of
knowledge bases necessary for strategy, precludes deliberate control; strategy making must above all take the form
of a process of learning over time, in which, at the limit, formulation and implementation become indistinguishable
2. While the leaders must learn too; and sometimes can be the main learner, more commonly is the collective system
that learns: there are many potential strategists in most organizations
3. This learning proceeds in emergent fashion, through behavior that stimulates thinking retrospectively, so that sense
can be made of action
4. The role of leadership thus becomes not to preconceive deliberate strategies, but to manage the process of
strategic learning, whereby novel strategies can emerge
5. Accordingly, strategies appear first as pattern out of the past, only later, perhaps, as plans, and ultimately, as
perspectives to guide overall behavior

Market-based vs. The resource-based approach to strategy

- The success of a company is due to its market position,

which protects against competition
- Competitive advantage are explained by the industry
Market-
structure and the strategic behavior of the company
oriented
approach - Success factors are derived from the requirements of the
market or the environment
- Outside-in perspective concepts: 5-Forces Analysis,
Experience Curve

- The success of an enterprise is due to the capability and

learning ability of the organization
Resource- - The quality of the resources represet the source for the
oriented lasting success of an enterprise
approach - Inside-out perspective
- Concepts: concept of core competencies, knowledge-
based approach

Internal Corporate Venturing Process (Bulgelmann 1983)

→ Strategic initiatives develop deep within a hierarchy and are then led by middle management, who must first get
permission from the hierarchy to develop this further
→ Activities of lower and middle level managers provide significant strategic input – top managers can influence this by
providing a structured context
→ Bulgelman: “The engine of the company is the strategic initiative of individuals outside the current concept of
corporate strategy”
Retrospective sense fulfillment (Karl Weick)
→ In contrast, fundamental and decades-old principle: Prescriptive school, which states that strategy formulation
comes before implementation
→ Karl Weick: The management puts a sense on the past action and the experience from it afterwards. In “reality” it is
not possible to first complete an analysis and then let it be followed by integration
→ Reason: the world is not a stable and finite entity that can be analyzed and assembled into a picture
→ The world is “enacted”, that is, reality is created through a constant interpretation and updating of our past
experience
→ A company learns from its experience and only reapplies those that Strategy as
have led to success (from the company´s point of view) from the Set of Common
interpretation of the past and finally arrives at a strategy that suits Positions pattern
it exactly Intended To
Planning
→ Forming Sense  According to K. Weick, meaning is formed out of Strategy plan imagine
the experience of the past as Emergin
Explore Learning
o Thus, organizations can learn by recognizing pattern in their g pattern
own behaviors and thus transforming emerging strategies of the past into conscious strategies for the futures
o Thus, behavior (contrary to the assumptions of prescriptive schools) influence strategy
 o A learning model of strategy development is formed by itself

Criticism:

