Study Note - 2

Strategy Development

This Study Note includes

2.1 Strategy Development Process
2.2 Strategic Planning
2.3 Strategic Leadership
2.4 Organisational Politics
2.5 Logical Incrementalism
2.6 Learning Organization
2.7 Strategic Drift
2.8 Strategy under Uncertainty
2.9 Strategic Management in Complex Conditions

2.1 Strategy Development Process

“How are you going to win in the period ahead?” That's the key question behind developing strategy.
To win at anything worthwhile, you need a game plan. Professional sports teams know this, and this idea
applies to your organization, your department, your team – and even to yourself as an individual.
To be successful means knowing how to use your talent and resources to best advantage, and it's very
difficult to "win" if you don't have this game plan in place.
Approaches to Strategy
In a for-profit company, for which competition and profitability are important, your goals will differ from
those of a nonprofit or government department. Likewise, objectives for a department or team will have
a different scope from objectives for your organization as a whole.
For example, and depending on scope and circumstances, you may want to develop strategies to:
• Increase profitability.
• Gain more market share.
• Increase approval ratings, or boost customer satisfaction.
• Complete a project under budget.
To determine your strategy, you must understand fully the internal and external environmental factors
that affect you. With that understanding, you can identify your clear advantages and use these to be
successful. From there, you can make informed choices and implement your strategy effectively.
So, strategy creation follows a three-stage process:
1. Analyzing the context in which you're operating.
2. Identifying strategic options.
3. Evaluating and selecting the best options.
We'll look at this process, and review some useful tools that can help you develop your strategy.

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Strategy Development

Stage 1: Analyzing Your Context and Environment

In this first stage, you ensure that you fully understand yourself and your environment. Do the following:
• Analyze Your Organization
Firstly, examine your resources, liabilities, capabilities, strengths, and weaknesses. A SWOT Analysis
is a great tool for uncovering what you do well and where you have weaknesses, providing that
you use it rigorously. It's much easier to achieve your objectives when your strategy uses your
strengths without exposing your weaknesses.
Also, look at your Core Competencies. These highlight your unique strengths, and help you think
about how you can set yourself apart from your competitors.
• Analyze Your Environment
Now you need to examine your current operating environment to predict where things are moving.
Are there exciting opportunities that you should pursue? What future scenarios are likely in your
industry, and how will these impact the work that you do?
PEST Analysis, Porter's Diamond, and Porter's Five Forces are great starting points for analyzing your
environment. They show where you have a strong position within the larger environment, and
where you may have issues.
As you prepare to create your strategy, make sure that you're working in a way that's aligned with
changes in your operating environment, rather than working against them. These external factors
are often beyond your control, so if you pursue a strategy that requires a change in one of these
elements, you may have a long, exhausting, unprofitable battle ahead of you.
A TOWS matrix can help you with your internal and external analysis. This framework combines
everything you learned in your SWOT Analysis (TOWS is SWOT in reverse), and then applies it to
developing a strategy that either maximizes strengths and opportunities, or minimizes weaknesses
and threats.
• Analyze Your Customers and Stakeholders
Your strategy defines how you'll win, and winning is typically framed by how well you satisfy your
customers. For-profit companies must keep their customers and shareholders happy. Governments,
nonprofits, and project teams all have other stakeholders to satisfy as well. Strategy creation must
consider these needs.
Identify your clients and stakeholders. What do your clients want? And who are the key stakeholders
in your success? A Stakeholder Analysis will help you uncover these needs and preferences.
Also, look at your market in detail. Answer key questions such as "How is our market segmented?",
"What subpopulations can we reach cost-effectively?" and "What is our optimal Marketing Mix?"
• Analyze Your Competitors
In a traditional for-profit company, you must understand how your products compare with
competitors' products, and what your competitors' competencies are. How easy, or difficult, is it
to enter your market? What alternatives do customers have?
Non-profits, departmental teams and projects have competitors too. Other projects and teams
within the department compete for money and other resources. Therefore, you must prove that
you can add value, meet objectives, and contribute to organizational success.
Stage 2: Identifying Strategic Options
In Stage 1, you developed an understanding of how your organization or team fits within the context
of the internal and external environments. Now it's time to think about the different things that you

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 could do to create a clear advantage, and meet your objectives. Here are some fundamental
activities that can help you make this decision.
• Brainstorm Options
Use creativity tools like Brainstorming, Reverse Brainstorming and Starbursting to explore projects
that you could run to develop competitive advantage. Guide your brainstorming with reference
to the organization's mission statement, but, depending on your role in the organization, consider
how far you should be constrained by this.
• Examine Opportunities and Threats
Your SWOT Analysis identified some of the main opportunities and threats you face. Using this as a
starting point, brainstorm additional ways to maximize your opportunities, minimize your threats, or
perhaps even turn your threats into opportunities.
• Solve Problems
A problem-solving approach can also help at this stage. If your problem is that you're not achieving
your goals, ask yourself how you can ensure that you do. (If everyone in your industry finds it hard
to deal with a particular problem, then you may gain a competitive edge by dealing with it.)
For example, if you want to increase your customer satisfaction ratings in an industry plagued
by poor customer relations, your starting position is "low satisfaction." Brainstorm why this is the
case, and create strategic options that would increase satisfaction. Tools like Root Cause Analysis,
the 5 Whys, and Appreciative Inquiry can give you some interesting new perspectives on these
problems.
Stage 3: Evaluating and Selecting Strategic Options
The final stage is to evaluate strategic options in detail, and select the ones that you want to
pursue.
• Evaluate Options
By this stage, you've probably identified a range of good projects that you could run. You must
now evaluate these to choose the best strategic options. Consider every option you've identified,
but don't make a final judgment until you've completed your assessment.
Start by evaluating each option in the light of the contextual factors you identified in Stage 1.
What do these tell you about each option?
Techniques like Risk Analysis, Failure Modes and Effects Analysis and Impact Analysis can help you
spot the possible negative consequences of each option, which can be very easy to miss. Make
sure that you explore these thoroughly.
Many options will be analyzed on a financial basis. Here, techniques like Cost-Benefit Analysis,
Break-Even Analysis, use of Net Present Values (NPVs) and Internal Rates of Return (IRRs), and
Decision Trees are helpful.
Grid Analysis is particularly helpful for bringing together financial and non-financial decision
criteria. It helps you weight individual decision criteria, and consider subjective features - like team
fit and the likelihood of team buy-in - as well as objective, tangible factors like cost and return on
investment.
• Choose the Best Way Forward
With your evaluation complete, you now must choose the best strategic option or strategic options,
making sure that you don't choose so many options that you spread your resources too thinly.
Check your ideas for consistency with your organization's Vision, Mission and Values, and update
these if necessary. It's easy to forget about these critical elements during strategic planning, so

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Strategy Development

ensure that what you want to "win" is something that contributes towards the organization's overall
purpose.
Check your assumptions using the Ladder of Inference. This helps you confirm the soundness of the
reasoning process used to develop your strategy.
Strategy is more of a mindset than a document. The ultimate form and structure of a strategy
needs to complement your organization, its culture and the abilities of your people. But regardless
of form, the substance of a strategy need to, at a minimum, define the following:
• The overall direction of the company ---its aspirations, goals and value proposition
• Its business model to create sustainable competitive advantage
• The values, culture, and governance model
• The people and operational capabilities required for success
Strategy needs to be a dynamic, almost continuous, process - the speed of change in the competitive
landscape in which we operate demands nothing less. Our facilitated approach to either reaffirming an
existing strategy or creating a new one is designed to achieve these objectives, and more, by working
through a defined series of interactive sessions designed to help your leadership team not only reaffirm
or build a strategy, but develop critical learning capabilities in to your organization so that they can
make the strategy process an ongoing and dynamic part of your business operations.
Examples of the interactive sessions and the base objectives of each of these sessions follows. The specific
sessions that might be applied to your organization would depend on your specific needs.
Establishing a Common Language
• Define the meaning and critical elements of strategy for your organization
• Understand various orientations to strategy and determine where you are on this continuum
• Evaluating the current strategy of your organization and your current results against that strategy
• Agree to the reasons that you are looking at your strategy - what do you hope to accomplish
• Define the strategic design sequence you will follow in clarifying your strategy
Analyzing The Business Environment
• Review current market conditions and key competitors
• Identify key customers, key stakeholders, and their expectations
• Evaluate current market conditions affecting and influencing your organization
• Identify external factors influencing your organization
• Review the strengths and weaknesses of key known competitors
Forecasting The Future
• Identify assumptions about the future environment of the organization
• Identify your own "vital few" that will define your future
• Evaluate the impact of the "vital few" on your organization
• Identify alternative future business situations
• Conduct a SWOT analysis to determine potential ways to manage these alternatives

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Creating Core Ideology
• Develop an understanding of what a core ideology is and how it impacts your organization's
success
• Explore the legacy of your organization
• Define or refine your organization's mission
• Analyze the beliefs that have created your culture and crystallize your guiding principles
Defining Your Strategic Direction
• Develop a framework to define the primary questions that must be answered to establish your
strategic direction
• Clarify a vision of your organization over a three to five year time-span
• Describe your future customers and how your deliverables and products or services may change
to meet their needs
• Explore your organization's core capabilities and competencies and define the capabilities and
competencies you will need in order to compete in the future
Defining Your Competitive Advantage
• Understand customer's perception of value as the foundation of differentiation
• Create a long-term business focus
• Identify competitive differentiators within your industry
• Do a competitor analysis against the competitive differentiators
• Select competitive anchors that distinguish you from your competitors and competitive necessities
that define in which area you must keep up
• Develop a value position
Setting Goals
• Understand the importance of setting goals and tracking performance
• Develop the building blocks of goal-setting
• Identify your organization's key result areas
• Establish metrics in each of your key result areas
• Assess your current performance
• Set goals in each of your key result areas
• Evaluate your feedback system
Creating a Master Plan
• Understand the importance of an integrated, master plan for managing your organization
• Select the critical success factors for your organization
• Identify major performance initiatives to implement your ideal vision
• Develop a performance initiatives matrix showing the relationship between your critical success
factors and performance initiatives
• Create a project charter to guide the implementation of each initiative
• Commission project teams for each initiative

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Strategy Development

Master Strategy of a Firm

Perhaps, conceptually, a master strategy of a firm consists of two inseparable parts : Business strategy
and Corporate strategy. Each complements the other. Let us consider the following quotes :
'....The strategic aim of a business (is) to earn a return on capital [1], and if in any particular case the return
in the long run is not satisfactory, then the deficiency should be corrected or the activity abandoned
for a more favourable one' [2] —of Alfred P. Sloan; and
'Strategy is when you are out of ammunition [1], but keep right on firing so that the enemy won't know'
[2] —Author unknown.
The part marked [1] in the above quotes represents the business strategy for a firm and the part [2], the
corporate strategy of a firm.
Business Strategy
Once a firm has decided to be active in a particular business area, it must then determine how to
compete in that field. Decisions of this sort involve business strategies. A firm's decision to extend its
product/service line is a business strategy since it enables the firm to compete more effectively in
its chosen business. To illustrate further, gaining 'market share' as one of the sources of competitive
advantage is a strategy at the business level.
Corporate Strategy
On the other hand, corporate strategy defines the nature and range of businesses a firm intends to
operate, for example, a tobacco company's move from cigarettes to beer and then soft drinks are
-examples of corporate strategy decisions. So are the electricals company's entry and subsequent
exit from the computer business. To illustrate further, adopting 'synergy' as one of the key sources of
competitive advantage is a strategy at the corporate level.
At the most basic level, corporate strategy deals with the question, "what businesses should we be in?"
whereas business strategy addresses the question, "How should we compete in this business?"
Master Strategy : Concept and Features
In addition to what has been sketched out in the strategic decision-making model, there are the
elements of change, growth, and adaptation in the life of a firm. Master strat¬egy is a firm's basic plan
for dealing with these factors.
Master strategy sets broad goals of a firm. One firm may decide to seek pre-eminence in a narrow
specialty while another undertakes to be a leader in several 'niches' or perhaps in all phases of its
industry. While pursuing either of them, a firm has to redefine its 'scope' in terms of desired role in society
and redesign its 'activities' in respect of :
1. Services to be offered to customers.
2. Operations to be performed by it.
3. Relations to be developed and maintained with suppliers of necessary resources.
4. Product-market opportunities.
To achieve the above, managers of a firm have to decide :
• what to do first,
• how many activities can be done concurrently,
• how fast to move,
• what risks to run, and
• what to postpone.

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These questions of sequence and timing must resolved to make the master strategy operational.
Master strategy involves deliberately relating to a firm's efforts to its particular future environment. Because
of this dynamic aspect, frequent reappraisal of master strategy is essential. But such reappraisal should
not call for sharp reversals in strategy—as a master strategy requires several years to execute. Even
though drastic modification of a firm's master strategy may not be necessary, frequent incremental
changes will certainly be necessary to keep abreast of the times.
Master strategy is the pivotal planning instrument for large and small enterprises.
A practical way to develop a master strategy is to :
1. Identify particular roles or 'niches' that are appropriate to a firm in view of competition and the
firm's resources.
2. Develop various facets of the firm's efforts and combine them to obtain synergistic effects.
3. Set up sequences and timing of changes that reflect firm's capabilities and external conditions.
4. Provide for frequent reappraisal and adaptation to evolving opportunities in the environment,
internal and external.
Key Elements to be Redefined or Redesigned
The following key elements that vitally affect the master strategy of a firm need redefinition and/or
redesign :
1. New markets or services
This requires identification of, and focus on : industry-growth prospects, competition, key factors for
success, and matching of a firm's strengths and weaknesses against these key success factors.
2. Predicting Future Demand
This necessitates identification of elements like desire for use or consumption, substitutes, ability to
pay, and structure of markets. A local variation in demand sometimes provide opportunity for a
particular firm.
3. Supply Related to Demand
This requires consideration of the probable supply of services and the conditions thereto, e.g.,
capacity configuration, costs and taxes, and technology changes. For an individual producer,
anticipating these shifts in the industry supply situation may be a matter of prosperity or death.
4. Climate of Industry
This involves assessment of competitive conditions in the industry; size, strength and attitude of other
competing firms; role of trade associations; and governmental regulations. Future government
action is a significant factor in the outlook of many industries and so affects a firm's strategy.
5. Crucial Factors
This suggests review of business environment dynamics and identification of those factors that
will be crucial for future success, e.g., leadership in R & D, cost leadership, product on service
differentiation, customer differentiation, adaptability to markets, distinctive customer service,
creative advertising, etc. All these call for a candid appraisal of a firm itself.
6. Position in Market
This involves measurement of marketing strengths of a firm. The aspects of market position—such
as, a relative market share, comparative quality of product, reputation with customers, and ties
with a distribution system—help define and redefine the strengths and limitations of a firm.

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Strategy Development

7. Service Abilities
This requires appraisal of a firm's relative strength in creating products and rendering services fitted
to consumer needs. Redesign, if not restructuring, of distribution outlets plays a great part in this
area. A firm, on this score, should identify its own strengths and see how these compare with
strengths of other firms.
8. Finance and Management
Any successful venture of a firm depends on its financial strength and the character of its
management.
Some strategies require large capital. A refinery and petro-chemicals company, for instance, must
be prepared to invest capital in millions. Few firms could maintain cash reserves of this size and
so they have to resort financial engineering instruments like bond or debentures with warrants,
entitlement of shares after a certain period or iock-in-periods, etc., from existing operations that
can be allocated to new venture. Qn the other hand, perhaps a strategy can be devised that
calls for relatively small .cash advances, and in these fields a firm that has low financial strength
will still' be able to compete with the affluent firms.
A more subtle factor in a firm is its management. The suitability of any proposed strategy is affected
by the age and vitality of key executives, their ability to risk profit and capital, their urge to gain
personal prestige through company growth and others.
Related to the capabilities of the key executives is the organisation structure of a firm. A
decentralised structure, for instance, facilitates movement into new fields of business, whereas a
functional structure with fine specialisation is better suited to expansion in closely related lines.
9. Combination of Services
This emphasises on the total service to a customer. A customer rarely buys merely a product. Other
attributes of the transaction include delivery, credit terms, repair service, operating instructions,
conspicuous consumption, and the like. What combination of attributes will have high synergistic
value for the customers, a firm serves, becomes 'the crucial element.
10. Adding to Capabilities
This implies fuller use of existing resources. For example, the manufacture and sales of watches by
a machine tools company can have synergistic effects in its sales efforts.
11. Vertical Integration
This involves expansion to obtain a resource. For example : a machine producing company, being
dissatisfied with the quality and tardy delivery of its castings by a foundry firm, was looking for a
new supplier. In its search, it located a nearby foundry that was breaking even. The machine
producer purchased the foundry and gave a steady backlog of work plus technical know-how.
This consolidated set-up that could bring in synergistic effect for betterment is a case of vertical
integration. Control of a critical resource, provided that the problems of balance, flexibility,
and managerial capacity are resolved, through vertical integration is often a significant part of
company strategy.
12. Strategy of Sequence
Since an essential aspect of master strategy is deciding what activities to be performed first and
how fast, it is necessary to make a choice of sequence. Especially in technical areas, sequences
of actions may be dictated by technology. Thus, process research must precede equipment
designs, product specifications must precede cost estimation and so forth. PERT analysis or normal
programming may be usefully employed.

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 Careful thought about the sequence is of great importance in the formulation of master
strategy.
13. Resource Limitations
Every firm has limits on its resources, be it human, physical or financial. The tricky issue is how to
optimise the use of these limited resources to the best advantage. A master strategy needs to be
devised, which is feasible within the inherent restraints.
To overcome scarce resources particularly in the supply activities, a cooperative agreement in
the form of 'coalitions' or even 'mergers' or as 'supply partners' as a part of strategic alliances can
be resorted to.
14. The Right Time to Act
Conditions in a firm's environment affect the 'right time' to act and to make a change. Managerial
acumen and its keen sense of timing are the basic needs to incorporate environmental opportunities
in a master strategy.
The preceding discussions of key elements and of sequence and timing provide no simple rules; yet they
are needed to be seriously considered as the critical aspects of master strategy of a firm.
Many of our early concepts of strategy were derived from the military. The word “strategy” literally
means “what generals do,” referring to the mapping out of military strategy in order to create the best
opportunity to win the battle. Or, in other words, strategy can be defined as, “the art of bringing forces
to the battlefield in a favorable position to win.”
Strategy development helps establish a framework for setting direction, and helps you determine the
criteria for day-to-day decisions. It helps answer the questions: “Where are we going?” and “How are
we going to get there?” When there are clear answers to these two questions, the path you take can
be specific and purposeful.
The strategy must be set in current reality. Often, people try to use yesterday’s solutions to cope with
today’s challenges. Michael E. Porter stated, “The essence of strategy is choosing what not to do.”What
he suggested is that the most difficult decisions in strategy development are not deciding what to do,
but rather deciding what you are not going to do. Once objectives are determined, they must truly
become priorities.
Your strategy builds on your understanding of the interdependence and relationship between your
core values, your mission, and your vision. Everything you do should be based and identifiable in one or
more of these three essentials. Strategy development then leads you into determining your objectives,
setting goals, and determining what specific steps you will take to accomplish your goals. The tactics
become the activities, projects, and events you determine to be the best to help you achieve the
desired results.
Strategy answers the question of “How?” “How are we going to accomplish the things that we have
determined need to be accomplished during the strategy period?” Strategy maps out where you are
going and also outlines the specific steps you need to take to get there.
We claim that almost everything we do today is strategy; in reality, it may have nothing to do with
strategy. Listed below are some of the ideas we sometimes ascribe to being strategy development,
but they are not.
1. Budget Planning. A strategy needs a budget. It must have the necessary resources for successful
implementation, but simply planning a budget is not strategy development.
2. Calendar Planning. Calendar planning is not strategy development. You must plan your calendar,
but moving calendar dates around from one year to the next does not constitute strategy. At
best, it perpetuates the past.

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Strategy Development

3. Long-Range Planning. “Long-range planning” is an old term that was used to imply that you were
planning ahead for several years, usually seven to ten years. Strategy helps you position for the
future. Although it has a future focus, it must help with current decisions. It becomes our decision-
making guide for both now and the future. Strategy development sets the direction for the future,
but does not try to plan the details beyond twelve to eighteen months.
Strategic Thinking
In order to accomplish successful strategy development, you must begin with “strategic thinking.” Strategy
development challenges you to think in a different way. There is nothing magical or mystical about
strategic thinking. It does, however, challenge you to think in a different way. It calls for you to have the
courage to risk reorganizing your problem solving and thinking patterns. Many people tend to organize
data and information in linear, logical thinking order, using concrete steps to formulate answers. The
tendency is to look at only one answer rather than pursuing multiple possibilities. For example, instead
of looking for one answer to a problem, you need to look for a variety of alternatives, possibly five to
10 for each problem.
It is easy to get stuck in the same old ways of thinking and problem-solving patterns. And it’s not
uncommon to be confronted with so much data that you experience information overload. In fact, you
may need to set aside time to sort through all the information before you make any decisions.
Because you may be accustomed to thinking only one way, you may place your brain on “autopilot”
and make many decisions without expending a lot of mental energy. In reality, you have chosen to
avoid thinking—you are just moving along the treadmill, convincing yourself that you are moving toward
your desired goals. The truth is, you’re just carrying the past with you. You repeat the same behaviors,
the same thought processes, and the same programs. It should not be a surprise, then, when you fail to
make progress and wind up in the same place year after year.
Sometimes the need for a strategic change is obvious! In the 1800’s, the British army faced a new
problem. For the first time, they were confronted with a crude but effective machine gun. At that time,
British battle strategy was to have the soldiers—who wore brightly colored uniforms—present a united
front by marching forward toward the enemy in long, straight rows. This had been effective in times
past, for the approach of many rows of highly visible soldiers was intimidating to the enemy, sometimes
resulting in confusion and fear for those who were unprepared for such a formidable sight.
However, with the invention of the machine gun, that kind of strategy made it easy for the enemy
machine guns to mow down the British troops. In their initial confrontation with these machine guns, 500
British solders were killed or seriously injured in a matter of a few minutes.
When the British field commander saw the devastation, he sent the following communication back to
headquarters: “Send me 500 more men!”
The military leader obviously needed to change his strategy! What was the wisdom of sending another
500 men to their deaths by using the same strategy that had cost others their lives? However, the
commander knew only one way to fight. He was not challenged to seek a different solution to a very
serious problem—even though 500 of his men had just died! Today, many people are still trying to solve
tomorrow’s problems with yesterday’s solutions, and it’s not working.
To move beyond simply perpetuating the past, you must be willing to think differently and often move
outside boundaries to which you have become accustomed. Jesus also lived outside the box. This is
why He was so often in trouble with the Pharisees and the other leaders. Jesus did not think like other
people. He broke all the rules the Pharisees considered important, and He was constantly upsetting
the status quo.
When you talk about strategic thinking and thinking outside of the box, you are not talking about positive
thinking, but possibility thinking. You are not talking about dreams, but vision. You are not talking about
wishful thinking, but realistic, doable actions. Your thinking becomes full of “what if’s” and “why not’s,”
instead of “we can’ts.”

