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Strategy development is equated with strategic planning system. Formalized Planning provide a structured means of analysis and thinking about complex strategic problems. Planning horizons vary with nature of an industry. In FMCG, 3-5 years may be appropriate. In oil industry, horizons can be as long as 14 years ( in exxon) or 20 years ( as practiced in shell)
Strategy development is equated with strategic planning system. Formalized Planning provide a structured means of analysis and thinking about complex strategic problems. Planning horizons vary with nature of an industry. In FMCG, 3-5 years may be appropriate. In oil industry, horizons can be as long as 14 years ( in exxon) or 20 years ( as practiced in shell)
Strategy development is equated with strategic planning system. Formalized Planning provide a structured means of analysis and thinking about complex strategic problems. Planning horizons vary with nature of an industry. In FMCG, 3-5 years may be appropriate. In oil industry, horizons can be as long as 14 years ( in exxon) or 20 years ( as practiced in shell)
Strategic Development Processes in Organizations**
Strategic Planning Systems**: Often Strategy
development is equated with Strategic planning system. This is manifestation of Design approach to formulating /managing strategy. This takes form of highly systemized step by step, chronological procedures involving many people from different parts of the organization. Formalized Planning provide a structured means of analysis and thinking about complex strategic problems, providing opportunity to managers to question and challenge the perceived wisdom they take for granted. Company Mission &Goals External Environment Operating Industry Remote Company Profile (Resources & capa- bilities) Strategic Analysis and Choice Long-term Objectives Generic & Grand Strategies Annual Plans & Short term Objectives Functional / Operating Strategies/ tactics Policies that empower action Institutionalization of Strategy & implementation Strategic Control & continuous improvement ? Possible ? Desired < ^ ^ ^ v STRATEGIC MANAGEMENT PROCESS Feed Back Feed Back It encourages a longer term view of strategy than might otherwise occur. Planning horizons vary with nature of an industry . In FMCG, 3-5 years may be appropriate. In companies, which have to take very long-term views on capital investment, such as oil industry, planning horizons can be as long as 14 years ( in Exxon) or 20 years ( as practiced in Shell). Strategic planning system approach can be a useful means of co-ordination and help communicate the intended strategy and create ownership of the strategy by involving large number of people in development process. Planning systems provide a sense of security and feel of exercising control over the destiny of the organization.
Viewed through Experience lens, Planning may help in drawing together experiences of people and ensure effective communication. Viewed from Ideas lens, Planning systems provide a selection mechanism by which new ideas can be evaluated. New ideas and innovations compete or prove their worth. There are some pit falls also in the formalization of strategic Planning process: Line managers, due to their pre-occupation with day to day work, may actually cede responsibility for strategic issues to specialist. This may result in strategic planning becoming an intellectual exercise removed from the reality of operations. The process of Strategic planning may sometimes be so cumbersome that individuals or groups in the firm might contribute to only part of it and not understand the whole. Planners may overlook the cultural & political dimensions of the organization , and also importance of experiences of those in the organization. Very formal system of planning, especially with tight mechanism of control, can stifle ideas and have dampening effect on innovative capacity. Planning can become obsessed with search for a definitively right strategy.
Logical incrementalism**: In a study of major multinational businesses, Quinn concluded that the strategic management process could be best described as logical incrementalism. Managers have a view of where they want the organization to be in years to come and try to move towards this position incrementally. They do this by attempting to ensure the success & development of a strong , secure but flexible core business while using the experience gained to develop business and perhaps experiment with side bets. Encourage ideas to emerge from lower levels as well. The Learning Organization : The concept of the learning organization, and strategy development as a learning process, became popularized in the 1990s . In many respects it corresponds to the aspects of logical incrementalism, especially the argument that the uncertainty & complexity of the world can not be understood purely analytically. The Learning organization is capable of continual regeneration from variety of knowledge, experience and skills within organization which encourages questioning and challenge around a shared purpose. Characteristics of the experience and ideas lens more closely match those of learning organization. Experimentation is the norm. Informality and network of working relationships ( rather than hierarchies) help the process. Organizations can be seen as social networks. Political process of bargaining and negotiation is inherent in learning organization, so conflicts and disagreements will occur due to diversity & variety in the organization. This should not be seen as negative in the process of strategy development.
Strategic Leadership** Strategic Development may , in certain cases, be strongly associated with an individual. A strategic Leader is an individual upon whom strategy development and change are seen to be dependent. Others in the organization willingly giving him the position. In some organization the individual may be owner or founder, often in case of small businesses and start-ups. In some cases it could also be an individual chief executive who has turned around a business in difficult time. The design lens suggests the individual carries out the analysis & evaluation. These could be using his own logic or using techniques associated with strategic planning & analysis. The experience lens suggests that strategy advanced by individual is formed on basis of the individuals experience, perhaps within the organization or perhaps from some other organization where he previously worked. The strategy advanced by a chief executive new to an organization may be based on a successful strategy followed in previous organization. The strategy of an organization may be more symbolically with an individual, for example founder in a family controlled business.
