Work: Strategy in the context of strategic management
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What do we mean by 'Strategy' in the context of strategic management?
Introduction
Strategy can be described as a corporation aiming to achieve its long term planned objectives. It can also be perceived as exploring “the most promising” opportunities in a corporation’s external environment (Rumelt 2012:9). Ansoff argued that companies needed to develop a strategy using a planned and controlled approach (McKeown 2012). This approach perceives strategy as a logical and sequential process with a long-standing viewpoint (Whittington 2001). This approach believes that executives can maximise their business’ advantage i.e. that they are in control (Whittington 2001). This approach was particularly popular in the 1960’s when there was a greater emphasis on longer term forecasting (Thompson 1993). Oil companies have considered scenarios over a 25 year period. “Scenarios consider a range of plausible futures and how these could emerge from the realities of today” (Shell 2013). The classical or rational school of strategy has provided useful prescriptive work such as that by Porter (see page 3). Therefore strategy can mean strategic tools to be used by managers. Strategy can be understood as the use of tools for the ultimate benefit of shareholders. “In the 1980s, the firm was viewed as belonging to the shareholders” (Hubbard 2009:178).
The Debate between Ansoff and Mintzberg
There is a difference between long-term strategic thinking (Ansoff) and emergent strategy (Mintzberg). The classical approach to strategy has been challenged. This is because companies have felt the need to respond to changes in the business environment more quickly. Emergent thinking places a greater emphasis on strategy which can actually be realised (Mintzberg and Waters 1985). This is in contrast to grand plans which may lose relevance with the passage of time.
An evolving strategy suggests that a plan is needed to manage the ‘emergence’ of events (Grant 2003). Strategies are needed which respond better to rapid changes in “market circumstances” (Grant 2003:506). “Mintzberg suggested that adherence to rigid [strategic] planning may stifle creative thinking denying the firm from exploring those opportunities that may not vividly present themselves” (Taghian et. al. 2012:112). This argument emphasises the instability that can be present in a company’s environment. The managerial capability, to undertake long-term strategic planning, should not be overstated. There are limits to rational decision-making. Strategic planning is not able to consider all the possible information that is available and incorporate it into decision-making. The usefulness of the emergent approach is that suggests that a limited or bounded rationality needs to be considered in the context of strategic management.
In defence of the classical approach Ansoff criticises Mintzberg. Ansoff suggests that his work has “focused on helping organizations manage their strategic behaviour in unpredictable environments”. (Ansoff 1991:450). Ansoff suggests that the classical approach of long term planning has adapted its approach. He suggests that it is inappropriate for Mintzberg to criticise the prescriptive (or rational) “schools as if they were still adhering to their original design principles of” the 1960’s (Ansoff 1991:454). Ansoff argues that explicit strategy formulation is used “in environments in which managers are not ‘sure’ about the future (Ansoff 1991:456). This argument suggests that there are strategic methods which can be useful. Strategy can mean the use of these planning tools.
The Usefulness of Some Traditional Strategic Planning Tools
A rational planning tool which can be useful is SWOT Analysis. This was based on the formal planning which was developed in the 1960’s (Thompson 1993). It is a relatively simple method which can be usefully applied to business. It needs to be applied using a structured and focused approach. Arguably, if the factors within a SWOT analysis are clearly defined, then it is possible to achieve a productive analysis (Piercey 1997). The usefulness of a focussed approach is that it can help emphasise deficiencies “in knowledge and some of the hidden strategic assumptions” that executives may make (Piercey 1997:258). Therefore companies have an opportunity to uncover and confront emergent strategic concerns. Traditional long-term planning can be adapted to include emergent ideas.
Planning techniques, such as the Boston Consulting Group Matrix, are useful because they show that strategic tools are able to manage the instability that emerged after the oil price shocks of the 1970’s. The Boston Matrix recommends that money can be re-deployed from business units which are weakening to units which have potential and are likely to grow. This planning tool can be useful to administer and balance different business units within the overall corporation. For example, a technology company could invest in newer more rapidly growing businesses. For example, Microsoft could reinvest money from its older ‘windows’ sub-division and re-invest it into newer businesses such as its Bing search engine business.
Strategic planning tools such as Porter’s Five Forces Framework can make a useful contribution to strategic management. The tool means that shops can analyse their position within the retail industry. Five Forces analysis can be useful as it can be useful to identify a strategic position, within a retail market. Such a position could be defended and maintained. A firm could instead aim to improve its position in the market.
A Defence of the Classical Approach
The previous section argued that classical tools, such as SWOT, can be useful. It is possible that an alternative emergent (Mintzberg) approach could even be harmful. Ansoff argued that “in turbulent environments, the speed with which changes develop is such that firms which use the ‘emerging strategy formation’ advocated by Mintzberg endanger their own survival. The reason is that when they arrive on a market with a new product or service, such firms find the market pre-empted by more foresightful competitors, who had planned their strategic moves in advance” (Ansoff 1991:455). Ansoff argued that it was inappropriate to suggest that “strategy formulation is impossible unless the environment is ‘stable and predictable.’ (Ansoff 1991:456).
Conclusion
The two different strategic schools of thought offer useful contrasting perspectives. Different approaches can be taken. Corporations can plan and adapt “in a predictable way” if they think market conditions are reasonably stable (McKeown 2012:xxiii). However, if a company is confronted with a rapidly changing market then they are encouraged to be more adaptable (McKeown 2012). Emergent thinking may not offer the prescriptive models, such as Five Forces, as outlined by Porter. However, in recent years there has been an increasing interest in developing strategy on an incremental or emerging basis. Authors on strategy have suggested that strategy can and does show an emergence over time (De Wit and Meyer 2010). Executives need to examine long-term planning so that emergent ideas can be used when necessary (Hill and Jones 2009).
References
Ansoff, H. I. (1991), Critique of Henry Mintzberg’s ‘The Design School: Reconsidering the basic premises of strategic management, Strategic Management Journal, Vol. 12, 449-461
De Wit B. and Meyer R. (2010), Strategy Synthesis: Resolving Strategy Paradoxes to create Competitive Advantage, Text and Readings, Third Edition, Thomson Learning, London
Grant R. (2003), Strategic Planning in a Turbulent Environment: Evidence from the Oil Majors, Strategic Management Journal, Vol. 24, No. 6 (Jun., 2003), pp. 491-517
Hill C. and Jones G., (2009), Strategic Management: An Integrated Approach, South Western Cengage Learning, Mason, Ohio, United States
Hubbard, G. (2009), Measuring Organizational Performance: Beyond the Triple Bottom Line, Business Strategy and the Environment, 19, 177–191
McKeown, M., (2012), The Strategy Book, FT Publishing, Harlow
Mintzberg H. and Waters J. (1985), Of Strategies, Deliberate and Emergent, Strategic Management Journal, Vol. 6, No. 3, pp. 257-272
Piercey, N. (1997), Market Led: Strategic Change, Butterworth-Heinemann, Oxford
Rumelt, R. (2012), Good Strategy Bad Strategy, Profile Books, London
Shell (2013), Shell Scenarios
Taghian, M. and Shaw, R. (2012), Marketing Planning And Business Performance: An Empirical Study Of Large Australian Organisations, Deakin Business School
Thompson, J. (1993), Strategic Management: Awareness and Change, Second Edition, Chapman and Hall: London
Whittington R. (2001), What is Strategy – and does it matter? , Thomson Learning: London