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Remember that strategy helps you focus on objectives that provide you with maximum leverage. Strategic
thinking is not trying to be creative for creativity’s sake. Its design is to help you know how to capture
the future and help create it, not just observe what others are doing. Strategy leads you to know how
to position your resources in a way so that you are moved to new frontiers, to the front lines. Although
there is a measure or risk, Jesus instructed you to take risks for the sake of the kingdom. You cannot be
afraid to fail, but be afraid of failure.
The following chart suggests the basic elements of strategic thinking in contrast to maintenance
thinking:
Basic Elements of Strategic Thinking vs. Maintenance Thinking
Strategic Thinking Maintenance Thinking
Effective Efficient
Success Seeker Failure Avoider
Proactive Reactive
Dynamic Static
Flexible Inflexible
Innovative Traditional
Confronts Avoids
Coordinated Fragmented
Interdependent Independent
Jesus modeled strategic thinking when He said, “For which of you, intending to build a tower, does not
sit down first and count the cost. . . or what king, going to make war against another king, does not sit
down first and consider whether he is able with ten thousand to meet him who comes against him with
twenty thousand” (Luke 14:28-32, NKJV)? Strategy is not a buzz word; it is a powerful tool to help you
become effective doers of the Word.
Strategy Process
To achieve the most success with your planning team, choose the following kinds of people:
• Involve people who care.
• Include broad-based participation.
• Enlist program or ministry leaders.
• Involve people with a passion for missions.
• Involve people who are future-oriented.
Enlisting the right people—and the right kinds of people—will help provide a solid foundation for building
a relevant, contextual, strategy. Do not short-circuit this part of the process.
Too many strategy planning activities have been left on the shelf to collect dust because the people
involved saw the effort as a project rather than a process. Unfortunately, many thought of strategy
planning as an activity that could be completed. Once the action was completed, that was the end.
Strategy development must be seen as an ongoing process, not the end result of a project.
Process implies ongoing activity. Although there may be an end to the formal part of a strategy
development process, remembering that this is a process allows the strategy to stay flexible, relevant,
and current to adjust and respond to emerging strategies. Strategy sets the direction by determining
direction, outlining objectives, and establishing appropriate goals, but it does not go beyond twelve
to eighteen months in developing action plans. Even when action plans are developed for this period

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Strategy Development

of time to accommodate calendar and budget considerations, there must be flexibility to adjust them
as needed.
A variety of approaches and processes could be used. However, any effective process will answer
three questions:
1. Where are we going? (This question focuses on objectives and direction. This process presupposes
Vision, Core Values and Mission statements are in place.
2. What is the environment? (This question addresses contextual issues.)
3. How do we get there? (This question reminds you that strategy determines tactics.)
The strategy development process should be based on valid data that leads to solutions for the future.
The deeper the inquiry, the more useful the answers will be. “The more honest the answers, the more
powerful your solutions.” Ask the following questions as you proceed:
• What are things really like?
• Why are things the way they are?
• How are we going to change?
• Is our plan realistic and deliverable?
• Are we really change-oriented?
• Do we sanction incompetence? (Or do we ignore the problems?)
• Have our ideas been formed into a vision?
• Do we have people on the team with ability?
• Are we prepared to see this through to the end?
After you have answered the basic questions above, four phases of strategy development can be
identified and included. Somewhere in the process, however, these four phases will occur.
1. Phase I – Preparation
Before any process can begin, basic preparation must be made. This includes making a commitment
to planning, enlisting appropriate personnel, gathering data, getting necessary commitments,
setting aside appropriate calendar time, and determining the process to be used.
2. Phase II – Planning
During the planning phase, or the actual development phase, the strategy is formulated.
3. Phase III – Resource Development
Once the plan has been completed, necessary resources for implementation must be identified.
This phase includes identifying both existing resources and new resources that must be secured,
as well as determining how these resources are to be allocated. All of the resources will not be
available at the beginning of implementation. These resources will include:
• The allocation of personnel to staff ministries, programs, activities or events planned
• The development of a budget that resources the objectives, goals and action plans
• The development of a calendar reflects the objectives, goals and action plans
4. Phase IV – Implementation
The final phase of strategy development is implementing the vision, taking action, and making
it happen. One of the most frustrating experiences in life is getting to the goal line, yet failing to
score. History reveals that the most common point of breakdown of strategy development is at
the point of implementation.

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The Implementation Phase has three primary elements:
1. Implementing the Plan. This means faithfully executing the strategy as planned. Carry out the plan!
Do the work!
2. Evaluating the Plan. Evaluation is not a one-time occurrence. Ideally, you will constantly evaluate
the plan. (Annual coordinated planning is a basic minimum.) Constantly evaluating your plan
allows you to keep the plan fresh and relevant. It allows you to make necessary adjustments in
redefining your mission and strategies in relation to your ever-changing environment. Be certain
you are staying on course and not beginning to drift away from desired outcomes.

Multiple Process of Strategy Development

Imposed strategy
This strategy comes from outside the organization, it is imposed on the organization. This means that the
environment can directly force the organization into a pattern in its stream of actions regardless what
the central control does. The clearest case is when a external group or individual with a great influence
over the organization imposes a strategy on the organization. For example, state-owned Air Canada
was forced by the minister to buy a particular type of plane. The strategy was clearly deliberate but
not by anyone in the organization. Given the inability to resist, the organization had to pursuit the given
strategy and thus it became deliberate for the organization. Sometimes can the environment rather
than individual/group that impose strategies on organizations by restricting their options. Once again
Air Canada can serve as an example. Did Air Canada really choose to fly jet aeroplanes and later
wide body aeroplanes? Could any world class airline decide otherwise? Again the organization has to
make the external strategies, imposed on them, internal. In reality the organizations have to compromise
between determinism and free choice. Environment seldom preempt all choice and just as rare the
environment seldom offers unlimited choice. As most real world strategies have some umbrella strategy
characteristics, so to does the environment set boundaries for most organization.
Role of Strategy in improving organisational performance
Every organization has to compete for leadership and aspires to leave competition way behind in the
highly competitive environment of modern day marketplace. The complex and highly interrelated
series of actions and reactions which an organization undertakes are mainly aimed at making the best
use of available opportunities and nullifying the lurking threats so that corporate objectives and goals

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Strategy Development

are achieved to the maximum extent possible. The entire gamut of these actions, steps, decisions to
act, react, or not to take any action at all, or be proactive before competitors can take the first mover
advantage, form what is known as corporate strategy. (Ansoff, 1965)
Intended Strategy
Intended strategy is nothing but a plan or an intended course of action thought to be most suitable for
achieving predetermined corporate goals. Sometimes, if the situation so desires, a ploy or a manoeuvre,
tricky, cheeky or otherwise, to surmount an immediate obstacle or to browbeat a serious competitor;
is also called a strategy. The basic concept of strategy is that it is pre-planned in nature and is given a
proper shape after a lot of brainstorming. Strategy also determines the basic consistency in behaviour
and approach of a particular firm towards the economy in general and the market in which it operates
in particular. Strategy also formalises the positioning of the firm in the market. By positioning it is meant
how a firm would relate with the external environment and what would be its reaction in case of a
change in the parameters of such environment. Some authors are of the opinion that strategy is in a
nutshell the basic prism through which an organisation perceives the entire world outside its own internal
environment.
Management experts have also gone on to further classify strategy into content, process and context. (De
Wit, B and Meyer, R, 1999).
Content of a strategy is basically an exposition of the current position of the company and the desired
status the management would like to attain at the end of the plan period. It is nothing but a detailed
brief of where it is now and the broad steps to be taken to reach where it intends to. The context part of
a strategy deals in detail with the internal and expected external environment of an organisation and in
effect undertakes an extensive SWOT analysis to ensure that the organisation can reach the set targets
with least effort. The process part of a strategy actually lays down the timing of different actions and
clearly defines who would take part in the actions directly and who would remain in indirect support thus
ensuring unity of action and streamlining of efforts to prevent efforts getting wasted by working at cross
purposes or overlapping and repetitive actions. But, this analysis of strategy into various components
only goes on to further emphasise the basic nature of intended strategy – it is pre-planned and depends
entirely on the quality of forecasts available with the management. (McGee, John; Thomas, Howard
and Wilson, David, 2005)
Emergent Strategy
The real life scenario is however quite different from what is envisaged by planners as new opportunities
and threats continually seem to unfold every day. A company which thinks with its feet and is quick to
grab the opportunities while adroitly avoiding the threats and banana peels, is the one which leads the
pack. But this is possible only if strategies keep evolving with the internal and external environment and
not remain static. Strategy should be as dynamic as the real world scenario and must be adaptable to
changing equations. Some authors recognised the importance of dynamism and incorporated agility
in the entire system by accepting the fact that strategic corporate decisions are not taken as part of
a big picture based on forecasts and predictions but are indeed taken incrementally, as it were, in
tandem with changes occurring in corporate environment. Thus, these authors admitted that corporate
strategy is actually a bits and pieces approach which is shaped more by external factors than what is
desired by Board of Directors. (Burgelman, 1980)
Henry Mintzberg was the first expert who coined the word ‘emergent’ while describing the continuous
evolution of corporate strategy of an organisation as it not only strived to keep pace with but also
attempted to overtake the external environment to reach the pre-determined targets. The emergent
strategy however, is not a brainwave of one person or a group of persons at the helm of affairs of a
company. It is not a flash of individual brilliance or motivation but a learning process where the entire
corporate entity absorbs facts and figures from external environment and evaluates the changes in
external (and internal) environment and proceeds to formulate a proper and relevant answer in the
form of a revised strategy. (Mintzberg, The Strategy Concept 1: Five Ps for Strategy, 1987) Thus the final

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policy adopted by a corporate is nothing but a judicious combination of the basic framework of pre-
planned strategy and an adjustment or alteration of the main flow keeping in mind the ground realities
in the marketplace. So, realised strategy is nothing but the best of both worlds where the basic corporate
goals and objectives are married to market realities.
Whenever the intended strategy fails to produce the desired results, an automatic introspection and a
process of enquiry and learning is triggered within an organisation which evaluates and analyses the
intended strategy and its applicability in the current market scenario in great detail. While accepting
the inherent market dynamism and uncertainties, the emergent strategy tries to modify the intended
strategy so that it fits better with the current market trend. Thus, in a sense intended strategy is the
guideline and the emergent strategy is a modification of the guideline so that the realised strategy
serves the company best. But some authors, Mintzberg being most notable among them, go to extent
of claiming that in reality, knee jerk reactions to market happenings are rationalised as an afterthought
and passed off as a properly organised plan in most companies. This is most evident when economies
go through unexpected turbulences or melt downs. There is hardly any time available with companies to
go through all the steps of a rigid planning procedure as it becomes a desperate exercise to stay afloat.
In fact, Burgelman had done an in-depth analysis of the circumstances under which Intel withdrew
from memory chip (DRAM) market. He came to the conclusion that the corporate decision was indeed
the cumulated result of many small decisions taken by middle management when they responded to
market demand and started shifting resources from DRAM to microprocessors which were gradually
taking over the market. This was emergent strategy at its best where the corporate intended strategy
actually succeeded emergent strategy which, if stifled by corporate rigidity, would have spelt a major
crisis for the company. (Burgelman R. A., 1994)
In this case, middle managers shaped the corporate strategy but does that mean lack of proper
management? Most authors do not feel so. They feel it reflected a flexibility of management structure
which allowed middle management to respond incrementally to changing market scenario by altering
the allocation of resource towards avenues which assured better returns.
One other instance of how emergent strategy can modify the existing strategy without exhausting
valuable resources of a company is when Hitachi Corporation was thinking of marketing finger-vein
authentication technology which is very similar to digital fingerprint scanning. The original idea was to
market this as the ultimate foolproof identification system which should be installed in entry points of all
sensitive and critical installations. The makers claimed that this system cannot be compromised and no
unauthorized entry in restricted areas is possible if such a device is there at the main entry point. The
company was not wrong while making such claims, but it missed out on the most important market of
this technology while strategising its sales plan. The most important market was the numerous ATMs which
dot the entire globe. As soon as this became clear, Hitachi swiftly changed its focus and the emergent
strategy contributed substantially to the bottom-line.
What is the ultimate strategy adopted by an organisation
The ultimate strategy adopted by an organisation is surely a mixture of intended and emergent
strategies as these are not exclusive of one another as is evident from the discussions above. Indeed
every progressive organisation actively encourages its middle and lower management to be aware of
the changes that continually take place in external environment and considers the inputs provided by
the middle management as a valuable learning process which is a must in an age where technology
is advancing by leaps and bounds and obsolescence has become almost a daily occurrence. Though
every company is not as flexible as Intel but almost each one of them is as aware as Hitachi and very
rarely can one spot a company which is not awake to the possibilities of causing a market coup.
But all companies or organisations need not be as aware to emergent strategies. Government
departments or mining companies need to have strategic stability for proper functioning and operational
consistency. Emergent strategies would not be able to deliver desired results, indeed might cause an
unprecedented chaos.

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Strategy Development

So, it can be concluded that while emergent strategies very often lead to unprecedented benefits
to an organisation, it is the nature of the organisation and the environment in which the organisation
operates which determine the final realised strategy which an organisation adopts.
Realized strategy – the actual strategy that is implemented – is only partly related to that which
was intended (Mintzberg suggests only 10–30 percent of intended strategy is realized). The primary
determinant of realized strategy is what Mintzberg terms emergent strategy – the decisions that emerge
from the complex processes in which individual managers interpret the intended strategy and adapt
to changing external circumstances. This model should also been seen as a process and especially if
you include the variable of time. As show in the model below the realized strategy effects the intended
strategy as times goes by. This is an important part of the model since it shows that current strategies will
affect future strategies. There are two extreme types of organizations, the ones that have only deliberate
strategies and the ones that have only emergent strategies. These two pure forms are very rare and
perhaps there is no organization that has one of these pure types of processes. For a pure deliberate
strategy, the organization must have pure intentions with a relative concrete level of detail. This plan has
to be carried out exactly as intended. For a strategy to perfectly emergent there has to be consistency
in action over time but without any intentions. Except for these two pure types of strategies that are
extremely rare according to Mintzberg & Waters (1985 pp 257-258) but they argue that between those
two extremes are several different type of strategies that are common in companies today.

2.2 Strategic Planning

Strategic planning is an organizational management activity that is used to set priorities, focus energy
and resources, strengthen operations, ensure that employees and other stakeholders are working
toward common goals, establish agreement around intended outcomes/results, and assess and
adjust the organization’s direction in response to a changing environment. It is a disciplined effort
that produces fundamental decisions and actions that shape and guide what an organization is,
who it serves, what it does, and why it does it, with a focus on the future. Effective strategic planning
articulates not only where an organization is going and the actions needed to make progress, but also
how it will know if it is successful.
Strategic Planning is defined by Harvey as “long-range planning which focuses on the organization as
a whole. Managers consider the organization as a total unit and ask themselves what must be done in
the long-run to attain organizational goals. The most successful managers are those who are able to
encourage innovative strategic thinking within their organizations.”
A strategic plan is a document used to communicate with the organization the organizations goals,
the actions needed to achieve those goals and all of the other critical elements developed during the
planning exercise. 
The natures and features of Strategic Planning are :-
(i) Strategic planning is a forward-looking exercise, which determines the future condition and
attitude of the firm with special reference to its product market, profitability, size, rate of innovation
etc.
(ii) It is a systematic and disciplined exercise to formulate two types of plans—operating and strategic
plan. The different units in an organisation implement the operating plans.
(iii) Strategic plans are implemented through projects.
(iv) It relates to the enterprise as a whole or to particular unit.
(v) Its time span of discretion is very much longer.
(vi) The degree of uncertainty and risk involved in strategic planning are greater

2.16 I Business Strategy & Strategic Cost Management

Strategic planning has following advantages or usefulness:-
(i) According to different research studies, strategic planning contributes positively to the performance
of enterprise and predicts better outcomes and isolates key factors of the firm.
(ii) It is concerned with the allocation of resources to product market opportunities and concerned
to realise the company’s profit potential through selected strategies.
(iii) It measures the strengths and weaknesses of the firm.
(iv) It selects the optimum strategy from the alternatives considering the interest of the firm, personal
values of top management and social responsibility of the firm.
(v) With fast changing product market condition, technology economic condition the strategic
planning is the only means by which future opportunities and problems can be anticipated by
company executives.
(vi) It enables executives to provide necessary direction for the firm, to take full advantage of new
opportunities and to minimise the risk.
As success of firm depends on multiple factors, so strategic planning is a necessary condition but not
sufficient condition for success.

Pitfalls in Strategic Planning

The common pitfalls in strategic planning are as follows:
(i) Non-availability of correct and accurate data.
(ii) Doing strategic planning only to satisfy accredition or regulatory requirements.
(iii) Failing to communicate the plan to the people who execute the plan.
(iv) Top management making intuitive decisions that conflict with formal plan.
(v) Failing to use plans as a standard for measuring performance.
(vi) Delegating tasks to a few persons rather than involving all managers.
(vii) Failing to involve key employees in all phases of planning,
(viii) Failing to create an environment conducive of change.
(ix) Lack of flexibility and creativity.
(x) Strategic planning usually restricted to hard business concerns, leaving without proper attention
for soft issues like customer, quality, labour productivity, social concerns etc.
(xi) Strategy planning sometimes becomes a routine exercise, without having proper attention to
strategic issues.
(xii) The planning process is isolated from the external groups that critically affect the company like
labour unions, consumer advocates, social service organizations etc.
Strategic planning is to a business what a map is to a road rally driver. It is a tool that defines the
routes that when taken will lead to the most likely probability of getting from where the business is to
where the owners or stakeholders want it to go. And like a road rally, strategic plans meet detours and
obstacles that call for adapting and adjusting as the plan is implemented.
Strategic planning is a process that brings to life the mission and vision of the enterprise. A strategic plan,
well crafted and of value, is driven from the top down; considers the internal and external environment
around the business; is the work of the managers of the business; and is communicated to all the
business stakeholders, both inside and outside of the company.

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Strategy Development

As a company grows and as the business environment becomes more complex the need for strategic
planning becomes greater. There is a need for all people in the corporation to understand the direction
and mission of the business. Companies consistently applying a disciplined approach to strategic
planning are better prepared to evolve as the market changes and as different market segments
require different needs for the products or services of the company.
The benefit of the discipline that develops from the process of strategic planning, leads to improved
communication. It facilitates effective decision-making, better selection of tactical options and leads
to a higher probability of achieving the owners’ or stakeholders’ goals and objectives.

Stages in Strategic Planning

The stages in strategic planning are given below:
Stage I: Strategic Option Generations
At this stage, a variety of alternatives are considered, relating to the firm’s product and markets, its
competitors and so forth. Examples of strategies might be:
(a) increase market share
(b) penetration into international market
(c) concentration on core competencies
(d) acquisition or expansion etc.

Stage II - Strategic Options Evaluation

Each option is then examined on its merits.
(a) does it increase existing strengths ?
(b) does it alleviate existing weaknesses ?
(c) is it suitable for the firm’s existing position ?
(d) is it acceptable to stakeholders ?

Stage III - Strategic Selection

It involves choosing between the alternative strategies. This process is strongly influenced by the values
of the managers in selecting the strategies.

Steps in Strategic Planning

A systematic approach to formalizing strategic plans consists of the following steps:
(i) An internal analysis that encompasses assessing company strengths and weaknesses, financial
performance, people, operational limitations, corporate culture, current positioning in the
market(s), the overall characterization of the condition of the company and critical issues facing
by the organization.
(ii) An external analysis that focuses on analyzing competitors, assessing market opportunities
and threats, evaluating changing technology that could impact the organization, analyzing
regulatory or legislative concerns, changes and trends in the market(s) the company operates in
and other potential outside influences on the organization.
(iii) Summarizing the current situation based on the information gathered and evaluated in steps
one and two. This step is important to the process because it brings together relevant and critical
data and information and allows members of the planning team to more easily get a feel for
what opportunities and obstacles lie ahead.

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(iv) Development of a mission, vision or purpose statement. It really does not matter what it is called,
but this step is important perhaps more because of the process that the team will go through to
develop it than the words that eventually end up on paper. In this step, the team is starting the
process of focusing the organization and its people on what the organization is all about and
what is important to the organization.
(v) Goal setting. Every organization needs goals. Again, focus is a critical element in the success of
any business. This step may be the most important of all of the strategic planning steps because it
establishes the framework and basis for the development of the other key elements of the plan.
(vi) Defining objectives that support the goals. Objectives are more specific in nature and are
supportive of the goal. They bring into even greater focus to the goals of the organization.
(vii) Development of strategies. Strategies begin defining how the goals and objectives are going to
be achieved.
(viii) While not all strategic plans include tactics, a good strategic plan will include at least the key
tactics thought to be important to supporting the strategies developed in step 7. Generally
tactics are more fully developed and added to the plan as time goes on. Tactics are the specific
tasks associated with carrying out strategies.

Approaches in Strategic Planning

It is important to operate a planning process which will not only produce realistic and potentially
rewarding plans but will also secure the support of all those involved in implementing them. There are
three approaches that can be adopted to strategic planning:
(i) A top-down process, in which managers are given targets to achieve which they pass on down
the line.
(ii) A bottom-up process, in which functional and line managers in conjunction with their staff submit
plans, targets and budgets for approval by higher authority.
(iii) An iterative process, which involves both the top-down and bottom-up setting of targets. There
is a to-and-from movement between different levels until agreement is reached. However, this
agreement will have to be consistent with the overall mission, objectives and priorities and will
have to be made within the context of the financial resources available to the organization.
The iterative approach, which involves the maximum number of people, is the one most likely to
deliver worthwhile and acceptable strategic plans.

Strategic Management and Strategic Planning : Distinction

The basic difference between Strategic management and Strategic planning are as follows:

Strategic Management Strategic Planning

1. It is focused on producing strategic results; new 1. It is focused on making optimal strategic
markets; new products; new technologies etc. decisions.
2. It is management by results. 2. It is management by plans.
3. It is an organizational action process. 3. It is an analytical process.
4. It broadens focus to include psychological, 4. It is focused on business, economic and
sociological and political variables. technological variables.
5. It is about choosing things to do and also about 5. It is about choosing things to do.
the people who will do them.

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Strategy Development

Corporate Planning and Long-range Planning

Corporate Planning - It is concerned with determination of objectives treating the company as a whole.
It develops means to achieve the company’s overall objectives. The corporate plans may relate to
achieve corporate objectives for short-run and/or long-run. It is an integrated systems approach
considering different functions, divisions and units of the organization. Such corporate plans are framed
at the corporate level by the top management.

