HISTORY OF STRATEGIC

MANAGEMENT
CHAPTER 8
LEARNING OBJECTIVES
 relate the evolution of strategic management;

 review the development of management within the strategic

framework; and

 know the important people who helped in the development of

strategic management.
STRATEGIC MANAGEMENT
 1950’s-1960’s : Originated

ALFRED CHANDLER
He recognized the importance of coordinating the various aspects of management under one
umbrella strategy, which is strategic management today.

 1962 : Strategy and Structure was made.

 1957 : The matching of the organization's internal factors and the external environmental
circumstances was introduced.
PHILIP SELZNICK
He was professor of sociology and law at the University of California, Berkeley. A noted author in
organizational theory, sociology of law and public administration, he wrote such books as The Moral
Commonwealth, TVA and the Grass Roots, and Leadership in Administration.

 1965 : the Corporate Strategy book was published.

HARRY IGOR ANSOFF
He is known as the father of strategic
management.
1954 : Theory of Management by Objectives was evolved.

PETER DRUCKER
Peter Ferdinand Drucker was an Austrian-born American management consultant, educator, and author,
whose writings contributed to the philosophical and practical foundations of the modern business
corporation

1985 : strategic management theory was summarized.

ELLEN-EARIE CHAFFEE
Senior Fellow for the Association of Governing Boards of Universities and Colleges (AGB), and past
director of its Lumina Foundation funded projects on Strategic Finance Governance for Student Success.
President of Valley City State University (15 years) and president of Mayville State University (9 years),
GROWTH AND PORTFOLIO
THEORY
• 1960. It spanned 19 years of learning the effects of market share. This attempt started
with General Electric then moved to Harvard in the early 1970s. Then, it moved to
Strategic Planning Institute in the late 1970s. By that time, companies had now
developed a link between profitability and strategy.

• The growing interest on profitability, market share and strategy led to the awareness on
growth strategies. There were discussions on horizontal and vertical integration,
diversification, franchises, mergers and acquisitions, joint venture, and organic growth.
Another study led to the competition and the environment through market dominance
strategies.

• While a bigger market share led to higher profits, Schumacher (1973), Woo and Cooper
(1982) and Levenson (1984) proved otherwise, and later Traverso (2002) with what is
now called niche marketing. Creating a niche can result in very high returns.

• 1980s, there were also paradoxical conclusions that high market share and low market
share were often very profitable but those in between were not. This seeming irony was
explained by MICHAEL PORTER in the 1980s.
• Portfolio theory
This theory was developed by Harry Markowitz. This propagated the concept that a broad
portfolio of financial assets could reduce risk exposure of companies. In the '70s, other
theorists extended it to operating division portfolios, An OPERATING DIVISION is also called
strategic business unit. Each has its own revenue, cost, objectives, and strategies.

• 1970. The Boston Consulting Group

BCG examines how a business unit performs and what it contributes to the organization in
terms of revenues. General Electric retaliated with the GE multifactorial model. This expanded
the BCG model.

THE RISE OF MARKETING

MANAGEMENT
 The 1970s saw the rise of marketing orientation. Tracing its beginnings, production orientation
started at the height of capitalism. The key requirement is a product of high quality. A product is
produced then sold to consumers.

 In the 1950s and 1960s, sales orientation was conceptualized. The concentration was the art of
selling. After a product is produced, a highcaliber sales force can sell it.

 In the 1970s, Theodore Levitt theorized that business should start with the customers
instead of producing the product first before selling it. A company should find out what they want
and produce it for them. This is now called marketing orientation. Several terms were used to
reflect a market-oriented concept. They were customer intimacy, customer orientation, marketing
philosophy, customer focus, customer driven, among others.
THE RISE OF JAPANESE-ORIENTED MANAGEMENT
STYLE
 During the '70s they saw the rise of the Japanese industry as well. Japanese firms surpassed American
and European companies including steel, watches, cameras, automobiles, and electronics.

The success of the Japanese was explained in these practices:

1. There was high employee morale, dedication and loyalty.

2. Costs were lower including labor costs.

3. Government policies favor businesses.

4. After the Second World War, Japan became a highly productive and capital intensive

organization.

5. Exports prevailed.

6. There was superior quality control such as Total Quality Management.

* These successful strategies were further honed by

the theory of W. Edwards Deming.
 In 1981, Richard Pascale and Anthony Athos proved that despite the success of the Japanese,
there was still something missing. In addition, further analysis showed •that the cost structure was
actually higher. In the book by Pascale and Athos, The Art of Management, they claimed that the
reason for the success of the Japanese was their superior management techniques. (7s Theory)
 7S Theory
Strategy
Structure
Systems
Skills
Staff
Style
Subordinate Goals or Shared Values.
Richard Pascale Anthony Athos

 At that time, American companies were not yet ready to embrace the role of corporate culture,
shared values and beliefs in the success of an organization. Pascale also believed that Japanese
businesses had long-term plans in contrast with American companies.

