Posted by Prasetyo on 17:56

Columbia Insights for Executives

William G. Pietersen
Professor,The Practice of Management
Columbia Business School

©2005


Companies create their futures through the strategies they pursue. These strategies may be explicit or implicit; they may be developed in a thoughtful, systematic way, or allowed to emerge haphazardly in a series of random, ad hoc decisions made in response to daily pressures.

But in one way or another, the strategy a company follows – that is, the choices it makes—determines its likely success. And in today’s fast-changing environment, the ability to generate breakthrough strategy and to do so not once but repeatedly, has become more important than ever.

Most executives would readily acknowledge these truths about the importance of strategy. It’s curious therefore, that few companies have devoted significant time or energy to considering the nature of strategy or to examining their own method for developing strategy. Instead, many of them simply plunge directly into strategy formulation. It’s as if the manager of an auto plant were to dump a load of parts onto the factory floor and tell the workers, “Here, make some cars,” without defining a manufacturing process with the end-product in mind.

In this paper, we’ll take a step back and consider the basic questions that companies need to confront:
  • What is strategy?
  • What is the role of strategy in an organization?
  • What is the best method for creating strategy?

What is strategy?

Perhaps the best way to understand strategy is to consider why it is necessary. Strategy exists because of the stark reality of limited resources, which forces organizations to make choices about how best to use those resources in the pursuit of competitive advantage. Strategy is simply the sum of a company’s choices about where it will compete, how it will create superior value for its customers, and how it will generate superior profits for itself.

Competition expresses itself through the interaction of choices in the marketplace. The best strategic choices, well executed, will win the game.

What is the role of strategy in an organization?

In a world of limited resources, a company that tries to compete in every market with no specific focus or direction will soon squander its resources and fall behind its competitors. Strategy’s central role is to provide the focus and direction essential to successful competition.

Just as important, strategy also provides a platform for an organization’s leaders to engage the hearts and minds of employees in pursuit of a winning way. Thus, strategy and leadership are essential parts of each other. No leader can lead successfully without a clear and compelling strategy; and no strategy, however brilliant, can produce results without effective leadership. The unifying concept that expresses this essential synergy is “strategic leadership.”

On the other hand, although strategy and planning are often combined under the rubric of “strategic planning,” they are totally different things. Strategy is mainly about ideas, while planning is mainly about numbers, budgets, and logistics. Strategy defines where to lay the railroad tracks, while planning is about making the trains run on time. Both are essential, but combining them in one process is a toxic mixture. The golden rule is: strategy first, and planning afterwards, with separate and robust processes for each.

What is the best method for creating strategy?

Now that we have clarified the nature of strategy and its role in the organization, the crucial question becomes: How can we create brilliant strategies for our company? Which method should we choose?

This is no easy decision. There are a bewildering number of gurus, consultants, and writers, each with a strongly held view on how strategy should be created. Which one is right?

The truth is that there is no silver bullet. Each approach to strategy creation has its advantages and disadvantages. Corporate leaders must decide for themselves which method is best for their organization. But there are sound principles we can use to make that choice. Here are the four criteria I suggest for choosing a strategy approach:
  • Is it compelling in terms of cold business logic?
  • Is it simple enough for everyone to understand and embrace?
  • Is it designed to produce the right outputs?
  • Does it offer practical tools to get the job done?

With these criteria in mind, let’s consider the different methods that are available to us. Broadly speaking, there are four main schools of thought regarding strategy creation:
  • The Resources School
  • The Innovation School
  • The Positioning School
  • The Learning Organization School

Each school is based on its own set of underlying assumptions about what matters most, which in turn drives a particular set of beliefs about strategy development. The four schools share certain assumptions and beliefs; many of the differences among them are matters of emphasis. But this is not a trivia distinction; many of our biggest decisions are determining what’s important.

Before reviewing each of these approaches, let me declare that I am no agnostic; I have a point of view about which method of strategy development works best. My aim is to describe the alternatives as objectively as possible, so that readers can form their own judgments. And then, in conclusion, I will offer my own point of view.

1. The Resources School

The underlying argument of this approach, perhaps best formulated by C. K. Prahalad of the University of Michigan School of Business in his book Competing For the Future (co-authored with Gary Hamel), is that each company has a singular set of resources (often called core competencies) that differentiates it from its competitors, just as a champion tennis player has a set of killer strokes in his arsenal. In this view, the key to success is for a company to discover these core competencies (by answering the question “what are we best at?”) and then leverage them across the organization to seize and maintain competitive advantage. If a company keeps improving its unique skills and embeds them deeply in the organization, competitors will find them increasingly hard to copy.

Here are examples of well-known companies and the core competencies that have helped make them successful:

Company ------------Core Competency
Samsung---------------Miniaturization
Toyota-----------------Product quality
Avon-------------------Direct selling
Wal-Mart--------------Supply chain management

Strengths. The Resources school recognizes the power of aligning the entire business system (including the corporate culture) behind a winning formula. It works wonderfully well so long as there is a good fit between the core competencies and the requirements of the external environment. If your core competency produces a result highly valued by your target customers, a strategy based on leveraging that competency is likely to succeed.

Limitations. The Resources approach to strategy tends to encourage inside-out thinking (“What are we best at?”) rather than outside-in thinking (“What do our customers need?” “What are our competitors offering?”). The danger is that such thinking may lead to a static view of the world in which critical shifts in the environment are ignored, even as they render a company’s strategy obsolete.

2. The Innovation School

This approach, advocated by authors like Tom Peters (Thriving on Chaos) and Gary Hamel in his more recent work (Leading the Revolution), focuses on the dilemma faced by organizations, which tend to lapse into bureaucracy and inertia—what scientists call homeostasis. The result is fixed mental models,an inward focus, institutional resistance to change, and a gradual loss of innovative capacity. All are strategically debilitating.

As Peters and Hamel point out, most innovations come from newcomers, not established players. For example:

Established-----------------------Firms Strategic Innovators
Xerox------------------------------Canon
Compaq----------------------------Dell
Sears-------------------------------Wal-Mart
Traditional watch companies------- Swatch Watch

In each case, the newcomers drove the established firms into extreme financial distress or even bankruptcy. Such reversals are becoming increasingly common: The average tenure of companies on the S&P 500 has dropped from 65 years in 1930 to just ten years today. Of course, there are exceptions;Procter & Gamble, GE and Disney, for instance, have successfully navigated change over an extended period. But the overall statistics represent a call to action for established companies: Innovate or die.

Strengths. There’s no doubt that innovative capability is a crucial key to long-term survival. A strategy approach that emphasizes innovation will instill the organization with a sense of urgency and an openness to change, both positive traits.

Limitations. On the other hand, the single-minded focus on innovation alone—the relentless pur-suit of the new—may divert attention from winning the existing game. As Mike Tushman of the Harvard Business School puts it, companies must be “ambidextrous,” simultaneously focusing both on innovation and on operational excellence, involving continuous improvement of current processes.

3. The Positioning School

The leading proponent of this approach is Michael Porter, a professor at Harvard Business School, and author of the landmark book, Competitive Strategy. Porter argues that earning superior return on investments(which he considers the chief goal of any company) requires a sustainable competitive advantage—a way of providing value to customers unmatched by competitors.

To capture sustainable competitive advantage, the argument goes, a company needs to establish a favorable positioning within its industry. Here are some examples of companies that have established different but profitable positions in the same industry:

Gillette: High quality re-usable razors and blade
Bic: Cheap disposable razors
Southwest Airlines: Low cost, no frills, point-to-point flights for budget conscious travelers
Singapore Airlines: A superior air travel experience with the finest food, comfort and service available

Porter advocates using the so-called Five Forces Model as a method of industry analysis to help find profitable positioning opportunities. This involves assessing:
  • The bargaining power of buyers
  • The bargaining power of suppliers
  • The level of rivalry amongst existing competitors
  • The threat of substitutes
  • The barriers to entry

Strengths.
The strengths of this approach include its focus on capturing competitive advantage and its analytical rigor, drawing on Porter’s background as an industrial economist.