Long-range Planning - It is a systematic and formalized process concerned with directing and controlling
future operations of an enterprise towards desired objectives for periods spreading generally over 5 or
more years. It provides an opportunity to management to anticipate future problems and have got
more flexibility in framing the long-range plans.

Corporate planning is not synonymous with long range planning. Corporate planning is concerned with
both short periods as well as long periods. The time span depends on how far ahead a company wants
to forecast, depends on nature of business and depends on commitment of resources required for it.
Corporate planning in an engineering firm will involve long-term considerations but it will have short-term
consideration in case of textile firm. Long range planning necessarily connotes planning with a long time
horizon, generally five years or more.

Corporate planning is associated with long range planning in labour intensive industries. Corporate
planning is concerned with the existing products in existing markets as well as new products and new
markets. Long-range planning takes care of only the existing products in existing markets.

Strategic Planning and Long-range Planning

The basic divergence between strategic planning and long-range planning lies in the difference in the
assumption regarding the future environment of an organisation. In case of long-range planning current
knowledge about future conditions is known with certainty that can be relied upon by executives.
Accordingly, the course of action for achievement of organisational goals is drawn on the basis of
this knowledge. In long range planning the future is forecasted through extrapolation of the historical
growth.

On the contrary, strategic planning assumes that an organisation must be ready to respond to a
dynamic environment and future environmental conditions are not known with perfect certainty. Thus,
there is a need to emphasise and understand how the environment assumed is charging. Accordingly,
the issue of developing courses of action in response to these changes will have to be taken up.
Here, a number of alternatives are generated for several situations for the future. In case of strategic
planning, the firm tries to identify opportunities, threats and trends based on which the future prospects
are analysed.

2.20 I Business Strategy & Strategic Cost Management

This difference between long-range planning and strategic planning has been shown in the figure
below :-
Long range planning

Forecast based on extrapolation

Budgets Programmes Profits Plan

Implementation

Operation control
Strategic Planning

Prospects Objectives

Strategy

Operating Strategic
Performance goals

Operating programmes Strategic programmes/

/budgets budgets

Implement by units Implement by projects

Operating control Strategic control

As shown in the figure above, in case of long-range planning, objectives forecasted through extrapolation
are translated into budgets, programmes and profit plans. These are finally implemented. An operating
control system is established and the feedback is provided which suggests a change in objectives, if
required. The strategic planning leads to the setting-up of two sets of goals – operating performance goals
and strategic goals. The operating performance goals are translated into operating budgets and strategic
goals are translated into strategic budgets. Accordingly two types of control namely, operating control
and strategic control are established.
Contingency Planning
A basic premise of good strategic management is that firms plan ways to deal with unfavorable
and favorable events before they occur. Too many organizations prepare contingency plans just for
unfavorable events; this is a mistake, because both minimizing threats and capitalizing on opportunities
can improve a firm’s competitive position.
Regardless of how carefully strategies are formulated, implemented, and evaluated, unforeseen events,
such as strikes, boycotts, natural disasters, arrival of foreign competitors, and government actions, can

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Strategy Development

make a strategy obsolete. To minimize the impact of potential threats, organizations should develop
contingency plans as part of their strategy-evaluation process. Contingency plans can be defined
as alternative plans that can be put into effect if certain key events do not occur as expected. Only
high-priority areas require the insurance of contingency plans. Strategists cannot and should not try to
cover all bases by planning for all possible contingencies. But in any case, contingency plans should
be as simple as possible.
Some contingency plans commonly established by firms include the following:
1. If a major competitor withdraws from particular markets as intelligence reports indicate, what
actions should our firm take?
2. If our sales objectives are not reached, what actions should our firm take to avoid profit losses?
3. If demand for our new product exceeds plans, what actions should our firm take to meet the higher
demand?
4. If certain disasters occur—such as loss of computer capabilities; a hostile takeover attempt; loss of
patent protection; or destruction of manufacturing facilities because of earthquakes, tornadoes, or
hurricanes —what actions should our firm take?
5. If a new technological advancement makes our new product obsolete sooner than expected,
what actions should our firm take?
Too many organizations discard alternative strategies not selected for implementation although the
work devoted to analyzing these options would render valuable information. Alternative strategies not
selected for implementation can serve as contingency plans in case the strategy or strategies selected
do not work. U.S. companies and governments are increasingly considering nuclear-generated
electricity as the most efficient means of power generation. Many contingency plans certainly call for
nuclear power rather than for coal- and gas-derived electricity.
When strategy-evaluation activities reveal the need for a major change quickly, an appropriate
contingency plan can be executed in a timely way. Contingency plans can promote a strategist’s
ability to respond quickly to key changes in the internal and external bases of an organization’s
current strategy. For example, if underlying assumptions about the economy turn out to be wrong and
contingency plans are ready, then managers can make appropriate changes promptly.
In some cases, external or internal conditions present unexpected opportunities. When such
opportunities occur, contingency plans could allow an organization to quickly capitalize on them.
Linneman and Chandran reported that contingency planning gave users, such as DuPont, Dow
Chemical, Consolidated Foods, and Emerson Electric, three major benefits:
(i) It permitted quick response to change,
(ii) It prevented panic in crisis situations, and
(iii) it made managers more adaptable by encouraging them to appreciate just how variable the
future can be.
Steps in Contingency Planning
Robert Linnemam and Rajan Chandran have suggested that a seven step process as follows:
Step 1 - Identify the beneficial and unfavourable events that could possibly derail the strategy or
strategies.
Step 2 - Specify trigger points. Calculate about when contingent events are likely to occur.
Step 3 - Assess the impact of each contingent event. Estimate the potential benefit or harm of each
contingent event.
Step 4 - Develop contingency plans. Be sure that contingency plans are compatible with current
strategy and are economically feasible.

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Step 5 - Assess the counter impact of each contingency plan. That is, estimate how much each
contingency plan will capitalize on or cancel out its associated contingent event. Doing this will
quantify the potential value of each contingency plan.
Step 6 - Determine early warning signals for key contingency event. Monitor the early warning signals.
Step 7 - For contingent event with reliable early warning signals, develop advance action plans to take
advantage of the available lead time.

Benefits of Contingency Planning

(i) It will make the future through their proactive planning and advanced preparation.
(ii) It will introduce original action by removing present difficulties.
(iii) It enables to anticipate future problems.
(iv) It will change the goals to suit internal and external changes.
(v) It experiments with creative ideas and take initiative.
(vi) It will attempt to shape the future and create a more desirable environment.
(vii) It permits quick response to change,
(viii) It prevents panic in crisis situations.

(ix) It makes managers more adaptable to unforeseen changes.

2.3 STRATEGIC LEADERSHIP

Strategic leadership refers to a manager’s potential to express a strategic vision for the organization,
or a part of the organization, and to motivate and persuade others to acquire that vision. Strategic
leadership can also be defined as utilizing strategy in the management of employees. It is the potential
to influence organizational members and to execute organizational change. Strategic leaders create
organizational structure, allocate resources and express strategic vision. Strategic leaders work in an
ambiguous environment on very difficult issues that influence and are influenced by occasions and
organizations external to their own.
The main objective of strategic leadership is strategic productivity. Another aim of strategic leadership is
to develop an environment in which employees forecast the organization’s needs in context of their own
job. Strategic leaders encourage the employees in an organization to follow their own ideas. Strategic
leaders make greater use of reward and incentive system for encouraging productive and quality
employees to show much better performance for their organization. Functional strategic leadership is
about inventiveness, perception, and planning to assist an individual in realizing his objectives and goals.
Strategic leadership requires the potential to foresee and comprehend the work environment. It requires
objectivity and potential to look at the broader picture.
A few main traits / characteristics / features / qualities of effective strategic leaders that do lead to
superior performance are as follows:
• Loyalty- Powerful and effective leaders demonstrate their loyalty to their vision by their words and
actions.
• Keeping them updated- Efficient and effective leaders keep themselves updated about what is
happening within their organization. They have various formal and informal sources of information
in the organization.

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Strategy Development

• Judicious use of power- Strategic leaders makes a very wise use of their power. They must play
the power game skillfully and try to develop consent for their ideas rather than forcing their ideas
upon others. They must push their ideas gradually.
• Have wider perspective/outlook- Strategic leaders just don’t have skills in their narrow specialty
but they have a little knowledge about a lot of things.
• Motivation- Strategic leaders must have a zeal for work that goes beyond money and power and
also they should have an inclination to achieve goals with energy and determination.
• Compassion- Strategic leaders must understand the views and feelings of their subordinates, and
make decisions after considering them.
• Self-control- Strategic leaders must have the potential to control distracting/disturbing moods and
desires, i.e., they must think before acting.
• Social skills- Strategic leaders must be friendly and social.
• Self-awareness- Strategic leaders must have the potential to understand their own moods and
emotions, as well as their impact on others.
• Readiness to delegate and authorize- Effective leaders are proficient at delegation. They are well
aware of the fact that delegation will avoid overloading of responsibilities on the leaders. They
also recognize the fact that authorizing the subordinates to make decisions will motivate them a
lot.
• Articulacy- Strong leaders are articulate enough to communicate the vision(vision of where the
organization should head) to the organizational members in terms that boost those members.
• Constancy/ Reliability- Strategic leaders constantly convey their vision until it becomes a
component of organizational culture.
To conclude, Strategic leaders can create vision, express vision, passionately possess vision and persistently
drive it to accomplishment.
Strategic leadership has many characteristics in common with leadership at lower levels, but it also
has some that are distinctive. There are six characteristics that we think will be particularly relevant to
strategic leaders in the future: intellectual openness, nuance, intellectual agility, integration, teamwork,
and ethics. Because the scope of opinion on strategic leadership is diverse, leaders must be open to
different points of view.

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Intellectual openness. Because the scope of strategic leadership is so wide and the range of opinions
on strategic issues is so diverse, leaders must be open to different points of view. Indeed, they should
encourage subordinates, peers, and others to express their views as directly as possible—from those in
the corridors of power and the public at large to allies and friends abroad. No one has a monopoly on
relevant experience and practical wisdom about the complex issues.
Nuance. The problems that occupy the inboxes of strategic leaders involve ambiguity and complexity.
If they were unambiguous and simple, they would be solved at lower levels. Strategic leaders must be
able to recognize and deal with this ambiguity and complexity and the shades of nuance that they
present. This requires effective skills in managing cognitive dissonance, for evidence and argumentation
usually send conflicting signals. Denial is not one of those skills. Leaders may be able to deny that they
perceive cognitive dissonance, but cannot make the conflicting signals disappear by denying them. A
well-developed appreciation for nuance would generally reject an either/or approach, which in itself
denies ambiguity and complexity. For military leaders in particular, this means that tactics, techniques,
and procedures—though important, even necessary—may not always be up to the task at hand, which
leads to consideration of another quality.
Intellectual agility. Strategic leaders do not have single-issue inboxes nor do they fully control their
agendas. Strategic leaders must be able to transition with little or no warning, and at times turn on a dime,
from one problem to another. It is the policy equivalent of the so-called three-block war. In practicing
intellectual agility, strategic leaders must be informed and guided by doctrine and past experiences
but not become slaves to them. Too often, professional officers rigidly apply doctrine to situations that
may be significantly different from those the doctrine writers envisioned.
Strategic leaders must be adaptable and able to “call an audible” when an unanticipated situation is
thrust upon them, or in an anticipated crisis that differs in important ways from the planning scenario,
thus rendering the “on-the-shelf” plan not fully appropriate and useful. Since “no war plan survives
contact with the enemy,” strategic leaders must also be able to adapt in the middle of a war or crisis,
rather than holding on stubbornly to the plan or policy they began with, even when it no longer seems
to be achieving the objectives, or is doing so at unacceptably high costs.
Integration. The problems confronting strategic leaders are rarely unidimensional. Almost by definition,
strategic problems are multidimensional, involving military, political, economic, cultural, social, religious,
and historical factors and forces that are often difficult to disentangle from each other. Thus, successfully
addressing strategic problems involves several instruments of national power, sometimes all of them.
Strategic leaders must master the instruments of their own departments or agencies, but must also be
able to help integrate and coordinate them with those of other departments and agencies. Strategic
leadership requires the skills of an orchestra conductor, not of a soloist, no matter how talented.
Teamwork. Government operations on the strategic level require teamwork. Strategic leaders must build
an effective team within their own agencies that includes career officials (both civilian and military) and
political appointees. The former are nonpartisan experts, and the latter, who also include experts, make
administration policy. Strategic leaders must also build effective interagency teams to integrate and
apply various instruments that the given problem demands. Increasingly in the 21st century, strategic
leaders must also build effective teams with coalition and alliance partners, whose cultural backgrounds
and modes of operation frequently will be greatly different from their own.
Relationships are critical in building effective teamwork on all levels. Organizations do not cooperate or
integrate; people do. Building relationships takes time, and new administrations sometimes do not have
that luxury because real-world concerns will suddenly intrude. Thus, forming and molding relationships
must start on day one. The key to strong and effective relationships is trust. It must be built and earned;
it cannot simply be declared. It must be multidirectional, not unidirectional. For trust to take hold in
organizations, leaders on all levels must be both trustworthy and trusting. Both are necessary; neither
by itself is sufficient.

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Strategy Development

Ethics is always important, but especially given the challenges that the Nation confronts today. Strategic
leaders must personally set and periodically recalibrate their own moral compasses. Doing so begins
with one’s own moral values and principles, those inherited from family (and, for many, from religion)
and nurtured in school. Professionals are guided by an ethos that defines and regulates their profession—
military, public service, the law. All citizens, but especially public servants, must also incorporate national
values and principles. In an era when the world is shrinking, news is driven by a 24-hour cycle, and
coalitions have become the norm, ethics also involve what the Founders called “a decent respect to
the opinions of mankind.”
Ethics must involve both ethical ends and ethical means, especially for strategic leaders who wrestle
with the problems of today. Ethical ends can justify some means, but even the most ethical ends cannot
justify any and all means. Leaders will be judged—by themselves and by others—not only by the goals
they set, but by the means they use in trying to achieve those goals.
In every organization, regardless of size, the leaders set the tone, including the ethical tone. Within
military organizations, command climate starts at the top. It is reflected in what strategic leaders say
and in what they do, and those who serve in their organizations, as well as those people outside who
come into contact with them, pay attention to both words and deeds.
The Nine Roles of Senior Strategic Leadership
Contrasted with operational leaders, whose primary role is to manage day-to-day business operations,
leaders who transit from operational to strategic leadership must assume a variety of key roles to achieve
longer term strategic business results in pursuit of profitable sales growth, increased market share,
implementation of change, and the strategic alliances that will help achieve these goals.
Quite often, one of the biggest barriers to success in making the transition to strategic leadership is a
lack of insight into the roles that leaders need to assume at the senior strategic level. A taxonomy is
needed that defines and helps to clarify the nature of these roles and the transition leaders must make
to perform well in these roles. This in turn will help better prepare leaders to be successful, and to provide
a framework for their development and deployment.
While strategic leaders are not typically engaged in all nine roles “all the time,” they will often be involved
in situations related to more than one role at any given time. The relative importance placed on each
role is dependent upon the business situation in which the leader is engaged. Thus, in one situation a
strategic leader may initially be focused on developing a long range course of action or set of goals
to align with the organization’s vision (the “Strategist” role). The focus might then subsequently shift to
building passion and commitment toward those goals among the people who need to take ownership
of the strategy or vision (the “Captivator” role). The nine roles have general applicability across all senior
leadership positions, and are not unique to any particular job; however, the particular focus on any given
role at a point in time will be determined by the business issues being addressed at that time. Ideally, an
executive team would collectively represent capabilities across the full spectrum of these roles.
Role 1 : NAVIGATOR—Clearly and quickly works through the complexity of key issues, problems and
opportunities to affect actions (e.g., leverage opportunities and resolve issues). Navigators analyze large
amounts of sometimes conflicting information. They understand why things happen and identify possible
courses of action to affect events. They know which factors really matter in the overall scheme of things.
Illustrations
• Identifies root causes quickly.
• Displays a keen sense of priority, relevance, and significance.
• Integrates information from a variety of sources and detects trends, associations, and cause-
effect relationships.
• Creates relevant options for addressing problems and opportunities and achieving desired
outcomes.

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• Translates complex situations into simple, meaningful explanations that others can grasp.
• Provides others with relevant context for work.
• Overcomes personal and organizational biases in looking at data; avoids “not the way we do it
here” thinking.
Role 2 : STRATEGIST—Develops a long-range course of action or set of goals to align with the organization’s
vision. Strategists focus on creating a plan for the future. Part of this plan might involve capitalizing on
current opportunities and future trends (Entrepreneur) and understanding complex information related
to future events (Navigator). Strategists make decisions that drive the organization toward its vision.

Illustrations
• Continuously looks beyond the current year.
• Perceives what drives the business.
• Uses financial data for a successful business.
• Grasps big-picture, enterprise-wide issues across boundaries.
• Recognizes risks and pursues actions that have acceptable levels of risk.
• Links the organization’s vision and values to the business strategy.
Role 3 : ENTREPRENEUR—Identifies and exploits opportunities for new products, services, and markets.
Entrepreneurs are always alert for creative, novel ideas. They might generate the ideas themselves or
take existing opportunities or proposals down a new path. Entrepreneurs are able to look at events from
a unique perspective and develop ideas that have never been thought of.

Illustrations
• Takes calculated risks to capitalize on emerging trends.
• Looks beyond the boundaries of the organization for new growth opportunities (partnerships, new
technologies, applications).
• Turns threats (from competitors, government policies, and new technologies) into business
opportunities.
Role 4 : MOBILIZER—Proactively builds and aligns stakeholders, capabilities, and resources for getting
things done quickly and achieving complex objectives. Mobilizers gain the support and resources they
need to accomplish goals.

Illustrations
• Leverages and integrates the capabilities of resources across all levels of the organization to
accomplish complex, multiple-level objectives.
• Anticipates and diffuses roadblocks to desired goals.
• Uses necessary and appropriate lobbying techniques to gain support for actions from decision-
makers.
• Utilizes creative networking approaches to identify contacts who can help in attaining goals.
• Develops alternative/contingency plans.
• Empowers others relative to achieving the strategy.

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Strategy Development

Role 5 : TALENT ADVOCATE—Attracts, develops, and retains talent to ensure that people with the right
skills and motivations to meet business needs are in the right place at the right time. Talent Advocates
ensure that the organization has people with potential to meet present and future organizational needs.
Talent Advocates are less concerned with filling specific positions than with attracting and retaining
talented individuals.
Illustrations
• Relentlessly identifies and secures high-potential talent.
• Identifies the best people (internal and external), gets to know them, and stays in touch with them.
• Links development assignments to current and future needs of the organization (as determined by
the business strategies).
• Increases readiness of high-potential talent by providing developmental opportunities.
• Minimizes barriers to achievement; maximizes the individual’s likelihood for success.
• Builds and facilitates a culture that embraces development.
• Promotes employee retention by analyzing and understanding its drivers.
Role 6 : CAPTIVATOR—Builds passion and commitment toward a common goal. Captivators build upon
an established foundation of trust to instill people with feelings of excitement and belonging. Captivators
transfer the energy of their message in such a compelling way that people take ownership of the strategy
or vision and are empowered to carry it out.
Illustrations
• Conveys a simple, vivid picture of the organization’s vision and goals.
• Moves people from compliance to commitment.
• Instills others with a strong sense of belonging (they understand how they will benefit).
• Generates energy and enthusiasm through personal passion and conviction.
• Keeps the message alive and ongoing.
Role 7 : GLOBAL THINKER—Integrates information from all sources to develop a well informed, diverse
perspective that can be used to optimize organizational performance. Global Thinkers understand and
accept international and cultural differences and behave in a way that accommodates people’s varying
perspectives. They also discern differences in individual styles and adapt their approaches accordingly.
Illustrations
• Considers the implications of issues, decisions, and opportunities beyond the boundaries of own
country/culture.
• Understands the different perspectives and approaches in order to effectively handle cross-
cultural challenges/individual differences.
• Identifies opportunities for global leverage (for example, opportunities to develop R&D strategy
from a global point of view).
Role 8 : CHANGE DRIVER—Creates an environment that embraces change; makes change happen—
even if the change is radical— and helps others to accept new ideas. Change Drivers focus on continuous
improvement. Always challenging the status quo and breaking paradigms, they identify ideas for change
and become the force driving the change home.

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Illustrations
• Sees the possibility for change.
• Recognizes the need for change before it becomes critical.
• Sells ideas for change.
• Funds and supports the implementation of change and rewards behavior that supports change.
Role 9 : ENTERPRISE GUARDIAN—Ensures shareholder value through courageous decision-making that
supports enterpriser unit-wide interests. Enterprise Guardians rise above the parochial nature of the job
and make decisions that are good for the shareholder, even if the decisions cause pain to individuals
or to the organization.

Illustrations
• Refuses to trade long-term for short-term gain.
• Possesses the courage to make difficult decisions in times of success.
• Objectively upholds the interest of the enterprise by putting aside emotions and personal
relationships.
• Takes responsibility for unpopular decisions and their aftermath.

Strategic Skills and Abilities

• Leaders at all levels require skills and abilities in three broad areas:
• Technical knowledge and skills required in the position, especially about executive information
systems.
• Interpersonal/communication knowledge and skills.
• Conceptual skills which allow the strategic leader to make decisions and cope with the level of
complexity associated with a particular position.
Specific leadership tasks to be performed differ from level to level in organizations. More importantly,
the balance between technical, interpersonal/communication, and conceptual changes across levels.

Technical Skills
Technical skills are required at all levels. However, at the lower levels, technical skills consist of using or
operating a system; at upper levels, technical skills are more about employing systems within systems
in order to create synergy. For example, at the lower levels, automation-technical skills might consist
of what is required to install and maintain a network of computer systems. At the strategic level, they
might be what is required to achieve the integration of an extensive automation system, e.g., WWMCS,
into a multiservice command and control architecture.
At the direct level, technical focus is on solving well-defined problems, and performing specific tasks and
missions. At the strategic level, the focus is on solving ill-defined problems-dealing with intangibles and
indirect effects that can impact on the organization. Many of the technical decisions facing these senior
leaders require the assessment of organizational capabilities and an understanding of the intricacies of
resourcing the total organization.
Structuring and re-structuring includes responsibility to develop new kinds of systems and organizations to
provide future operational capability. These strategic decisions require major resource commitments that
cannot easily be reversed (e.g., the decision to build an aircraft carrier). They also require calculation of
the tradeoffs between opportunity and risk, with the knowledge that if decisions are wrong, the defense
posture may be weakened.

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Strategy Development

New organizations may be developed in response to changing threat capabilities, technological

enhancements, or resource changes. However, such decisions carry substantial opportunity costs.