 KENICHI OHMAE, head of McKinsey and Co., Tokyo Office released the book;

The Mind of the Strategist in America which was originally published

in Japan in 1975. He reiterated that a strategy should not be too analytical
but should be more of a creative art. It is a combination of intuition and
flexibility. This was not the case of American management, where there was
always a step-by-step process and procedures were followed to the latter.
 In 1982, Tom Peters and Robert Waterman released

In Search of Excellence, which was a response to Ohmae's book. They studied 62 companies and
rated them in a six-performance criteria—must be above 50% in four out of the six criteria performance
metrics for 20 years. Based on this study, 43 companies passed the test and came up with eight keys to
succeed:

1. CUSTOMER FOCUS. The company should know and understand the customers.
2. ACTION-ORIENTED. The company should implement the strategies not just mere paperwork
and plans without action.
3. ENTREPRENEURSHIP. The company should exude an entrepreneurial spirit: innovate and
create.
4. SIMPLICITY. Managers should be simple and should not make things too complex.
5. STICK TO WHAT THE COMPANY KNOWS BEST. The company should continue in the field
where it excels.
6. VALUE-ORIENTED MANAGEMENT. Management advocates corporate values throughout
the organization.
7. PEOPLE-ORIENTED. The company should respect and motivate its people and in turn, they
will be productive at work.
8. CENTRALIZE AND DECENTRALIZE. The company centralizes its control but also allows
autonomy in each business unit.

 J. Rehfeld (1994) discussed the importance of transformation of knowledge from various cultures to a
management style to compete globally. The Japanese style kaizen had not been successful in the United
States unless it was modified to suit American culture.
THE COMPETITIVE EDGE

Gary Hamel and C.K. Prahalad introduced

the strategic architecture concept.
 Dave Packard and Bill Hewlett
conceptualized Management by Walking
Around (MBWA).

 Japanese managers retaliated with a

similar concept which originated in Honda,
called 3G,s: Genba, Genbutsu, and
Genjitsu which are translated to: actual
place, actual thing, and actual situation.
 Michael Porter introduced several concepts
the five forces analysis, generic strategies,
the value chain, and many more.

 John Kay improved the value chain

concept by putting a financial touch.

 The positioning theory was popularized by

Al Ries and Jack Trout in the book,
Position' ing: The Bottle for Your Mind in
1979.
 ln 1992, Jay Barney discussed that a strategy is a
product of resources such as human, technology, and
suppliers and combined in unique ways.

 Michael Hammer and James Champy, on the other

hand, championed reengineering which involves the
organization of a firm's assets around whole
processes rather than tasks.

 Richard Lester
1. Continuous improvements in cost, quality, service and
product innovation done on a simultaneous basis;
2. Breaking down organizational barriers between
departments;
3. Eliminating layers of management to make it leaner
and simpler;
4. Closer relationships with customers and suppliers;
5. Intelligent use of new technology;
6. Global focus; and
7. Improving human resource skills'
 Theorists like w. Edwards Deming, Joseph Juran, A. Kearney, Philip
Crosby, and Armand Feignbaum developed quality improvement
techniques like Total Quality Management, Continuous improvement,
Lean Manufacturing, Six Sigma, and Return on Quality.

 James Heskett (1988), Earl Sasser (1995), William Davidow' Len

Schlesinger, A. Paraugman (1988), Len Berry, Jane Kingman-Brundage,
Christopher Hart and Christopher Lovelock (1994).

 Carl Sewell, Frederick Reicheld, C. Gronros and Earl Sasser believed in

the loyalty effect among customers.

 James Gilmore and Joseph pine had mass customization concept. They
explained it further in the book, The Experience Economy which allowed
for a company to individualize a product for each customer without losing
economies of scale' Bernd Schmitt expanded it further to customer
experience management.

 James Collins and Jerry Porras believed in core values that would make
the company last.
Arie de Geus (1997)
1. Sensitivity to the business
environment.
2. Cohesion and identity.
3. Tolerance and decentralization.
4. Conservative financing.

 Jordan Lewis used the term alliance

strategies. He considered distributors,
suppliers, firms in related industries,
and even competitors as strategic
partners.
MILITARY THEORISTS
 Military theorists popularized the book, The Art of War by Sun Tzu, On War by von Clausewitz
and The Little Red Book by Mao Tse Tung which became instant business classics. They
theorized tactical strategies needed to survive and topple the enemy (competitor). From the
book of Mao Tse Tung, came the principles of guerrilla warfare. The marketing books are
Business War Games by Barrie James (1984), Marketing Warfare by Al Ries and Jack Trout
(1986) and Leadership Secrets of Attila the Hun by Wess Roberts (1987).

