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Chapter 6.

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1 Chapter 6

2 Approaches to strategy Managerial choice and constraints

3 Strategy Strategy is concerned with decision-making. Decisions about:
The Past The Present The Future. Strategy is concerned with coping with change: Sit back React Anticipate.

4 Definitions of strategy 1960s
Ansoff Focus on the external environment Product-market mix. Chandler Determination of long-range business goals The courses of action necessary to achieve these.

5 Figure 6.1 Product–market mix

6 Figure 6.2 SWOT analysis

7 Johnson and Scholes (1993) Strategy:
Concerns the full scope of the organisation’s activities. Is the process of matching the organisation’s activities to its environment. Is the process of matching its activities to its resource capability. Has major resource implications. Affects operational decisions. Is affected by the values and beliefs of those who have power in the organisation. Affects the long-term direction of the organisation.

8 Strategic management Strategic management is concerned with complexity arising out of ambiguous and non-routine situations with organisation-wide rather than operations-specific implications. … Nor is strategic management concerned only with taking decisions about major issues facing the organisation. It is also concerned with ensuring that the strategy is put into effect. It can be thought of as having three elements within it … understanding the strategic position of an organisation, strategic choices for the future and turning strategy into action. (Johnson and Scholes, 2002: 15–16)

9 Mintzberg on strategy Five definitions: Plan – Intended actions
Ploy – Manoeuvre Pattern – Consistent trend of behaviour Position – Avoiding competition Perspective – Common view.

10 Johnson’s three basic views of strategy
The rationalistic view – which sees strategy as the outcome of a series of preplanned actions designed to achieve the stated goals of an organisation in an optimal fashion. The adaptive or incremental view – which sees strategy evolving through an accumulation of relatively small changes over time. The interpretative view – which sees strategy as the product of individual and collective attempts to make sense of, i.e. interpret, past events. Johnson (1987)

11 Making sense of strategy
Prescriptive: Ansoff Chandler Porter. Analytical: Mintzberg Pettigrew Child and Smith Stacey Hamel and Prahalad.

12 The strength of the Prescriptive school
Firstly, the proponents set out deliberately to address the needs of industry and commerce by providing them with a blueprint for strategy formulation and implementation. Secondly, they interacted closely with a number of leading consultants, notably the Boston Consultancy Group, and business schools, notably Harvard, to promote their work and tailor it to the needs of organisations. By reinforcing and promoting each other, this triple alliance of researchers, consultants and educators created an iron orthodoxy that organisations, especially large ones, felt they ignored at their peril. Lastly, because all three groups in this triple alliance were in effect engaged in a business activity, selling strategy as a product, they were able to invest in promoting and developing their product in a way that others were not.

13 Criticisms of the Prescriptive approach to strategy
Hard data are no more reliable, and in some cases less so, than qualitative data. Organisations and managers are not rational entities and do not apply a rational approach to decision-making. An organisation’s strategy is as likely to emerge from unplanned actions and their unintended consequences over a period of time as it is from any deliberate process of planning and implementation.

14 Criticisms of the Analytical approach to strategy
To observe [as the proponents of Analytical stream of strategy do] that organizations are complex, that change is inevitably incremental, and that strategy is inevitably adaptive, however true, helps very little in deciding what to do. Managers wish to be told of a process which they can at least partially control and, whatever its weaknesses, that is what rationalist [Prescriptive] strategy appears to offer. (Kay, 1993:357)

15 Planned and Emergent strategies
Deliberate strategy focuses on control – making sure that managerial intentions are realized in action – while emergent strategy emphasizes learning – coming to understand through the taking of actions what those intentions should be in the first place. ... The concept of emergent strategy ... opens the door to strategic learning, because it acknowledges the organization’s capacity to experiment. A single action can be taken, feedback can be received, and the process can continue until the organization converges on the pattern that becomes its strategy. (Mintzberg et al, 1998a: 189–190)

16 Figure 6.3 Emergent strategy
Source: Adapted with permission from Mintzberg, H., Patterns in Strategy Formation, Management Science, 24(9), (1978). Copyright 1978, the Institute for Operations Research and the Management Sciences , 7240 Parkway Drive, Suite 300, Hanover, Maryland 21076

17 Figure 6.4 Constraints on managerial choice

18 Managers have choice But choice is constrained by
National objectives, practices and cultures: GM and USA Japan and Toyota. Industry and sector norms: Cars – Lean Production Agriculture – State Intervention.

19 Managers have choice (Continued)
Business environment: Stable Dynamic. Organisational characteristics: Structure Culture Politics Managerial style.

20 Constraints can be manipulated.
Remember Constraints can be manipulated.

21 Chapter 7

22 Applying strategy Models, levels and tools

23 Strategy in practice The Competitive Forces model
Cost leadership Product differentiation Specialisation by focus. The Strategic Conflict model Out-manoeuvre the opposition Manipulate the market. The Resource-Based model Firm-specific resources Distinctive competences Serendipity.