Interpersonal Skills
Because the relationships at the strategic level are much more lateral and without clear subordination
than at lower levels, the interpersonal skills involved in persuasion, negotiation, and collaboration are
more crucial. These processes operate on a base of effective reasoning and logic. Strategic leaders
-- especially when consequential decisions are being made -- must be able to build the perception
that their ideas are rational and deserve support. This demands that a consensus be built among
contemporaries of equal rank and tenure, who might have competing interests and ideas of their own.
To a very great extent, the capacity to build consensus depends as much on interpersonal skills as on
political and conceptual skills.
The CEO must be able to lead subordinates who disagree with each other, and with him, while he retains
his own convictions about the desirable direction for the corporation. This conviction may be tested over
several years by the skepticism and dissent of other senior officers. But if the CEO and those who agree
with his ideas for new direction are persistent, and if they are correct in their decisions so that improved
results become apparent to others, then gradually they can rebuild a consensus about the “rightness”
of the new ideas, and these will be incorporated into management’s beliefs.

Conceptual and Decision Skills

Environmental Scanning. Scanning is purposeful search in the environment for relevant information. The
skill lies in knowing what may be important, where to look, who to ask, and what to ask, to obtain needed
information. Not all environmental scanning is done by strategic leaders. In today’s environment, the task
has such enormous scope that whole departments, branches, or organizations maintain environmental
scans. For example, environmental scanning is one of the most central missions of the CIA.
In any organization the leader’s unique capacity to commit the resources of his/her organization, opens
many doors. One way a leader may add value is by using this “source mobility” to scan, interpret,
and understand what is going on elsewhere that may have future relevance to his/her organization.
Because many strategic courses of action require huge investments, they may unfold over substantial
time frames. Therefore, to the extent early sensing of important events might allow timely action to gain
a competitive advantage, the value of strategic scanning may be enormous.
Decision Making. In most strategic decision making where options are consequential, situations may
not have clear cause-and-effect outcomes. Also, plausible courses of action may not yet have been
developed or identified. In such cases, decision makers must isolate and identify key issues, visualize and
predict potential problems, and formulate least-risk solutions. Additionally, at the strategic level, some
problems may be so poorly structured that even one clearly workable course of action is not apparent.
The complexity may be too great, and the consequences of possible courses of action too uncertain.
For these complex and ill-structured problems, most organizations make use of an executive team,
composed of the leader and his/her advisors. The assembled wisdom of the team members enables
a broader scope to be considered, and permits a more careful analysis of the information relevant to
the issue.
Reducing Complexity. The complexity and uncertainty of the strategic environment exceeds that which
can be tolerated at the lower levels. Decision makers at these levels- nominally the mid-levels-develop
concrete plans for allocating resources to operations. However, this kind of resource allocation cannot
be done intelligently without concept guidance from higher levels. The strategic role is to comprehend
the complexity and uncertainty in the strategic environment, and then to set understandable azimuths
for the mid-levels of the organization that can be used as a rational basis for resource allocation to
operational units.

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Systems Understanding. This is a capacity to visualize the interactive dynamics of large systems, including
interdependencies, so that decisions taken in one area will not have adverse impact in another. Strategic
decisions must balance conflicting expectations, requirements and values, over time. Systems-by virtue
of strategic leadership-must deal with current requirements, conceive future requirements, and balance
these requirements with current and future resources.
Understanding Indirect Effects. A strategic leader’s frame of reference and vision must be broad enough
to predict the indirect-second-, third-, and fourth-order effects of decisions. Without this capacity,
changes in policy, regulation, or action may produce effects neither anticipated nor desired.
Future Focus and Vision. Strategic leaders must not only be future oriented, but must have a “sense
of time” to envision long-term system-wide programs and schedules for their implementation. The
importance of vision at this level is that it provides the umbrella for defining specific and detailed
programs at the organizational.
Proactive Reasoning. Although strategic leaders must react to immediate, near-term events, they reduce
the surprise factor by maintaining a “proactive stance.” Being proactive is more than just seeing the
future relevance of present-day events. In this proactive process, strategic leaders use their frames of
reference as a tool to:
• Assess current position.
• Envision desired future capabilities.
• Determine the difference and define steps to close the difference.
• Initiate the future program.
• Monitor progress.

Example of Strategic Leadership – Ratan Tata

Ratan Tata was chairman of Tata Group of companies which is a conglomerate of around 114 companies
and whose revenues in 2009-2010 were $67.4 Billion. The group has operations in more than 80 countries
and has interests in chemicals, steel, automobiles, information technology, communication, power,
beverages, and hospitality.
He became chairman of Tata Group in 1991 when the decision was widely criticized. Two decades later,
the revenues increased by 40 times, and the net profit increased by 4 times. Although we will discuss his
leadership traits that caused this tremendous growth, the environment also became conducive in the
90s. India’s economic liberalization started in 90s when the government under the leadership of prime
minister [Link] Rao and finance minister Manmohan Singh determined to transform the economic
system from socialism to capitalism. The new neo-liberal policies included opening for international trade
and investment, deregulation, initiation of privatization, tax reforms, and inflation-controlling measures .
Ratan Tata has won several accolades for his leadership. He possesses the qualities of a level 5 leader
as described by Jim Collins in his book “Good to Great”. He definitely has the mindsets required by a
21st century leader such as Boundary less thinker, network builder, diplomat, interpreter. Some of the
skill sets have been highlighted below.
The acquisitions by Tata group have grown over the years. In 1995-2003, the group made an acquisition
every year on average. It rose to 6 in 2004 and to 20 in 2005-06. One of the acquisitions Tetley, was twice
the size of Tata Tea. JLR which had reportedly recorded combined losses of an estimated $10 Billion
over a 19-year period under former owner made its profit of $59 million in ’09 under Tata’s leadership.
These results are due to the strengths of leadership which includes qualities such as :
• being able to search, understand and utilize synergies
• knowledge of own value and uniqueness
• ability to recognize others’ value and uniqueness

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Strategy Development

• ability to relate, communicate and negotiate

• solid knowledge of business and marketplace
• big picture perspective
Tata also conceptualized and motivated the company to manufacture a $2,500 car, called Tata Nano.
This enormous challenge was met by introducing innovative processes. Several partnerships were formed
to improve the supply chain. This remarkable achievement demonstrates some qualities such as :
• Openness to ideas
• Innovation
• Willingness to look beyond oneself for capabilities and resources
• Relationship mindset
These are some of the examples that clearly indicate the leadership practices of Tata. Analyzing the
leadership using the lifecycle-culture matrix, Tata’s leadership falls in the realm of “Administrator”.
New products are constantly being developed (be it in automobiles – new models, innovations in
telecommunications – Tata Photon, lemon flavored tea bags or Tion, a new cold drink) and the brands
constantly evolve themselves to attract the newer generation, increase relevance to the local market
and to increase competitiveness in the market. New customer segments are constantly sought (JLR
acquisition is a simple example which helped them capture the high end segment and at the same time
Tata Nano helps to capture the low segment) to maintain the growth and leadership of the organization.
This quality of Tata’s leadership is visible in many other decisions that deal with wide spectrum of the
market. While he led the group to acquire luxurious Pierre Hotel in New York, he also drove the launch
of budget Ginger hotels in India. A latest example from TCS is a cloud service application targeted at
small business in India . Various product variations and extensions are not only seen in the automobile
company, but also in steel, chemical and software services companies. New geographic markets are
constantly being entered either by expansion or by acquisition. Tata remains competitive in the advent
of new entrants to the market, reinventing itself and driving innovations in technologies and processes. As
mentioned before, Tata also is very successful in growing inorganically through meaningful acquisitions
and turnarounds. Thus, the business lifecycle can be said to be focusing on the customers but at the
same time a sense of urgency and strategic intent can be seen.
The growth of the company, given the size, has definitely not reduced thanks to the innovation and a
strong strategic direction. At the same time, there are enough evidences that in some organizations,
life cycle has seen a maturity. The focus on innovation and the leadership effectiveness is not similar in
all organizations, one example being a failure in the passport project. This raises concerns of a pending
crisis in some organizations. The employee satisfaction in some of the organizations, for example Tata
Consultancy Services (TCS), is not comparative to the industry standards. TCS is among the top 4 IT services
companies in India comprising of around 200K employees and generating around $7B revenues. At one
point, it experienced lowest attrition rate in the industry, however its reputation decreased over the time
with employees criticizing the human resource policies in public forums. In addition, brand trust report
study lists TCS way below its competitors (Infosys, Wipro). These are the signs of some organizations moving
towards bureaucracy rather than maintain the competitive edge by focusing on strategic growth.
Finally, a word about the capabilities of the Tata group. Tata group as such has been technological
leader in many industries. In addition as the acquisitions and the new products show, Tata group is
also mature in demonstrating its strategic capability. The operational capability is not similar among all
companies, although under Tata’s reign the profit margins have increased multifold. The profit margins
in TCS is strong while the same can not be said about Tata Steel. While there are many factors in play
for the challenges faced by different industries, it can be ruled out that the reputation and quality of
services and products are not of similar stature across Tata’s companies (for example Tata Docomo, a
telecom provider has not demonstrated industry leadership in its services).

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Challenges for tomorrow:
Tata’s vision and personality helped group’s big transformations, restructuring and focus on frugal
innovation. An example of his personality and the respect that the group commands can be seen in
the fact that Corus deal met with little opposition as compared to the furore against Mittal Steel’s bid
for Arcelor. The trust that Tata commands in the global finance markets can be witnesses when 75% of
the deals were financed by foreign funds. It is a challenging legacy to inherit.
What Tata particularly excelled was in having a vision, demonstrated abilities of thinking big, potential
to grasp the opportunities shaped due to change in policies, economic climate and an unwavering
execution. He rushed in the doors opened by the economic liberalization of the 90s, jumped on to the
IT/telecom bandwagon, and recently focused on renewable energies such as geothermal energy. His
ability to sense the synergies and strengths of his own organizations made his acquisitions a success.
The next leader is desired to reflect some of these qualities and also should act in a sense of urgency
not only to further focus on growing industries but also to divest interests in the not so growing industries
as explained below.
Another significant challenge is a re-think on the current diversification. More than 90 companies in various
industries from salt to software may not be the order of the day. Tata, soon after becoming chairman,
was wise enough to exit from the industries which were not attractive. Perhaps a similar strategy needs
to be adopted to keep the group growing at a healthy pace and not face the risk of a decline.
Given the challenges of 21st century and the impact of Tata leadership not only on the group of
companies but on the entire Indian businesses, Tata group needs to put greater emphasis on the
sustainability practices. In recent years, Tata Steel’s joint venture with Larsen & Toubro to construct a
port at Dhamra, Orissa, has come under the scanner for its proximity to two protected areas, one of
which is the world’s largest nesting site for the endangered Olive Ridley Turtle and the other India’s
second-largest mangrove forest. A soda ash extraction plant in Tanzania also came under fire because
of the threat it poses to a nearby lake and its flamingo population. In the wake of increased awareness
of social responsibility among the customers and internet communication, similar oppositions will be
exaggerated in a way that could be damaging to the brand. Moreover, considering the leadership
Tata enjoys among Indian businesses, every action of Tata will be scrutinized and/or followed by others.
There are already some efforts taken by many of the companies under the Tata group umbrellas,
but they have a greater opportunity to form a consolidated sustainability that is forward looking.
A centralized support that is financially independent (supported by profit making companies) can
promote transparency and enable monitoring and maintaining consistent business practices across
the conglomerate. Given the global operations of the organization, there are significant challenges to
such a consolidation approach; however the effort will have its impact on clarity to shareholders. This
sustainability leadership will be a model for other conglomerates to follow and can achieve greater
objectives by being sensitive to local needs of the global organization.

2.4 Organizational Politics

All organisations are subject to conflict and competition between the desires and interests of different
departments, teams and individuals. Organisational politics refers to the processes through which these
rival interests are played out and eventually reconciled. While in an ideal organisation it may be hoped
that decisions are made on a rational basis, politics is inherently non-rational and subject to power
interactions between diverse interests. Members of an organisation are at the same time cooperating
to achieve a common goal and competing for rewards, and at times their personal interests may be
at odds with the organisation’s objectives.
It is through the political system of an organisation that rival interests are resolved. This system represents
how power is applied and distributed in the organisation. Understanding the political system of an
organisation is necessary for a leader to operate effectively and reach their goals. A leader, exercising

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power, is able to have a strong influence on the political climate of an organisation through their decisions,
their way of handling conflict and providing recognition, support and inspiration to their teams.

Organizational
Political Climate

Positional power Personal power Informational power Connection power

• legitimate • referent • formal access • internal networks
• coercive • expert • informal access • external networks
• reward • charisma • output opportunity • networks centrality

Negative organisational politics may be very destructive for an organisation. This has been identified
as one of the major sources of stress within modern businesses. Negative politics includes the use of
subversive methods to promote a personal agenda which may undermine organisational objectives,
distract energy away from organisational goals and compromise the interests, cooperation and fulfilment
of other employees. Such tactics may include filtering or distortion of information, non-cooperation,
allocating blame, reprisals, dishonesty, obstructionism and threats.
Impression management is another aspect of organisational politics that it is important to maintain an
awareness of. The term refers to techniques of self-presentation where a person may purposefully control
the information they put forward about themselves or their ideas to create a favourable impression.
For the leader this implies that everything may not always be as it appears. Studies have indicated that
people using impression management may be more favourably rated by their supervisors than others.
On the other hand, being aware of the impression you are creating should be considered in building
support for your own goals. The extent to which impression management is applied is an ethical question
that relates to a leaders credibility and integrity.
Often, political behaviour and manoeuvring within an organisation is caused by uncertainty, such as
unclear objectives, poorly defined decisions, competition and change. A leader’s influence may be
used to smother a political climate that promotes such negative politics.
By promoting a positive culture that values integrity, respect and fairness within their team, the leader
is able to channel people’s interests and energy away from negative political interplay and towards
an alignment with organisation objectives. Allowing team members to express their interests and
demonstrating a commitment to support individual needs integrates their fulfillment into the work
organisation and promotes the positive resolution of political conflicts.
Pfeffer (1992, p.30) defined politics as the processes, the actions, the behaviors through which potential
power is utilized and realized. Another author defined organizational politics as informal approaches to
gaining power through means other than merit or luck. It could be argued that politics are used primarily
to achieve power, either directly or indirectly, e.g., by being promoted, receiving a larger budget or
other resources, or gaining desirable assignments.

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Many people regard organizational politics as something negative (e.g., pursuing self-interests at the
expense of others) and something to be minimized. Consequently, although most people know that
organizational politics are common, they avoid saying so when it concerns one’s own behavior. It is
more common to talk about politics when complaining about a loss to a friend than it is in the context
of one’s own political maneuvering. When we win on an issue, we call it leadership; when we lose, we
call it politics. In many organizations, politics is a taboo subject, which makes it difficult for individuals to
deal with this crucially important aspect of organizational reality.
A leader must skillfully use organizational politics to acquire and retain power and to accomplish major
goals. Therefore, it would be a mistake to pretend that politics does not exist or to fantasize that a leader
can be effective without appropriate (and ethical) use of politics. As Pericles wrote over 2500 years
ago, “Just because you do not take an interest in politics doesn’t mean politics won’t take an interest in
you.” Organizational politics is neither good nor bad, per se, although it is important for us to distinguish
between ethical and unethical political behavior.

Factors Contributing to Political behaviour in Organizations

It is useful to remember that in its original meaning, the idea of politics stems from the view that,
where interests are divergent, society should provide a means of allowing individuals to reconcile their
differences through consultation and negotiation. In ancient Greece, Aristotle advocated politics as
a means of reconciling the need for unity in the Greek polis (city-state) with the fact that the polis was
an “aggregate of many members.” Politics, for him, provided a means of creating order out of diversity
while avoiding forms of totalitarian rule. Political science and many systems of government have built
on this basic idea, advocating politics, and the recognition and interplay of competing interests that
politics implies, as a means of creating a non-coercive form of social order.
Organizational politics are a natural result of the fact that people think differently and want to act
differently. This diversity creates a tension that must be resolved through political means. There are many
ways in which this can be done, for example: autocratically (“We’ll do it this way”); bureaucratically
(“We’re supposed to do it this way”); technocratically (“It’s best to do it this way”); or democratically
(“How shall we do it?”). In each case the choice between alternative paths of action usually hinges on
the power relations between the actors involved.
An organization’s politics is most clearly manifest in the conflicts and power plays that sometimes
occupy center stage, and in the countless interpersonal intrigues that provide diversions in the flow of
organizational activity. Politics occurs on an ongoing basis, often in a way that is invisible to all but those
directly involved.
As Scottish sociologist Tom Burns has pointed out, most modern organizations promote various kinds of
political behavior because they are designed as systems of simultaneous competition and collaboration.
People must collaborate in pursuit of a common task, yet are often pitted against each other in
competition for limited resources, status, and career advancement. These conflicting dimensions of
organization are most clearly symbolized in the hierarchical organization chart, which is both a system
of cooperation, in that it reflects a rational subdivision of tasks, and a career ladder up which people
are motivated to climb. The fact that there are more jobs at the bottom than at the top means that
competition for the top places is likely to be keen, and that in any career race there are likely to be far
fewer winners than losers. Along with the fact that different individuals and groups are mandated to
exercise authority and influence over others, the hierarchy more or less ensures the kinds of competitive
struggle on which organizational politics thrives.
One does not have to be consciously cunning or deviously political to end up playing organizational
politics. Political behavior is a fairly natural response to the tensions created between individuals and
their organizations. The setting of budgets and work standards, the day-to-day supervision and control
of work, as well as the pursuit of opportunity and career, are often characterized by sophisticated forms
of gamesmanship. Take, for example, the situations that reveal the guile with which factory workers
are able to control their pace of work and level of earnings, even when under the close eye of their

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Strategy Development

supervisors or of efficiency experts trying to find ways of increasing productivity. The workers know that
to maintain their positions they have to find ways of beating the system, and do so with great skill and
ingenuity. Individuals who systematically wheel and deal their way through organizational affairs merely
illustrate the most extreme and fully developed form of a latent tendency present in most aspects of
organizational life.
The potential complexity of organizational politics is mindboggling, even before we take account of
the personalities and personality clashes that usually bring roles and their conflicts to life. Sometimes
the conflicts generated will be quite explicit and open for all to see, while at other times they will lie
beneath the surface of day-to-day events. For example, relations in meetings may be governed by
various hidden agendas of which even the participants are unaware. In some organizations disputes
may have a long history, decisions and actions in the present being shaped by conflicts, grudges, or
differences that others believe long forgotten or settled. The manager of a production department may
align with the marketing manager to block a proposal from the production engineer not because he
disagrees with the basic ideas, but because of resentments associated with the fact that he and the
production engineer have never gotten along. Though such resentments may seem petty, they are
often powerful forces in organizational life.
A number of individual and organizational factors contribute to political behavior
1. Pyramid-shaped organization structure:
A pyramid concentrates power at the top. Only so much power is therefore available to distribute
among the many people who would like more of it.
2. Subjective standards of performance:
People often resort to organizational politics because they do not believe that the organization
has an objective and fair way of judging their performance and suitability for promotion.
3. Environmental uncertainty and turbulence:
When people operate in an unstable and unpredictable environment, they tend to behave
politically. They rely on organizational politics to create a favorable impression because uncertainty
makes it difficult to determine what they should really be accomplishing.
4. Emotional insecurity:
Some people resort to political maneuvers to ingratiate themselves with superiors because they
lack confidence in their talents and skills.
5. Manipulative tendencies:
Some people engage in political behavior because they want to manipulate others, sometimes
for their own personal advantage.
6. Disagreements that prevent rational decision making:
Many executives attempt to use rational criteria when making major decisions, but rational
decision making is constrained by major disagreements over what the organization should be
doing.
Political Strategies and Tactics
To make effective use of organizational politics, leaders must be able to make appropriate use of
specific political strategies and tactics. Remember that ethical behavior is regarded as an important
requirement for effective leadership.
As one of many guidelines, The Center for Business Ethics at Bentley College has developed six questions
to help evaluate the ethics of a specific decision. Before engaging in a particular influence act or political
tactic, they recommend that a person seek answers to the following questions;
* Is it right? (based on absolute principles of moral rights)
* Is it fair? (based on absolute principles of justice)

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* Who gets hurt? (the fewer the better)
* Would you be comfortable if the details of your decision or actions were made public in the
media or through electronic mail? (based on the principle of disclosure)
* What would you tell your child, sibling, or young relative to do? (based on the principle of
reversibility)
* How does it smell? (based on common sense and intuition)
Let’s look at a representative group of political tactics and strategies, categorized in the following two
sections as ethical or unethical, although many of the strategies and tactics could fall into either category,
depending on motivations and methods of implementing them. Used with tact, diplomacy, and good
intent, ethical influence tactics can be quite effective. Sequencing of tactics is another important
consideration. In general, it is best to begin with the most positive, or least abrasive, tactic. If you do not
gain the advantage you seek, proceed to a stronger tactic. Also, begin with low-cost, low-risk tactics.

Essentially Ethical Political Strategies and Tactics

This section describes a sampling of ethical political behaviors, divided into three related and overlapping
groups: strategies and tactics aimed at (a) directly gaining power, (b) building relationships with superiors
and coworkers, and (c) avoiding political blunders. All of these approaches help a leader gain or retain
power. They also help the leader cope with the fact that organizations are not entirely rational.

Strategies and Tactics Aimed Directly at Gaining Power. It could be argued that all political tactics are
aimed at acquiring and maintaining power, if we consider power in a broad scope. Tom Peters says
that, although power can often be abused, it can also be used to benefit many people, “and as a
career building tool, the slow and steady (and subtle) amassing of power is the surest road to success.”
1. Develop Power Contracts & Relationships. One way to develop these contacts is to be more
social, for example, throwing parties and inviting powerful people, although they may not be
available.
2. Once a person has impressed management with his or her ability to solve an important problem,
that person can look forward to working on problems that will bring greater power.
3. Keep Informed. It is politically important to keep informed. Successful leaders develop a network
to help them keep abreast, or ahead, of developments within the firm. For this reason, a politically
astute individual befriends key staff members and executive administrative assistants, for example.
4. The vital information they control is knowledge of whom to contact to shorten some of the
complicated procedures in getting government contracts approved.
5. Control Lines of Communication. Related to controlling information is controlling lines of
communication, particularly access to key people. Administrative assistants and staff assistants
frequently control an executive’s calendar. Both insiders and outsiders must curry favor with the
conduit in order to see an important executive.

Strategies and Tactics Aimed at Building Relationships. Much of organizational politics involves building
positive relationships with network members who can be helpful now or later. This network includes
superiors, subordinates, other lower-ranking people, coworkers, external customers, and suppliers. The
following are several representative strategies and tactics:
1. Provide Favors and Develop Ingratiation. A skillful leader always has a positive balance of favors
given, and can draw on that balance when something is needed in return.
2. Display Loyalty. A loyal worker is valued because organizations prosper more with loyal than with
disloyal employees. Blind loyalty--the belief that the organization cannot make a mistake--is not
called for; most rational organizations welcome constructive criticism. An obvious form of loyalty
to the organization is longevity, although its value varies.

