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In situations where strategy can emerge naturally, how can a CEO really harness such emerging ideas to constitute a formal strategy? Illustrate your report with practical applications.
Research the major and latest theoretical and empirical developments in the literature to provide a practical solution to the research question posed.
Critically evaluate the knowledge from the literature in your proposal of practical solutions to the research question. Provide rationale for your recommended solution
Introduction
Strategy can be divided into intended strategy and realised strategy. The intended strategy is the deliberate plan which the company will attempt to implement (Mintzberg and Waters 1985:258). However, the intended strategy will often be transformed into a realised strategy. This is the strategy which is “followed in practice” (Johnson and Scholes 1999:49). The emerging ideas are those that modify the intended strategy. Arguably, there has been an increase in emergent thinking in recent years (Gaddis 1997:42). Businesses have ‘let strategy emerge’ in incremental steps (Gaddis 1997:42). Scholars who emphasise emergence over deliberateness suggest that chief executives should facilitate this process. This is because it is argued that, “most new strategies (do) emerge over time” (De Wit and Meyer 2010:64).
Different Approaches to Strategy
It is useful to explain different approaches to strategy. Figure 1 can be used to help address the question.
Figure 1: Generic Perspectives on Strategy (Whittington 2001:3)
First, there is the systemic approach which suggests that strategy is based on the social structure. It argues that “orthodox strategic management is not a neutral objective, scientific discipline, but an ideology that serves to normalise the existing structures of ... society”. (Whittington 2001:30). The question emphasises emerging strategies, so the systemic approach will not be examined further. Second, there is the classical approach. This is worthy of consideration because it would constitute a formal strategy. It sees strategy as a rational sequential process with a long-term outlook (Whittington 2001:3). It assumes that a single Chief Executive Officer (CEO) can act to maximise a company’s economic advantage (Whittington 2001:14). As figure 1 indentifies: there is only one outcome, which the CEO seeks to maximise and that is profit. Another feature of this model is that the CEO is expected to focus fully on their “strategic responsibilities” (Whittington 2001:10). This implies that the rest of the organisation is less involved in strategy formation.
The emergent models as alternatives to the classical model
The classical view of strategy has been criticized as strategic leaders have needed to react more quickly to events; as they emerge. Rational long-term plans can be seen as a distraction. This is when executives may better use their time, to make sure that current activities are undertaken “as efficiently as possible” (Whittington 2001:21). Therefore, the solution is about how the (emergent) models on the right hand side of figure 1, can contribute to the enhancement of the classical model. The perspectives in figure 1 can be combined. The classical model can incorporate ideas from the right hand side of the figure. Managers can be at their most effective when they recognise and accommodate real-world imperfections (Whittington 2001:26).
The evolutionary model, has the advantage that it recognises that markets can be ‘too unpredictable’ to justify a significant investment in strategic planning. Therefore, it can be advisable for executives to “keep ... their options open” (Whittington 2001:10). “Evolutionists see the future as unpredictable” and therefore do not waste effort trying to “plan for it” (Whittington 2001:3). CEO’s can harness this theory. They can formally plan but acknowledge future uncertainty. An evolutionary approach can add relevance to a formal strategy, by emphasising the need to match strategy to the external environment (Whittington 2001:17).
The other emergent strategy, located in the bottom right of the chart, is ‘the processual approach’. Rather than being focussed on profit, as the classical and evolutionary models suggest, this approach is about considering other objectives too. This approach sees strategy as involving ‘political bargaining’ with other stakeholders (Whittington 2001:22). CEO’s can formulate a strategy to deliver profit based on the classical model. However, ‘the processual approach’ could be used to adapt such a strategy. Major companies often have to placate stakeholders so that their profit-making objectives can still be met. In this way, ‘the processual approach’ could help to constitute a formal strategy.
Application of the theory to Amazon and Tesco
The processual approach argues that performance can be based on internal competence. Firms can be successful through their capacity to develop resources, rather than concerning themselves overly with market positioning (Whittington 2001:25). Amazon builds warehouses and website infrastructure to deliver a wide range of products. In this way, it is price competitive. Therefore, perhaps, it does not have to be concerned about external issues, such as the popularity of particular shopping centres.
The processual approach is about considering objectives other than just profit. Amazon has taken a long term view. At first, it was not profitable. However, it has expanded its business to develop its strengths. “Amazon traded early profits for scale, using greater sales revenues to later pay off the larger investment (in warehouse infrastructure)” (Venture Navigator 2007). The processual approach has been described as ‘incrementalist’. It can harness both a ‘formal strategy’ and ‘emerging ideas’. Amazon’s strategy could have a formal plan, to trade ‘profits for scale’, but which could be modified over time. CEO’s need to balance “strategic intent, that is both sufficiently clear to provide a sense of direction and sufficiently broad to allow flexibility and opportunism along the way” (Whittington 2001:24).
Amazon could be flexible, looking for a good opportunity to improve its deliveries to customers. It could look to make them cheaper or more reliable. It could negotiate long term contracts with delivery companies who can effectively distribute its products. Recently, it has aimed to improve its service in the UK. It now aims to deliver “parcels to nearly 5,000 corner shops and newsagents around the country” (Rushton 2012).
Tesco’s approach can be seen as similar to Amazon’s. Perhaps, Tesco considered that it needed to invest in internet based delivery, regardless of the immediate profit outcome. It may have concluded that the internet was of such emerging importance, that profitability could be deferred. Tesco also has a formal plan, its ‘steering wheel’, to respond to stakeholder concerns (Tesco 2012); see page 4 on placating stakeholders. It can use this to respond to challenges on an emerging basis. For example, it can sell organic or local food, to claim that it is supporting local farmers.
