WESTMINSTER INTERNATIONAL COLLEGE

Strategic Management II
BSP 300
Aiperi Matyeva 1/3/2012

Strategic Management II Aiperi Matyeva

Table of Contents / Page

1.0 Introduction / 3

2.0 Analysis / 3

2.1 Prescriptive schools / 4

2.2 Descriptive schools / 6

2.3 Whittingtons four generic perspectives of strategy / 10

3.0 Recommendation / 12

4.0 References / Bibliography / 14

Page 2

Strategic Management II Aiperi Matyeva 1.0 Introduction Strategy is defined as the direction and scope of an organization over the long term, which attains advantage in a highly turbulent environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations. (Johnson et al., 2005) According to Mintzberg, a strategy is a plan, a pattern, a position, a perspective and a ploy. The scholars have also justified the significance of strategic planning for any organization. According to them, setting up of direction, of effort, defining the organization and providing consistency are the main contributions that strategic planning makes for an organization. (Shekhar, 2009) 2.0 Analysis Issues on business strategy started emerging in 1960s when Ansoff (1965) and Andrews (1965) were the first to formulate a perspective on strategic management. Since that time, various concepts were introduced from scholars, emphasizing on differences in the nature of managing an organization and other social science disciplines. In contrast to Ansoffs classical perspective and other previous classification attempts, Rouleau and Squin and Whittington devised the classification based on the underlying principles of various work in strategic management. Classification is based on 4 approaches that vary along the 2 dimensions: the outcome of strategy and the process of strategy formation. (Volberda & Elfring, 2001) Also, Henry Mintzberg, management professor from Montreal McGrill University, with Bruce Ahlstrand and Joseph Lampel explored the narrower concepts introduced in strategic management by publishing Strategy safari, which comprised all aspects of strategic formation. Mintzberg introduced the 10 broad schools of thought, which includes the strategic thinking rooted from 1960s. Mintzberg and other authors of the book have approached the process of strategy formation from 10 broad and various angles, depicting them as schools of thoughts. Each schools of thought has its unique perspectives on one major aspect of strategy formation. (Shekhar, 2009) As various schools of thought exist the distinction between them can be identified by classifying them as prescriptive and descriptive approach. The design, planning and positioning schools

Page 3

Strategic Management II Aiperi Matyeva are both prescriptive in nature. The other six schools are indicated as the descriptive approach. (Volberda & Elfring, 2001) 2.1 Prescriptive schools Design school According to Mintzberg, the design school of thought regards strategy formation process through an achievement of essential fit between strength and weakness of an organization and the opportunities to be seized in its external environment. There are number of statements that underpin this model such as: that the process should be of consciously controlled thought, mainly by the CEO of an organization; that the model required to be kept in simple and informal, that the strategies formulated must be unique, explicit, and simple; and that those strategies should be in the form of fully formulated before they are formulated. (Mintzberg, 1990) Christensen et al. (1982) are among the main advocates of this school. Model proposed by design school primarily emphasizes on the evaluations, forecasting and scanning of the external and internal environment. (Shekhar, 2009) Mintzberg argues that the strategy that locates an organization in a niche narrows it own perspective. The premises of the design school undermines several significant components of strategy formation, that are incremental development and emergent strategy, the influence of existing structure on strategy, and the participation of other organizations stakeholders than only chief executive. (Mintzberg et al., 2001) The dynamic of external business world, which consists of competitors, government forces, suppliers, customers, as well as the internal environment of an organization, following the premises of design school may not forecast the future changes in two distinct environments. As the todays world known to be hypercompetitive and fast-changing environment, an organization is required to adapt to changes in order to sustain its competitive advantage. In observations made by Ansoff (1991), he saw the Mintzbergs statement on design school where he wanted to find out both methodology and the applicability of premises in current business practice. By following the premises of design school, an organization found to fail due to inflexibility and non-adaptability, urging the business to quit. Digital Equipment Corporation (DEC) was regarded as practical example of successful business but failed to sustain and had to sell the majority of its business due to the inconsistent structure, fail to introduce new products in market