Limitations. Its shortcomings are that it is a somewhat static model, focusing on a snapshot of the industry rather than a dynamic analysis that reveals underlying trends, changes, and patterns. Furthermore, it focuses mainly on industry attractiveness rather than in-depth analysis of customer needs.

4. The Learning Organization School


Champions of this approach include scholars such as Peter Senge (The Fifth Discipline), David Garvin (Learning in Action), and Arie de Geus (The Living Company). Recognizing the failure of much traditional strategic planning, these theorists have been exploring ways to forge a more vital connection between corporate thinking and corporate action. The logic they put forward is essentially Darwinian: Long-term survival is based on an organization’s ability to adapt continuously to a changing environment, and successful adaptation in turn is dependent on effective learning.

This vital link between learning and adaptation has given rise to a body of thinking on how to create a learning organization with an enhanced ability to generate, capture, and share knowledge. In essence,the argument of this school is that organizations must learn their way to success, as crystallized by Arie de Geus in his now-famous statement that “in future, an organization’s ability to learn faster than its competitors may be its only sustainable competitive advantage.”

Examples of companies that have successfully pursued this philosophy are:

Shell Company: Perfected scenario planning as a way of dealing with uncertainty
Buckman Laboratories: Created advanced knowledge-sharing systems to disseminate best practices throughout the company
Cisco Systems: Established a deliberate process for learning from customers, engineers and suppliers to guide its product development programs

Strengths. The identification of adaptiveness as the necessary condition for long-term survival and the linkage between adaptation and the ability of an organization to learn effectively are both persuasive.

Limitations.
This approach often positions learning in an open-ended, generalized way, almost as an end in itself, as if learning by itself will result in adaptiveness. This leaves out the essential step that unlocks learning’s value: the hard work of turning learning into breakthrough strategy.

Which approach is best?

As promised, I now offer my own point of view.Each of these approaches has advantages to offer,but none will work long term unless organizations have an effective process to modify their strategies in response to the changing environment. Getting stuck in one place, physically and psychologically, is the greatest danger. Thus, the Learning Organization approach offers the most compelling theory of success.As the learning theorists suggest, adaptiveness is the necessary and sufficient condition for long-term success, and this is driven by the right kind of learning.

However, we need to take this thinking a step further. It is not learning for its own sake, but learning strategically that is the source of successful adaptation.

Here, then, are my key conclusions:

1) Sustainable competitive advantage does not take the form of a particular product, service, or strategy. Rather, it is the organizational capability to be adaptive.
2) It follows then that the central role of strategy must be to help executives create and lead adaptive enterprises. We need to reinvent strategy to serve this purpose.
3) Work gets done in organizations through business processes. Thus, the missing piece in the Learning Organization approach is a practical process to deliver the right strategic outputs.

Strategic Learning


A leadership process I call Strategic Learning aims to offer such a practical, systematic method. It postulates that an adaptive enterprise is one that continually scans and interprets its changing environment and its own realities. Acting on those insights, the organization defines its strategic choices and modifies those choices as circumstances change.

The Strategic Learning process is based on what I call the “killer competencies” of adaptive organizations. These are:

1) Insight: Powerful tools to generate a superior understanding of the changing environment and the firm’s own realities
2) Focus: A robust process to translate these insights into the best choices on where to compete and how to win
3) Alignment: Effective practices to align and energize the entire organization behind the chosen strategy
4) Execution: Rigorous disciplines for executing better and faster than competitors
5) Renewal: A dynamic process for doing these things repeatedly, thus creating a cycle of ongoing renewal

The first four steps of the Strategic Learning process create specific outputs. The fifth ensures that the process is dynamic. These five steps are converted into a practical leadership process through the Strategic Learning Cycle shown below.




It is not enough to do some of these things all the time, or all of them some of the time. The entire cycle needs to be ingrained in the organization through repetition and practice. When this happens, the killer competencies will create an ever-improving organizational capability which will serve as the main source of sustainable competitive advantage.

What’s unique about Strategic Learning? I believe the alternative approaches are not so much wrongas incomplete. Embedding a specific competency is a choice; pursuing a particular innovation is a choice; and adopting a defined position in the market is a choice. In specific circumstances, each may be a valid,even necessary choice. However, defining choices is not the starting point of the strategy-creation process, but rather its outcome. The challenge, after all, is not just making choices, but making the most intelligent choices. The most intelligent choices will be those that are driven by superior insights.

Therefore, the Strategic Learning process insists on two crucial disciplines. First, the strategy process must always start with a Situation Analysis to generate insights about the external environment and the organization’s own realities. The Situation Analysis is the “engine room” of strategy creation, and is designed to reveal patterns and trends, not just snapshots of current truths.

Second, in our dynamic competitive environment, it’s essential that the process be cyclical and self-renewing, not static. As military experts emphasize, strategy must be a process of continuous assessment and reassessment.

Strategic Learning has become the core methodology for teaching strategy in Columbia Business School’s Executive Education programs, and the process is being successfully applied by numerous companies around the world. It’s no silver bullet, but I would argue that it meets the criteria listed early in this paper. Most important, it has been shown to work in practice.

Of course, Strategic Learning has its own limitations. The greatest of these is that it's time consuming. Generating insights is hard, messy, and sometimes frustrating work (although it becomes faster and more efficient as firms master the process through repetition). It demands a real commitment to carve out time on the corporate calendar to get away from the urgent and think about the important.

Furthermore, it requires that strategy and leadership work hand in hand. Top leadership must model the behavior of searching for truth, confronting reality, and making tough choices when necessary. A process alone is not enough. This takes courage.

It all begins with insight

One traditional view of strategy which has informed much thinking on the subject defines strategy as dealing with the relationship among ends, ways, and means. Unfortunately, this formulation suffers from a serious omission—it leaves out insight, which is arguably the most important element of all. It is the quality of the insights that determines the quality of the other three variables. Thus, the correct formulation contains four elements: insights, ends, ways, and means.

In our increasingly complex environment, it is the battle for superior insight where the competition really begins. In today’s business wars, this is increasingly the decisive battleground.



You can learn more about Strategic Learning in Willie Pietersen’s book, Reinventing Strategy (John Wiley & Sons, 2002), or by consulting his website www.williepietersen.com.

Posted by Prasetyo on 05:46

The confusion over “strategy” has two sources. First, the word in everyday use can legitimately be used to mean rather different things in different contexts: for example, in the same news bulletin we can hear about “the government’s new healthcare strategy...” and “Arsenal’s strategy of playing 4-4-2…” and be comfortable with both uses whilst recognising that they don’t quite have the same sense.

Henry Mintzberg has distinguished 5 different definitions of strategy in this vein, conveniently all beginning with P – for example, a strategy can be a detailed, prepared plan, but also an opportunistic ploy, i.e. a feint or manoeuvre. Even if not pre-determined, we can call any series of moves, which ex-post add up to a distinguishable pattern, a strategy; and we can also use the word to refer to a deliberate choice of position e.g. against competitors – think of both in the context of chess, a game renowned for the importance of strategy. Finally, the plans we hatch and the patterns our actions make often stem from our fundamental perspective on the world – Bobby Fischer’s strategies are perhaps a good case in point.

But the debate and disagreement over “the meaning of strategy” is not really at this level of subtle distinction. The second and more important reason behind the confusion over strategy is one of conceptual misunderstanding, reinforced at times by wilful obfuscation.

There is a real danger that the concept is becoming so woolly that it begins to impact the actual development and execution of strategy in many companies. It is the failure on the part of many in business to recognise this danger that has, in my opinion, led to significant costs and in some cases complete business (and career) failures.

Strategy vs Vision, Mission, Purpose…

At the very least, we must be quite clear about what strategy is not – and what is not strategy. And we can start by placing strategy within the overall hierarchical lexicon of business, distinguishing it from mission, objectives, tactics et al.

Figure 1 below, taken from a recent survey of 300 members of the Strategic Planning Society, and quoted in the MCA report “An arc of certainty: From Strategy to Execution”, highlights the problem.