Tesco may prefer an evolutionary rather than a ‘processual’ approach. This is because the latter may involve decision-making and consultation with stakeholders which it may prefer to avoid. Given that profitability remains a core aim. A ‘processual’ or incremental development of strategy may slow down decision-making which Tesco will presumably want to avoid. Tesco may feel that it is operating in fast moving consumer markets where it has to change rapidly.
Nevertheless, incremental approaches can be appropriate for retailers. They can “test out relatively small changes and develop with this approach rather than go for major changes” (Thompson 1993:21). A supermarket could sell a new product in a small number of stores, which are representative of the country as a whole. If the product has good sales figures, in these stores, then the product could be sold nationwide. Another example of emergent strategy is when a supermarket chain opens one store at a time; and evaluates its performance, before opening another store, in a similar location.
Other examples of emergent thinking in supermarket retailing
Asda made use of emergent thinking through the involvement of lower level managers; in the 1990’s. By involving staff, executives at Asda, believed that they could achieve a better strategy (Van de Vliet 1995). This was because employees lower down the management hierarchy were closer to the customers and well-understood consumer needs. Supermarket managers could assess whether customers were satisfied. This shows that “strategy can result from ... information fed upwards from the lower management levels of the organisation” (Thompson 1993:22). Tacit knowledge (Joffre 2011:72), from supermarket workers and managers, which has not been written down and formalised, is still useful for the CEO. The CEO can improve their strategy, if they are able to utilise knowledge from workers lower down the hierarchy.
Developments in the literature related to the oil industry
The classical approach emphasises planning and the use of analysis. This was popular in the 1960’s when there was steady economic growth (Whittington 2001:38). However, confidence in the rational model was shaken by the oil price shocks of the 1970’s (Whittington 2001:38). This led to an increased interest in alternative approaches. The processual approach, including theories such as bounded rationality, became more popular. Bounded-rationality, is where rationality is limited reducing the scope for long-term planning. The evolutionary approach also became more accepted. This implied an interest in monitoring market forces and shorter-term decisions rather than ‘grand planning’.
Strategic planning has become more decentralized and more informal as companies have aimed to become more responsiveness to external change (Grant 2003:515). CEO’s need to consider a strategy described as 'planned emergence' (Grant 2003:515). Oil companies have developed scenarios, of the future, which act as a tool for contingency planning which means that they are alert “to changing market circumstances” (Grant 2003:506).
Conclusion
The discussion has shown that company’s strategies are best when they incorporate both intended strategy and that which is emergent (Hill and Jones 2009:25). Emergent strategy is necessary and should not be avoided. Ideally, a CEO needs to study their emergent strategy carefully, so that they can intervene where necessary. They should remove poor emerging ideas but nurture those with potential. To make such decisions, executives need to be able to judge the worth of emergent ideas (Hill and Jones 2009:25).
This is particularly relevant given the need for acquisitions, or investment for internal growth. Executives need to compare each emergent strategy with the company’s objectives, their internal strengths and weaknesses; and external opportunities and threats (Hill and Jones 2009:25). The purpose is to evaluate whether an emergent strategy matches a company’s capabilities and needs (Hill and Jones 2009:24). “Some companies have missed profitable opportunities because serendipitous discoveries, or events, were inconsistent with their prior planned conception of what their strategy should be” (Hill and Jones 2009:24). In other words, profitable acquisitions have been missed because executives thought that they would not match the intended plan. This is what CEO’s would be anxious to avoid. This partly explains why companies, such as Google, are willing to continually acquire small technology companies; described as start-ups. They are looking for a ‘serendipitous discovery’ such as ‘the next Facebook’. Google’s acquisition strategy needs to be flexible enough to accommodate it!
References
De Wit B. and Meyer R. (2010), Strategy Synthesis: Resolving Strategy Paradoxes to create Competitive Advantage, Text and Readings, Third Edition, Thomson Learning, London
Gaddis P. (1997), Strategy Under Attack, Long Range Planning, Volume 30, No. 1, pp. 38-45
Grant R. (2003), Strategic Planning in a Turbulent Environment: Evidence from the Oil Majors, Strategic Management Journal, Vol. 24, No. 6 (June, 2003), pp. 491-517
Hill C. and Jones G., (2009), Strategic Management: An Integrated Approach, South Western Cengage Learning, Mason, Ohio, United States
Jofre, S. (2011), Strategic Management, The Theory and Practice of Strategy in (Business) Organizations, DTU Management Engineering
Johnson G. and Scholes K. (1999), Exploring Corporate Strategy: Text and Cases, Prentice Hall: London
Mintzberg H. and Waters J. (1985), Of Strategies, Deliberate and Emergent, Strategic Management Journal, Vol. 6, No. 3, pp. 257-272
Rushton K. (2012), Amazon to deliver parcels to UK corner shops
Tesco, (2012), Tesco PLC, Corporate Responsibility: Our Steering Wheel
Thompson, J. (1993), Strategic Management: Awareness and Change, Second Edition, Chapman and Hall: London
Van de Vliet, A. (1995), UK: ASDA'S Open Plan
Venture Navigator, (2007), Amazon Case Study
Whittington R. (2001), What is Strategy – and does it matter? Thomson Learning: London
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