Page 4

Strategic Management II Aiperi Matyeva and fail to adapt to fast-changing information and communication technologies(ICT) as well as to changing customer needs. (Shekhar, 2009) The Planning School The Planning school reflects most of the design school premises with the exception that strategizing is decomposable into distinct steps delineated by checklists and supporting models such as the Value-Chain or the 5-forces of industry (Bilton & Cummings, 2010). According to Mintzberg, the formal structure of strategy formulation, giving the control to a single individual and separation of formulization and implementation of strategy may cause the inflexible, predeterminated and detached strategy. This also can cause the conflict of interests between chief executive and the stakeholders, mainly the employees of an organization. Formalization of the strategy also can result in the failure to foresee the changes in environment where organization operates that leads to what scholars named as, The Grand Fallacy of Strategic Planning. (Shekhar, 2009) The case of General Electric (GE) under the reign of Reg Jones is a classical example as the famous company for strategic planning. It had rigid annual planning; whereas the top management would formulate the strategy and goals in general meetings and the strategic planning would undergo review after a short while. However, the successor of GE, Jack has diminished this strategic planning in 1980s and facilitated the radical change of strategy of GE. (Shekhar, 2009) The Positioning School This school regards strategy as a process of selection from generic options or frameworks such as the Generic Strategy Matrix rooted from the formalized analysis of the specified industry and market conditions. (Bilton & Cummings, 2010) The early contributor to this school was Michael Porter when he published Competitive Strategy in 1980s. (Mintzberg et al., 2001) The positioning school has been criticized on several its heavy inclination towards economic and quantifiable perspective, but no considering the social and political and other non-quantifiable approaches. It was clear on the stressing the importance on costs, e.g. Boston Consulting Group (BSG) matrix introduced strategies formulated on the relative market share and industry growth.

Page 5

Strategic Management II Aiperi Matyeva This school was accused of being biased to large organizations like Ford Motor Corporation, GE, etc., which could ensure the stability in the environment and its emphasis on limited number of generic strategies that prevent the formation of new ones. Limiting the number of options to the organizations that are 3 generic strategies opposes the concept of strategy being flexible and unique to an organization as introduced by the design school. This concept has been criticized by various scholars like Baden and Stopford (1992) and Miller (1992), questioning the narrow focus of Porters concept of generic strategies. Scholars stated cases of Caterpillar, Benetton and Toyota that achieved success without applying Porters generic strategies, but applying both cost leadership and differentiation strategies. Also, more emphasis on quantitative approaches is regarded to be as an ignorance of qualitative aspects like power, employee motivation and organizational culture. (Shekhar, 2009) 2.2 The Descriptive schools The Entrepreneurial School The Entrepreneurial School emphasizes on the leader and his vision in the firm as the main premises in strategy formulation. However, this premise was questioned as visions can be set by a single or multiple founders of an organization. Also, that it results in the dependence on single individual and narrow focus of strategic management, as power is given to single individual who may be ineffective in operating the firm and may lose focus on realities of the business its operating. In addition, this school doesnt provide the explanation for which kind of leadership style a leader must play in given conditions of the firm. Another criticism is that the vision can be regarded as good for the firm as it can be regarded as pathology by others. Steve Jobs, the cofounder, chairman and former CEO of Apple, was regarded as visionary leader who led a hardware revolution by introducing first in the market the small sized computers. (Shekhar, 2009) The Cognitive School This school, developed in 1940s and 50s, perceives strategy formation as a mental process. The lead role in strategy formation is on the thinker-philosopher as the process is mental and