Even setting aside the 10% of cynics at the end, this shows a remarkable degree of confusion. 23% of respondents think strategy is “a high-level vision statement”. This is perhaps understandable when one reads countless annual reports from major companies with statements such as “Our strategy is to be the leading firm in the market…”

But if strategy means anything at all, it is a word that conveys “how to”, as opposed to “end-point”. As Mintzberg puts it: “To almost anyone you care to ask, strategy is a plan, some sort of consciously intended course of action, a guideline (or set of guidelines) to deal with a situation” (original italics).

Mintzberg goes on to play with the notion of how conscious, or elaborate, or pre-planned, or firm, these ‘plans’ might actually be in practice – but at no point should the word be allowed to slip over from its core sense of being about the means rather than the end.

For now, we can say that those companies in the survey who have a “high-level vision statement” – presumably, a description of how they’d like the world and their business to look in a few years time – do not necessarily have a strategy. Only if they have a clear idea of how they will achieve the vision, can they be said to have a strategy.

Let me be clear: I believe statements of vision or purpose or mission or intent – again, subtle differences in terminology, but in each case we are talking broadly of end-goals – are vital prerequisites of strategy (what is the point of a plan if you don’t know where you’re going?), but they should not be confused with strategy.

Yes, there are companies whose success has been traced primarily to the emphasis they place on developing a noble and inspiring Purpose to drive corporate activity. Such purpose statements provide an excellent context for developing strategies, but they do not on their own obviate the need for a strategy as well. Even the noblest goal doesn’t just achieve itself!

Strategy vs Tactics – the meaning of strategic


Perhaps even more important, and also more difficult, than disentangling strategy from vision/mission, is to draw the line at the other end of the hierarchy, to distinguish strategy from tactics or (to use the collective term often heard in business) operations. Here there is no clear distinction such as end vs. means. But now we have to appreciate the concept of strategic, for what really distinguishes strategy from tactics is the nature of the impact.

What is the most strategic decision you have faced – at work or at home – in the last 3 months? Just have a think for a minute and write an answer down.

When I ask this question on my strategic thinking workshops, typical answers are: how to enter a new market; should we move house; whether to change jobs; which IT provider to go with; which school should we choose for our child; should we outsource our design department or do it in-house…

I then note (as is invariably the case) that everyone has come up with a few examples and that no-one needed to ask me to define what I meant by “strategic”– the word is obviously readily understood in everyday life, let alone in business circles – before moving on to ask: what links all these very different decisions? What makes them all “strategic”?

For all the ease with which people list out their decisions, actually putting their finger on this link proves to be not quite so straightforward. But a few minutes discussion brings out that these “strategic” decisions all tend to be at least one of:

  • Pivotal/transformational – many consequences flow from them (“this might change my whole life…”), many other decisions rest on them. So these are highly leveraged decisions.
  • Fundamental/core – to who we are, our values, dreams…a sense that a decision is “what it’s all about”, “defining” or “seminal”.
  • Large/long-term – most simply, these decisions often involve high-cost, chunky expenditure, made more so by being relatively irreversible, and thus have enduring impact.

Taken together, these three qualities mean that strategic decisions tend to affect the whole (organisation, family, team) even if initially directed at just one part. They change the whole system.

I want to stress the first two points over the third, which tends to get mentioned most. Strategic decisions may involve billions of pounds and require a 10-year perspective, but often in fact appear minor in themselves, then have a huge impact in subtle ways. This introduces the notion of a tipping point, where a small nudge to a system just pushes it over the edge, resulting in radical change. Knowing where to nudge – at the core of a system, and when – at the critical moment – is the art of strategy…

We might then confirm these definitions by considering typical uses of the word in the media: a “strategically timed” wicket/goal/try – is one that has more impact than just any score, probably changing the whole match. Or think of a “strategically placed fig leaf” – a small item but at exactly the right place! And a strategic – cf. tactical – missile wins the whole war not just the battle. Figure 2 summarises these three key components of “strategic”.




So whilst the word “strategy” may have several subtly different nuances in different situations, it should always be broadly understood as the overall approach to achieving a goal. This may be an actual pre-determined plan of actions, but it may equally be just a set of broad guidelines, perhaps no more than an attitude. It may only be revealed ex-post, rather than fully intended ex-ante. But it will be more than just a list of to-dos. A strategy must be …strategic: it must describe measures that have a defining and/or transformational effect on the fundamentals of the whole organisation.


© Ken Whitton 2008

Posted by Prasetyo on 14:29


Clayton M. Christensen and Tara Donovan




The Processes of Strategy Development and Implementation

When described with the historical perspective of logically written business school case studies, companies’ strategies often seem to be the product of an organized and rigorous planning process. The way that most companies’ strategies actually come to be defined, however, is often quite different. Organizations whose strategies have propelled them to the tops of their industries not infrequently arrived at those strategies through trial, error and unanticipated success. Rarely was the winning strategy clear to the combatants at the outset. As organizations dive deeper into the undefined waters of the new economy and as traditional business models are being turned inside out, it is crucial that leaders of established and start-up companies alike understand the processes by which strategies are shaped, in order to guide their companies effectively. The purpose of this paper is to describe a simple model of the processes by which strategy comes to be defined and is implemented. Understanding the key dimensions of this process can help executives keep their hands more precisely on those levers that control how strategy gets defined and implemented, and to adjust the workings of that process as the competitive environment changes.

Two Processes of Strategy Formulation

In every company there are two independent and simultaneous processes through which strategy comes to be defined. The first strategy-making process is conscious and analytical, involving assessments of market structure, competitive strengths and weaknesses, the nature of customer needs, and the drivers of market growth. Strategy in this process typically is formulated in a project with a discrete beginning and end. Top-tier management consultants often manage these projects. The result of this process is an intended or deliberate strategy. [1 ] Intended strategies can be implemented as they have been envisioned if three conditions are met. First, those in the organization must understand each important detail in management’s intended strategy. Second, if the organization is to take collective action, the strategy needs to make as much sense to each of the members in the organization as they view the world from their own context, as it does to top management. Finally, the collective intentions must be realized with little unanticipated influence from outside political, technological or market forces. Since it is difficult to find a situation where all three of these conditions apply, it is rare that an intended strategy can be implemented without significant alteration. [2]

The second strategy-making process has been termed emergent strategy. It is the cumulative effect of day-to-day prioritization decisions made by middle managers, engineers, salespeople and financial staff – decisions that are made “despite, or in the absence of, intentions.”[3 ] In fact, managers typically do not frame these decisions as strategic at all, at the time they are being made; they have a decidedly tactical character. For example, Intel’s decision to accept an order from Busicom, a second-tier Japanese calculator company, started the company on the path to microprocessors. Sam Walton’s decision to build his second store in another small town near his first one in Bentonville, Arkansas rather than in a large city, led to Wal-Mart‘s discovery of the attractive economics of building pre-emptively large stores in small towns. Emergent strategies result from managers’ daily response to problems or opportunities that were unforeseen by those engaged in the deliberate strategy-making process, at the time they were doing their analysis and planning.

The Resource Allocation Filter

Factors that affect and ultimately comprise a company’s strategy stream continuously from these intended and emergent sources. Regardless of the source, however, they then must flow through a common filter – the resource allocation process. This is because a company’s actual strategy is manifest only through the stream of new products, processes, services and acquisitions to which resources are allocated. The resource allocation process acts like a filter that determines which intended and/or emergent initiatives get funding and pass through, and which proposals are denied resources.

The resource allocation process is a complex, diffused process that occurs at every level, every day, in all companies. For example, a saleswoman must decide which customer to call on today, and which customer she will not visit. When meeting with the customer, she must decide which products to emphasize in the conversation, and which to ignore. Every day that an engineer who is a member of multiple product development teams comes to work, he or she needs to decide which of those projects to work on that day, and which to put on the back burner. Senior managers regularly decide which projects or capital investments to fund, and which ones to kill. Each of these types of decisions, occurring at all levels of the organization every day, comprise its resource allocation process.