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Strategy Development

3. Develop a Reputation as a Subject Matter Expert. Expertise is one of the major sources of power.
Others come to and ask help from an expert.
4. Rational Persuasion. Using this form of influence helps create an impression that you are reasonable
and fair, and also avoids creating resentment that can result from heavy-handed influence tactics.
5. Manage Impressions of You. Impression management includes behaviors directed at enhancing
one’s image by drawing positive attention to oneself. Although this can deal with clothing and
grooming, it also deals with deeper aspects of behavior, such as speaking well and presenting
one’s ideas coherently. Another part of impression management is to tell people about your
success or imply that you are an “insider.”
6. Bring in Outside Experts for Support. To help legitimate their positions, executives will often hire a
consultant to conduct a study or cast an opinion. One possible problem to avoid is that, consciously
or unconsciously, some consultants may slant things to support the executive’s position. This tactic
would be considered unethical if the executive is intentionally seeking a non-objective opinion.
7. Consult With and Ask Advice of Others. Consulting with others, even when not required, helps
build support for a decision or action. Consulting and asking advice on work-related topics builds
relationships with other employees. Asking another person for advice--someone whose job does
not require giving it--will usually be perceived as a compliment, and asking advice transmits a
message of trust in the other person’s judgment.
8. Ask Satisfied Customers to Contact your Boss. A favorable comment by a customer receives
considerable weight because customer satisfaction is a top corporate priority. If a customer says
something nice, the comment will carry more weight than one from a coworker or subordinate.
9. Be Courteous, Pleasant, and Positive. It has been argued that courteous, pleasant, and positive
people are the first to be hired and the last to be fired (assuming they also have other important
qualifications).
10. Send Thank-you Notes to Large Numbers of People. One of the most basic political tactics, sending
thank-you notes profusely, is simply an application of sound human relations. Many successful
people take the time to send handwritten notes to employees and customers to help create a
bond with those people.
11. Flatter Others Sensibly. Flattery in the form of sincere, specific praise can be an effective relationship
builder. By being generous in your positive feedback and comments, you can build relationships
with work associates and make them more receptive to your ideas.
12. Develop Coalitions. Sometimes coalitions are initiated by less powerful actors who seek the support
of others. At other times they may be developed by the powerful to consolidate their power.
Whether formal or informal, confined to the organization or extended to include key interests
outside, coalitions and interest groups often provide important means of securing desired ends.

Avoiding Political Blunders. A strategy for retaining power is to refrain from making power-eroding
blunders. Committing such politically insensitive acts can also prevent one from attaining power. Several
leading blunders to avoid are described next.
1. Embarrassing or criticizing the boss in a public forum. One of the oldest saws in human relations is
to “praise in public and criticize in private.” Yet, in a moment of anger or stupidity, we may blurt
out something that can be costly.
2. Surprising the boss. Surprises, particularly negative ones, are not appreciated.
3. Bypassing the boss. Protocol is still highly valued in a hierarchical organization. Going around the
boss to resolve a problem is therefore hazardous. You might be able to accomplish the bypass,
but your career could be damaged and your recourses limited.

2.38 I Business Strategy & Strategic Cost Management

4. Declining an offer from top management. Turning down top management, especially more than
once, is a political blunder. You thus have to balance your other interests against the blunder of
refusing a request from someone powerful in the organization. An increasing number of managers
and professionals today decline opportunities for promotion when the new job requires geographic
relocation. For these individuals, family and lifestyle preferences are more important than gaining
political advantage on the job.

Potentially Unethical Political Strategies and Tactics

Any technique of gaining power can be unethical if practiced in the extreme and with negative
intentions. For example, a person who supports a boss by feeding him or her insider information that
could affect the price of company stock is being unethical. Some approaches are almost unequivocally
unethical, such as those described next. In the long run they can erode a leader’s effectiveness by
lowering his or her credibility.
1. Back Stabbing. The ubiquitous back stab requires that you pretend to be nice, but all the while plan
someone’s demise. A frequent form of back stabbing is to initiate a conversation with a rival about
the weaknesses of a common boss, encouraging negative commentary and making careful
mental notes of what the person says. When these comments are passed along to the boss, the
rival appears disloyal and foolish. Email has become a medium for back stabbing. The sender of
the message documents a mistake made by another individual and includes key people on the
distribution list. A sample message sent by one manager to a rival began as follows, “Hi, Sam. I’m
sorry you couldn’t make our important meeting. I guess you had some other important priorities.
But we need your input on the following major agenda item we tackled . . . .”
2. Purge All But Loyalists. The ancient strategy of purge those you have conquered suggests that
you remove from the organization rivals who suffered past hurts through your efforts; otherwise
the wounded rivals might retaliate at a vulnerable moment. This kind of strategy is common after
a hostile takeover or even a merger of equals, e.g., the purge of former Chrysler Corporation
executives by the former Daimler-Benz executives after the merger to form DaimlerChrysler.
3. Set a Person Up for Failure. The object of a setup is to place a person in a position where he or
she will either fail outright or look ineffective. For example, an executive whom the CEO dislikes
might be given responsibility for a troubled division whose market is rapidly collapsing. The newly
assigned division president cannot stop the decline and is then fired for poor performance.
4. Exert Undue Pressure. Even if you have the power to do this, it would be unethical if used to further
your interests at the expense of others. In any case, it may have longer-term repercussions.
5. Divide and Conquor. An ancient military and governmental strategy, this tactic is also used in
business. The object is to have peers struggle among themselves, therefore yielding the balance of
power to another person. If team members are not aligned with one another, there is an improved
chance that they will align with a common superior. One way of getting subordinates to fight with
one another is to place them in intense competition for resources.
6. Play Territorial Games. Also referred to as turf wars, territorial games involve protecting and
hoarding resources that give one power, such as information, relationships, and decision-making
authority. A relationship is “hoarded” in such ways as not encouraging others to visit a key customer,
or blocking a high performer from getting a promotion or transfer. Other examples of territorial
games include monopolizing time with clients, scheduling meetings so someone cannot attend,
and shutting out coworkers from joining you on an important assignment.

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Strategy Development

Effects of politics on organization and employees:

1. Decrease in overall productivity
 Politics lowers the output of an individual and eventually affects the productivity of the
organization.
 Common observation says that individuals who play politics at the workplace pay less
attention to their work.
 They are more interested in leg pulling and back biting. They spend most of their times
criticizing their fellow workers.
 As a result of politics at the workplace, employees fail to achieve targets within the stipulated
time frame. Work gets delayed in such an organization.
2. Affects Concentration
 Individuals find it difficult to concentrate on their work. They are more interested in spoiling the
other person’s image in front of the superiors.
 An individual involved in politics is bound to make more mistakes as his focus is somewhere
else.
3. Spoils the Ambience
 Politics leads to a negative environment at the workplace.
 It spoils the relationships amongst individuals. An individual playing politics at the organization
is disliked by all.
4. Changes the Attitude of employees
 Politics changes the attitude of the employees.
 Even the serious employees lose interest in work and attend office just for the sake of it.
 Internal politics do not allow employees to give their hundred percent at work.
 No matter how much hard work an employee puts in, it goes unnoticed in a politically driven
organization.
5. Demotivated employees
 A non performer can be the apple of his boss’s eye simply due to politics, thus demotivating
the performers.
 Discussions are essential at the workplace to extract the best out of employees. Evaluating
the pros and cons of an idea always helps in the long run. Employees playing politics always
look for an opportunity to tarnish the image of the fellow workers.
 Employees feel demotivated when they are not rewarded suitably or someone who has not
worked hard gets the benefits due to mere politics.
6. Increases Stress
 It is rightly said that problems evaporate if discussed. Individuals find it difficult to confide in
any of their fellow workers due to the fear of secrets getting leaked.
 Politics increases the stress level of the employees. Individuals are not machines who can
work continuously for 8-9 hours without talking to others. It is important to have friends at the
workplace who help you when needed.
 Individuals fail to trust each other.
7. Wrong Information
 Employees indulged in politics manipulate information and it is never passed on in its desired
form.
 Superiors get a wrong picture of what is actually happening in the organization.
 A wrong person walks away with the credit in an organization where employees are indulged
in politics.

2.40 I Business Strategy & Strategic Cost Management

 2.5 Logical Incrementalism

Logical incrementalism is the evolution of strategy as a result of experimentation and consensus

(Johnson, Whittington & Scholes, 2011). Logical Incrementalism allows strategy to be synthesised and
coordinated into a single coherent direction by using as many known multi-dimensional inputs as
possible in the conceptualisation process to shape the overarching goals (Kippenberger, 1998). This
means incrementalism is relevant in a market that has a high degree of dynamism and where financial
and other resources are neither rich nor abundant. It allows leaders to shape overarching goals that
encourage creativity in their execution. This decision making style allows for the most informed decision
possible, whilst not locking the decision in until the last practicable moment. The immediacy of the
decision to the execution allows the strategist to anticipate the uncertain, the known unknowns rather
than trying to guess at the unknown unknowns (Rumsfeld, 2002).
The focus on including as many variables as possible being generated and analysed by the stakeholders
means it incorporates and underpins elements of a risk management approach to strategy creation. This
is achieved by experimentation until the best possible options are found, which allows early identification
of possible issues. It creates awareness and encourages convergent behaviour within the organisation
because the stake holders understand the possible benefits and consequences. The small step of
incrementalism gives time for behavioural adaptation and avoids the alienation created by the culture
destruction of comprehensive changes. The consultative style required creates stakeholder engagement
with the emergent strategy. This means it has a built in understanding which allows adaptive adjustment
after any internal or external shocks.
The elements through which intended strategy can be developed include strategic leadership. This
involves an individual or small team creating the strategy. There is a balance between organisational
adaptability, flexibility and providing overarching direction in the chaos and inhibiting individual
motivation, creativity and engagement (Johnson, Whittington & Scholes, 2011). Strategic planning
systems are another element and are the structured procedures used to create strategy. This is suitable
for an organisation with centralised power in a stable environment. It requires decisions to be made
on unknowns because it looks at longer time frames (3-5 years) and relies on managers “knowing all”
(Obeng & Ugboro, 2008). The final way strategies are materialised is an externally imposed strategy. This
is when an exogenous entity, such as governments, parent companies, receivers or venture capitalists
forces their own agenda on the company’s strategy (Johnson, Whittington & Scholes, 2011).
Whilst Incrementalism is underpinned by the learning aspect of the strategy development framework
the political process for strategy development considers the determinates of successful engagement
and manipulation of the process by diverse human agendas. It acknowledges that factional tension
within the organisation will be a powerful driver of the overall strategy development. Depending on
the dominance of the stakeholders these power plays will be an amalgam of compromises. They will
be generated by personal experience, competition for resources, relative influence and access to
information. Strategy informed by prior decisions identifies that all strategy development emerges and
is influenced by the constraints from which it was created. No organisation creates strategy in a bubble;
it is collective collaboration of people and resources. The history, richness and synergy of the people
and resources will create path dependencies and a culture that will adapt and be adapted by the
development of strategy. The last option is the organisational system for the creation of strategy. This
identifies that strategy can be created within the organisation surrounded by a local context. It will be
created from a combination of culture and environment at a grass roots level. This approach has a
strong focus on endogenous and localised issues which will be seen from within the paradigm of the
creator: for example marketing, sales, finance, human resources, etc. This means the creator may not
have considered the integration implications for the whole organisation. This may have unexpected
ramifications and consequences. In turn this may alienate stakeholders that have had no influence on
the strategies creation (Johnson, Whittington & Scholes, 2011).

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Strategy Development

The capacity of an organisation to achieve continuity of its strategy is contingent on many factors.
This is referred to in literature as its ambidexterity. It identifies the organisations capacity to tolerate the
ambiguity of the “dual searches for certainty and flexibility”. This contradiction will be displayed by the
organisations aptitude at efficiently exploiting its current resources whilst having the flexibility to explore
new opportunities (Bodwell & Chermack, 2010). This could manifest itself in the organisational structure
by running different structures in different aspects of the organisation. It will be tightly controlled and
hierarchical whilst trying to exploit its current resources and flexible and flat in the exploratory areas such
as taskforces and teams. Within each team the acceptance and encouragement of diversity allows
well managed cognitive dissonance to become a force for creativity. The implications for leadership
include the required capacity to tolerate and encourage a diversity of opinions and the aptitude to
make the balance between the two systems and champion the learning created. These capabilities
ensure the stability and progress of the strategies of the organisation.
Underpinning Google’s strategy development is a combination of strategic leadership and
incrementalism. This strategy is rooted in their history and been allowed to continue because of their
high profitability. It has been developed by creating a two tier structure where the directors are removed
from the shareholders. This allowed the directors a degree of creative freedom that gave rise to a flatter
more autonomous, team based structure than American shareholders would normally have been
comfortable with (Johnson, Whittington & Scholes, 2011). This creates a cultural platform that attracts
the best American people which drives the strategy creation process. The managers are then given
broad overarching goals (organise the world’s information) and the space is then allowed for strategy
to emerge (Bodwell & Chermack, 2010). The strategies created need to be embraced collectively so
they are peer reviewed before they are accepted. The computing focus within the company means
the peer review will be assisted by artificial intelligence and include data analysis (Claburn, 2006). There
are many projects created and released in a ‘buggy’ beta form, ‘fixed’ from consumer input and ‘killed’
if there is not enough end user interest or uptake (Techcrunch, 2010). While the strategies seem to be a
very lightly controlled incrementalist attitude toward strategy development this just means the company
has focused on other aspects of the business to retain control. Therefore many of the backend systems
are ‘formulaic and rigid’. For example: they have maximum teams of six, deadlines are extremely short
and every aspect of the organisation possible is measured and systemised. The company’s strategic

2.42 I Business Strategy & Strategic Cost Management

development style has come at a cost. The overall strategic direction and accountability can get lost
within the organisation. At this stage it has only had bizarre consequences such as the patent for the
name Google not being renewed in Germany. In the longer term as the company moves into other
aspects of computing it may have more dire outcomes?  The high failure rate of projects within the
organisation sometimes forces the company to create expensive patches, for example buying You
Tube ($1.65 billion) to overcome the failure of Google Video. Also by sticking with strongly American
cultural norms the company has upset the Chinese government and potentially alienated large potential
markets such as China. Whilst the current approach has many weaknesses it allows for an inbuilt risk
management attitude. It ensures that the failures are only a small percentage of the business and allows
for the organisation to retain its ambidexterity. The deep level of knowledge and learning created by the
incrementalism strategy has allowed the company to exploit it resources very effectively. This creates
rising quarterly profit and earnings per share. While effected by many things the success and potential
of the strategy is reflected in the share price. The initial public offering for Google was $US85, Google is
currently trading at $US 598.67 (Google, 2011).
Quinn (1978) studied strategic management process of a range of companies and found that strategies
of most of the companies do not come to existence by following a long term plan or merely a positioning
approach or follow just environment led or resource based approach. Quinn (1978) coined the term
‘Logical Incrementalism’ to explain how the strategies of companies come in existence in real world.
Logical Incrementalism approach towards strategic management is that strategies are not formed and
come in existence as some long term plans which are made once a while and then whole organization
starts working on them. Rather strategies emerge over time in an incremental way. However, this
incremental way is not random but logical as top managers make changes and take strategic decision
as they learn by implementing small steps of strategies. There is constant critical evaluation of all the
decisions that are taken to come to a realized strategy for businesses.
Strategies are made over a period of time and strategists formulate strategies by searching, experimenting,
learning and not being tied to any one course of action. Process of strategic management is scattered,
small steps and unstructured approach. Realized strategies of companies, according to Quinn (1978)
are partly random and partly logical.
This approach helps companies to reduce risk in strategic decisions though managers may focus more
on taking short term decisions. Companies also take investment decisions more prudently for strategic
decision as they learn from their past decisions. Managers are expected to take decisions proactively
as they come in terms with results of internal decisions and change in environment. In this approach
towards developing strategies, managers are continuously negotiating with stakeholders to make a
consensus for strategic decisions and a ‘muddling through’ approach in a logical manner is followed.
INDITEX - a very good example of the “logical incrementalism
Within the organization, a host of behavioural, social, and political factors influence the strategy
making process. Instead of being a comprehensive, planned, and rational process, strategy making
can sometimes be disjointed and incremental. Quinn (1980) used the term logical incrementalism to
describe such processes. Logical incrementalism acknowledges that organizational goals are complex,
changing, and unclear. It involves artfully blending formal analysis, behavioral techniques, and power
politics to move organizations toward broadly conceived goals. In this process, strategy formulation and
implementation are not separate; rather, they are integrated into a single-decision making process.
The famous clothes firm INDITEX is a very good example of the “logical incrementalism” in the global
economy.
Logical incrementalism explains strategy as a process that is clarified and defined incrementally with
the unfolding of events. In this strategy process paradigm, managers strategize effectively by curbing or
avoiding irreversible commitments at the outset, treating newly formed problem resolutions as tentative,
and making intentions concrete and tying them to particular details gradually. Such a process gives
them time to improve the quality of information used in their decisions and manage the practical realities

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Strategy Development

associated with their strategic goals. This theory of logical incrementalism is an extension of Lindblom’s
suggestion (1952) that policy makers “muddle through” their decisions, relying upon the recognition of
feasible constraints, the restriction of their attention to relatively few items among numerous alternatives,
and the initiation of small decision steps to find a workable solution to complex policy issues. Within the
logic of Quinn’s logical incrementalism, strategy is as a process that is more fluid and evolving than a
formal plan, but, nevertheless, a process that has clear priorities and intentions. Conceptions of emergent
and incrementalist strategies present together a management paradigm that emphasizes the bounded
rationality of decision makers and how decision makers cope with uncertainty and complexity while
remaining committed to their strategic objectives.
According to Quinn the logical incrementalism managed of correct form, it allows the director to
combine the contributions of the rational and systematic analysis with the concepts on the organizational
behaviour. Also it allows managers to obtain connexion and identity with new courses, so as to face
relations of being able and to necessities of individual conduct. The logical incrementalism makes
possible the use of the best reconnaissance datas and analytical, and therefore the main decisions in
the company.
The ideas of Mintzberg complement the ideas of Quinn. But a difference exists that deserves to be
considered. Whereas both agree in the strategic process like an instance of evolution of learning, Quinn
tends to give more importance to the paper of the main executive, and the CEO, considering the main
strategy. On the other hand Mintzberg tends to attribute greater importance to other elements that
can introduce the hierarchy in the strategic decision making. In effect, for Mintzberg the organizations
can have general managers that they down raise their visions of the strategy from the top managers to
medium managers, and at the same time that the creative personnel send strategies in inverse sense.

Strategic decision making in the market

Development of Strategies
In order to be able to develop an agreed strategy to the necessities of an organization, it is fundamental
to take into account some variables and factors that determine the functionality and the efficiency of
these strategies with base in the structure of the company. The quantitative, qualitative, organizational
factors and the relative ones to the power and the behavior are due to take into account, that are
those that often determines the success of a strategy in a specific situation.
These elements have improved the understanding of which they are the multiple structures of organization
goals, the policy of the strategic decisions, the executive processes of negotiation and commitments,
the satisfaction in the decision making, the paper of the coalitions in the administration strategic and
the practice “to confuse” in the public sphere.
In this one sense, important findings exist:
• Neither the paradigm of “being able and behavior” nor the one of the “formal systems” of planning
characterize in suitable form the way in which the successful strategic processes work.
• The effective strategies tend to arise from a series of “strategic subsystems”, each one of which
approaches a specific class of strategic tasks, of disciplined way, but which they are condensed
and they increased opportunely in a coherent pattern who transforms itself into the strategy of the
company.
• The logic that it sustains to each “subsystem” is so strong that, to a certain extent, it can serve like
normative approach for the formulation of key elements of the strategy in great companies.
• Due to cognitive and procedural limits to each other they have to be directed and to be related
by a designated approach “logical incrementalism”.
• This incrementalism is not “confusion”. It is a propositive, effective and proactive approach
administrative that tends as much to the improvement and the integration of the analytical
aspects of the formulation of the strategies.

2.44 I Business Strategy & Strategic Cost Management

The critical aspects strategic to consider are the following ones:
• Global organizational structure or its basic administrative style
• Relations with the government or other groups of external interest
• Practices of acquisition, reincorporation or of divisional control
• International relations and positions
• Capacities of innovation or personal motivations affected by the growth
• Relations of workers and professionals reflecting changing expectations and social values and
• Advance technological environment
Often external or internal events, on which the administration essentially does not have control some,
precipitate urgent, fragmented and temporary decisions that without remedy, conform the future
strategic position of the company.
The companies require a incremental process to handle the crucial psychological changes and of power
that the global direction of the program and its consequences determine. These processes contribute to
unify the analytical aspects of the diversification decisions. They generate a wide consensus, the attitudes
of acceptance of risks, the flexibility of the organization and the resources, and the adaptive dynamism
conceptual that determine, as much the sequence as the direction of the diversification strategies.
Most important of these processes are:
• The generation of a genuine psychological commitment and the highest level with the
diversification.
• The conscious preparation to act according to the opportunity.
• To establish a factor of comfort when assuming risks.
• To develop new customs.
Each one of the processes interacts to each other, and among them they affect the sequences of
action, the passed time, and the final results, always of unexpected way.
As far as the system of reorganization on great scale, the great organizations changes are integral part
of the strategy. Sometimes, those changes constitute a strategy in themselves; in others, they precede
or they precipitate the sprouting of a strategy, and other times they allow to the implementation of
a strategy. Nevertheless, like it happens with many other strategic decisions, the macro organizations
changes happen in incremental form and outside a formal process of planning.
The formal planning in all corporative strategy must provide a discipline that forces the administrators
to visualize periodically and carefully towards ahead, to demand rigorous communications about the
strategic goals, aspects and allocations of resources, to stimulate analysis of greater terms of those
than they would be made in other circumstances, to produce bases to evaluate and to integrate the
short term plans, to extend the time horizons and to protect the long term investments, such as the
investigation and the development, as well as to generate a psychological heap and an informative
frame of reference about the future with which the managers can decide in the short term.
As far as the decision making, programs of reduction of costs are due to sharpen the annual commitments,
to formalize and of helping to implant strategic changes, since the planning occurs from the general
position of the organization.
The strategy has to do with the stranger, more than with the uncertain thing. It implies so numerous forces
and strengths that cannot be predicted the events. The logic experimentally imposes the behaviour of
flexible way and, the general concepts towards the specific commitments, making specific them more
soon possible with the purpose of diminishing the uncertainty margin, as well as to benefit to us from the
best information than can be obtained. This process is called “logical incrementalism”.