Page 6

Strategic Management II Aiperi Matyeva emergent. The major advocators of the cognitive school are Simon (1947), and March and Simon (1958). (Kozami, 2002) This school introduced creative aspect to the process of strategy formation. It deals with how cognitive processes developed in the form of concepts that shape how people deal with inputs from the environment. According to Kozami (2002), while Mintzberg and his colleagues framed the cognitive basis for strategic management, they missed out on the approach or systematic cognitive process to strategy formulation. Moreover, cognitive school of thought fails to address the collective way of strategy formulation and implementation. This made the school subjective in nature that leads to distortion of information during transmission through various hierarchical levels of an organization. However, interpretation of the same piece of information by different minds may simply look the same from different angles that may facilitate different alternatives for the top management and integration of complex information. (Shekhar, 2009) The Learning School This school of thought regards strategy formation as an emerging process in natural dynamic process that is dependent on the type of situation where groups learn about the trends and organizations capability in dealing with environment conditions. (Mintzberg et al., 2001) Strategy formation, in this school, develops in an emergent fashion based on the behavior that triggers thinking retrospectively, where the role of a leader is not to preconceive deliberate strategies, but to manage the process of strategic learning. (Shekhar, 2009) Due to the fast speed of change, organizations need to formulate flexible and methodological strategies, leading to quicker processes of decision-making. Moreover, a successful development of strategy in a constantly changing environment implies breaking traditional rules, business models and ways of thinking. (TheManager.org, 2001) However, emphasizing on learning, the strategy tend to overlook failures and some essential aspects as it happened in the case of Nokia vs. Motorola. Motorola didnt foresee the rise of digital technology and Nokia took over this advantage becoming a leader. Some argued that learning process can purposeless and antistrategic that can lead to manipulation and misinterpretation of current situations. (Shekhar, 2009)

Page 7

Strategic Management II Aiperi Matyeva According to some scholars, the greater extent of emphasis on learning may result in lack of coherent and smoothly viable strategy. Some researchers state that learning may result in no longer wanted formation and some were of the view that focus of an organization should not only be on learning, but also on exploitation of learning in order to get on with day-to-day work. However, this school is still considered as applicable in an organization that works in a highly complex environment and where knowledge in strategy formation is blurred. (Shekhar, 2009) The Power School According to Shekhar (2009), the power school views strategy formation as a product of not a single architect but of a homogenous strategy team, implying that strategy emerges from such a process that will not necessarily be opined; rather reflect the interest of the most powerful group in the organization. As the power is significant aspect in the strategy formation, many actors inside the organizations employ the power as the tool to enhance their own interests that might result in conflict of interests, leading to strategic failure. Emphasizing in power, this school undermines the importance of culture, leadership and social responsibility. This school also fails to regard the impact of collusion within an organization that persists within every organization due to the differences in beliefs, values and interests. (Shekhar, 2009) The Cultural School According to this school, strategy formation is a process of social interaction, based on beliefs and understandings shared by the members of an organization. This school is heavily criticized that it resists the change in an organizations ideology. Moreover, it is argued that due to its prescriptive nature, this school fails to induce the concept of strategy as a learning process. This strains an organizations capability in coping with various kinds of situations. However, according to Sherhar (2009), by discussing the constructs such as strategic drift, experimentation, reformulation and stabilization, this school has tried to address the issue of radical change in an organization that may guide an organization towards tackling the resistance. The advocates of this school stated to be correct in indicating the culture as a resource of an organization that can establish a sustainable competitive advantage due to its imitability and causal ambiguous nature. The example of success achieved by Japanese

Page 8

Strategic Management II Aiperi Matyeva companies over their counterparts in the US and Europe can be the practical example of this schools premises. (Shekhar, 2009) The Environmental School According to environmental school, which roots in biology, strategy systems are described to be mainly about responding in a natural manner with the corporate external environment. The external context, presents establishes itself to the enterprise as a set of general forces, and is thereby the central factor in the strategy making processes. (KnowledgeBoard.com, 2003) As this school emphasizes on continuous change in the environment to which every organization responds individually, it is argued that the environment of not all organization is on continuous change all the time like banking industry in India, which is regulated by norms laid down by RBI. Moreover, changes normally take place either in a certain aspect of the environment, like technology or after periodic intervals. The lack of strategic choice, as suggested by this school, can be countered with the argument that many organizations survive in the same environment using various strategies. (Shekhar, 2009) The Configuration School This school integrates theall previous schools. It consists two sides viz.,configuration and transformation. The configuration side describes the states of perspectives in Strategic Management organization and its surrounding context, whereas, transformation describes the strategy making process. This is known as a configuration school mainly due to two reasons: (i) it describes how different dimensions of an organization cluster together under particular conditions to define states, models or ideal types; and (ii) how these different states get sequenced over time to define states, periods and organizational life cycle. (Shekhar, 2009) However, this school has been criticized for its simplicity in terms of understanding and applying into practice. It can be stated that proponents that is Mintzberg of this school have made many assumptions in order to explain complex phenomena that raises questions about its relevance in practical situations. (Shekhar, 2009) The questions may be in terms of its application on highly complex organizations operating in turbulent environment. Any of those strategy schools can be evaluated in terms of its impact on the achievement of essential and basic business goals and