If the criteria that guide prioritization decisions in this diffused resource allocation process are not carefully tied to the company’s intended strategy (and often they are not), significant disparities can develop between a company’s intended strategy and its actual strategy. Understanding and controlling the criteria by which day-to-day resource allocation decisions are made at all levels of the organization, therefore, is a key challenge in managing the process of defining and implementing strategy.

Initiatives that receive funding and other resources from the resource allocation process can be called strategic actions, as opposed to strategic intentions. Intel chairman Andy Grove has said, “In my experience, [top-down strategic plans] always turn into sterile statements, rarely gaining traction in the real work of the corporation. Strategic actions, on the other hand, always have real impact.”[4] In other words, Grove counsels, “To understand companies’ actual strategies, pay attention to what they do, rather than what they say.” In our parlance, this means that a company’s strategy is defined by what comes out of the resource allocation process, not by what goes into it.

Figure 1 charts the confluence of these strategy-making processes. Strategic ideas and initiatives, whether of intended or emergent origin, are filtered through the resource allocation process. What emerges are strategic actions – the flow of new products, services, processes and acquisitions that define what the company actually does. As the company does these things, managers then confront and respond to unexpected crises and opportunities which cycle back into the emergent process. And as managers learn what works and what doesn’t in the competitive marketplace, their improved understanding flows back into the intended strategy process. Each resource allocation decision, no matter how slight, shapes what the company actually does. This creates a new set of opportunities and problems, and generates new intended and emergent inputs into the process.


Figure 1: The Process by which Strategy Is Defined and Implemented



A Case Study in Intended and Emergent Strategy: Honda’s Attack on the American Motorcycle Market

Several well-known case studies illustrate how these processes of strategy-making work. For example, during the post-War era, Honda Corporation was a supplier of small, rugged “Supercub” motorcycles designed to maneuver through the Japan’s congested cities.[5 ] Supercub sales had grown to 300,000 units by 1959, and management, eager to take advantage of Japan’s low labor costs, targeted the North American market for growth. Research showed that Americans used motorcycles for long over-the-road excursions, rather than the short urban trips for which the Supercub was designed – so Honda’s engineers designed and manufactured a larger over-the-road bike for the American market. Honda management reasoned that their labor cost advantage was sufficient to secure at least 10% of the American market in competition against the likes of Harley Davidson and Triumph, and they sent three employees to Los Angeles to launch the effort.

Honda’s team ran into a series of setbacks in America, however. Most motorcycle dealers were unwilling to accept an untested product line. When the team finally signed up several dealers who then sold a few hundred units, Honda’s inexperience in design for vehicles in highway use became apparent as clutch problems and oil leaks severely damaged the engines. Repairs on warrantied bikes nearly bankrupted the company.

To minimize start-up costs and live within foreign exchange restrictions that had been imposed by the Japanese government, the members of the Honda team had brought Supercub bikes with them to use for personal transportation in Los Angeles. One Saturday after a particularly frustrating week, one member of the team decided release his frustrations by racing his Supercub through the hills east of Los Angeles. It was fun. He invited his two colleagues to join him, and “dirtbiking” became a regular recreational outlet. As others saw this new sport and thought it looked fun, they began requesting that the Honda managers special-order Supercubs for them so that they could join in the fun. Within a year or so, the buyer for the power equipment section of the Sears, Roebuck catalog learned of this new sport, and asked if he might offer the Honda dirtbike for sale through his catalog. Because selling Supercubs was not the company’s strategy, however, the team declined the opportunity and continued their focus on trying to make the large, over-the-road bike strategy work.

After nearly three years, the unanticipated popularity of the Supercub and unanticipated difficulty with large bikes convinced the Honda America team that they had happened upon a better strategy – selling small bikes as recreational vehicles. They then commenced a protracted effort to persuade corporate management to support the change.

The Honda team subsequently found that traditional motorcycle dealers were even more reluctant to sell dirtbikes than Honda’s larger bikes, because the low price point and profit margins on the Supercub were unattractive. With few alternatives, the Honda team finally persuaded a few sporting goods retailers – who found dirtbikes to be quite profitable relative to the other products in their merchandise mix – to carry the product line, and the popularity of dirtbikes began to soar. A UCLA advertising student in a term paper came up with what became Honda’s award-winning advertising slogan, “You meet the nicest people on a Honda.” These ads featured grandmothers, teen-agers and businesspeople on Honda bikes – quite different customers than traditional motorcycle clientele.

By 1964 most elements of a winning strategy had emerged for Honda, quite by trial and error. With this understanding of what worked and what didn’t, Honda then aggressively scaled the business. As production volumes increased, Honda followed a classic experience-curve strategy by cutting prices to build volume, which further reduced costs and enabled additional price reductions. Honda’s product designers systematically increased the size and power of Honda’s products, disruptively moving up-market.[6] Traditional cycle competitors found that they could not compete with Honda in the lower tiers of the market, and retreated into the high end by emphasizing sales of larger bikes, until ultimately only Harley Davidson and BMW survived as niche players. By the 1980s, Honda had become the dominant motorcycle brand in America.

In terms of the model diagrammed in Figure 1, Honda began its efforts with an intended strategy. Almost immediately, emergent inputs such as the reluctance of traditional dealers to carry Honda’s bikes and the Sears buyer’s request were received, but Honda’s resource allocation process filtered out those inputs to its strategy. Finally, the accumulated evidence convinced the Honda team that a better strategy was at hand. They persuaded corporate management to change the filter in the resource allocation process – and one by one, the elements of a winning strategy emerged. Once the rules of this game became clear, Honda switched the filter in the resource allocation process again, and a remarkably successful intended strategy process was executed.

The Crucial Role of Resource Allocation in the Strategy Development Process

Professors Joseph L. Bower [7] of the Harvard Business School and Robert Burgelman [8] of Stanford have documented how resources get allocated across competing alternative investments at all levels of the organization. They note that the vast majority of ideas for developing new products, services and processes “bubble up” from employees within the organization. Middle managers cannot carry all of these ideas up to senior management for approval and funding, however, and must decide which of the ideas bubbling up to them they will throw their weight behind, and which they will allow to languish. Middle managers’ decisions therefore play a crucial role in the resource allocation process. If senior managers want to control the process by which strategy is defined and implemented, they must understand and shape the criteria that middle managers and those below them are using to make prioritization decisions.

As Figure 2 suggests, the criteria that constitute the filtering mechanisms in the resource allocation process comprise two categories – the organizational context and the structural context. The following paragraphs discuss examples of the factors that comprise these dimensions of context.

Organizational Context

Although organizational context has many dimensions, three of them are particularly powerful filtering mechanisms in almost every organization’s resource allocation process. The first is the structure of the company’s income statement. This determines the gross profit margins that the company must earn to cover overhead costs and earn a profit. Most managers have a very difficult time according priority in the resource allocation process to innovative proposals that will not maintain or improve the organization’s profit margins. The effect that such a filtering mechanism can have on a company’s strategy possibilities can be profound. 3M Corporation, for example, is one of the most innovative companies in modern history, in terms of its abilities to apply its core technological platforms to an array of market applications. It’s insistence that all new products meet relatively high gross margin targets, however, has focused the company into a vast array of small, premium product niches, and has prevented all but a few of its new products from becoming large mass-market businesses.

A second important element of organizational context is the short tenure in a given job that is typical in the career path of high-potential employees. Management development systems in most organizations move high-potential employees into new positions of responsibility every two years or so, in order to help them master management skills in various parts of the business. The effect of this practice, however, is to limit the payback time on investment proposals that most managers can enthusiastically endorse. Aspiring managers will instinctively accord priority to efforts that will pay off within the typical tenure in their jobs, in order to produce the improved results required to earn attractive promotions. The short-sighted investment horizons of results-oriented managers, which typically are attributed to Wall Street’s demands for near-term profit improvement, are in fact deeply embedded in the management development processes of most good companies.