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Strategy Development

The incrementalism is a conscious, propositive form and proactive of the good management. Managed
on the right way, it allows the executive to combine the contributions of the rational and systematic
analyses, political theories and being able, and concepts on the organizational behaviour. It allows
the executive to obtain connection and identity with new courses. It allows him to fight with relations
of being able and individual necessities, and to use the best data, analytical news and, and thus to
choose his main attachment lines.
In order to be able to know an organization we must know its systems and the connections that exist
between the thought and the action, to obtain a good strategy. The notion of which the strategy is
something that must happen in high levels, very far from the details of the daily activity of an organization,
is one of the greatest deceits of the conventional strategic administration. That explains great part of
the failures in the business.
In this one sense, the effective strategies can arise in the strangest places and be developed by average
more unforeseen expenses. An optimal method does not exist to develop a strategy.
Some strategies feel roots in several places anywhere or in where people are able to learn. These
strategies happen in organizations when they become collective, when its proliferation is translated in
guide of the behaviour of the organization as a whole.
In a company, it must have change. The change must be continuous and the organization must be in
constant adaptation. This must not to that formality at the moment does not exist for implementing a
strategy, but to that the market and the industry they change constantly and like company, we must
ourselves adapt to the changes that they indicate to us, or of national or international way.
What it does not manage to include the conventional vision is the knowledge how and when to promote
the change. A fundamental dilemma of the development of the strategies is located in the necessity to
conciliate the change and stability forces, to focus the efforts and to increase the operative efficiency
on the one hand, and at the same time to adapt, and to stay to as much of an external and changing
atmosphere.
What the quantitative theory suggests is that the new strategies, are conserved in revision in some corner
of the organization until a strategic revolution becomes necessary. As the old established strategy is
disintegrated, the seeds of the new one begin to open themselves.
In more creative organizations we see a pattern somewhat different from change and stability, a pattern
more balancing. Or by means of quantitative revolutions or by cycles of convergence and divergence,
the organizations seem to have will separate the time the basic forces of the change and the stability,
having conciliated them by means of a subsequent attention to each one of them. Multiple strategic
failures are attributable or to the mixture of these forces, or to the obsession by one of these forces to
expenses of the other.
To govern a strategy is then to conform a pattern of thought and action, control and learning, as
well as stability and change. The administrators must be dedicated, to count on experience, mutual
understanding with the material, to have a personal touch, dominion of details and a sense of harmony
and group integration. They must be sensible to his surroundings and to recognize other factors that
help him in the elaboration of new strategies.
The strategic planning has to be recognized reason why it is: means, do not stop to generate strategies,
but to program a created strategy previously, to determine its implications of formal way. In essence, it
is of analytical nature, one is based on the decomposition: whereas the strategy creation is, in essence
a synthesis process. For that reason it is that the attempt to generate strategies by means of the formal
planning takes almost always to the extrapolation of the existing strategies or to the copy of those of
the competition.
The administration in this context implies the creation of a climate in which grows the strategies. In more
complex organizations, this means the construction of flexible structures, the creative hiring of personnel,
the definition of ample strategies and the observation of emergent patterns.

2.46 I Business Strategy & Strategic Cost Management

The essential logic of the integral administration consists of that the administration of high level creates a
vision or a dream, and the administration of the medium level creates and implants concrete concepts
to solve and to surpass the contradictions that emanate of emptiness between which it exists at the
moment and what the administration hopes to generate. The administration of high level creates a
global theory, whereas the administration of medium level creates a theory to medium term and it on
approval puts under it of empirical form in all the organizational structure.
The administration of the center upwards and downwards, is a type of information generation that
concerns to the totality of the organization. He is able to give body to the essence of an organization,
which survives, of spontaneous way, in the incessant generation of changes that take place in the
scope of the businesses.
In the development of a strategy different variables take part that do not have to be followed like a
general rule since each organization counts on a structure and a system different from others. All the
elements that conform to a company handle of different way in their respective circles, from their
organizational culture, the behaviour of the employees, the systems which they use, etc.
It is for that reason that before developing a strategy we must know well our organization from the roots
and start off of proposing strategies there, raising objectives, and to cause that she is really successful.

Practical case
The beginning
Galicia is a region of Spain not used to the enterprise successes. It is not necessary more to throw a
glance to the daily press to be convinced that those products that present/display certain competitive
advantages for the companies of the region specially have been flagellated by most recent of the
fatalities. For that reason, when a native company acquires remarkable dimensions in the outside, it
does not let cause a certain perplexity between his natural ones. This is the case of the group (Inditex),
more known by its more important branch Zara, that has also surprised academic analysts and by its
fast positioning in the international market. Selling domestic preparation in the local market during
the Sixties, it has happened to design, to produce and to distribute all type of articles to dress and
complements for the consumption masses in more than 30 countries three —in three continent—,
competing advantageously with leaders, like the American Gap or the Swedish Hennes & Mauritz, and
surpassing to which until not long ago they were located between most excellent.
In fact, this has turned it the first regional company/signature in terms of consolidated net benefits, very
in front of our greater company in invoicing like Citroen.
The origins of the group it is necessary to name the figure of his president, who, in the strictest
American tradition, was a perfect stranger. Without no familiar precedent in the business of
the textile, Amancio Ortega Gaona parked in him of a very circumstantial way, something
that remembers the biographies of the company men which they recreated the factories of
Hollywood: by the end of the 50 —he was a simple sales assistant— of some of the first stores of
preparation, like Gallic Shirt shop, the Foam or the emblematic establishment the Smart one.
In this surpassed platform it acquired a valuable professional experience, from the contact
with the tendencies of the recent fashion of masses until the direct access to the manufacturers of weaves
and the networks of distribution. There it learned to know first hand the preferences of the consumers
and to value what meant its fast satisfaction in opportunity terms. It thus had some of the keys of the
success that in the future would mark the character of their activities, but also, of the indispensable
formation in all businessman.
His first attempts as entrepreneur began of very modest way, first in the familiar house —with the only aid
of his wage—, arranging the work for others with the own one; soon in the rented commercial premises,
experiencing in designs of dressing gowns and lingerie. Their contacts with Catalan and Valencian
weave manufacturers gave access him to prices of wholesaler. To obtain a perfect advantage of those
fabrics on which the thousand of times patterns re-design themselves to optimize their use eliminating

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Strategy Development

remnant, to make them and to distribute them without intermediation between their old clients they
allowed him to sell to prices without competition.
With the benefits of the familiar activity, Ortega gave the jump in 1963 to a production of greater scale
and thinking about the consumption of masses. He started with about 125 employees until reaching
the 380, and it commercialized lingerie and feminine clothes of his seal between retailers, wholesalers,
power stations of purchase, some of foreign them, and more ahead between the great distribution
centers as Simago, Carrefour, Auchan that at that time they began to emerge in the Spanish market.
Its business already integrated the activities of design and preparation (the societies Goa and Noite
for lingerie and Samlor for other feminine articles), whereas the weave supplying and the distribution
depended basically on outer operators. The development of a primitive vertical integration data of
1975, after the creation of the first Zara store in A Coruña to commercialize articles of woman, man and
boy, a segment of the market that covered an emergent demand of clothes with acceptable design
and quality to reasonable prices. One was a segment that already satisfied Gap and The Limited in
America and C&A in Germany. This way the distribution to the productive cycle was gotten up. It was
the first time that was made something similar in the sector of the fashion.
The establishments of Ortega, nevertheless, had reunited in a single company/signature both functions,
reason why it had margins greater than his competitors and could, therefore, sell to lower prices. The
initial advantage with which it concurred allowed Ortega to establish the Goasam society the following
year, in Arteixo (A Coruña), like proprietor of Zara, that already conformed a small commercial chain
in the city. Great part of the success achieved about its stores in the regional market derived from an
suitable election of the location place: since it did not emit publicity by saving of costs, they had to be
located in centric places, very concurred by the type of public to whom it went directed the product,
and to have the reclamation of and obtained attractive, very conceptual powerful a showcase of
with means economy.
But it was not tried so single to approach the supply the consumers, but also to know its preferences
and, mainly, to give a fast answer them in form of the wished merchandise. And next to this, stock zero.
Ortega was well-known, by the contact and the experience acquired with its old businessmen, the
disadvantage who supposed the not selled ones in terms of immobilization of operating capital: or the
warehouse was eliminated quickly or had left the condemned for always. This way, most of the elements
that were going to define the future character of their societies was already in embryonic form in the
management of Goasam: on the one hand, the procedure just in Time that made possible the fast
satisfaction of the preferences of the consumers, a Japanese invention that Ortega had discovered
of intuitive way; on the other hand, the vertical integration of the design processes, production and
distribution.
With this powerful armament, the local and regional market appeared already small to the height of the
first eighty. It was, then, necessary to initiate the expansion in the Spanish market, for which it counted on
the collaboration of a first group of managers (partly, coming from the staff of the School of Enterprise
Studies of A Coruña). This aid was fundamental, because in the jump of the familiar company/signature
to the one of greater scale it was where many tannings failed businessmen. Ortega, however, knew to
make it of reasonable way, delegating functions in those activities that did not dominate.
In order to give cover to this transition it arose in 1985 Inditex, that happened to be the first society
and supposed a flexion point. It for the first time increased his capacity productive of excellent way,
something in which had much to do the reformulation of the own design, that had held fast and purified
of progressive way, and the deflection from the production, and dislocation towards particular factories
and the cooperative premises, created to the margin of holding. But also it was the moment at which
Zara expanded by the peninsular territory in search of a market of masses, installing points of sale in the
main capitals of province. In 1985 the group already had seven companies of preparation, almost 1,100
employees and 41 establishments in all Spain. This domestic expansion demanded of an investing effort
for which rarely outer resources looked for, reason why it was come from one double way. On the one
hand, one gave up to distribute dividends, something that was not complicated since the number of

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its shareholders agreed the familiar nucleus. The other base of the financing came from the high level
of liquidity that reported the numerous points of sale of Zara and which they allowed, together with the
part of the benefit non distributed between the shareholders, to finance its growth in the Spanish market.
Expansion
At the end of the Eighties, the vertical concentration of the companies of Ortega advanced with
safe and determined step and included own design, preparation, commercialization and distribution.
Nevertheless, the increasing saturation and maturity of the Spanish market induced to modify the growth
strategy. The group already was prepared to initiate his first outer expansion with Zara Holding B.V. with
seat in Holland by tributary reasons was created from its natural exit, Portugal (1988), and shortly after
the U.S.A. and France (1989). Nevertheless, the necessity to supply to an increasing number of points
of sale in all Spain, as well as the first attempts to arrive at the international market had created some
strangling in the productive chain, that were solved with the incorporation of several sequences of
robots which they made flexible in greater measurement the manufacture processes. The system, that
had been designed by the engineers of one Japanese factory of Toyota, added sensible innovations
to the classic chain, created in the change of century for the factory of Henry Ford. To the servants
of Toyota it was demanded to them to work of foot, which can seem tired, but turned out basic to
develop a multifunctional activity. In fact all of them rotated in their positions and finished dominating
the set of the cycle, without always conducting the same operation, something that in the classic chain
caused serious personal pathologies. Instead of fomenting the competition, the system stimulated the
cooperation and the creativity between the workers, reinforcing the equipment spirit, so that they
replaced to others when it was pronounced necessary. And of the sector of the automobile for which
they were created, Toyota adapted to other activities, among them the textile preparation. In 1991 they
were incorporated to the production of Inditex, although only in some of the phases of the process, the
cut of fabrics previously designed and the assembly of determined articles that demanded a greater
rapidity from access to the market.
The rest of the most intensive operations in use were made, by independent societies and cooperatives,
that little by little expanded by Galicia and north of Portugal. The incorporation of robots allowed to
eliminate the stranglings in the cycle and to apply in greater degree the procedure of the JIT, but also
to increase the scale of the production. That way, the expansion of the group in the outside was started
again with force. In 1992 the first stores in Mexico were opened; in 1993 in Greece; in 1994 in Belgium
and Sweden; in 1995 in Malta; in 1996 in Cyprus; in 1997 in Norway, Turkey, Japan and Israel; in 1998 in
Argentina, United Kingdom, Venezuela, Lebanon, Dubai, Kuwait and China; in 1999 in Holland, Germany,
Poland, Saudi Arabia, Bahrein, Canada, Brazil, Chile and Uruguay and, finally, in 2000 in Austria Denmark,
Andorra and Qatar, until entering something more than 1,000 establishments to end of year. Inditex
operates in three continent countries and has managed to penetrate in 4 of the European markets nails:
France, Germany and United Kingdom. This year also did it in Italy, an area of highest barriers of entrance.
The complexity of the distribution system arrived at such levels of answer that was precise to create a
logistic center totally computerized (1995), and a system of telecommunications integrated, to unite the
central seat of Inditex in Arteixo with the supply centers, production and sale anywhere in the world. The
costs of the international expansion of first half of the 90 were remarkable and they were pronounced
in a greater indebtedness and a smaller growth of the benefits between 1992 and 1995. In order to
free itself of the dependency of the short term credit to that they had resorted, it was able to contract
credits multidescries in the long term with JP Morgan. With regards to the benefits before taxes, they
managed to go back as of 1996 by the route of the greater invoicing than it provided the international
expansion to him. The competitive advantages a modest business arisen in the Sixties in a small capital
of province without hardly textile tradition has managed to reach to the multinationals that lead the
sector of the preparation in a global economy.
Conclusions
Up to here one is a history that has precedents. Nevertheless, its endurance and growth in which they
seem to be the beginnings of a recession cycle, that has lowered to some of its competitors and fact to

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Strategy Development

back down to many others, are what surprises academic analysts and who ask themselves for the keys
of this situation. In synthesis, these keys can be detected as much from the supply as from the demand. It
is clear that a flexible production, when assuring at every moment the exact finished product, provision,
amount and variety that the market demand, avoiding the storage cost and obsolescence that in the
textile is unbearable, constitutes one of the factors of its success. Nevertheless, it is also a practice that
uses their competitors. The advantage of Inditex resides here in the high levels of flexibility that can
reach, which obtains by means of a multiple strategy. In the first place, through the vertical integration
of its companies, that include the production processes, but single partly, the one that supplies to the
more dynamic commercial operator (Zara). Secondly, the introduction of the procedure JIT, that allows
to modify “Just in Time” the own production based on the changes observed in the behaviour of the
consumers.
The creation of a computerized logistic center, that communicates with each the points of sale in
the world, conforms a third element that makes flexible the production makes possible to replace the
consumed product, colours, patterns, the modifications are introduced in factory that each specific
market dictates and it is known, in addition, in real time the invoicing of each one point.
Finally, Inditex has the advantage that to him the decentralization provides and autonomy of each one
of its commercial seals to which the economies generated by the centralization of common services
are added. The perfect knowledge of the preferences of the consumers constitutes the first competitive
advantage. To know that Inditex had to add a very well-taken care of study of the peculiarities of the
markets (that vary with the age, sex, culture or buying capacity, etc), based on which the different
commercial seals have been designed. The fidelity of the consumers, obtained from a heterodox
marketing research and of low cost, without hardly apparent publicity, finishes drawing the picture of
the competitive advantages.

2.6 Learning Organization

A learning organization is the term given to a company that facilitates the learning of its members
and continuously transforms itself. Learning organizations develop as a result of the pressures facing by
modern organizations and enables them to remain competitive in the business environment.
Three definitions of a learning organization
Learning organizations [are] organizations where people continually expand their capacity to create
the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective
aspiration is set free, and where people are continually learning to see the whole together. (Senge 1990: 3)
The Learning Company is a vision of what might be possible. It is not brought about simply by training
individuals; it can only happen as a result of learning at the whole organization level. A Learning
Company is an organization that facilitates the learning of all its members and continuously transforms
itself. (Pedler et. al. 1991: 1)
Learning organizations are characterized by total employee involvement in a process of collaboratively
conducted, collectively accountable change directed towards shared values or principles. (Watkins
and Marsick 1992: 118)
According to Sandra Kerka (1995) most conceptualizations of the learning organizations seem to work
on the assumption that ‘learning is valuable, continuous, and most effective when shared and that
every experience is an opportunity to learn’ (Kerka 1995). The following characteristics appear in some
form in the more popular conceptions. Learning organizations:
• Provide continuous learning opportunities.
• Use learning to reach their goals.
• Link individual performance with organizational performance.

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• Foster inquiry and dialogue, making it safe for people to share openly and take risks.
• Embrace creative tension as a source of energy and renewal.
• Are continuously aware of and interact with their environment. (Kerka 1995)
Organizations do not organically develop into learning organizations; there are factors prompting their
change. As organizations grow, they lose their capacity to learn as company structures and individual
thinking becomes rigid. When problems arise, the proposed solutions often turn out to be only short
term (single loop learning) and re-emerge in the future. To remain competitive, many organizations
have restructured, with fewer people in the company. This means those who remain need to work more
effectively. To create a competitive advantage, companies need to learn faster than their competitors
and to develop a customer responsive culture. Argyris identified that organizations need to maintain
knowledge about new products and processes, understand what is happening in the outside environment
and produce creative solutions using the knowledge and skills of all within the organization. This requires
co-operation between individuals and groups, free and reliable communication, and a culture of trust.

Characteristics
There is a multitude of definitions of a learning organization as well as their typologies. According to Peter
Senge, a learning organization exhibits five main characteristics: systems thinking, personal mastery,
mental models, a shared vision, and team learning.
Systems thinking. The idea of the learning organization developed from a body of work called systems
thinking. This is a conceptual framework that allows people to study businesses as bounded objects.
Learning organizations use this method of thinking when assessing their company and have information
systems that measure the performance of the organization as a whole and of its various components.
Systems thinking states that all the characteristics must be apparent at once in an organization for it
to be a learning organization. If some of these characteristics are missing then the organization will fall
short of its goal. However O’Keeffe believes that the characteristics of a learning organization are factors
that are gradually acquired, rather than developed simultaneously.
Personal mastery. The commitment by an individual to the process of learning is known as personal
mastery. There is a competitive advantage for an organization whose workforce can learn more

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quickly than the workforce of other organizations. Individual learning is acquired through staff training
and development, however learning cannot be forced upon an individual who is not receptive to
learning. Research shows that most learning in the workplace is incidental, rather than the product of
formal training, therefore it is important to develop a culture where personal mastery is practiced in
daily life. A learning organization has been described as the sum of individual learning, but there must
be mechanisms for individual learning to be transferred into organizational learning.
Mental models. The assumptions held by individuals and organizations are called mental models. To
become a learning organization, these models must be challenged. Individuals tend to espouse theories,
which are what they intend to follow, and theories-in-use, which are what they actually do. Similarly,
organizations tend to have ‘memories’ which preserve certain behaviours, norms and values. In creating
a learning environment it is important to replace confrontational attitudes with an open culture that
promotes inquiry and trust. To achieve this, the learning organization needs mechanisms for locating
and assessing organizational theories of action. Unwanted values need to be discarded in a process
called ‘unlearning’. Wang and Ahmed refer to this as ‘triple loop learning.’
Shared vision. The development of a shared vision is important in motivating the staff to learn, as it creates
a common identity that provides focus and energy for learning. The most successful visions build on the
individual visions of the employees at all levels of the organization, thus the creation of a shared vision
can be hindered by traditional structures where the company vision is imposed from above. Therefore,
learning organizations tend to have flat, decentralized organizational structures. The shared vision is often
to succeed against a competitor, however Senge states that these are transitory goals and suggests
that there should also be long term goals that are intrinsic within the company.
Team learning. The accumulation of individual learning constitutes Team learning. The benefit of team
or shared learning is that staff grow more quickly and the problem solving capacity of the organization
is improved through better access to knowledge and expertise. Learning organizations have structures
that facilitate team learning with features such as boundary crossing and openness. Team learning
requires individuals to engage in dialogue and discussion; therefore team members must develop
open communication, shared meaning, and shared understanding. Learning organizations typically
have excellent knowledge management structures, allowing creation, acquisition, dissemination, and
implementation of this knowledge in the organization.
Benefits
The main benefits are;
• Maintaining levels of innovation and remaining competitive.
• Being better placed to respond to external pressures.
• Having the knowledge to better link resources to customer needs.
• Improving quality of outputs at all levels.
• Improving Corporate image by becoming more people oriented.
• Increasing the pace of change within the organization.
Barriers
Even within or without learning organization, problems can stall the process of learning or cause it to
regress. Most of them arise from an organization not fully embracing all the necessary facets. Once
these problems can be identified, work can begin on improving them.
Some organizations find it hard to embrace personal mastery because as a concept it is intangible and
the benefits cannot be quantified; personal mastery can even be seen as a threat to the organisation.
This threat can be real, as Senge points out, that “to empower people in an unaligned organisation
can be counterproductive”. In other words, if individuals do not engage with a shared vision, personal
mastery could be used to advance their own personal visions. In some organisations a lack of a learning
culture can be a barrier to learning. An environment must be created where individuals can share

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learning without it being devalued and ignored, so more people can benefit from their knowledge
and the individuals becomes empowered. A learning organization needs to fully accept the removal
of traditional hierarchical structures.
Resistance to learning can occur within a learning organization if there is not sufficient buy-in at an
individual level. This is often encountered with people who feel threatened by change or believe that
they have the most to lose. They are likely to have closed mind sets, and are not willing to engage
with mental models. Unless implemented coherently across the organization, learning can be viewed
as elitist and restricted to senior levels. In that case, learning will not be viewed as a shared vision. If
training and development is compulsory, it can be viewed as a form of control, rather than as personal
development. Learning and the pursuit of personal mastery needs to be an individual choice, therefore
enforced take-up will not work.
In addition, organizational size may become the barrier to internal knowledge sharing. When the
number of employees exceeds 150, internal knowledge sharing dramatically decreases because of
higher complexity in the formal organizational structure, weaker inter-employee relationships, lower trust,
reduced connective efficacy, and less effective communication. As such, as the size of an organizational
unit increases, the effectiveness of internal knowledge flows dramatically diminishes and the degree of
intra-organizational knowledge sharing decreases.
Challenges in the transformation to a Learning Organization
The book The Dance of Change states there are many reasons why an organization may have trouble
in transforming itself into a learning organization. The first is that an organization does not have enough
time. Employees and management may have other issues that take priority over trying to change the
culture of their organization. The team may not be able to commit the time an institution does not have
the appropriate help or training. For an organization to be able to change, it needs to know the steps
necessary to solve the problems it faces. As a solution, a mentor or coach who is well versed in the
learning organization concept may be necessary.
Also, the change may not be relevant to the organization’s needs. Time should be spent on the actual
issues of the organization and its daily issues. To combat this challenge, a strategy must be built. The
organization should determine what its problems are before entering into the transformation. Training
should remain linked to business results so that it is easier for employees to connect the training with
everyday issues.
Emergence of Learning Organisations
The new species of organisations is called a learning organisation, and it possesses the capability to:
• Anticipate and adapt more readily to environmental impacts.
• Accelerate the development of new products, processes, and services.
• Become more proficient at learning from competitors and collaborators
• Expedite the transfer of knowledge from one part of the organisation to another.
• Learn more effectively from its mistakes
• Make greater organisational use of employees at all levels of the organisation.
• Shorten the time required to implement strategic changes.
• Stimulate continuous improvement in all areas of the organisation.
Organisations that learn faster will be able to adapt quicker and thereby achieve significant strategic
advantages.
The Systems-Lined Organisation Model
A systematically define learning organisation is an organisation which learns powerfully and collectively
and is continually transforming itself to better collect, manage, and use knowledge for corporate success.