 PHILIP KOTLER,
a marketing guru is a well-known proponent of marketing warfare
strategy with his books in marketing management. The theories are
divided into offensive marketing warfare strategies, defensive
marketing warfare strategies, flanking marketing warfare strategies,
and guerrilla marketing warfare strategies.

 In 1993, Moore developed an ecological model of competition, a Darwinian-inspired strategy

wherein strategies coincide with ecological stability.
STRATEGIC CHANGE
 1970

ALVIN TOFFLER set a trend in strategic management with his book

Future Shock. This was followed by the Third Wave in 1980. He believed in
the power of making the change in order to survive. He did not succumb to
complacency and instead explained what change can do to a company to
survive.
 1997

WATTS WACKER and JIM TAYLOR confirmed this upheaval

further in the Age of Access. Jeremy Rifkin (2000) popularized this Age of
Access three years later with same name.
 1968

PETER DRUCKER coined the Age of Discontinuity and in 2000, Gary

Hamel discussed strategic decay, which believed that changes are needed no
matter how powerful existing strategies are.
 1978

DERECK ABELL described Strategic windows, stressing the importance

of time in both the start and end of a particular strategy.
 1989

CHARLES HANDY had strategic drift which is a gradual

and transformational change which is a sudden shift caused by
unforeseen changes in the environment.

ANDY GROVE conceptualized the strategic inflection Charles Handy

point. It is where a new trend is indicated

 1983

Noel Tichy and Richard Pascale in 1990

propagated the importance of a company to reinvent itself.

 1996 Noel Tichy and Richard Pascale

ART KLEIMER claimed that a company

needs to foster a corporate culture to initiate the
change.

ADAM SLYWOTSKY theorized strategic

anticipation, to spot emerging patterns of changes in
the industry and in the environment. Art Kleimer
 1997

CLAYTON CHRISTENSEN and KEES VAN DE

HEIJDEN developed their own strategies on change.

 1998
HENRY MINTZBERG developed strategic planning with five types
of strategies.

 STRATEGY AS PLAN. Direction, guide, course of action.

 STRATEGY AS PLOY. A maneuver intended to outdo a competitor.
 STRATEGY AS PATTERN. A consistent pattern of past behavior.
 STRATEGY AS POSITION. Location of brands, products or companies
within the boundaries of consumers.
 STRATEGY AS PERSPECTIVE. Determined by a master strategist.
 1999

CONSTANTINOS MARKIDES discussed strategy formation and

implementation as continuous. •J. Moncrieff stressed strategy dynamics, a
combination of planned and unplanned strategies.

CHAOS THEORY deals with turbulent systems. Axelrod, R. , Holland J., and
Kelly S. and Allison M.A. call these systems of multiple actions complex adaptive
systems.
INFORMATION TECHNOLOGY-ORIENTED STRATEGY
 1985
DANIEL BELL examined the sociological consequences of information technology. GLORIA SCHUCK and
SHOSHANA ZUBOFF identified the psychological facets.

 1990
PETER SENGE collaborated with ARIE DE GEUS and theorized the importance of the use of
information it-I the success Of the organization. Senge identified five components of a learning
organization.

 Personal responsibility, self-reliance and mastery.

It is always crucial to face problems and make decisions, or take advantage of opportunities based
on the organization's capabilities.

 Mental models.
There is a need to explore the individual mental capacities of each one in the organization.
 Shared vision.
The visions are cascaded and communicated to all the employees in the organization.

 Team learning.
Employees learn through teams.

 Systems thinking.
It is also called SYNERGY. It is looking at the organization as a whole rather than per individual
employee.
 THOMAS STEWART uses the term intellectual capital to describe the
investment of the organization in knowledge. This comprises of human-capital
(knowledge of employees), customer capital (knowledge of customers), and
structural capital (knowledge that resides in the capital itself).

 EVANS AND WURSLET described how industries with a high

information component are transformed. Encarta demolished Encyclopedia
Britannica because of its low sales. Encarta's product life as of today has also
ended. This is because of the information provided in the Internet.

 Access to information systems allowed senior managers to take a look on various

strategies to keep up with the competition. The most notable of these strategies are
the balanced scorecard developed by Robert S. Kaplan and David P. Norton.
PSYCHOLOGY OF STRATEGIC MANAGEMENT
 HENRY MINTZBERG realized that senior managers deal with
unpredictable situations in 1973.

 On the other hand, JOHN KOTTER studied the activities of 15

executives and studied how they work and make strategic decisions.

 DANIEL ISENBERG in his study of senior managers found that their

decisions are mostly based on intuition.

 In 1977, ABRAHAM ZALEZNIK identified the difference between

managers and leaders. Leaders are considered as visionaries, those
who inspire. Managers are concerned with processes, plans, and forms:
“The best way to predict your

Future is to create it.”

- PETER DRUCKER