Figure 2: Contextual Factors that Affect the Filtering Mechanisms in the Resource Allocation Process


A third example of the forces comprising the organizational context is the tolerance of failure in the organization’s culture. Many senior managers verbally assert that they want employees to take risks. But backing a new product development effort that fails typically puts a blemish on an aspiring junior manager’s track record that limits his or her potential for promotion into the ranks of senior management. Hence, innovative proposals that target well-documented needs of existing customers in established markets almost always win in the competition for resources against disruptive proposals to create new markets. Similarly, innovations that leverage the organization’s existing resources and capabilities will nearly always trump resources from riskier proposals that require the development of new capabilities.

Structural Context

Structural factors in a company’s environment also affect the filtering criteria that managers employ in the resource allocation process. For example, good managers always feel pressure to maintain or accelerate their companies’ growth rate because their stock price is predicated upon growth. This means that as a company grows, it must bring in larger and larger pieces of new business each year. Hence, as a company becomes larger the size threshold that new product or service opportunities must meet in order to get through the resource allocation filter grows. Opportunities which at one point were energizing in a smaller company’s resource allocation process get filtered out as “not big enough to be interesting” in a larger company.

A company’s customers likewise exert a powerful influence on the sorts of initiatives that survive the resource allocation process. For example, one of the organizations we have studied is the European arm of a major consulting firm. In 1996 it adopted a strategy that consisted of two elements. The first was to drop small clients, and focus on consulting for the European operations of the “Global 1000” – and in the process, to increase the average size of client engagement from $800 thousand to $10 million. The second element of the strategy was to become the European leader in e-commerce consulting. By 1999 the firm had implemented the first element of the strategy flawlessly, and saw its profits skyrocket as a result. However, not a single one of its engagements in 1999 related to e-commerce. Why? The world’s 1000 largest corporations, in general, were among the slowest to pursue e-commerce strategies. In the words of one of the managers, “In retrospect, it is very difficult to build a business around a service offering that none of your customers want.” Although managers think that they control the resource allocation process, in reality, customers often exert even more powerful de facto control over how money can and cannot be spent. This is a major reason why disruptive technologies are so difficult for companies to confront successfully.

Competitors’ actions likewise powerfully influence what managers must push through the resource allocation filter. If a competitor threatens to steal customers or growth opportunities away from a company, managers have almost no choice but to respond.

Because the factors in the organizational and structural context often exert such a powerful directive influence on the investments that can emerge from its resource allocation process, in some instances actual strategy can be shaped far more powerfully by these forces than by the intentions of senior managers themselves – as the following case study illustrates.

The Role of Resource Allocation in Strategy-Making: The Case of Intel I

ntel began as a manufacturer of semiconductor memories, and its founding engineers developed the world’s first commercially viable dynamic random access memory (DRAM) chips. [9] In 1971 an Intel engineer serendipitously invented the microprocessor during a funded development project for a Japanese calculator company. Although DRAMs continued to account for the lion’s share of company sales through the 1970s, Intel’s sales of microprocessors grew gradually in a host of small, emerging applications.

Intel allocated a key resource, wafer fabrication capacity, according to the gross margin per wafer that was earned in each of its product lines. Once each month Intel’s production schedulers met to allocate the available production capacity across their products, which ranged from DRAMs to EPROMs to microprocessors. The sales department would supply to the group its forecast shipments, and accounting would provide a rank ordering of those products earning the highest margins per wafer, down to those earning the lowest. The highest-margin product would then be allocated all of the production capacity needed to meet its shipments forecast. The next-highest margin product would then get all the capacity it needed in order to meet forecast shipments, and so on – until the product line with the lowest gross margins was allocated whatever residual capacity remained.

In the early 1980s the Japanese DRAM makers intensified their attack on the US market, causing pricing levels to drop precipitously. Hence, the gross margins Intel could earn on its DRAM products relegated DRAMs to the lowest ranks of the list every month. There was less intense competition in microprocessors. Microprocessors consistently had the most attractive gross margins in Intel’s product portfolio, and the resource allocation process therefore systematically diverted manufacturing capacity away from DRAMs and into microprocessors. This occurred without any explicit management decision to change strategy. Senior management, in fact, continued to invest two-thirds of R&D dollars into the DRAM business even as the resource allocation process was executing a systematic exit from DRAMs.

They believed that DRAMs were the “technology driver,” and that remaining competitive in DRAMs was essential in order to be competitive in other product lines. Finally, by 1984, when the company had plunged into financial crisis and DRAMs had contracted to only 3% of Intel’s volume, senior management recognized that Intel had become a microprocessor company. They stopped DRAM R&D spending, and Gordon Moore and Andy Grove made their storied exit through the company’s revolving lobby door as managers of the old company, and re-entered as managers of the new company. [10] But it was the resource allocation process that transformed Intel from a DRAM company into a microprocessor company. Intel’s remarkable strategy shift was not the result of an intended strategy articulated within the executive ranks, but rather it emerged through the daily decisions made by middle managers as they allocated resources. Once this new business opportunity had become clear, then, of course, Intel’s management could masterfully implement a deliberate strategy.

In fact, Burgelman notes that given the power that emergent forces have in the strategy-making process, one of the most important roles of senior management is to recognize what has happened – to learn from emergent sources what works, and then to cycle that learning back into the process through the deliberate channel.

A Contingent Model of Strategy-Making

Seen in the light of this model, the simplistic sequence in the minds of many students and consultants that strategies are first formulated and then implemented, can rarely be the case. Strategy is never static. All companies must at the outset chart their course in an intended direction, of course; but the evidence is quite strong that the right strategy can rarely be known at the outset. In early stage industries, strategy development needs to be dominated by emergent forces. For example, in a recent survey of 400 entrepreneurs (200 of whom had built successful companies and 200 of whom had failed), Bhide [11] asked those who had succeeded to indicate whether the strategy that had led to their success was the strategy that they originally had set out to implement. Ninety-three percent responded that the strategy that led to their success was substantially different than their initial intentions. The difference between those that succeeded and those that failed was not that the successful entrepreneurs got it right the first time. The successful ones simply had money left over to try again, after they learned that their initial strategy was flawed.

As Mintzberg and Waters advise, “Openness to emergent strategy enables management to act before everything is fully understood—to respond to an evolving reality rather than having to focus on a stable fantasy…. Emergent strategy itself implies learning what works—taking one action at a time in a search for that viable pattern or consistency.”[12]

There comes a time in successful companies’ start-up histories, of course, when the viable pattern has emerged. At this point, with a firm hand on the criteria used as filters in the resource allocation process, managers need to reverse the flow of strategy-making toward the intended direction. Rather than continuing to feel their way into the marketplace, they need to boldly execute the strategy that they have learned will work. Honda, Intel, Wal-Mart, and a host of other companies each saw a viable strategy emerge that was substantially different than what their founders had been able to envision. But they then executed that strategy aggressively, once the model was clear.

Process Ambidexterity: A Tricky Skill that Few Managers Have Mastered

Ultimately, as our research into disruptive technologies points out, the filters in the resource allocation process of successful companies can become so well-shaped to the successful strategy that the resource allocation process simply filters out any initiatives – whether of intended or emergent origin – that do not sustain the company’s historically successful strategy. This renders companies incapable of starting new growth businesses, and in particular, causes them to ignore the disruptive technologies that ultimately improve and grow to overthrow the prior industry leaders. Proposals that would have led DEC decisively into personal computers; Xerox into tabletop photocopiers; USX into steel minimills; and F.W. Woolworth into discount retailing emerged repeatedly in these companies, but were all starved of adequate funding in their respective resource allocation processes.

Managing the strategy development process requires rare skill by senior managers when disruptive threats and opportunities emerge. In the first place, enough resources need to be allocated to disruptive innovations to enable the company to catch and lead the industry in the disruptive wave that is threatening the leaders, while still investing sufficiently in sustaining innovations to keep the mainstream business competitive and profitable. In the second place, it requires that the corporation’s stable, established businesses be driven by intended strategy, even while the new, disruptive emerging businesses are practicing emergent strategy development.