Viewed from Ideas lens, Evolutionary theorists emphasize the way in which the strategies develop from competing ideas, so tend to diminish the role of so called strategic leader. However, a strategic leader can provide the vision with sufficient clarity within which the discretion of others in the organization can be exercised. Organizational Politics**: The political view of strategy development is that strategies develop as the outcome of process of bargaining and negotiation among powerful internal or external interest groups ( or stakeholders). This is the world of boardroom battles portrayed in films & TV dramas. The design lens sees it as inevitable but negative influence on strategy development.
Experience lens helps to explain the likelihood of political activity. People in organizations are rooted in their experience & therefore in approaching major problems, seek to be protective of their views preserving or enhancing the power of their positions. Political activity may then seen as one explanation of incremental, adaptive strategy development. Very significant change to strategy may be very threatening to the power of certain managers. The experience lens also suggests that the analytical processes that go into planning may not be entirely based on objective and neutral facts. Powerful individuals and groups may also strongly influence the identification of key issues and indeed the strategies eventually selected. Planning thus has a political dimension. Political activity has to be taken seriously as an influence on strategy development.
The ideas lens also suggests that organizational politics can be seen as manifestation of the sort of conflict that results from innovation and new ideas. The variety and diversity that exists in organizations takes form in new ideas supported or opposed by different champions. Imposed Strategy : Imposition of strategy by agencies or forces external to the organization. Government may dictate a particular direction eg: in public sector or when it chooses to privatize a PSU. MNCs are subjected to regulations in different countries. An operating business within a multi- divisional organization might see overall corporate strategic direction as an imposition on it. It might be argued that imposed strategy is a way of overcoming the sort of strategic inertia that had arisen as a result of strategies developing incrementally based on history, experience or compromises resulting from bargaining & negotiations of powerful groups. Multiple Processes of Strategy Development**:
First, there is no one right way. The way in which strategies develop in a fast changing environment is not likely to be same in an environment where little changes. Second, it is very likely that the way the strategies are developed will be seen differently by different people. Senior executives tend to see strategies more in terms of design, where as middle management tend to see them as a result of cultural political processes. Managers who work for government organizations tend to see strategy as more imposed than those in the private sector. There will be multiple processes at work. Even in a predominantly Planning system, some level of political activity and certain elements of imposed strategy is likely to be there. Implications for Strategy Development Intended and realized Strategies Strategic Drift Strategic Management in Uncertain and complex conditions Intended , Realized and Emergent strategies Strategy is typically developed by managers in an intended, planned fashion. Intended strategy is a deliberate , designed process of development and implementation. A companys realized strategy is often the product of intended strategies and unplanned or emergent strategies. Emergent strategies are the unplanned response to unforeseen circumstances. They often arise from actions by managers / employees within organization based on experience, learning , intuition, creativity and not out of the formal top down planning mechanism. Managers typically reconcile different views through negotiations & political activity. So strategy could develop in an emergent fashion as the outcome of cultural & political process
Contd. Some part of Intended strategy is unrealised for reasons like plans were unworkable, environment changed after plans were drawn, influential stakeholders did not go along with the plan etc. There could be certain imposed restrictions on the strategy regulatory / governmental actions Strategy development as explained in terms of logical incrementalism or learning may also take form of emergent strategy Intended Strategy Realized Strategy Unrealized Strategy Emergent Strategy Imposed Strategy Deliberate Strategy Emergent strategies arise Out of learning, cultural & political process, intuition etc
Hondas successful entry into US Motor Cycle industry in 1960s HBS Case Honda (A) , 1984 A rational, analytical approach to strategy. Based on exploiting volume based economies to attain cost leadership in world motor cycle industry (between 1960 &73, share of British cos BSA, Triump 49%9%) HBS Case Honda (B), 1984 Honda had originally believed that its main opportunities lay with larger bikes. But outstanding success was due to surprise acceptance of Honda 50cc Supercub (Nicest people campaign) Hondas entry into U.S. Motorcycle market Intended Strategy Focus on 350cc &250 cc MCycles ( rather than 50 cc Honda cubs, which were hit in Japan- instinct told them US market preferred bigger , macho product) to take a share of imported UK heavy bikes Emergent Strategy Bigger bikes ran into technical problems , Sales sluggish , looked Hondas strategy was failing Japanese executives running on 50 cc bikes in Los Angles were attracting lot of attention Call from Sears , sports goods dealers that they wanted to sell small bikes to a different segment ( Honda executives were initially hesitant to push small bikes for fear of alienating serious bikers) Realized Strategy Finally Honda had stumbled onto a untouched market segment that was to prove huge Honda example demonstrate the critical points In practice, the strategies of most organizations are probably a combination of Intended and the emergent The message for the management is that it needs to recognize the process of emergence and to intervene when appropriate, killing off bad emergent strategies but nurturing potentially good ones. Management must be able to judge the worth of emergent strategies Mintzberg stresses that an organizations capability to produce emergent strategies is a function of kind of corporate culture that the organizations structure & control system fosters
The existence of the Intended strategy helps to evaluate the efficiency of emergent options & act as the base for comparison. Intels Emergent Strategy transformation from being a Memory Company to Micro Processor Company Originally DRAM & EPROM Memory mfg Core competence in design & fabrication of chips Manufacturing resources were allocated between memory chips & microprocessor chip Strategy of treating memory business as the core business. Lions share of R&D allocation by top management to memory Due to changes in market, middle management changed allocation of manufacturing capacity.