 No strategy: “Constant nibbling, instead of determined biting” – a clear line in tactical maneuvering can get lost.
Especially in crises, there needs to be a powerful leadership that has a strategic vision for saving the organization
 The lost strategy: an overemphasis on learning can also lead to the undermining of a coherent and fully applicable
strategy, with staff implementing only what is new or interesting. “Johnson describes this problem: Step by step,
gradually, perhaps imperceptibly, the organization drifts away from its established strategies, ultimately to the
detriment of all”
 Wrong strategy: incremental learning can encourage a strategy that was not intended to be that way, and thus step
by step the organization is lured into an undesirable position. Small decisions sometimes lead to big, undesirable
strategies
 Beware of learning: learning is not a panacea. Besides learning, regular work needs to be done efficiently. In
addition, “groupthink” can steer the organization in the wrong direction and there is also “negative learning”. That
is, when failure occurs, people tend to give in to the hope that everything will be okay again instead of facing reality.
Learning is also resource intensive and therefore expensive – so it must be well “portioned” and applied
7. Political/Power school: Strategy formation as a process of negotiation
“The power school defines strategy development as a process of undisguised influence in which power and politics are
used to impose strategies that serve particular interests”. “Strategy DEVELOPMENT EMERGES from negotiation and
compromises among competing individuals, groups, and coalitions”
Two 2 directions:
> Micro power school deals with the political processes within the organization, especially in the context of the
strategic management process. Strategy development as a political process
o Strategy development as a process of planning, analysis, cognition, and learning
o Likewise, strategy development can be said to emerge from negotiations and compromises among competing
individuals, groups, and coalitions  Organizational Politics
o These on organizational politics according to Bolmann and Deal (1997):
1- An organization is a coalition of different individuals and interest groups
2- There are enduring differences among the members of a coalition in terms of values, beliefs, information levels,
interests, and perceptions of reality
The power of conflict and power
3- Most major decisions involve the allocation of
Conflict intensity
scare resources Conflict range
Weak Strong
4- Resources scarcity and enduring differences Limited “Shaky Alliance” “Confrontation”
bring conflicts to the center of organizational “Politicized “Complete
dynamics; and power becomes the most Wide
Organization” Political Arena”
important resource In addition: Macro Power and collective strategies
5- Objectives and decisions emerge from
negotiation and positional struggles between different stakeholders
o Conclusion: Strategies emerging from such a process are not necessarily optimal, rather they reflect the interests
of the most powerful groups within organizations
> Macro power school deals with the use of power by organizations – interdependence between an organization and
its environment  Interdependence between an organization and its environment
o From a macro power perspective, strategy consist of
 To regulate the demands of the actors (suppliers, customer, trade unionists, competitors, politicians, …)
 To involve the actors selectively in the interest of the organization
o Pfeffer and Lancik (Power School): “…Organizations are able to adapt and change to meet environmental needs;
or … they can seek to change the environmental to match their capabilities”
 External context: environment
 Companies do not compete for positions in the marketplace, but are highly exposed to interdependent and
complex organizational, legislative, and professional systems
o Porter (Positioning School)
 External context: Market
 Companies compete freely for positions in the market
 o Organization can follow three basic strategies:
1- The organization can simply deal with a demand the moment it arises
a. Sequential engagement with goals vs. a simultaneous engagement with goals e.g., financial goals and
market share gains
2- The organization may strategically withhold and disclose information
a. Expectations are thereby manipulated, and outcomes are influenced
3- The organization can play the groups off against each other
a. By e.g., contrasting salary demands of workforce vs. public image
o Stakeholder analysis (Freemann 1984 “Stakeholder strategy formulation process”)  Model for rational analysis
of the forces/influence of interest group (stakrholders)
1- Analysis of stakeholder behavior
a. Class 1: Observing behavior
b. Class 2: Cooperate potential
c. Class 3: Competitive threat
2- Explanation of the behavior of the stakeholders  from a rational, logic argumentative perspective of a
manager
3- Coalition analysis  Possibility of coalition between/with the interest groups
This results in 4 types of strategy:
1. Offensive (attempt to change the goals of the 2. Defensive (linking the goal to others that are more
interest group) desirable in the eyes of the stakeholder group)
3. Insisting on the current position 4. Change the rule
Premises:
1. Strategy formation is shaped by power and politics, whether as a process inside the organization or as the behavior
of the organization itself In its external environment
2. The strategies that may result from such a process tend to be emergent and take the form of positions and ploys
more than perspectives
3. Micro power sees strategy making as the interplay, through persuasion, bargaining, and sometimes direct
confrontation, in the form of political games, among parochial interests and shifting coalitions, with nondominant
for any significant period time
4. Macro power sees the organization as promoting its welfare by controlling or cooperation with other organizations,
through the use of strategic maneuvering as well as collective strategies in various kinds of networks and alliances
8. Cultural school: Strategy formation as a collective process
“Culture (is) what makes the way we do all the things unique…Culture is the most enduring
and effective barrier to imitation and thus the basis for a sustainable, successful strategy”.
Deals with the influence of culture, specifically corporate culture, on the process of strategy
development and on attitudes toward change and strategic change
Culture Iceberg 
҉ Visible part of the iceberg: language, food, clothing…
҉ Below the superface is a non-instantly-visible part: communication styles, beliefs,
behaviors, values, and perceptual patterns
҉ Consequences: We are only a small part aware of the mental programming we are