In our studies we have found a few companies whose executives have proven capable of allocating resources sensibly across sustaining and disruptive businesses. But very, very rarely have we seen executives who have consistently demonstrated the ability to manage the strategy development process appropriately across a range of businesses in various stages of maturity. For example, Prodigy Communications, a joint venture between Sears and IBM, was a pioneer in online services in the early 1990s. The managers of Sears and IBM were extraordinarily bold in resource allocation – they invested over a billion dollars in what was a very uncertain, disruptive innovation. But the managers weren’t as successful in managing the strategy process – in helping Prodigy define a viable strategy through emergent channels, even while the parent companies were managing their mainstream businesses deliberately. With the deliberate model in its managers’ minds, Prodigy’s business plan envisioned that consumers would use on-line services primarily to access information and make on-line purchases.

In 1992, Prodigy realized that its two million subscribers were spending more time sending e-mail than downloading information or making purchases on line. The architecture of Prodigy’s computer and communications infrastructure had been designed to optimize transactions processing and the delivery of information, and Prodigy consequently began charging extra fees to subscribers who sent more than 30 e-mail messages per month. Rather than see the emergence of e-mail as an emergent strategy signal, the company tried to filter it out, because it was inconsistent with the intended strategy.

America OnLine (AOL) luckily entered the market later, after customers had discovered that e-mail was a primary reason for subscribing to an on-line service. With a technology infrastructure tailored to messaging and its ”You’ve got mail” signature, AOL became much more successful.

In light of our model, Prodigy’s mistake was not that it entered the market early. Nor was it a mistake that management targeted on-line information retrieval and shopping as the primary attraction of an on-line service. Nobody could know how on-line services would be used. Rather, the mistake was that the company employed a deliberate strategy process before the correct strategy could be known. Had Prodigy kept strategic and technological flexibility to respond to emergent strategic evidence, the company could have had a huge lead over AOL and Compuserve, given the network-effect advantages that come from having the largest number of subscribers.

A similar challenge confronted the set of companies in the early 1990s that responded to the widely held view that a large market for hand-held personal digital assistants (PDAs) was about to emerge. Many of the leading computer makers – including NCR, Apple, Motorola, IBM and Hewlett Packard – targeted this market, along with a few start-up firms like Palm Computing. All of these firms sensed that the market wanted a hand-held computing device. The technological challenges included incorporating in adequate storage, getting long-enough battery life, and handling input for these devices, which were too small to incorporate keyboards. Apple was the most aggressive of the innovators in this space. Its Newton cost $350 million to develop, because of the technologies such as handwriting recognition technology that were required to build as much functionality into the product as possible. Hewlett Packard also invested aggressively to design and build its tiny Kittyhawk disk drive for this market.

In the end, the products just weren’t good enough to be a substitute for notebook computers. Because their products were too expensive to be used for simpler applications, and each of the companies scrapped its effort – except Palm. Palm’s original strategy was to provide an operating system for these personal digital assistants. When its intended customers’ strategies failed, Palm searched around for another application – and came upon the concept of an electronic personal organizer. The rest is history. From its simple beginnings, the Palm Pilot has moved disruptively up-market. As mobile communications technology gets combined with the Palm Pilot, it now is beginning to look like a menacing disruptor to the notebook computer – though the strategy for getting there has turned out to be entirely different than anyone imagined at the outset.

What were the mistakes here? Concluding that the computer companies’ mistake was to conceive of the product as a hand-held computer is simplistic. That is akin to asserting that in order to be right, one should not be wrong. Their original strategy was as close to the right idea as anyone could come at the outset. The mistake was that the computer companies employed intended strategy processes from the beginning to the end. They invested massively to implement their strategies, and then wrote the projects off when the strategies proved wrong. Of them all, only Palm shifted to an emergent strategy process when its original intended strategy failed. When a viable strategy emerged, Palm shifted back towards a deliberate process as it migrated up-market.[13]

Clearly, this is not simple stuff. Many processes in an organization can become so refined and effective that they simply keep chugging along with little top-management attention, freeing managers to worry about more non-standard dimensions of the business. It is clearly dangerous, however, to allow the strategy development process ever to operate on auto-pilot. At any given point in time, some businesses under a manager’s care may need to be managed through aggressive, intended strategy processes, while others need to be managed through emergent processes. Nearly all companies, however, employ one-size-fits-all systems.

Similarly, within a single successful business over time, there is great danger that the resource allocation process will become so closely tuned to the company’s intended strategy that emergent inputs that should influence the company’s strategy get filtered out. This is why successful companies historically have almost always failed to catch disruptive technologies, and why most established companies aren’t successful at creating new markets for new technologies. Managing the filters in the resource allocation process in a way that is appropriate to time and place is a skill that few managers ever have demonstrated consistently.

In their research and teaching, many strategy scholars focus on the content of strategy, with an eye to helping students and managers understand what good strategy is; what competitive advantage is; and so on. These are crucial issues. We hope, however, that this simple way of framing of the process by which strategy comes to be defined might make the task of managing the development and evolution of strategy across a variety of businesses in the rapidly changing world more tractable.

_______________________________

[1] The notion that these two different processes coexist was first articulated by Henry Mintzberg and James Waters in their classic paper, “Of Strategies, Deliberate and Emergent,” Strategic Management Journal (6), 1985, p. 257.
[2] Ibid., p. 258
[3] Ibid., p. 257.
[4] Grove, Andrew. Only the Paranoid Survive. (Doubleday: New York, 1996), p. 146.
[5] This histories are described in a pair of classic Harvard Business School case studies, Honda (A) and Honda (B) by Professor E. Tatum Christensen.
[6] Christensen, Clayton M., The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Boston: Harvard Business School Press, 1997.
[7] Bower, Joseph L. Managing the Resource Allocation Process. (Harvard Business School Press: Boston, 1986)
[8] Burgelman, Robert A. and Leonard Sayles. Inside Corporate Innovation, (The Free Press: New York, 1986)
[9] Burgelman, Robert A., “Fading Memories … ,” Organization Science, 1991, pp.
[10] Grove, Andy, op,cit., pp.
[11] Bhide, Amar, “ ,“ Harvard Business Review.
[12] Mintzberg and Waters, “Of Strategies,” p. 271
[13] As of this writing (early 2000), it seems clear that Palm Computing badly needs to reverse its dominant strategy process again, as the modular concept being promulgated by Handspring seems to be gaining traction in the market. Handspring’s concept is to market a Palm Pilot-like core device with multiple plug-in modules that enable it to be used as a mobile phone, digital camera, etc. Palm needs to let more emergent inputs through its resource allocation process in order to respond effectively to these developments.




Posted by Prasetyo on 14:08


Fred Nickols



Abstract

The concept of strategy has been borrowed from the military and adapted for use in business. A review of what noted writers about business strategy have to say suggests that adopting the concept was easy because the adaptation required has been modest. In business, as in the military, strategy bridges the gap between policy and tactics. Together, strategy and tactics bridge the gap between ends and means. This paper reviews various definitions of strategy for the purpose of clarifying the concept and placing it in context. The author's aim is to make the concepts of policy, strategy, tactics, ends, and means more useful to those who concern themselves with these matters..

Some Language Basics

Strategy is a term that comes from the Greek strategia, meaning "generalship." In the military, strategy often refers to maneuvering troops into position before the enemy is actually engaged. In this sense, strategy refers to the deployment of troops. Once the enemy has been engaged, attention shifts to tactics. Here, the employment of troops is central. Substitute "resources" for troops and the transfer of the concept to the business world begins to take form.

Strategy also refers to the means by which policy is effected, accounting for Clauswitz’ famous statement that war is the continuation of political relations via other means. Given the centuries-old military origins of strategy, it seems sensible to begin our examination of strategy with the military view. For that, there is no better source than B. H. Liddell Hart.