24 Points to note All strategies have weaknesses as well as strengths.
They tend to be situation-specific. Managers need to be familiar with the available range of strategies and tools. They should use the ones best suited to their circumstances. Strategies need necessarily be mutually exclusive. They may be interchangeable and/or complementary.

25 Levels of strategy Corporate Business Functional.

26 Levels of strategic decision-making
The corporate level. Strategy at this level concerns the direction, composition and co-ordination of the various businesses and activities that comprise a large and diversified organisation, such as Rupert Murdoch’s News International or Richard Branson’s Virgin empire. The business level. Strategy at this level relates to the operation and direction of each of the individual businesses within a group of companies. The functional level. Strategy at this level concerns individual business functions and processes such as finance, marketing, manufacturing, technology and human resources.

27 Types of corporate strategy
Stability strategy Growth strategy Portfolio extension Retrenchment strategy Harvesting strategy Combination strategy.

28 Business-level strategy
... the mission of the business, the attractiveness of the industry in which the business belongs, and the competitive position of the business unit within the industry. These are the inputs that determine the strategic agenda of a business and lead to the formulation and implementation of its strategy. (Hax and Majluf, 1996: 46)

29 Functional-level strategy
This has often been neglected by Western organisations because of: The concentration at both the corporate and business levels on the external world, i.e. the market, led to a lack of interest in the internal operation of organisations. The assumption was that the internal world was malleable, and could and should adjust to the priorities set by corporate and business strategists. The key elements of functional level strategy, especially concerning finance, marketing, R&D and technology, were in effect determined and constrained by corporate strategists. Indeed, in many organisations, even the human resource strategy was determined at the corporate level. Even though the 1980s saw a renewed interest in functional- level strategy, this tended to be one-sided, stressing soft, personnel-type issues.

30 Strategic types Defenders. Prospectors. Analysers. Reactors.
Miles and Snow (1978)

31 Strategic types Defenders. These seek internal stability and efficiency by producing only a limited set of products, directed at a narrow but relatively stable segment of the overall market, which they defend aggressively. Such organisations are characterised by tight control, extensive division of labour and a high degree of formalisation and centralisation. Prospectors. These are almost the opposite of defenders. They aim for internal flexibility in order to develop and exploit new products and markets. To operate effectively in a dynamic environment they have a loose structure, low division of labour and formalisation, and a high degree of decentralisation. Miles and Snow (1978)

32 Strategic types (Continued)
Analysers. These types of organisation seek to capitalise on the best of both the preceding types. They aim to minimise risk and maximise profit. They move into new markets only after viability has been proved by prospectors. Their internal arrangements are characterised by moderately centralised control; with tight control over current activities but looser controls over new undertakings. Reactors. This is a residual strategy. These types of organisation exhibit inconsistent and unstable patterns caused by pursuing one of the other three strategies erratically. In general, reactors respond inappropriately, perform poorly, and lack the confidence to commit themselves fully to a specific strategy for the future. Miles and Snow (1978)

33 Strategic planning tools
Examples Prescriptive Growth-Share Matrix Analytical Scenario/Vision Building.

34 Figure 7.3 BCG Growth-Share Matrix

35 What is a scenario? A scenario is ‘… a detailed and plausible view of how the business environment of an organisation might develop in the future based on groupings of key environmental influences and drivers of change about which there is a high level of uncertainty’. (Johnson and Scholes, 2002: 107)

36 Vision-building Compelling visions have two components:
A core ideology which describes the organisation’s core values and purpose; and A strong and bold vision of the organisation’s future which identifies specific goals and changes. Collins and Porras (1997)

37 The major elements of vision-building
The conception by a company’s senior management team of an ‘ideal’ future state for their organisation. The identification of the organisation’s mission, its rationale for existence. A clear statement of desired outcomes and the desired conditions and competences needed to achieve these.

38 Criticisms of the scenario/vision- building approach
They are prone to subjectivity and bias. The fact that any five management specialists can interpret the same situation in totally different ways is an oft-quoted example of this type of criticism. They can encourage retrospection. People’s ideas of the future are informed by their knowledge and experience of the past. Since experience is not always the best teacher, scenarios and visions may be based on false assumptions. Participants can be strongly influenced in their preference of scenario by their own sectional and personal interests.

39 Criticisms of the scenario/vision- building approach (Continued)
The process cannot be carried out by novices and can, therefore, be time-consuming and expensive in terms of senior management time and outside experts. There is much debate about how many scenarios to construct and how they should be used. The more radical the vision or scenario, the more difficult it will be to get managers and others to commit to it. Visions often require strong visionary leaders, which are in short supply.