exposed to. How this distinguishes us from culturally different people depends on the
non-visible part
҉ According to Bridges: Reasons for the frequent failure of many (change) processes are
often found in the existing culture
҉ When it comes to change, companies often focus on “hard factors” Visible organizational
(dimension change) Artifacts structures and processes
o Are visible to the outside (hard to decipher)
o But represent only the tip
Strategies, goals,
҉ The “soft factors” are often neglected (dimension transition)
Espoused Values philosophies (espoused
o Are not directly visible, “under water” justification)
o Represent a large part of the iceberg
Organizational Culture Model: Three-level model according to Schein Unconscious, taken-for-
Basic Underlying granted beliefs, perceptions,
Assumptions thoughts, and feelings
(ultimate source of values
and action)
Schein clarifies the different facets of organization in his three-level model. According to his aspects of culture are not
always equally observable. Schein arranges these different levels of culture according to the degree to which they are
observable: The top level is that of artifacts, the middle level that of values, and the lowest level that of basic
assumptions
The 5 premises
1. Strategy formation is a process of social interaction based on the beliefs and agreements of the members of an
organization
2. An individual adopts these beliefs in a process of cultural appropriation or socialization that is essentially silent and
nonverbal, although sometimes supported by formal indoctrination
3. Members of an organization can therefore only partially describe the beliefs that underlie their culture, while their
origins and explanations remain hidden from them
4. As a result, strategy does not primarily take the form of positions, but is a perspective rooted in collective (not
necessarily explicitly stated) intentions are expressed in the patterns by which the organization´s deeply held
resources or capabilities are preserved and used to its competitive advantage. Strategy is therefore best described
as intentional (if not fully conscious)
5. Culture and, in particular, ideology are less supportive of strategic change and more supportive of maintaining the
current strategy: at best, they are likely to demand shifts in position within the organization´s overarching strategy
Connection “Culture” and “Strategy”
1- Decision-Making Style: Culture acts as a perceptual filter, which in turn determines the decision-making premises
for stakeholder. Organizations with different cultures operate in the same environment but interpret it differently.
Each organization develops its own logic that acts as an information filter and thus the strategy determines what is
relevant or not to the organization
2- Resistance to strategic change: Deep-rooted beliefs and unspoken assumptions of culture present internal
obstacles to fundamental change. Karl Weick: “It´s not that [a] company has a culture. A company is a culture. That
´s why it´s so terribly difficult to change a culture.” Tendency to cling to beliefs of the past leads to clinging to
existing strategies that are embedded in the culture as perspectives
3- Overcoming resistance to strategic change: Bjorkmann (1989): The prerequisite for a radical change in strategy is a
fundamental cultural change, in which he distinguishes between the following 4 paths 
1. Strategic drift: with radical change, gap widens between organizational belief system and environmental
characteristics
2. Loosening of existing belief systems: Drift leads to crisis of the organization and thus the dominant beliefs of the
organization are challenged
3. Experiments of reformulation: Confusion and search for new, allows for new vision formulation
4. Stabilization: Positive feedback gradually leads to the anchoring of a new belief system of the organization
4- Prevailing values
1. Peters and Waterman (1982): “Excellent companies are dominated by key values such as
service, quality and innovation”
2. Peters and Waterman´s 7-S framework (1980): A successful organization is characterized by a
harmonious relationship between the 7-Ss
5- Collision of cultures: Every organization is characterized by (at least one) culture. Mergers,
acquisitions, etc. must be examined from the point of view of the different cultures. One
explanation why >60% all mergers fail is the “Collision of cultures”
How can organizations adapt successfully? Rhenmann and Noemann (1973) see organization as a
collective social system and in this the coordination “the consonance” is important – to achieve such a consonance four
mechanisms are suitable:
1- Mapping: Representation of the environment in the form of a “map”
2- Reconciliation: Complementing the environment
3- Joint consultation: Support and cooperation with the neighboring system in sharing the common environment
4- Predominance: The ability of a system to project its own map onto the environment
Resources of the basis of competitive advantage
 Material Culture: Material resources such as machines, buildings, or less tangible resources (e.g., scientific know-
how) form a “material culture” in interaction with organizational members – these consciously or unconsciously
reflect the beliefs of groups/individuals. This also applies to Vice-Veras, objects create and shape beliefs and values
o E.g., Automotive manufacturing also reflects the difference between cultures
 o On the market compete not only products but also the production systems
 Diversification of the companies: Penrose  New product on the market, but it finds no use: Why not sell to the
highest bidder? Reason – imperfection/failure of markets to judge products. Example – A produces product P. B
does not recognize this as advantageous for B, which would be a prerequisite for purchase. Thus, A must prove this
to B
o Companies derive their advantages from the imperfection of the market. Uniqueness provides the basis for
enterprise development. The uniqueness itself derives from the unique capabilities and resources of the
company
o Thus, large, diversified companies (GM, Altria, Unilever…) emerge
 J.B.Barney: “Resources include: A company´s total holdings of assets, capabilities, organizational processes,
information, knowledge, etc. These enable the company to develop effective strategies”
o A company is a bundle of physical capital resources, human capital resources and organizational capital
resources
o Four criteria by which a company identifies which resources are strategic = VIRO Framework
Do a company´s resources and capabilities add value by Do firms that do not possess a resource or capability
enabling it to take advantage of opportunities and/or have a cost disadvantage in acquiring that imitability
neutralize threats? compared to firms that already posses it?