Page 9

Strategic Management II Aiperi Matyeva also, strategys ability to address the strategic issues such as globalization, e-commerce and corporate social responsibility of the firm. 2.3 Whittingtons four generic perspectives of strategy Below is the short summary from Richard Whittingtons classification of strategic perspectives. Table 1. Summary of Whittingtons classification of strategic perspectives
Classical Rationale Focus Profit maximize Internal (plans) Processual Vague Internal (Politics/cognitions) Process Key influences Key period Key authors Analytical Economic/military 60s Chandler Ansoff Porter Hax Bargaining/Learning Darwinian Psychology 70s Cyert &March Mintzberg Pettigrew Hamel Evolutionary Survival External (Markets) Systematic Local External (societies) Social

Economics/biology Sociology 80s Hannan & Freeman Williamson 90s Granovetter Marris

(Whittington, 2001) In referring to Whittingtons framework, the four perspectives have different strengths and weaknesses in their application to strategic management. They are as following: Classical perspective Advantages Objective assessment and methodology straightforward to apply Long-term concern conforms to corporate mission and overcome short-term, myopic views Analytical tools and theories are abundant especially from allied disciplines such as finance and economics Disadvantages Ignorance of soft issues and internal mechanisms within firms

Page 10

Strategic Management II Aiperi Matyeva Nave separation of strategy formation and implementation Models generally do not apply to small organizations especially during the Internet era (Cheah & Wong, 2004)

Evolutionary perspective Advantages Enunciates the brutality of competitive and environmental forces which demands for constant strategy renewal. Disadvantages Overly passive, indirectly challenging the intellectual foundation of academic theories and managerial functions Succumb to short-term view Ignorance of market complexity and heterogeneity (Cheah & Wong, 2004)

Processual perspective

Advantages

Add a human side to strategy Tackle soft issues that are largely ignored by Classical theorists Enunciates the importance of internal mechanisms within firms Disadvantages Lack of control, transparency and objective measures to compare effectiveness of strategy adopted (Cheah & Wong, 2004)

Systemic perspective

Advantages Add the all-important external environmental factors to corporate strategy

Page 11

Strategic Management II Aiperi Matyeva Provide intellectual linkages to explore the impact of public policies Provide plausible explanations on the impact of firms origins Disadvantages Primarily adopting a macro view point, relegating the importance of inter-company competition in certain industrial environment Needs to be complemented by studies of firms behavior especially for cross-border competition (Cheah & Wong, 2004)

3.0 Recommendation The globalization of the business environment in recent years has made it imperative for firms to seize foreign market opportunities in order to gain and sustain competitive advantages. (Cavalcanti Sa de Abreu, 2011) I would like to recommend positioning+enterpreneural+learning+innovation hybrid model. The balance of these 4 models will facilitate global industry position as modernized, innovative efficient enterprise. The particular strategies are as following: Value Chain Positioning strategy strengthens firms core business competences by enabling the expansion of firms business portfolio, products and services. Enterprise Development & Cost Efficiency strategy - enables the reduction of cost and development of ideas through direct cost efficiency activities, global sourcing and supplier management. Customer orientation & innovation that includes emphasizing on the highly changing needs of customers. It will enable the synergy, collaboration and innovation across the enterprise to facilitate the unique selling points and standardizing the business processes to reduce 'time to market', in other words introducing Just-In-Time model. The emerging Chinese multinational corporations (MNCs) can be evidence of the strategic content and end results of their internalization strategies. Chinese MNCs are facing the hypercompetition from global giants such as Samsung and Panasonic over a period of 10 years. And researches show that Chinese catch-up corporations struggle to obtain the benefits of an integrated global strategy and may face a greater danger from existing rivals, particularly in