Strategy According to B. H. Liddell Hart

In his book, Strategy [1], Liddell Hart examines wars and battles from the time of the ancient Greeks through World War II. He concludes that Clausewitz’ definition of strategy as "the art of the employment of battles as a means to gain the object of war" is seriously flawed in that this view of strategy intrudes upon policy and makes battle the only means of achieving strategic ends. Liddell Hart observes that Clausewitz later acknowledged these flaws and then points to what he views as a wiser definition of strategy set forth by Moltke: "the practical adaptation of the means placed at a general’s disposal to the attainment of the object in view." In Moltke's formulation, military strategy is clearly a means to political ends.

Concluding his review of wars, policy, strategy and tactics, Liddell Hart arrives at this short definition of strategy: "the art of distributing and applying military means to fulfil the ends of policy." Deleting the word "military" from Liddell Hart’s definition makes it easy to export the concept of strategy to the business world. That brings us to one of the people considered by many to be the father of strategic planning in the business world: George Steiner.

Strategy According to George Steiner

George Steiner, a professor of management and one of the founders of The California Management Review, is generally considered a key figure in the origins and development of strategic planning. His book, Strategic Planning [2], is close to being a bible on the subject. Yet, Steiner does not bother to define strategy except in the notes at the end of his book. There, he notes that strategy entered the management literature as a way of referring to what one did to counter a competitor’s actual or predicted moves. Steiner also points out in his notes that there is very little agreement as to the meaning of strategy in the business world. Some of the definitions in use to which Steiner pointed include the following:

  • Strategy is that which top management does that is of great importance to the organization.
  • Strategy refers to basic directional decisions, that is, to purposes and missions.
  • Strategy consists of the important actions necessary to realize these directions.
  • Strategy answers the question: What should the organization be doing?
  • Strategy answers the question: What are the ends we seek and how should we achieve them?

Steiner was writing in 1979, at roughly the mid-point of the rise of strategic planning. Perhaps the confusion surrounding strategy contributed to the demise of strategic planning in the late 1980s. The rise and subsequent fall of strategic planning brings us to Henry Mintzberg.

Strategy According to Henry Mintzberg

Henry Mintzberg, in his 1994 book, The Rise and Fall of Strategic Planning [3], points out that people use "strategy" in several different ways, the most common being these four:

  1. Strategy is a plan, a "how," a means of getting from here to there.
  2. Strategy is a pattern in actions over time; for example, a company that regularly markets very expensive products is using a "high end" strategy.
  3. Strategy is position; that is, it reflects decisions to offer particular products or services in particular markets.
  4. Strategy is perspective, that is, vision and direction.

Mintzberg argues that strategy emerges over time as intentions collide with and accommodate a changing reality. Thus, one might start with a perspective and conclude that it calls for a certain position, which is to be achieved by way of a carefully crafted plan, with the eventual outcome and strategy reflected in a pattern evident in decisions and actions over time. This pattern in decisions and actions defines what Mintzberg called "realized" or emergent strategy.

Mintzberg’s typology has support in the earlier writings of others concerned with strategy in the business world, most notably, Kenneth Andrews, a Harvard Business School professor and for many years editor of the Harvard Business Review.

Strategy According to Kenneth Andrews

Kenneth Andrews presents this lengthy definition of strategy in his book, The Concept of Corporate Strategy [4]:

"Corporate strategy is the pattern [italics added] of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities. (pp.18-19)."

Andrew’s definition obviously anticipates Mintzberg’s attention to pattern, plan, and perspective. Andrews also draws a distinction between "corporate strategy," which determines the businesses in which a company will compete, and "business strategy," which defines the basis of competition for a given business. Thus, he also anticipated "position" as a form of strategy. Strategy as the basis for competition brings us to another Harvard Business School professor, Michael Porter, the undisputed guru of competitive strategy.

Strategy According to Michael Porter

In a 1996 Harvard Business Review article [5] and in an earlier book [6], Porter argues that competitive strategy is "about being different." He adds, "It means deliberately choosing a different set of activities to deliver a unique mix of value." In short, Porter argues that strategy is about competitive position, about differentiating yourself in the eyes of the customer, about adding value through a mix of activities different from those used by competitors. In his earlier book, Porter defines competitive strategy as "a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there." Thus, Porter seems to embrace strategy as both plan and position. (It should be noted that Porter writes about competitive strategy, not about strategy in general.)

Strategy According to Kepner-Tregoe

In Top Management Strategy [7], Benjamin Tregoe and John Zimmerman, of Kepner-Tregoe, Inc., define strategy as "the framework which guides those choices that determine the nature and direction of an organization." Ultimately, this boils down to selecting products (or services) to offer and the markets in which to offer them. Tregoe and Zimmerman urge executives to base these decisions on a single "driving force" of the business. Although there are nine possible driving forces, only one can serve as the basis for strategy for a given business. The nine possibilities are listed below:

  1. Products offered
  1. Production capability
  1. Natural resources
  1. Market needs
  1. Method of sale
  1. Size/growth
  1. Technology
  1. Method of distribution
  1. Return/profit

It seems Tregoe and Zimmerman take the position that strategy is essentially a matter of perspective.

Strategy According to Michel Robert

Michel Robert takes a similar view of strategy in, Strategy Pure & Simple [8], where he argues that the real issues are "strategic management" and "thinking strategically." For Robert, this boils down to decisions pertaining to four factors:

  1. Products and services
  1. Market segments
  1. Customers
  1. Geographic areas

Like Tregoe and Zimmerman, Robert claims that decisions about which products and services to offer, the customers to be served, the market segments in which to operate, and the geographic areas of operations should be made on the basis of a single "driving force." Again, like Tregoe and Zimmerman, Robert claims that several possible driving forces exist but only one can be the basis for strategy. The 10 driving forces cited by Robert are:

  1. Product-service
  1. Sales-marketing method
  1. User-customer
  1. Distribution method
  1. Market type
  1. Natural resources
  1. Production capacity-capability
  1. Size/growth
  1. Technology
  1. Return/profit

Strategy According to Treacy and Wiersema

The notion of restricting the basis on which strategy might be formulated has been carried one step farther by Michael Treacy and Fred Wiersema, authors of The Discipline of Market Leaders [9]. In the Harvard Business Review article that presaged their book [10], Treacy and Wiersema assert that companies achieve leadership positions by narrowing, not broadening their business focus. Treacy and Wiersema identify three "value-disciplines" that can serve as the basis for strategy: operational excellence, customer intimacy, and product leadership. As with driving forces, only one of these value disciplines can serve as the basis for strategy. Treacy and Wiersema’s three value disciplines are briefly defined below:

  1. Operational Excellence
Strategy is predicated on the production and delivery of products and services. The objective is to lead the industry in terms of price and convenience.
  1. Customer Intimacy
Strategy is predicated on tailoring and shaping products and services to fit an increasingly fine definition of the customer. The objective is long-term customer loyalty and long-term customer profitability.
  1. Product Leadership
Strategy is predicated on producing a continuous stream of state-of-the-art products and services. The objective is the quick commercialization of new ideas.

Each of the three value disciplines suggests different requirements. Operational Excellence implies world-class marketing, manufacturing, and distribution processes. Customer Intimacy suggests staying close to the customer and entails long-term relationships. Product Leadership clearly hinges on market-focused R&D as well as organizational nimbleness and agility.

What Is Strategy?

What, then, is strategy? Is it a plan? Does it refer to how we will obtain the ends we seek? Is it a position taken? Just as military forces might take the high ground prior to engaging the enemy, might a business take the position of low-cost provider? Or does strategy refer to perspective, to the view one takes of matters, and to the purposes, directions, decisions and actions stemming from this view? Lastly, does strategy refer to a pattern in our decisions and actions? For example, does repeatedly copying a competitor’s new product offerings signal a "me too" strategy? Just what is strategy?

Strategy is all these—it is perspective, position, plan, and pattern. Strategy is the bridge between policy or high-order goals on the one hand and tactics or concrete actions on the other. Strategy and tactics together straddle the gap between ends and means. In short, strategy is a term that refers to a complex web of thoughts, ideas, insights, experiences, goals, expertise, memories, perceptions, and expectations that provides general guidance for specific actions in pursuit of particular ends. Strategy is at once the course we chart, the journey we imagine and, at the same time, it is the course we steer, the trip we actually make. Even when we are embarking on a voyage of discovery, with no particular destination in mind, the voyage has a purpose, an outcome, an end to be kept in view.