Values Imitability

Organization Rarity
Is a company organized to realize the full competitive How many competing companies already have these
potential of its resources and capabilities? valuable resources and capabilities?

9. Environmental school: Strategy formations as a reactive process

“The environment is the key actor; the organization is passive”. Environment is seen as a set of forces that act as central
actors in the strategy process. An organization must adapt to this, or it is “selected away”. Leadership role is passive
 Environment is defined as all elements that exist outside the boundary of the organization and have the potential to
affect all or part of the organization Origins of the thought
 Environment is an actor, rather than a factor  Biology:
 A reactive process o Adaptability and survivability
 Highly related to:
 Strategy as a response o Contingency theory
o The situational leadership
The 4 Premises: o Population ecology
1- The environment, which presents itself to the organization as a set of
general forces, is the relevant actor in the process of strategy development
2- The organization must respond to these forces or be “read out”
3- Leadership thus serves the passive purpose of interpreting the environment and ensuring appropriate adaption of
the organization
4- Over time, clusters of organizations develop in various ecological niches and remain in their niches until resources
become too scarce or conditions too hostile. Then they die

Definition environment and its delimitation

1- Environment to the organization is everything that is not organization, e.g., customers, suppliers, legislator,
competitors, owners, NGO´s
2- Environment in the other learnings schools
Positioning school Learning school Environmental school
Environment = Entity of economic Environment = Place in/with which one Environment = Decisive actor;
forces – industry, competition, and experiences, experiments and acts; organization is a passive entity that
market from which one learns responds to the environment
3- Strategists:
⸸ Strategist in the design and entrepreneurial school is the boss
⸸ Strategist in the planning and positioning school is the boss + planner and analyst
⸸ Cognitive school show the limitation of the strategic thinker in a complex world
⸸ Learning and power school introduce additional “strategist”
⸸ Environmental school does not need a strategist because the “strategist” is the environment
Population Ecology
» Central concern: Explaining long-term change in entire populations of organizations in response to changes in the
environment
» Unit of analysis: Population of organizations (“common blueprint”); Delineation of populations (e.g., by products,
isolation due to structural inertia); Niche is activity space of a population/organization
» Emergence of population: Variation, selection by environment, and retention/reproduction
CONFIGURATION SCHOOL
10. Configuration school: Strategy formation as a process of transformation
“All the other schools of thought are relevant – in their application situation. The configuration school unites them all. It
offers the possibility to integrate and reconcile the statements of the other schools”. Different situations produce
different behavior. Each situation in the market and the dynamics of development of the company requires a strategy
adapted to it
The 6 Premises:
1- Most of the time, an organization can be described in terms of some kind of stable configuration of its
characteristics: for a distinguishable period of time, it adopts a particular form of structure marched to a particular
type of context which causes it to engage in particular behaviors that give rise to a particular set of strategies
2- These periods of stability are interrupted occasionally by some process of transformation – a quantum leap to
another configuration
3- These successive states of configuration and periods of transformation may order themselves over time into
patterned sequences, for example describing life cycles of organizations
4- The key to strategic management, therefore, is to sustain stability or at least adaptable strategic change most of the
time, but periodically to recognize the need for transformation and be able to manage that disruptive process
without destroying the organization
5- Accordingly, the process of strategy making can be one of the conceptual designing or formal planning, systematic
analyzing or leadership visioning, cooperative learning, or competitive politicking, focusing on individual cognition,
collective socialization, or simple response to the forces of the environment; but each must be found at its own time
and its own context. In other words, the schools of thought on strategy formation themselves represent particular
configurations
6- The resulting strategies take the form of plans or patterns, positions or perspectives, or else ploys, but again, each
for its own time and matched to its own situation
Two wings of the school: Configuration and transformation
Configuration Transformation
Describes state of the organization and its environment: Strategy development process: Jumping from one state
“It describes the relative stability of strategies within the to the next. It is “the process as a process of dramatic
context of given states, a stability punctuated by transformation”
occasional, fairly dramatic transitions to a new state” » Representative: Tends to be practiced by managers
» Representative: Studied and described by academics and mandated by consultants
(focus here: Concept)
Connecting: Transformation is always a consequence of a configuration
False assumption that strategies are about change. They are about continuity
Connecting point: Two sides of the same coin. There are periods of coherence and periods of change
While strategy design aims to change the direction, a company is moving in, the strategies developed stabilize that
direction
 “The horse (the process) must pull the cart (the state) along from time to time”
Growing pains of an organization; times of revolutionary and evolutionary change

The 4 situational factors according to H. Mintzberg

1- The age and size of the institution

» The older and larger the organization, the higher the level of formalization – measured in terms of interfaces, job
descriptions
» The structure of the organization is a reflection of the age of the sector
» The larger the organization the more differential the structure
2- The respective base technology
» The more control-intensive the basic technology, the more formalized the execution of the work (e.g., chemical
industry with constant monitoring)
3- The stability of the environment
» The more complex/diverse the environment, the more decentralized the structure
» The more hostile the environment, the more centralized the structure – temporary centralization
4- Distribution of power and control
» The greater the external control, the higher the centralization/formalization of the structure

Categorization of organizations by structure and power relationship according to Mintzberg

 Emerging organization (e.g.: Start-up)

→ Informal and flexible
→ Boss coordinates activities and forms a unit with employees
 Machine organization (e.g.: Mass production-automotive industry)
→ Includes technocratic and support staff
→ Line hierarchy in the center
 Professional or expert organization (e.g.: Hospital)
→ Dominated by professionalism at the operation level
→ Decentralized structure, coordination based on expectations
 Diversified organization (e.g.: Conglomerate)
→ Group of independent units with their own structures
→ Remote headquarters takes over “performance control”
 “Adhocracy” organization (e.g.: advertising agencies)
→ Complex innovations require project orientation
→ Power is based on expertise
→ No strict separation of staff & line
 Missionary organization (e.g.: Religious organization)
→ Strong culture leads to low specialization
→ Shared values and beliefs
 Political organization (e.g.: Government agency)
→ Neither stable power system nor dominant element
→ Conflicts
→ Especially in phases of difficult transformation
As a strategy cycle (According to D. Hurst): “In sharp contrast to the linear life cycle described by Chandler, for example,
this model propagates an infinite loop in which crisis and renewal follow one another and which places the approaches
of many of our schools in a sequence”

All the schools:

Strategic management according to Henry Mintzberg: “There is no formula for transforming an organization, and that
includes even the notion that the organization need to be changed in the first place”. “We have to ask better questions
and less hypotheses- we have to allow ourselves to be pulled by the concerns outside instead of being driven by the
concepts inside. And we have to deal with process and content, with static and dynamic, with the cognitive and the
collective, with the planned and learned, with the economic and the political”. “In other words, we need to examine not
just the parts, but the entire body of the strategy development”
STRATEGIC LOOP
Different Strategy forms Strategy Approach
Where does strategy Forms of strategy development
happen and by whom
is it executed? Implicit Explicit
Externally Intuitive Expert-orientated
Internally Evolutionary Systematic
Problems:
Intuitive: Dependence on a single person
Expert-orientated: The human factor and the complexity of the
environment are not taken into account
Evolutionary: Risk of having no clear scope for action, no need for change
Strategy Process
Setting the Analyze the Formulate Implement
strategic agenda situation Strategy Strategy

Industry
Identfy the Analysis
Performance Diagnose Formulate Implement
current
estimation pergomance strategy strategy
strategy
Analysis of
resources and
capabilities