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It empowers people within and outside the company to learn as they work.
Organisational learning refers to how organisational learning occurs, the skills and processes of building
and utilising knowledge.
There are a number of dimensions of a learning organisation:
• Learning is accomplished by the organisational system as a whole.
• Organisational members recognise the importance of ongoing organisationwide learning.
• Learning is a continuous, strategically used process – integrated with and running parallel to work.
• There is a focus on creativity and generative learning.
• Systems thinking is fundamental
• People have continuous access to information and data resources.
• A corporate climate exists that encourages, rewards, and accelerates individual and group
learning
• Workers network inside and outside the organisation.
• Change is embraced, and surprises and even failures are viewed as opportunities to learn.
• It is agile and flexible.
• Everyone is driven by a desire for quality and continuous improvement.
• Activities are characterised by aspiration, reflection, and conceptualisation.
• There are well-developed core competencies that serve as a taking-off point for new products
and services.
• It possesses the ability to continuously adapt, renew, and revitalise itself in response to the changing
environment.
The systems-linked learning organisation model is made up of five closely interrelated subsystems:
learning, organisation, people, knowledge, and technology. If any subsystem is weak or absent, the
effectiveness of the other subsystems is significantly weakened. Marquardt discusses each of the
subsystems in their own chapters so I won’t go into the details here.

Building Dynamic Learning through the Organisation

The learning subsystem is composed of three complementary dimensions:
1. Levels of learning (individual, group and organisational)
2. Types of learning (adaptive learning, anticipatory learning, deutero learning and active learning)
3. Critical organisational learning skills (systems thinking, mental models, personal mastery, team
learning, shared vision, and dialogue)
Learning, ultimately, is a social phenomenon – our ability to learn and the quality and openness of our
relationships determine what we can know. Our mental models of the world and of ourselves grow out
of our relationships with others.

Levels
Learning in organisations can occur at three levels. Individual learning is needed since individuals form
the units of groups and organisations, or as Senge asserts “organisations learn only through individuals
who learn”. The factors that can contribute to individual learning in the organization include:
• Individual and collective accountability for learning
• Locus and focus of individual learning (learning should have immediate application to the job.)

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• Accelerated learning techniques.
• Personal development plan (people recognise that employers cannot guarantee them lifelong
employment but that they can assist them in achieving lifelong employability. There should be
a partnership between the organisation and the employee to assist in the long-term career
development.)
• Abundant opportunities available for professional development
• Individual learning linked to organisational learning in an explicit and structured way.
Group/team learning means that work teams must be able to think and create and learn as an entity.
They must learn how to better create and capture learning (learning to learn). A successful team
learning system ensures that teams share their experiences with other groups in the organisation. Team
learning will occur more fully if teams are rewarded for the learning they contribute to the organisation.
Marquardt uses Watkins and Marsick’s team learning model that shows the learning organisation as the
union of individuals and organisation. The key is the overlap, which is where teams function.
Organisation learning occur through the shared insights, knowledge, and mental models of members of
the organisation builds on past knowledge and experience which depends on institutional mechanisms
(policies, strategies, explicit models...) used to retain knowledge. Though organisations learn through
individuals and groups, the process of learning is influenced by a much broader set of variables (for
example symphony’s performance is more than the sum of individuals’ knowledge and skills but the
result of the know-how embedded in the whole group working in unison.

Types
There are four types in which organisations learn:
1. Adaptive learning occurs when an individual or organisation learns from experience and reflection:
action ? outcome ? results date ? reflection. Adaptive learning may be either single-loop (focused
on gaining information to stabilise and maintain existing systems) or double loop (questioning the
system itself and why the errors or successes occurred in the first place).
2. Anticipatory learning arises when an organisation learns from expecting the future: vision ?
reflection ? action approach.
3. Deutero learning occurs when the organisation learns from critically reflecting upon its taken-for-
granted assumptions.
4. Active learning involves (a group/team) working on real problems, focusing on the learning
acquired, and actually implementing solutions.

Skills
Marquardt has added Dialogue to the five critical organisational learning skills identified by Peter Senge:
1. Systems thinking: “A framework for seeing interrelationships rather than linear cause-effect
chains, for seeing underlying structures rather than events, for seeing patterns of change rather
than snapshots.” Changes in one part of the organisation can affect other parts with surprising
consequences.
2. Mental models: An image or perspective of an event, situation, activity or concept
3. Personal mastery: A special level of proficiency that is committed to continually improve and
perfect skills, a discipline of continually clarifying and deepening one’s personal vision, energies,
and patience.
4. Team learning: The process of aligning and developing the capacity of a team to create the
learning and results that its members seek. The team involved must learn to tap the potential of
many minds to become more intelligent than one mind.

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5. Shared vision: Provides a focus, direction and energy for the members of an organisation. And
learning is a way of striving to accomplish that vision.
6. Dialogue: promotes collecting thinking and communication.

Empowering and Enabling People

People are the pivotal part of learning organisations because only people, in fact, learn. The people
subsystem includes employees, managers/leaders, customers, business partners, and the community
itself. Each of these groups is valuable to the learning organisation, and all need to empowered and
enabled to learn.
There are several principles to consider in the empowerment and enblement of employees:
• Treat employees as mature, capable workers and learners
• Encourage employee freedom, energy, and enthusiasm
• Maximise the delegation of authority and responsibility (too many organisations have made
employees accountable but have not empowered them.)
• Involve employees in developing strategies and planning (empowered workers are able to make
decisions as good as, if not better than, the decisions made by managers because the workers, in
fact, possess the best information).
• Strike a balance between individual and organisation needs (Better organisational results are built
upon happy, productive individuals. Learning organisations are also conscious of the pressures on
workers to meet both family and work obligations.)
Managers/leaders need to move from controlling to empowering, from being a commander to being
a steward, from acting as a transitional manager to acting as a transformational leader. The new
leadership roles and skills required include:
• Instructor, coach, and mentor
• Knowledge manager
• Colearner and model for learning
• Architect and designer (of the learning organisation)
• Co-ordinator
• Advocate and champion for learning processes and projects.
• Building a shared vision
• Co-ordinating multiple, task-focused teams
• Surfacing and testing mental models
• Engaging in systems thinking (they must help people see the big picture, with the underlying trends,
forces and potential surprises)
• Encouraging creativity, innovation, and willingness to risk.
• Conceptualising and inspiring learning and action.
Conversations and information gathering from customers provide new knowledge for customers, after
all, have expertise in what they do or buy.
Business partners are to be included because company’s success is dependent to a large extent to
the success of its entire business network.
Involving the community as a part of the learning process brings many benefits, it may, for example
prepare potential future workforce and enhance the company’s image.

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The top strategies for people empowerment and enablement in learning organisations:
1. Institute personnel policies that reward learners.
2. Create self-managed work teams
3. Empower employees to learn and produce (informate workers with knowledge about financial,
technical, and other data so that they can make wiser decisions)4
4. Encourage leaders to model and demonstrate learning
5. Invite leaders to champion learning processes and projects
6. Balance learning and development needs of the individual and organisation
7. Encourage and enhance customer participation in organisation learning
8. Provide education opportunities for community
9. Build long-term learning partnerships with vendors and suppliers
10. Maximise learning from alliances and joint ventures
Knowledge Management in Learning Organisations
Knowledge has become more important for organisations than financial resources, market position,
technology, or any other company asset. Individuals may come and go, but valuable knowledge
cannot be lost or the company starves to death. The knowledge subsystem refers to the management
of acquired and generated knowledge or the organisation. It includes the acquisition, creation, storage,
transfer, and utilisation of knowledge.
Acquisition: Organisations acquire knowledge from both external and internal sources. Companies can
acquire information from the external environment through various methods, for example conferences,
consultants, benchmarking other organisations, hiring new staff and collaborating with other organisations.
Internal collection of knowledge means learning from what other parts of the organisation are doing.
It should be noted that information acquired is subject to perceptual filters that influence what information
the organisation listens to and accepts. In addition, acquiring knowledge is not always intentional.
Creation of knowledge is generative. Marquardt refers to Nonaka and Takeuchi’s four patterns of creative
knowledge production that happen at the transformations of tacit and explicit and individual and shared
knowledge. The other mentioned knowledge creation approaches are action learning, systematic
problem solving (current situation and problems), experimentation (opportunities and possibilities) and
learning from past experiences (including failures).
Storage and retrieval: In order to store knowledge, on organisation must first determine what is important
to retain and then how best to retain it. Knowledge storage involves technical (records, databases, etc.)
and human processes (collective and individual memory, consensus). The knowledge stored should be:
• Structured and stored so the system can find and deliver it quickly and correctly. (information will
be retrieved by different groups of people in different manners)
• Divided into categories such as facts, policies, or procedures on a learning-need basis
• Organised so that it can be delivered in a clear and concise way to the user
• Accurate, timely, and available to those who need it.
The retrieval of knowledge may be either controlled (users trigger retrieval) or automatic (situations
trigger retrieval).
Knowledge transfer and utilisation involves the mechanical, electronic and interpersonal movement
of information and knowledge both intentionally (memos, reports, training, briefings, tours, mentoring,
etc.) and unintentionally (job rotation, stories, task forces, informal networks etc.).

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Four factors may limit the transfer: cost, cognitive capacity of receiving unit, message delay due to
priorities of sending knowledge, and message modification or distortion of meaning either intentionally
or unintentionally.
Adding Technological Power to Organisational Learning
The technology subsystem is the supporting, integrated technological networks and information tools
that allow access to and exchange of information and learning. It includes technical processes, systems,
and structure for collaboration, coaching, co-ordination, and other knowledge skills. The three major
components are information technology, technology-based learning, and electronic performance
support systems.
Information technology is the computer-based technology used to gather code, process, store, transfer,
and apply data between machines, people, and organisations. Information technology enhances
knowledge transfer in organisations:
• It can improve the ability of people to communicate with one another, because it blurs the
boundaries of the company and increases the range of possible relationships beyond hierarchies.
• It makes it easier for people to communicate directly with one another across time and space.
• It reduces the number of management levels needed; yet at the same time provides and
enhanced potential for span of control.
• It contributes to flexibility, with mobile workstations, relational databases, and the storage of
knowledge in open databases rather than in the minds of individuals.
Technology-based learning refers to the video, audio and computer-based multimedia training for
the deliver and sharing of knowledge and skills away from the job site. The future learning environment
will be modular (single skills), multisensory, portable, transferable (across languages and cultures) and
interruptible. Technology-based learning will be under the control of the employee, because most jobs
are becoming ever more complex and require higher levels of skills.
In addition, the skill and knowledge mix required will be in a state of flux.
Steps in Becoming a Learning Organisation
It is important to remember that one never fully is a learning organisation. Change always continues, as
well as learning. The chapter presents the 16 steps taken by various organisations in order to become
learning organisations:
1. Commit to becoming a learning organisation.
2. Connect learning with business operations (direct connections between learning and improved
business operations makes it easier to persuade people).
3. Assess the organisation’s capability on each subsystem of the systems learning model.
4. Communicate the vision of a learning organisation (the most sophisticated vision is of no use
unless it can be clearly understood by others).
5. Recognise the importance of systems thinking and action (a company cannot become a learning
organisation by focusing on just one subsystem or on one part of the organisation).
6. Leaders demonstrate and model commitment to learning.
7. Transform the organisational culture to one of continuous learning and improvement.
8. Establish corporatewide strategies of learning (encourage experimentation, recognise and praise
learners, reward learning, spread the word about new learnings, apply the new learnings).
9. Cut bureaucracy and streamline the structure.

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10. Empower (to possess the necessary freedom, trust, influence, opportunity, recognition, and
authority) and enable (to possess the necessary skills, knowledge, values, and ability) employees.
Significant resources of time, money, and people are allocated to increase employees’ skills not
only in present job but also for future, unforeseen challenges.
11. Extend organisational learning to the entire business chain.
12. Capture learnings and release knowledge (quickly throughout the organisation).
13. Acquire and apply best of technology to the best of learning.
14. Encourage, expect, and enhance learning at individual, group, and organisation levels.
15. Learn more about learning organisations.
16. Continuous adaptation, improvement, and learning.
Building, Maintaining, and Sustaining the Learning Organisation
Building a learning organisation may be difficult, but so is maintaining and sustaining it when it is operating.
Many an excellent, even learning company has dropped from its high perch.
It is preferable to begin building a learning organisation at the very top – to get top leadership committed.
But it is possible to begin in any part that has the potential to affect the others. Start where the energy
is! Things to consider include:
• Work with the directors, managers, union and human resources department
• Begin with a diagnosis
• Raise consciousness and start with a company conference
• Start with one department and Focus on one of the key business issues.
Keys to a successful transformation into a learning organisation:
• Establish a strong sense of urgency about becoming a learning organisation. The idea is to make
the status quo seem more dangerous than the unknown.
• Form a powerful coalition pushing for the learning organisation
• Create a vision of the learning organisation. Without a vision, the effort can dissolve into a list
of confusing and incompatible projects. Communicate and practice the vision. Remove
obstacles (bureaucracy, competitiveness of individuals rather than collaboration, control. Poor
communications, poor leaders, rigid hierarchy) that prevent others from acting on the new vision
of a learning organisation.
• Create short-term wins. Most people won’t stay on the long march unless the journey has some
short-term successes.
• Consolidate progress achieved and push for continued movement. Declaring the war won can
be catastrophic until changes sink deeply into the culture.
Ten facilitating factors that support and sustain the learning organisation:
1. Scanning imperative. Learning cannot continue without a solid awareness of the environment
2. Performance gap. Performance shortfalls are opportunities for learning.
3. Concern for measurement. Discourse over metrics is a learning activity.
4. Experimental mindset. Support the practice of trying new things and being curious about how
things work.
5. Climate of openness. Debate and conflict remain acceptable ways of solving problems.

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6. Continuous education. One is never finished learning and practising.

7. Operational variety. There is more ways than one to accomplish business objectives and work
goals.
8. Multiple advocates or champions.
9. Involved leadership. Creating vision is not enough. Leadership at any organisational level must
engage in hands-on implementation of the vision.
10. Systems perspective.

2.7 Strategic Drift

The greatest challenge for ensuring a successful business strategy has traditionally been within its
“execution” rather than “planning.” The reason is simple: unexpected challenges always and constantly
arise. As an outcome of these uncertainties leaders field countless requests and participate in many
debates over whether or not to change the direction of their strategy to mitigate the newly arisen risks.
This often leaves everyone questioning.... “ should we stay the course or abandon and redirect our
focus elsewhere?” Learning to navigate these issues will support you in an ever-changing environment.
The Inability to Discriminate Between the Urgent and the Important
First of All - NOT every surprise is in EQUAL consequence and thus requiring patience rather than
adjustments. Executives must be able to discern the difference and be thoughtful and thorough before
requiring teams to shift focus. Without this discernment, executives can be tempted to make unnecessary
adjustments to their original strategy too often or too soon. This often results in the phenomenon known
as strategic drift.
Strategic Drift is defined as:
A subtle and unnecessary shift from an intended course or direction to another one – one that is usually
undesirable, at least in a long-term perspective.
Of course we recognize that in some situations shifting may be necessary, but over time and with too
many shifts, companies naturally lose focus and become more reactionary, negatively impacting long-
term success.
The real problem in veering into a strategic drift becomes apparent when you observe senior executives
that start to believe minor turbulence is equal to a major change in the market place. For example:  
• A temporary loss of market share, but the market is showing there is no long-term cause for alarm.
• A slower than expected growth at the launch of a new product or the entrance of new competitor,
but revenue is still growing.
You MUST have the CERTAINTY to know when you should and should NOT make adjustments and these
decisions should be made ONLY after the data shows the change is critical. If not, you too may fall
victim to strategic drift.
What Call of Action Do You Take?
1. Justifiability, a NECESSARY call to change should be invoked when your go-to-market strategy
is in danger or compromised from actions outside of your control which can be measured as
catastrophic.
2. On the other hand, it will be crucial NOT to abandon your entire go-to-market strategy, unless those
decisions made with the right evidence or data to support the adjustments in people, money and
technology resources.
The Negative Operational Effects of Strategic Drift are Apparent

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Strategic drift causes a loss of momentum, escalates unnecessary costs, diverts focus and sacrifices
competitive advantage. Impacts are:
• Employee morale is damaged due to psychological repercussions from the constant shifting and
changing of long-term impact to the organization, often resulting in creating a reactionary state
of mind, and making team members numb to a constant state of alert.
• Change is no longer seen as strategic but rather ‘change for change sake.’ 
• Executives become skeptical as the only certainty are the forthcoming uncertainties. This state of
mind is arguably justified. Why invest resources and time for one concerted plan when the chance
of drifting is the only thing that is definite? The motive to argue and actually fight for staying in one
direction is diminished over time. These actions start to develop a culture of chaos and fire fighting.
What Can an Organization do to Prevent Strategic Drift?
1. First, start with creating a culture that is not only openly tolerant of feedback (both positive and
negative) but welcomes it.
2. Make sure the organization can both
a.   Embrace change when necessary, and
    b.   NOT hesitate to question it when is seems unnecessary.
3. Clarify C-suite leadership responsibilities and execute within a formal senior decision-making
model. Many unwanted surprises are nothing more than tactical or operational challenges that
should be handled within individual business functions and cross-functional leadership team.
4. Senior executives who align their individual ROI with the long-term success of the organization will
be able to quickly identify the nature of the incoming challenge as well as create contingencies to
combat it when and if it occurs. This way, the organization continues along its intended direction
without unnecessarily deviating.
5. Finally, the best way to combat strategic drift is to have a Grand Strategy. A comprehensive set of
corporate strategies that are designed to be durable and flexible, tailored to the strengths of the
senior decision-makers and organization.

Case Study – Embracing Change – AEGON (UK)

Introduction
With the changing expectations of customers, organisations constantly need to adapt to remain
competitive. When faced with such pressures for change, managers may look for situations which are
familiar to them. This may involve improving the ways in which they operate, but only little by little. This
is called incremental change. The danger is that improving little by little might not be enough. They
need to adapt to all of the bigger changes in the environment of that business as well. If they don’t,
what happens is strategic drift.
When an organisation experiences strategic drift, it does not make strong and radical decisions to deal
adequately with all of the changes in its business environment. To avoid strategic drift, managers within
organisations have to embrace change fully. This means building a responsive organisation.
AEGON UK
This case study focuses upon AEGON in the UK, part of the AEGON Group, one of the world’s largest
life insurance and pensions companies. AEGON owns pensions, life insurance, asset management and
adviser businesses in the UK. The case study illustrates the success that embracing and pursuing change
has brought to AEGON in the UK. It is helping AEGON move towards its goal of becoming ‘the best
long-term savings and protection business within the UK’.

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The AEGON Group has 27,000 employees and over 25 million customers worldwide. Its major markets are
in the USA and Netherlands. Since 1994, the UK has become another major and increasingly important
market. In 1994 AEGON bought a large stake in Scottish Equitable. Scottish Equitable was a strong brand
with a heritage that went back to the 1830s. Since then AEGON’s UK business has grown both organically
and by acquiring other businesses.
As most of the acquired companies kept their existing identities, awareness of AEGON in the UK remained
relatively low. AEGON realised that such low levels of awareness could impact on its ability to achieve
its ambitions. Therefore, it needed to combine the global strength of its parent with the experience and
reputation of the domestic company brands, like Scottish Equitable, that made up AEGON in the UK.
External factors influencing change
One of the main challenges for decision-makers is to understand the environment in which they are
operating. They can then identify key issues which they need to respond to. Understanding these key
issues improves decision-taking and reduces uncertainty. Few industries have experienced as many
changes in their external environment in recent years as financial services.
Thinking ahead and saving for retirement is a concept that is sometimes difficult for people to understand.
In the UK, life expectancy has risen in recent years so people can expect to be retired for longer. In
many instances, individuals have not planned properly for retirement and there may be a shortfall in
the amount of money available. There is also a drive by the government to reduce dependency on the
State in old age. Added to this many companies have introduced new, less expensive pension schemes
or insisted on employee pension contributions where they did not in the past.
These factors mean people have to make decisions to invest properly at an earlier stage of their working
lives. Investing in the future helps people to prepare in advance for old age. The benefits of such an
investment are only realised years later.
The industry
The life insurance and pensions industry, in which AEGON operates, has had a poor reputation in recent
years. Some organisations have been accused of ‘mis-selling‘ by not providing consumers with the best
product for their needs. To prevent similar situations arising in the future, the Financial Services Authority
(FSA) has put significant amounts of regulation on the industry.
Financial services products are often difficult to understand. People do not always feel equipped to
choose between the range of financial products and services and are not sure where to seek support
and advice. In addition, falling values on the Stock Exchange have affected the investment return on
some products, such as mortgage endowments. For some people this means that the product they
bought has not delivered the financial return they expected. All this has created uncertainty in the
financial services industry.
The industry has also been characterised by intense competition. AEGON is in competition with
organisations which sell directly to consumers and which are better known in the UK. AEGON distributes its
products and services to customers mainly through financial advisers. AEGON, as a reputable company,
has had to address and overcome these industry-wide problems to remain competitive.
Reasons for change
AEGON had historically been successful but government-imposed price controls had reduced profitability.
Compared to its competitors, AEGON was not well known by consumers. It had developed good
products and services and had a good reputation with distributors, particularly in the area of pensions
which were a key strength of Scottish Equitable.
However, it was not as well recognised in areas other than pensions. Often these other areas, such as
offshore investment products, were more profitable. If consumers are to invest in a product long term,
they need to know more about the organisation they are dealing with. They need to recognise the brand
and understand more about the brand values that it represents. As AEGON traded under a number