Most text books on Strategic Management cover rationalist, analytic approach to strategy formulation in preference to the crafting approach advocated by Mintzberg. This is not because planning is necessarily superior to crafting we have already noted that strategy is about identity and direction rather than detailed planning. Nor is it because one wishes to downplay the role of skill, dedication, involvement, harmony, or creativity. Studies by Henry Mintzberg and his colleagues at McGill University into the process of strategy making also distinguish between intended & realized strategy
Strategy development is a multidimensional process that must involve both rational analysis and intuition, experience, and emotion. Without analysis, in the process of strategy formulation, there will be no basis for comparing and evaluating alternatives. Moreover, critical decisions become susceptible to the whims and preferences of individual managers, to contemporary fads. Concepts, theories, and analytic frameworks are not alternatives or substitutes for experience, commitment, and creativity. But they do provide useful frames for organizing and assessing the vast amount of information available on the firm and its environment and for guiding decisions, and may even act to stimulate rather than repress creativity and innovation.
Strategic Drift Historical studies of organizations have shown prevalence of processes leading to emergent strategy. There are long periods of relative continuity during which established strategy remains largely unchanged or changes incrementally, there are also periods of flux in which strategies change but in no very clear direction. Transformational change, when there is a fundamental change in strategic direction, does take place but is infrequent. The above pattern is known as punctuated equilibrium.
There are strong forces at work which are likely to push organizations towards this pattern. Incremental strategic change is a natural outcome of the influence of experience. The influence of the paradigm and the way we do things around here is likely to mean that faced with changes in environment, managers try to look for solutions with which they are familiar and therefore minimize the extent to which they face ambiguity and uncertainty. There is a danger that incremental strategic changes are not enough to keep pace with environmental changes, and more fundamental or transformational change is needed. Indeed, often Transformational change tends to occur at times when performance has declined significantly. There is a danger that Organizations under such pressure may be acting reactively to the environment. See Exhibit 2.13 for phases of Strategic drift. Organizations that seek to innovate could also sometimes face problems by developing products or services much ahead of its environment ( market demand) All these goes to emphasize the delicate balance required while developing strategy. Internal cultural pressures tend to constrain strategy development and at the same tome the organizations need to cope with environmental forces. Strategic Management in Uncertain & complex conditions Different organizations face environments which differ in form & complexity. Since one of the main problems of strategic management is coping with uncertainty , the above aspect is very important. In simple / static conditions, the environment is easy to understand & does not undergo significant change. Raw material suppliers & some mass manufacturing companies are examples. Technical processes may be fairly simple and competition & markets change very little. If environmental changes does occur, analysing past historical patterns / forecasting helps predict them . In situations of relatively low complexity, it may also be possible to identify some predictors of environmental influences. For example birth rates is a good indicator to determine provision for schooling. So in simple / static conditions strategy development in design terms may make sense. In Dynamic conditions, managers need to consider the environment of future, not just the past. They may employ structured ways of making sense of the future , such as scenario planning, or they may rely more on encouraging active sensing of environmental changes low down in the organization and the sort of diversity and variety seen as through the ideas lens. The emphasis should be on creating organizational conditions which encourage individuals & groups to be intuitive and challenging in their thinking about possible futures through the sort of learning organisation. Organizations in Complex situations face an environment difficult to comprehend. They may face dynamic conditions too, and therefore combination of complexity & uncertainty. A multinational firm or a government authority with many services, may also be in a complex condition because of diversity, while different operating companies within it face varying degrees of complexity & dynamism Difficult to handle complexity by relying only on analysis & planning. So organizational design is important. Decentralization with different parts of the organization made responsible for different aspects & given the resources and authority to handle their own parts. Organizations have to learn to cope with complexity in different ways. Top management has to recognize that specialist down the line know more about the environment know more than they do. This strategic competence based on experience may provide competitive advantage . Taken-for-granted has to be challenged Simple Complex ENVIRONMENTAL CONDITIONS Static Dynamic Historical Analysis Forecasting Scenario Planning Decentralization of Organization Experience & Learning Strategy development in environmental contexts