“Systematic” Strategy Loop  An alternative and dynamic process

 The blind spot is always part of strategy: An organization must be aware of this and therefore question its own
decisions through a continuous strategy process
 The strategy process does not happen by chance but must be controlled and implemented in a targeted manner.
This requires time in addition to everyday operations
 The “loop” symbolized the fact that an organization consciously takes time for the strategy process and therefore
“pulls out” of its daily operations, reflects on its strategic framework, discusses it, enriches it and adjusts it if
necessary

1. Phase: Strategic framework  The first three steps of the strategy loop are implemented in the strategic framework
phase: Analyze, invent the future, and decide
1- Analyze: In the first step, the initial situation is analyzed and a critical look is taken at how your company is
positioned, what core competencies, strengths, but also what weaknesses it has, what the market situation is
like and who the competitors are or how they are positioned
2- Creating the future: Only then are strategic options considered; What different future developments are
conceivable and how does the company want to position itself here? What are the strategic goals and how can
they be achieved? How does the product/market portfolio need to be adapted to this?
3- Decide: Finally, one decides for a way, which is calculated and estimated economically, and analyzes how much
this decision could cost the enterprise in the Best-Case scenario, in addition, in the Worst-Case scenario, and/or
which risks there are and how probably these could occur 2 Phase: Step 4/5 are the most challenging one -
2. Phase: Implementation of strategy  In this phase, the fourth and translate into vision. Things change make people
fifth steps of the strategy loop are processed: Draw a picture of scare, need new competences. Challenge to make it
the future and rebuild it organically. Here, the contents developed
clear for the employees (get feedback of them, they
in the first phase of the strategic framework are introduced into
are part of the decision making) and other parts of
the organization and implemented. Fundamentally important core
the company. If this is not working the 3 phase is
 elements – Employee acceptance: It is important that the employees of the entire organization are informed about
the strategy implementation and involved in the process. This is because the newly defined or, if necessary,
adjusted vision of the future of the organization implies organizational changes. It is important that the employees
not only understand these changes, but also support them, because ultimately, successful strategy implementation
depends on the acceptance and willingness of the employees to accept and implement them. Important and
central, but also the must challenging component, that decisively determines whether a strategy is successfully
introduce – 64% Corporate strategy has too many conflicting priorities; 82% Specialists departments received
competing and sometimes even contradictory instructions from the business units. The main challenges for
strategies according to the survey are:
> Allocating resources in a way, that really supports the strategy
> Ensuring day-to-day decisions are in line with the strategy
> Quickly translating strategic and operational decisions into action
> Setting a clear and differentiating strategy and communicating the strategy and getting but-in for it
4- Drawing a vision of the future: It is therefore essential that in these strategic decisions are anchored in a clear,
coherent, and understandable corporate mission statement, the basic strategy is drawn up and concrete,
transparent, strategic programs and measures are defined that are needed to implement the strategy
Elements of the vision of the future:
͐ Mission: “Why we exist”
͐ Values, principles of an organization: “What we believe in and how we will behave”
͐ Vision (Statement): “What we want to be”
Strategy statement: Describes the competitive position of a company and typically includes describing the
company´s goals, scope of business and uniqueness. To identify a company´s strategy and to get the big picture,
several sources of information must be used, and it must be analyzed exactly what it says it does and what it
actually does
Purpose of corporate mission  really difficult to put the vision, and mission into words. It is difficult to use
good words and a good language. This must be understood worldwide as you want to (how you imagine it)
Decision-making function Objectives provide criteria for the evaluation of strategic alternatives
Coordination function Objectives integrate sub-activities (management by objectives)
Motivation function The identification with company goals creates performance incentives
Information function Objectives singularize future behavior (into the company and beyond the
company)
Control function If goals are concretely formulated, they allow a control of results
Legitimation function Legitimization of future behavior towards stakeholders
5- Organic remodeling: Based on the vision for the future, it is derived how the organization must be adapted in its
structures so that these programs and measures can also be applied. For this purpose, the management
structures as well as the organizational and operational structure are adapted
3. Phase: Dynamic strategy adjustment  This phase focuses on strategic monitoring and implementation. In this
phase we have the sixth and seventh step. The strategic controlling (6°), this step involves defining factors (hard and
soft facts) that helps the organization to control the extent to which the strategy is successfully implemented or to
identify where it needs to be readjusted. It should be noted here that it is not only a matter of readjustment at the
implementation points (measures, organizational structures, etc.), but also of the strategy itself. The
implementation (7°), during this step, the strategy is communicated repeatedly throughout the organization. Here it
is important that the communication is two-way, i.e., that only the strategy and its measures are communicated by
top management to the employees, but also that top management listens to how the strategy is received and
evaluated by the employees. Why this phase is dynamic? It may be that the assumptions and decision made in the
previous phases do not work successfully in the implementation phase. Also, important aspects that should be
adjusted afterwards have been overseen. → To have a successful strategy you need a dynamic strategic, adaption,
that is flexible and willing to learn, and which does not stubbornly and rigorously follow through on the timetable
once set
Methods for determining financial targets
Earnings-related key Key figures derived from the Sales growth
figures for the period accounting system Net income for the year
Balance sheet profit
EBIT (earnings before interests and taxes) (Operating profit)
 EBITDA (earnings before interests, taxes, depreciation, and
amortization)
ROI (return on investment)
Profitability key Key figures derived from the
ROE (return on equity)
figures accounting system ROS (return on sales)
Direct cash flow/Indirect cash flow
Cash flow ratios Cash flow ratios
Operating cash flow/Free cash flow
ROCE (return on capital employed)
Discounted cash flow
Value-oriented key Key figures derived from cash
Shareholder value
figures flows and capital market values EVA (Economic Value added)
CFRoi (Cash flow return on investments)
Shareholder value by Alfred Rappaports Shareholder Value Through Stakeholder Value