Page 12

Strategic Management II Aiperi Matyeva failing to learn to adjust to the companys new strategic directions. However, latecomers undergo shorter learning processes compared to well-established rivals, facilitated by technology advancements and better knowledge of globalization process. The researchers suggest that the development of existing resources, the learning of new skills and innovation by Chinese companies and other latecomers will be important in catching-up game. (Zhu et al., 2011)

In order to recommend the hybrid model that would be suitable for the company with global aspirations, it would be appropriate to relate to the research based on the new paradigm for strategic management developed by the Nonaka (1991), Hammel (2000) and Pfeffer and Sutton (2000). The dominant topic of the new paradigm was the learning, knowledge and the innovation aspects. The rationale is the dynamic models by which firms obtain valuable information and create accumulate intangible capabilities in a process of learning. The main strategic technique employed is new integrated information technology systems. (Mele & Parra, 2006)

Page 13

Strategic Management II Aiperi Matyeva 4.0 References / Bibliography

Works Cited
Anon., n.d. Bilton, C. & Cummings, S., 2010. Creative Strategy: Reconnecting Business and Innovation. 1st ed. UK: John Wiley & Sons Ltd.. Cavalcanti Sa de Abreu, M., 2011. Effects of environmental pressures on company sustainability strategies: an interview study among Brazilian manufacturing firms. International Journal of Management, 28(3), pp.909-25. Cheah, C. & Wong, W., 2004. Management studies of the chinese construction industry: which field of theories? In 20th Annual Conference of the Association of Researchers in contruction management. Edinburgh, 2004. Johnson, G., Scholes, K. & Whittington, R., 2005. Exploring Corporate Strategy: Text and Cases. 7th ed. Harlow: Pearson Education Ltd. KnowledgeBoard.com, 2003. [Online] Available at: http://www.knowledgeboard.com/item/836/2010/5/2008 [Accessed 17 December 2011]. Kozami, A., 2002. Business policy and strategic management. 2nd ed. Delhi: Tata McGraw-Hill Education. Mele, D. & Parra, M.G., 2006. [Online] IESE Business School Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=960663 [Accessed 19 December 2011]. Mintzberg, H., 1990. THE DESIGN SCHOOL: RECONSIDERING THE BASIC PREMISES OF STRATEGIC MANAGEMENT. Strategic Management Journal, 11(3), pp.171-95. Mintzberg, H., Ahlstrand, B. & Lampel, J., 2001. Startegy Safari: A Guided Tour Through The Wilds of Strategic Management. 1st ed. New York: Simon and Schuster.

Page 14

Strategic Management II Aiperi Matyeva Shekhar, V., 2009. Perspectives in Strategic Management A Critique of Strategy Safari: The Complete Guide Through the Wilds of Strategic Management. ICFAI Journal of Business strategy, 6(2), pp.43-55. TheManager.org, 2001. [Online] Available at: http://www.themanager.org/strategy/strategy.htm [Accessed 17 December 2011]. Volberda, H.W. & Elfring, T., 2001. Schools of Thought in Strategic. In Rethinking Strategy. 1st ed. London: SAGE Publications Ltd.. pp.1-25. Whittington, R., 2001. What is strategy, and does it matter? 2nd ed. London: Cengage Learning EMEA. Zaplatinskaia, L., 2010. [Online] Available at: http://profi20.livejournal.com/6783.html [Accessed 17 December 2011]. Zhu, Y., Lynch, R. & Jin, Z., 2011. Playing the game of catching-up: global strategy building in a Chinese company. Asia Pacific Business Review , 17(4), pp.511-33.

Page 15