40 The Prescriptive view Strategy: Is a rational/economic process
Matches products to markets Uses mathematical models of trends Is top-down Consists of detailed plans Drives change.

41 The Analytical view Strategy Is a rational and a social process
Emerges from the continual stream of choices organisations make on a day-to-day basis Is bottom-up and top-down Choice is constrained by structure, resources, culture and vision Emerges from change.

42 Additional Material

43 Child and Smith’s firm-in-sector perspective
The ‘objective conditions’ for success. Though each firm within a sector may pursue a different strategy, these will all tend to focus on or be determined by similar success factors such as customer satisfaction, quality, profitability, etc. The prevailing managerial consensus. ‘… at least within well-established sectors, the senior managers of constituent firms hold very similar constructs of the sector’s operational dynamics which effectively furnish the rules of the game for the sector’. The collaborative networks operating in the sector. ‘… a sector does not only consist of product competitors; it is also a network of potential and actual collaborators’. Such collaborations may be with customers, suppliers, outside experts or even competitors. (Child and Smith, 1987: 566–569)

44 Morgan’s organisational metaphors
Organisations as machines Organisations as organisms Organisations as brains Organisations as cultures Organisations as political systems Organisations as psychic prisons Organisations as flux and transformations Organisations as instruments of domination Morgan (1986)

45 Umbrella strategies [Some organisations pursue] ... umbrella strategies: the broad outlines are deliberate while the details are allowed to emerge within them. Thus emergent strategies are not bad and deliberate ones good; effective strategies mix these characteristics in ways that reflect the conditions at hand, notably the ability to predict as well as the need to react to unexpected events. (Mintzberg, 1994: 25)

46 Whittington’s categorisations
The Classical approach: based on analysis and quantification. The Evolutionary approach: organisations are at the mercy of the unpredictable and hostile vagaries of the market. The Processual approach: organisations are shifting coalitions with different interests. Markets are capricious and imperfect. The Systemic approach: strategy can be a deliberate process but only if the conditions within the host society are favourable.

47 Equifinality ... quite simply means that different sorts of internal arrangements are perfectly compatible with identical contextual or environmental states. The principle goes against the idea of a quasi-ideal ‘match’ which is inherent in the principle of correspondence. Whereas correspondence [i.e. Contingency] theory suggests that rigid and bureaucratic structures are not a good match for volatile and shifting product markets, equifinality theorists claim that it may very well turn out to be a good match but only if the level and diversity of the workforce is large and organization culture produces motivated and flexible actors. (Sorge, 1997: 13)

48 The Strategic Conflict model
This model portrays competition as war between rival firms. Its proponents tend draw on the work of military strategists such as von Clausewitz and Sun Tzu. It stresses the dynamic nature of strategy and the need to respond to competitors who do not always behave as anticipated. Central to this approach is the view that a firm can achieve increased profits by influencing the actions and behaviour of its rivals and thus, in effect, manipulate the market environment. This can be done in a number of ways, such as by investment in capacity, R&D and advertising. However, such moves will have little impact if they can be easily undone; therefore, to be effective, they require irreversible commitment.

49 The Resource-Based model
The focus of the resource-based model of competitive advantage is on the relationship between an organisation’s resources and its performance. The resource-based view sees above-average profitability as coming from the effective deployment of superior or unique resources that allow firms to have lower costs or better products, rather than from tactical manoeuvring or product market positioning. Such resources include tangible assets, such as plant and equipment; intangible assets, such as patents and brands; and capabilities, such as the skills, knowledge and aptitudes of individuals and groups.

50 Strategic questions Corporate strategy is concerned with questions such as: What is the mission of the organisation? What are its unique attributes? How should the business portfolio be managed? Which existing businesses should be disposed of and which new ones acquired? What priority and role should be given to each of the businesses in the current portfolio? The central strategic concerns at the individual business level are: How should the firm position itself to compete in distinct, identifiable and strategically relevant markets? Which types of products should it offer to which groups of customers? How should the firm structure and manage the internal aspects of the business in support of its chosen competitive approach?

51 Strategic questions (Continued)
Functional level strategy concerns itself with the following issues: How can the strategies formulated at the corporate and business levels be translated into concrete operational terms in such a way that the individual organisational functions and processes (marketing, R&D, manufacturing, personnel, finance, etc.) can pursue and achieve them? How should the individual functions and processes of the business organise themselves in order not only to achieve their own aims, but also to ensure that they integrate with the rest of the business to create synergy?

52 Figure 7.4 Main external and internal factors of matrices (adapted from Hax and Majluf, 1996: 302)

53 Mintzberg ... umbrella strategies: the broad outlines are deliberate while the details are allowed to emerge within them. Thus emergent strategies are not bad and deliberate ones good; effective strategies mix these characteristics in ways that reflect the conditions at hand, notably the ability to predict as well as the need to react to unexpected events. (Mintzberg, 1994: 25)

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