Overview Stakeholder

Shareholder Value vs. Stakeholder Value Perspective

Shareholder Value Perspective Stakeholder Value Perspective
Emphasis on Profitability over responsibility Responsibility over profitability
Organizations seen as Means to maximize profits Socioeconomic system
Organizational purpose To serve owners To serve all parties involved
Long-term objectives Maximize shareholder value Sustainability/Viability of long-term
development and survival
Major difficulty Getting agent to pursue principal´s Balancing interests of various
interests stakeholders
Corporate governance Independent outside directors with Stakeholder representation
through shares
Stakeholder management Means End and means
Social responsibility Individual, not organizational matter Both individual and organizational
Society best served by Pursuing self-interest (economic Pursing joint interests (economic
efficiency) symbiosis)
Shareholder and stakeholder value as a management task
 Few possibilities for consensus between the two perspectives
→ Individually different rationalizations in top management
 “It is one of the most diabolical inventions of this time to measure the performance of a company and its
management solely by its share price”
  “What benefits the shareholders also takes into account the demand of the other social groups”
 In day-to-day business, however, management must take both shareholder and stakeholder interests into account
→ “If you ask a manager what he does, her will most likely teel Notes:
you that he plans, organizes, coordinates and controls. Then Soft facts can be asked in KPIs:
observe what he really does. Don´t be surprised if you cannot Happiness/satisfaction of the employees
relate what you see to these four words” The KPIs does not control employees →
Strategic Controlling -KPIs → Key performance indicators = controls the strategy because you review the
performance indicators to manage and control whether the strategic whole strategy; you are a team with all
goals are achieved. Five common errors in the context: employees in order to achieve a bigger goal;
1. KPIs are not aligned with strategic goals But if you control the employee, it seems that
2. Choice of the KPIs is limited to those that can be easily you don't trust in them
measured We need both following KPIS:
3. Selection of KPIs gives too much weight to the past Operational KPIs it’s focused in the now →
4. KPIs are used as a tool for controlling employees which resources do I need now
5. No distinction between strategic and operational KPIs Strategy KPI → it’s aimed and focused on the
Strategic Controlling  Balanced Scorecard. Robert S. Kaplan and vision you try to reach with the strategy →
David P. Norton developed a tool in the early 1990s to improve the medium long-term strategy
effectiveness of strategy implementation. Goals:
 Control and document strategic activities of a company
 Not only financial but also non-monetary elements are essential
 Elements must be balanced
In its form, the Balanced Scorecard consists of the four management perspectives:
1- Financial and value perspective: Determination of the financial
performance and shows whether the strategy improves the
results (e.g., sales, return on equity, profit)
2- Market and customer perspective: Illustration of the strategic
goals of the company regarding its customer and market
segments (development of time targets, key figures and
measures) as well as customer satisfaction and customer
profitability
3- Internal process perspective: Mapping of processes relevant for
financial and customer specific goals (e.g., throughput times,
productivity, process optimization)
4- Innovation and knowledge perspective/Learning and
development perspective: further education and innovation
(e.g., employee qualification, motivation and target orientation
of employees, performance of the information system)
Basic structure within a single perspective
͐ What is the objective?
͐ How can you measure that objective?
͐ What are your targets you want to reach, till when?
͐ What are your initiatives in order to reach your objective?
Balanced Scorecard: Overview 7 Steps
1. Identify vision → Which mission statement does your company have?
2. Identify strategy → What strategy do you want to pursue? Which areas do you need to focus on?
3. Determine perspectives and critical success factors → What must be well mastered in every perspective?
4. Define key figures → What needs to be measured?
5. Evaluate Scorecard → How do you evaluate your scorecard?
6. Create activity Plans → What activities do you need to initiate to achieve your goals?
7. Management and further development of the scorecard → How do you update and maintain your scorecard and
how do you develop it further?
STRATEGIC FORESIGHT
Why Strategic Foresight? New environmental dynamic is breaking up old “stability patterns” → The new stability is being
defined by a permanent dynamic change. The function of organization is to maintain routines
NOTE: The management has to be open to changes, to new environmental changes and they must adapt; they can't do
the same as they've been doing. This change also must be within employees and culture ← strategy loop phase 2
How do companies deal with this challenge, talking in account that they are resistant to
change? New/Change is subversive and contradicts to the logic of organizations
New Topics, New Complexity
 Gartner Hype Cycle for Emerging Technologies 2021
 Internet of Things  Out lot world is growing at a breathtaking pace, from 2 billion
connected devices in 2006 to 46 billion in 2021. By 2030 it is expected that every
customer will own around 15 connected devices
NOTE: They can go down if they do not fill the expectations but also if they do it great, they can go up again. Also, us the
people live in constant change because we are constantly learning new things, every 5 years or so appears very big new
things that we must learn ← example AI replace lawyers in an efficient, costless and faster way than the lawyer people.
“Disruptive competition” → Disruptive – “to destroy a balance, a system”. Unknown business ideas; New combinations
(transfer) from unexpected directions
The challenge of complexity