Strategy, then, has no existence apart from the ends sought. It is a general framework that provides guidance for actions to be taken and, at the same time, is shaped by the actions taken. This means that the necessary precondition for formulating strategy is a clear and widespread understanding of the ends to be obtained. Without these ends in view, action is purely tactical and can quickly degenerate into nothing more than a flailing about.

When there are no "ends in view" for the organization writ large, strategies still exist and they are still operational, even highly effective, but for an individual or unit, not for the organization as a whole. The risks of not having a set of company-wide ends clearly in view include missed opportunities, fragmented and wasted effort, working at cross purposes, and internecine warfare. A comment from Lionel Urwick's classic Harvard Business Review article regarding the span of control is applicable here [11]:

"There is nothing which rots morale more quickly and more completely than . . . the feeling that those in authority do not know their own minds."

For the leadership of an organization to remain unclear or to vacillate regarding ends, strategy, tactics and means is to not know their own minds. The accompanying loss of morale is enormous.

One possible outcome of such a state of affairs is the emergence of a new dominant coalition within the existing authority structure of the enterprise, one that will augment established authority in articulating the ends toward which the company will strive. Also possible is the weakening of authority and the eventual collapse of the formal organization. No amount of strategizing or strategic planning will compensate for the absence of a clear and widespread understanding of the ends sought.

The Practical Question: How?

How does one determine, articulate and communicate company-wide ends? How does one ensure understanding and obtain commitment to these ends? The quick answers are as follows:

The ends to be obtained are determined through discussions and debates regarding the company's future in light of its current situation. Even a SWOT analysis (an assessment of Strengths, Weaknesses, Opportunities and Threats) is conducted based on current perceptions.

The ends settled on are articulated in plain language, free from flowery words and political "spin." The risk of misdirection is too great to tolerate unfettered wordsmithing. Moreover, the ends are communicated regularly, repeatedly, through a variety of channels and avenues. There is no end to their communication.

Understanding is ensured via discussion, dialog and even debate, in a word, through conversations. These conversations are liberally sprinkled with examples, for instances, and what ifs. Initially, the CEO bears the burden of these conversations with staff. As more people come to understand and commit to the ends being sought, this communications burden can be shared with others. However, the CEO can never completely relinquish it. The CEO is the keeper of the vision and, periodically, must be seen reaffirming it.

Ultimately, the ends sought can be expressed via a scorecard or some other device for measuring and publicly reporting on company performance. Individual effort can then be assessed in light of these same ends. Suppose, for instance, that a company has these ends in mind: improved customer service and satisfaction, reduced costs, increased productivity, and increasing revenues from new products and services. It is a simple and undeniably relevant matter for managers to periodically ask the following questions of the employees reporting to them:

  • What have you done to improve customer service?
  • What have you done to improve customer satisfaction?
  • What have you done to reduce costs?
  • What have you done to increase productivity?
  • What have you done to increase revenues from new products and services?

The Decisions Are the Same

No matter which definition of strategy one uses, the decisions called for are the same. These decisions pertain to choices between and among products and services, customers and markets, distribution channels, technologies, pricing, and geographic operations, to name a few. What is required is a structured, disciplined, systematic way of making these decisions. Using the "driving forces" approach is one option. Choosing on the basis of "value disciplines" is another. Committing on the basis of "value-chain analysis" is yet a third. Using all three as a system of cross-checks is also a possibility.

Some Fundamental Questions

Regardless of the definition of strategy, or the many factors affecting the choice of corporate or competitive strategy, there are some fundamental questions to be asked and answered. These include the following:

  • Related to Mission & Vision
  1. Who are we?
  2. What do we do?
  3. Why are we here?
  4. What kind of company are we?
  5. What kind of company do we want to become?
  6. What kind of company must we become?
  • Related to Corporate Strategy
  1. What is the current strategy, implicit or explicit?
  2. What assumptions have to hold for the current strategy to be viable?
  3. What is happening in the larger, social and educational environments?
  4. What are our growth, size, and profitability goals?
  5. In which markets will we compete?
  6. In which businesses?
  7. In which geographic areas?
  • Related to Competitive Strategy
  1. What is the current strategy, implicit or explicit?
  2. What assumptions have to hold for the current strategy to be viable?
  3. What is happening in the industry, with our competitors, and in general?
  4. What are our growth, size, and profitability goals?
  5. What products and services will we offer?
  6. To what customers or users?
  7. How will the selling/buying decisions be made?
  8. How will we distribute our products and services?
  9. What technologies will we employ?
  10. What capabilities and capacities will we require?
  11. Which ones are core?
  12. What will we make, what will we buy, and what will we acquire through alliance?
  13. What are our options?
  14. On what basis will we compete?

Some Concluding Remarks

  1. Strategy has been borrowed from the military and adapted for business use. In truth, very little adaptation is required.
  2. Strategy is about means. It is about the attainment of ends, not their specification. The specification of ends is a matter of stating those future conditions and circumstances toward which effort is to be devoted until such time as those ends are obtained.
  3. Strategy is concerned with how you will achieve your aims, not with what those aims are or ought to be, or how they are established. If strategy has any meaning at all, it is only in relation to some aim or end in view.
  4. Strategy is one element in a four-part structure. First are the ends to be obtained. Second are the strategies for obtaining them, the ways in which resources will be deployed. Third are tactics, the ways in which resources that have been deployed are actually used or employed. Fourth and last are the resources themselves, the means at our disposal. Thus it is that strategy and tactics bridge the gap between ends and means.
  5. Establishing the aims or ends of an enterprise is a matter of policy and the root words there are both Greek: politeia and polites—the state and the people. Determining the ends of an enterprise is mainly a matter of governance not management and, conversely, achieving them is mostly a matter of management not governance.
  6. Those who govern are responsible for seeing to it that the ends of the enterprise are clear to the people who people that enterprise and that these ends are legitimate, ethical and that they benefit the enterprise and its members.
  7. Strategy is the joint province of those who govern and those who manage. Tactics belong to those who manage. Means or resources are jointly controlled. Those who govern and manage are jointly responsible for the deployment of resources. Those who manage are responsible for the employment of those resources—but always in the context of the ends sought and the strategy for their achievement.
  8. Over time, the employment of resources yields actual results and these, in light of intended results, shape the future deployment of resources. Thus it is that "realized" strategy emerges from the pattern of actions and decisions. And thus it is that strategy is an adaptive, evolving view of what is required to obtain the ends in view.

This paper has taken a broad, multi-faceted look at the subject of strategy. Some readers might go away disappointed that no final, unambiguous definition of strategy has been provided. The quick response is that there is none, that strategy is a broad, ambiguous topic. We must all come to our own understanding, definition, and meaning. Helping the reader do so is the chief aim of this paper.

References

  1. Strategy (1967). B. H. Liddell Hart. Basic Books.
  2. Strategic Planning (1979). George Steiner. Free Press.
  3. The Rise and Fall of Strategic Planning (1994). Henry Mintzberg. Basic Books.
  4. The Concept of Corporate Strategy, 2nd Edition (1980). Kenneth Andrews. Dow-Jones Irwin.
  5. "What is Strategy?" Michael Porter. Harvard Business Review (Nov-Dec 1996).
  6. Competitive Strategy (1986). Michael Porter. Harvard Business School Press.
  7. Top Management Strategy (1980). Benjamin Tregoe and John Zimmerman. Simon and Schuster.
  8. Strategy: Pure and Simple (1993). Michel Robert. McGraw-Hill.
  9. The Discipline of Market Leaders (1994). Michael Treacy and Fred Wiersema. Addison-Wesley.
  10. "Customer Intimacy and Other Value Disciplines." Michael Treacy and Fred Wiersema. Harvard Business Review (Jan-Feb 1993).
  11. "The Span of Control." Lionel Urwick. Harvard Business Review (May-Jun 1956).

source: http://www.nickols.us/

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