Note:
When what is needed is known and
how to get there is clear ← Simple
We are now most of the time in
complex ← and most futures
changes/challenges are complex

Note: 2nd part is the timeline ← 3 horizon

Why Foresight? Corporate strategy requires foresight and integration of
model. Future has also different timelines
different time perspectives or horizon ← “short, medium or long
» To sustain growth, developing new products has to be faster than the future” we can say
decline of older products Horizon 1 ← is more on the now → 6 to 12
months it’s important of course but is
» “Three horizons” depicts the pipeline for new products as horizons
almost super near
» Continuous growth is the core objective
Horizon 2 ← emerging stars → some
1- Horizon 1: “The core business” technologies appearing. Time, money skills
a. Current core business and products should be well used and high invested ← if
b. Efficiently use the remaining potential, incremental you don't do this you are kind of out of the
development business game
Effectivity is not strategy ← porter
2- Horizon 2: “Emerging stars”
a. Emerging and strongly growing business (substitute for current
horizon 1)
b. High investment of time and money, development of new skills and resources may be needed
3- Horizon 3: “Options for tomorrow”
a. Future business options
b. Develop concrete business ideas, commit resources
How to open up space of complexity for new possibilities? → Short term
How to open up space of complexity for new possibilities? → Long term.
The whole scenario → know when you come from ← the present, think in
the future and so on ← what needs to be adapted, what is expected and so on
If you don't know what to do in future and also don't know where you come from you cannot change in order to achieve
the goals expected in the future.
Ambidexterity: The contradictory characters the “as-well-as” logic keeps an organization on “the run”
» Acknowledge the old/the known vs. Implement the new, the unknown
» Keep focus and define strategic fields vs. Open up, create diffusion by innovation
» = Security, by reducing complexity vs. = Insecurity, by increasing complexity
It´s about ambidexterity
» Exploitation: refining, improvement, continuous development, efficiency, cost reduction. Improve quality, focused
on the know and what is there
» Exploration: searching, play, variation, discovery, flexibility, experimentation, innovation, renewal.
Experimentational known and related
o Both are essential for organizations, but they are contradictory + compete for scarce resources
o Adaptive processes, by refining exploitation more rapidly than exploration, are likely to become effective in the
short run but self-destructive in the long run
o Exploitation of the known, learning from experiences, exploring new via Foresight and translating it into
innovation
An “organized irritation” is needed → The oscillation of an organization between focus (strategy/plan) and openness
(innovation) ensures the survival of the company
Scenario Funnel: its preferable to be proactive than reactive in order not to die and wait what happens or “be late” in
the change:

Trends: “The future is already here. It is just unevenly distributed” – William Gibson. In general terms, something will be
different than we knew it before. In general, trends can be described as a process, which is characterized by shifting
patterns that will potentially lead to fundamental changes within a certain setting. A general tendency of change within
a certain dataset can be identified over time, the so-called TUNA conditions apply → Turbulence,
Unpredictable/Uncertainty, Novelty, Ambiguity
Trend/Megatrend
Definition of trend = change of what we know: “Trends are direction along which particular forces travel”. In general
terms, things will be different than we knew it before
Definition of a megatrend = main driver for (massive) change of what we know + global and high impact n many
different areas (+duration of 30 years approx.). “A megatrend is defined as a major shift in environmental, social,
technological or economic conditions that will substantially change the way people live”
In order to expand the space of the possibilities and trigger creativity a “Gorilla imagines a Black Swan” scenario and
wild cards should be included
 Scenarios: is not a specific forecast of the
future, but a plausible description of what
might happen. They assist in selection of
strategies, identification of possible futures,
making people aware of uncertainties and
opening up their imagination and initiating
learning processes. ← pay attention to
technologies, people, way of communication
and so on.
Future does not happen by accident → we are
making the changes, the society, the
companies, and so on
Methods to gain foresight insights have increased. For example: Delphi
Method, Patent Analysis, Text Mining; Social media mining, Semantic
Keyword-Search (AI), Computational Knowledge production, Desk research, Scenarios
Where is the linkage of the trend analysis and scenario planning?
Scenarios: “Observing an atom modifies the atom; watching a person
affects the person; looking at the future transforms the future”.
“Tomorrow will not be like yesterday. It will be new and shaped by us.
The future is less to be discovered than invented”. “The past, the
present, and the future are intricately interwoven as they impact each
other”. “Scenarios are a set of plausible stories of the future content,
not the self, that are coming at us from the future whether we want
them to or not”
Scenario Planning: “Plausibility-based or exploratory scenario
planning involves building and using a set of plausible, alternative
stories that can be used to reframe the present situation”. Why
scenario planning?
 To develop plausible and likely scenarios
 To identify potential challenges
 To develop contingency
 To plan flexible long-term goals
How to do Scenario Planning? Planning a scenario in basic terms is
three-step process. The steps can be executed by applying many different methodologies or tools. We want to focus in
the scenarios that are kind of uncertain, because the certain ones we already know them
1. Find key factors: results of the trend analysis are analyzed to find out the most important drivers and their potential
developments. These so-called key factors are the chief character behind multiple, plausible futures. In this step,
they are rated by importance and uncertainly within a coordinate system

2. Sketch plausible futures: key factors serve as frame to create potential developments, whose plausibility is
thoroughly checked. The 2x2 matrix method is the standard tool
 Extreme development
Extreme development

Step 1: Put the two most important
aspects of a key factors at the end of
both axes. Phrase an extreme
development as well as its opposite
Step 2: Every field in this matrix stands for a Opposite extreme
different combination of extreme
developments by a key factor. Shortly
describe what the scenario in each field
could look like

Step 3: In the end, give each scenario a Vertical: Key factor 1A

short, simple, and unique name Horizontal: Key factor 1B

Opposite extreme
Example of Key Factor: Mobility behavior

Growth of motorized individual transport (MIT) (car

traffic), esp. Bettery Electric Vehicle
Low-cost vehicle much in demand: - MIT is growing (also in the OECD countries)
- Especially e-mobility is highly demanded in urban
- Due to economical mostly low-cost vehicles are
areas
being demand
- Passenger kilometers are increasing and the modal
- Vehicles are not being seen as a status symbol splits remains unchanged
- Public transport infrastructure in decreasing,
especially in the emerging markets

Pragmatism: improved public transport

- Modal choice is based on pragmatism Decline of MIT in OECD (leapfrogging)
- Due to a good public transport infrastructure the MIT - MIT is decreasing substantially
is decreasing
- Innovative mobility services enable an individual
- Especially in the westerns countries car ownership is mobility without owning a car
not any more a statys symbol
- In some emerging countries the MIT is being skipped:
- In emerging markets the car is still a symbol for good public transportation systems develop, e.g. Bus
freedom and prosperity, but due to the good public rapid transport system
transportation infrastructure, the demand for MIT
stagnates

3. Amplify futures: framed by the most important drivers it is analyzed which developments from different contexts
(steep/pestel) fit together. Meaning: which outcomes of different societal backgrounds create a plausible, thinkable,
and potential scenario together? A common tool is the morphological box
 Key factors: Most important drivers

Values: Their potential developments

Connecting value of the key factors

create a scenario

Cross-impact Analysis: Can the values occur together? Can they coexist and, if so, how well?

Scenarios 360°
STEEP Factors: Society, Technology, Economy, Ecology, Politics
Analysis of 220 future reports
Case: Volkswagen Group  Initial question for the “Mobility 2030” scenario: What will mobility be like in 2030, and
how will this affect the automobile industry?
Methodology:
 Individual scenarios → 2008/2009: Several scenarios are drawn up
o Volkswagen works council “Group and employment in 2020”
o World scenario check – Meta-scenario
o Audi TD Strategy
 Aggregation of key factors → Aggregation of key factors for “Mobility 2030”
o Result: List of key factors
 Identification of key factor → What are the key driving forces for future development and how are they linked?
o Result: 16 key factors
 Values → What alternatives factor values are possible?
o Result: 62 values for 16 key factors
 Consistency assessment → Can the values occur together? Can they coexist and, if so, how well?
o Result: Consistency matrix
 Probability assessment → How likely are the individual values considered to be?
o Result: Probability assessment
 Raw scenarios → What scenarios are there? Which ones are especially relevant to our initial question?
o Result: More than 2 bn. Possibilities
 Scenario selection → What scenario clusters are there? Which ones are especially relevant to our initial
question?
o Result: 4 scenarios (best
case, worst case, 2 middle
versions)
 Scenario writing → What will the
world be like in the different
scenarios?
o Result: Consistent scenarios
with early warning signals
Identifying relevant future fields and strategic options via the Wind Tunneling approach  Using scenarios to check
and set up a robust strategy

 Optimal fit  Resources and strategy fit optimal to the scenario. New chances provide big potential
 Good fit  Robust business strategy. Due to the marginal changes, threats turn into opportunities
 Disadvantageous fit  If the scenario occurs the company would get into difficulties. Only with massive adaptions
and looses an adaption is possible
 Problematic fit  The company is being surprised. If the scenario occurs the company would get into difficulties. It
is unlikely that an adaption to the new situation can be handled successfully
Wind Tunneling and Strategic fit  The wind tunnelling approach is based on the assumption that there is always room
for improvement in the design of strategic options
1. Robust strategy: strategy performs well over the full range of scenarios considered
» It leads to an inherently conservative response to unpredictable environments
» It takes position on both sides if the range of possible developments
» It protects against losses but provides only modest, albeit stable, returns
» It seeks to maintain a viable position rather than to gamble heavily on achieving spectacular results
2. Flexible strategy: options are kept open for as long as possible. Requirement for a successful flexible strategy are:
» The decision maker understands how the strategy will be adjusted in each scenario
» That the decision maker remains vigilant to spot actual outcomes
» That the response time is reduced as much as possible
3. Multiple coverage strategy: Firms with extensive resources can simultaneously pursue multiple strategies until the
future becomes clear. The strategy is expensive, as it involves investments in strategies which will be discarded half-
way, without producing returns
4. Gambling strategy: The strategist selects a strategy which is known in advance to lead to sub-optimal results if some
of the possible scenarios develop. However, the strategy is selected by gambling on the development of other
futures in which it produces more than proportional returns. As it is impossible to assess the probability of any of
these scenarios the strategist will consider a gambling strategy only if survival of the organization is not threatened
in the worst case
Identifying relevant future fields and strategic options via the Wind Tunneling approach:
 Matching between scenarios and strategic options
 Identification of consistent strategy
 Gap analysis for current strategy
 Upgrading the quality of the strategic conversation
 Creating coherence of strategy understanding