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of brand names it was not always easy for financial advisers and consumers to recognise the breadth
and depth of the company in the UK.
How to move forward?
With a new Chief Executive (CEO) in place, AEGON underwent a discovery phase. The purpose of this
was to find out what it had to do to meet the CEO’s goal. This goal was to build ‘the best long-term
savings and protection business in the UK’. This time of discovery focused on three key questions:
1. What do we stand for in the UK?
2. What do we want to stand for in the UK?
3. What should we be doing about it?
Brand audit
To answer these questions AEGON undertook a brand audit. This audit looked at two aspects:
• the company internally
• how the organisation was positioned externally.
The purpose of the audit was to find out more information about the organisation. This helped AEGON to
provide a more informed approach to the decisions that were needed to start the process of change.
The audit showed that AEGON was solidly placed within the market. Its staff were known for their
considerable expertise, innovation and clarity of communication.
The external audit also helped to discover where AEGON was positioned in relation to its competitors.
People who were aware of AEGON saw it as being a refreshing and different organisation. However,
there was evidence that people were confused about the breadth of what AEGON did because it
traded under a number of different company brands.
Creating a new culture is a key part of the change process
Culture refers to the personality and attitude of an organisation. It also includes the shared beliefs, values
and behaviour of the employees. These determine the ways in which the organisation and its people
make decisions and solve problems.
The goal of AEGON’s CEO helped to provide a vision for change. Financial objectives were important
as the path for future developments depended upon these. It was also important to create more clarity
about who AEGON was. With limited awareness of AEGON in the UK, it was important to explain what
it had to offer, how big the organisation was within the UK and how strong it was globally.
At the heart of this strategy was the need to:
a) simplify financial services and provide more customer focus. It was important that consumers
understood more precisely what they were buying, as well as the benefits and services they
received
b) develop the workforce. The objective was to develop the skills needed within the business to help
it change. AEGON also created opportunities for progression from one job to another in a way
that provided individuals with a coherent career path.
c) create a more distinct presence within the marketplace. This involved refreshing the AEGON brand
in a way that made it more distinctive from its competitors and more attractive to customers.
A behaviour framework
In order to help embed this culture, AEGON developed a behaviour framework to support its brand
values. This was designed to influence how people at all levels within the organisation could work and
make decisions. These behaviours emphasise the values of the organisation. They have helped to build

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AEGON’s culture and have also influenced its performance. AEGON also introduced a Management
Development Programme, supported by a leading Management College.
The eight behaviours are:
• Think customer
• Embrace change
• Encourage excellence
• Act with integrity
• Decisive action
• Work together
• Learn and grow
• Relate and communicate.
‘Think customer’ is about ‘ensuring that the customer’s needs are at the heart of our business, informing
actions, decisions and behaviours‘.
For senior managers this means keeping the customer’s experience at the heart of what AEGON does.
Other managers and professionals are encouraged to ‘innovate with your customers in mind’. All staff
are encouraged to keep to commitments made to customers by doing ‘what you say you will, when
you say you will’.
Implementing the change
Before the change consumers were confused about who AEGON was, what it did and how it fitted
together. The audit had shown that global scale was important but so was local expertise.
In the past, the AEGON brand had not been heavily promoted alongside Scottish Equitable or the other
brands that it traded under. The brand strategy helped to reposition the brand within the industry.
Now the association with AEGON is much stronger. For example, Scottish Equitable is now AEGON
Scottish Equitable – reflecting both local knowledge and global power. All the brands now carry a new
common look which is refreshing and different. This, along with the values and behaviours, is helping to
make the brand ‘refreshingly different’.
Impacts of the change
The changes affected the organisation both internally and externally. Within the organisation, they
influenced not only how people behaved but also how they communicated. The organisation has
become more focused on the customer. The emphasis is on making information clearer for the customer
to understand and the company easier to do business with.
To help embed the values and behaviours, AEGON established a new relationship with Shirley Robertson,
the famous yachtswoman and the only British female athlete to have won gold medals at consecutive
Olympic Games. By associating AEGON with an individual who embodies similar values, it was able to
bring the values and behaviours to life for staff.
However, AEGON had to develop the brand and its reputation. It did this is a number of ways:
• External promotional campaigns emphasised the relationship between Scottish Equitable and
AEGON. This helped to reinforce the local knowledge and the global power of AEGON in the UK.
• The CEO talked to the media about the need for change. The refreshing of the brand internally
and externally resulted in strong positive feedback.

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• AEGON has launched new and innovative products. For example, the 5 for Life annuity has
helped to change the way in which consumers can look at their retirement income. It provides
more certainty about levels of income for the consumer, with AEGON providing the levels of return
promised and being responsible for any risks associated with doing so.
Today the AEGON brand has a position from which it is influencing the financial services industry. It has
posted record results with significant growth in underlying earnings. It has also increased its new business
across a mix of profitable products and services, reflecting its continued strength.
Conclusion
Change is continuous. The process of change is a journey. External factors will always be there to
influence business organisations.
AEGON responded to these factors by simplifying, clarifying and strengthening its brand in the UK.
As organisations change, their patterns of behaviour and business culture develop. For AEGON, this is
a cycle in which the business uses its knowledge to learn from its experiences.
This has helped AEGON as an organisation to move positively towards achieving its full potential and
to remain competitive in an increasingly difficult market.

2.8 Strategy under uncertainty

At the heart of the traditional approach to strategy lies the assumption that executives, by applying a
set of powerful analytic tools, can predict the future of any business accurately enough to choose a
clear strategic direction for it. The process often involves underestimating uncertainty in order to lay out
a vision of future events sufficiently precise to be captured in a discounted-cash-flow (DCF) analysis.
When the future is truly uncertain, this approach is at best marginally helpful and at worst downright
dangerous: underestimating uncertainty can lead to strategies that neither defend a company against
the threats nor take advantage of the opportunities that higher levels of uncertainty provide. Another
danger lies at the other extreme: if managers can’t find a strategy that works under traditional analysis,
they may abandon the analytical rigor of their planning process altogether and base their decisions
on gut instinct.
Making systematically sound strategic decisions under uncertainty requires an approach that avoids
this dangerous binary view. Rarely do managers know absolutely nothing of strategic importance,
even in the most uncertain environments. What follows is a framework for determining the level of
uncertainty surrounding strategic decisions and for tailoring strategy to that uncertainty.

Four levels of uncertainty

Available strategically relevant information tends to fall into two categories. First, it is often possible
to identify clear trends, such as market demographics, that can help define potential demand for a
company’s future products or services. Second, if the right analyses are performed, many factors that
are currently unknown to a company’s management are in fact knowable—for instance, performance
attributes for current technologies, the elasticity of demand for certain stable categories of products,
and competitors’ plans to expand capacity.
The uncertainty that remains after the best possible analysis has been undertaken is what we call
residual uncertainty—for example, the outcome of an ongoing regulatory debate or the performance
attributes of a technology still in development. But quite a bit can often be known despite this. In
practice, we have found that the residual uncertainty facing most strategic-decision makers falls into
one of four broad levels.

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Level 1: a clear enough future

Single view of the future

Decision-makers face Level 1 uncertainty when the range of possible outcomes is narrow enough
that this uncertainty does not matter for the decision at hand. This does not imply that the future is
perfectly predictable, but rather that the future is predictable enough to identify a dominant strategy
choice that is best across the range of potential outcomes. As you might guess, decision-makers in
well-established markets that are not prone to external shocks or internal upheaval are the most likely
to face Level 1 uncertainty.
McDonald’s, for example, generally faces Level 1 uncertainty when it makes its US restaurant location
decisions. It can study potential customer demographics, traffic patterns, supply logistics, and the
extent of competition in a given location and come up with a reasonably precise forecast of future
restaurant earnings. And while such forecasts will be far from perfect, they will tend to be predictable
enough to make a dominant yes-no decision on any potential US restaurant location. For example,
McDonald’s will not be able to predict a variable like traffic patterns with complete certainty, but it
will be able to conclude – say with 95 percent confidence –that the traffic pattern either will or will not
support a restaurant in any particular location.
Since uncertainty is so low, and dominant strategy choices can be identified, scenarios provide limited
insight in Level 1 situations. In such cases, simple simulations and sensitivity analyses are preferred to
more time-and expenses consuming scenario planning efforts.
McDonald’s, for example, might vary its traffic pattern parameters within the range of possible
outcomes to determine the impact of alternative assumptions on the expected earnings of a new
franchise location. Such analyses would help quantify pay-off uncertainty (the ultimate pay-off to the
decision is uncertain) even where there is no strategic uncertainty (the pay-off uncertainty is narrow
enough that it does not matter for the decision at hand). Sensitivity analyses are easy to automate
using standard spreadsheet programs and thus are almost costless to implement, yet still provide useful
information for financial planning purposes. Sensitivity analyses are a more cost-effective alternative to
scenario planning techniques in such relatively predictable, Level 1 situations.

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Level 2: alternate futures
A

Limited set of possible future outcomes, one of which will occur

Decision-makers face Level 2 uncertainty when they can define a limited set of possible future outcomes,
one of which will occur, and when the best strategy to follow depends on which outcome ultimately
occurs. For example, investors in the US stock market faced Level 2 uncertainty in trying to determine
the identity of the next president of the USA throughout the fall of 2000. There was a well-defined set of
possible outcomes, one of which would occur – the next president would be either George W. Bush or
Al Gore. However, on election day, and even weeks later, no one could say for sure who had won. This
uncertainty mattered to investors since the candidates proposed policies that might have divergent
effects on the share prices of companies in certain industries. It was widely thought, for instance, that
health insurance companies would benefit from a Bush victory.
Organizations that face Level 2 uncertainty can define a mutually exclusive, collectively exhaustive
(MECE) set of possible outcomes. One, and only one, of these outcomes will actually occur. Potential
regulatory, legislative, or judicial changes are often sources of Level 2 uncertainty. Will a proposed
environmental legislation be passed? Will new regulations be imposed? Will the merger pass antitrust
review or not? Similarly, unpredictable competitor moves and countermoves often create Level 2
uncertainty for business strategists. Will a competitor build a new plant? Enter a new market? The
potential answers to all of these questions usually define a clear, MECE set of possibilities.
Scenario planning exercises under Level 2 uncertainty must define in great detail the MECE set of
possible outcomes, and specify the implications each outcome has for the decision at hand. For
example, what are the implications for the cost structure of a proposed new chemical plant if a
pending environmental regulation is approved or if the regulation is rejected? What does this imply
for the decision to build the new plant or not? Scenario builders in this case should also attempt to
determine the relative probabilities of these different outcomes, and to specify the dynamic path to
each scenario. Will change come quickly, say, following a regulatory decision? Or will it be a gradual
evolution, as in the establishment of a new technological standard? This is important information in
Level 2 situations since it determines which market variables should be monitored most closely. As
events unfold and the perceived probabilities of alternative scenarios change, it is likely that one’s view
of the ‘‘best’’ strategy will change. For example, as the chemical company receives more information
on whether or not the environmental regulatory ruling is likely to favor new plant construction, it might
choose to either accelerate, decelerate, or shut down its construction plans altogether.
Once scenarios and their probabilities (or at least a range of probabilities) have been defined,
and strategies have been properly evaluated across each scenario, it is time to make decisions. By
definition, in Level 2 situations you will not find a strategy that is dominant (has the highest pay-off)
across all scenarios (dominant strategies are a feature of Level 1 situations, not Level 2). The strategist
must choose between strategic options with different risk-return profiles across the different scenarios.

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Decision analysis tools can be used to facilitate decision-making when there is no dominant strategy.
Given your objectives – in particular, your willingness to accept risk – decision analysis techniques allow
you to value strategic options that show different pay-off profiles across a set of scenarios. If you are risk
neutral, for example, the strategy with the highest expected value across scenarios should be chosen.
Risk-averse decision-makers, on the other hand, will prefer strategies with the most stable pay-offs,
choosing to avoid strategies with high pay-off variances across the different scenarios.
In any event, keep in mind that the probabilities of different scenarios can be highly dependent on
a company’s strategy choices. For example, if you face Level 2 uncertainty over whether or not a
competitor will enter a new market, you must take into account the fact that the probability of either
scenario may be influenced by your company’s own decision to enter the market or not. Therefore,
when evaluating the pay-off to different strategies across scenarios, you must focus on two questions:
1. What is the pay-off to this strategy in each scenario?
2. How does this strategy change the relative probabilities of each scenario?
Level 3: a range of futures

Range of possible future outcomes

In some respects, Level 3 uncertainty is like Level 2 uncertainty: one can identify the range of possible
future outcomes, but no obvious point forecast emerges. In both cases, this range is wide enough
to matter for the decision at hand, but there is a very important difference: strategists facing Level 3
uncertainty can only bound the range of future outcomes – they cannot identify a limited MECE set
of outcomes, one of which will occur. For example, they might be able to conclude that the five-year
market penetration rate of a new consumer electronics product will fall somewhere between 5 percent
and 40 percent, but they will not be able to conclude that the rate will be either 5 percent, 20 percent,
30 percent, or 40 percent. Any other rate between 5 percent and 40 percent is also a possibility in
this case. Customer demand for new products and services, and new technology performance and
adoption rates, are both common sources of Level 3 uncertainty. Airbus, for example, faced Level
3 uncertainty when deciding whether or not to build its new A380 super-jumbo jet. Estimates of the
size of the super-jumbo jet market ranged from 350 to 1,500 planes, and Airbus knew that it must sell
approximately 500 planes to break even on the A380 investment.
To illustrate the preferred decision-driven approach in Level 3 situation return to the A380 super-jumbo
example. Market research indicates that the demand for super-jumbo jets will fall somewhere between
350 and 1,500 planes. Does this imply that one must develop different scenarios for every market size
between 350 and 1,500 planes, determining the implications each would have for Airbus’ product
launch and promotion strategies? Or should one instead merely choose a limited set of plausible,
representative outcomes between 350 and 1,500 planes to fully develop into scenarios? And if one
chooses this route, how does one choose which outcomes to build scenarios around?

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There are no simple answers to these questions, but there are a few general rules to follow. First, develop
only a limited number of representative scenarios; the complexity of juggling more than four or five
alternatives tends to hinder rather than facilitate sound decision-making. Second, avoid developing
redundant scenarios that have no unique implications for strategic decision-making. Make sure each
scenario offers a distinct picture of the future. Third, develop a set of scenarios that collectively accounts
for at least the probable, if not possible, range of outcomes. Some companies prefer to develop “best”
and “worst” case scenarios at the extreme ends of the spectrum of possible outcomes, while others
develop “best” and “worst” case scenarios that span a tighter range of more probable outcomes.
Either approach can work well so long as the “extreme” scenarios are not so extreme that they lose
credibility within the organization, and the “probable” scenarios are not so closely tied to the status
quo that they provide a false sense of future stability and predictability.
As with Level 2 situations, once scenarios are defined, the next step is to identify potential dynamic
paths to each outcome, and to evaluate each strategic option across each scenario. However,
assigning probabilities to different scenarios does not make sense in Level 3 situations. When assigning
probabilities you are implicitly assuming that you have identified a collectively exhaustive set of
scenarios, one that includes all possible outcomes. But in Level 3 situations, in contrast to Level 2, your
scenarios will only represent a subset of possible outcomes.
Since probabilities cannot be defined, it is impossible to calculate the expected value, standard
deviation, and other key statistics that summarize the risk-return characteristics of a given strategic
option. Nonetheless, the logic for evaluating strategic options is very similar in Level 2 and Level 3
situations. In either case, evaluating each option against each scenario allows managers to determine
how robust different strategies are, and to assess the overall risk-return characteristics of these strategies.
And in either case, companies can assess which scenarios become more and less likely based on their
own strategy choices. The only difference is that in Level 3 situations, absent scenario probabilities,
these evaluations cannot be reduced to the simple decision-making metrics such as expected values
and other key statistics that are so useful to Level 2 decision makers. This implies that while the same,
rigorous decision analysis logic applies to both Level 2 and Level 3 situations, qualitative ‘‘business
judgment’’ factors will inevitably play a more prominent role under Level 3 uncertainty.

Level 4: true ambiguity

Not even a range of possible future outcomes

Future outcomes for Level 4 uncertainties are both unknown and unknowable. Analysis cannot even
identify the range of possible future outcomes with certainty, or the most likely scenarios within that
range.
Level 4 situations are rare, and they tend to degrade over time to lower levels of uncertainty. They are
most likely to occur in markets during and immediately after major technological, economic or social

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discontinuities, as well as in markets that are just beginning to form. For example, a manager attempting
to formulate United Airlines’ security strategy on 12 September 2001 faced Level 4 uncertainty. In the
immediate aftermath of the horrific terrorist attacks that occurred on 11 September, even the most
prescient security experts could not confidently bound the range of future terrorist activity.
Under conditions of Level 2 and 3 uncertainty, strategists analyze the situation to bound the range of
possible future outcomes, and then develop scenarios that describe alternative outcomes within that
range. Since this is impossible in Level 4 situations, the alternative is to work backward from potential
strategic options to define “what you would have to believe” about a future scenario to support this
option. For example, a manager was unable to bound the range of demand estimates for a new
gene therapy, but he was able to “back out” what demand levels would be necessary to support the
proposed research and development investment he was considering. Likewise, the United Airlines’
security manager could work backwards to identify which set of assumptions about future terrorist
threats would make it worthwhile to arm pilots or train all flight attendants in the martial arts.
In Level 4 situations, a “scenario” is then an integrated set of assumptions about the future that supports a
given strategic option. There is no analysis that you can do to determine conclusively whether any such
scenario is likely or not; that is the definition of Level 4 uncertainty. However, analogies and references
cases can be useful in testing the logic, likelihood and internal consistency of Level 4 scenarios. If a
proposed strategy requires faster consumer adoption rates than those observed for any analogous
product launch, for example, it will probably make sense to reject this strategy in favor of another.
Given how different scenario planning exercises are in Level 4 situations, it should come as no surprise
that the decision-making model is also unique. The decision analysis techniques favored in Level 2
and Level 3 situations are impossible to implement since the range of outcomes cannot be bounded.
Instead, a qualitative, yet systematic checklist of key considerations should drive decision-making:
(1) Which sets of integrated assumptions (i.e. scenarios) about the future seem credible given what
can be learned from analogous situations and executive team experiences?
(2) Of these credible scenarios, which support options that have the lowest downside risk? Highest
upside reward? Which are most consistent with our organizational capabilities and long-term
strategic goals?
(3) Are there likely to be real first-mover advantages, or can commitments be staged over time?
Which options allow for such staging, and which require upfront “big bets?”
In the end, strategic decision making under Level 4 uncertainty should involve “getting comfortable”
with the logic, likelihood and internal consistency of the future scenario, or set of scenarios, that support
your chosen strategy.

2.9 Strategic Management in Complex Conditions

Strategic management and its predicament

Strategic management is combination of science and arts which increases an organization’s chances
of success as it involves detailed planning of each and every variable of the organization that can help
in the achievement of goals and objectives. Dr. Jagdish Sheth, a respected authority on marketing
and strategic planning, provides the following framework for understanding strategic management:
continually asking the question, “Are we doing the right thing?” It entails attention to the “big picture”
and the willingness to adapt to changing circumstances, and consists of the following three elements:
formulation of the organization’s future mission in light of changing external factors such as regulation,
competition, technology, and customers development of a competitive strategy to achieve the
mission creation of an organizational structure which will deploy resources to successfully carry out its
competitive strategy. Strategic management is adaptive and keeps an organization relevant. In these
dynamic times it is more likely to succeed than the traditional approach of “if it ain’t broke, don’t fix
it.”Rationality has a deeprooted tradition in enterprise management.

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From Adam Smith, economics saw people as rational animal. The appearance of the rational people
influenced the subsequent management even more deeply. The strategic management has showed
itself in the rational way from its forming. From the design and plan school in the 60s to the dominant
position of location school in the 80s, until the rising of core school in the 90s, all emphasized the rational
character of strategic management. The thought of rational strategic management supposes the
environment of the enterprise facing is simple, small changes and expectant, so, the enterprise can be
expectant for the market and the future. But today, the environment of the enterprise facing is not only
complex, but also less and less expectant. If the enterprise emphasizes the rational way, it may concern
with management efficiency and stylization of forming strategic management excessively, which will
create a kind of inertia of strategic management. After the 1970s, the operation and management
of Japanese enterprises shocked the United States. Compare with the management differences of
the United States and Japanese, we can find that the United States frustrated in the competition of
operation and management with Japanese, which showed the predicament of rationalism in modern
enterprise management. Strategic management entails allocating the right amount of resources to the
different parts of your business so that those assigned to particular goals have what they need to meet
their objectives. This ranges from providing your workers with the right supplies to enacting systems by
which employees receive the necessary training, all work processes are tested, and all information and
data generated is documented. To effectively manage your business strategically, every inch of your
company must have its needs met in these ways, so all parts can work together as a seamless, highly
functioning whole.
A critical but often overlooked aspect of strategic management is the need for it to be both planned
and unplanned. Company leaders must take the initiative in setting out how the company should
function and operate, but they must also be dynamic in responding to needs and requirements as
they arise. Strategic management is not a static process that can be limited to a linear process. Often,
unforeseen results ensue (which can be both positive and negative) and strategic managers must be
able to respond to occurrences that cannot be predicted.
Irrational Strategic Management on the rise
People often see the irrational factor as the opposition of rationality, and think it is not rational, loss of
rationality, and negative rationality. In fact, irrationality means the spirit property of no conscious, tuition,
emotion and belief which not belongs to the rational factor and corresponding with rationality, it is a
natural part of human nature. Irrationality is cognition, thinking, talking or acting without inclusion of
rationality. The term is used, usually pejoratively, to describe thinking and actions that are, or appear to be,
less useful or more illogical than other more rational alternatives. Management today combines creative,
business, organizational, analytical and other skills to produce effective goal-oriented results! Some of the
key functions in management includes learning to delegate, planning and organizing, communicating
clearly, controlling situations, motivating employees, adapting to change, constantly innovating and
thinking of new ideas, building a good team and delivering results which are not just figure -bound but
results that also focus on overall growth and development. Irrational strategic management means
that in the complex strategic management activity, the manager except playing the role of rational
strategic management through necessary data analysis, predict and logical reasoning, should change
the concept of efficiency supremacy, and should be people-centered, take sentiment as main line, pay
attention to play the role of irrational factors, such as faith, sentiment, will, mind-set, intuition and so on,
which can be used to excavate staff’s potential and enthusiasm, attract as faith, entiment, will, mind-set,
intuition and so on, which can be used to excavate staff’s potential and enthusiasm, attract consumer’s
attention and support, create the environment of the three (manager, staff and consumer) common
recognition, form the group’s values and cohesion, and achieve the harmonious management of the
aim of strategic management. The core of irrational strategic management is people-centered, attach
importance to people’s emotional factors, respect people, depend on people and develop people.
In 1924, the results of Hawthorne experiment carried out by Mayo shows that people is not only economic
people, but also the society people who have irrational factors, such as desire, demand, emotion and
so on. Members who have common feeling, attitude and value in the work constitute the informal

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organization, which influences members’ action with stable authority form and irrational emotional logic.
Now, the birth of the theory of knowledge management, building a learning organization promotes the
symbiotic integration of rational and irrational management. On the one hand, it promotes rationality as
the role of achieving irrational tool by making full use of scientific method and means which can make
knowledge doing identification, processing and dissemination. On the other hand, it pays attention
to playing the role of irrational factors, such as people’s desire, emotion, interests, will and so on in
management, encourages innovation, promotes learning and exchanges, enhances the ability of
facing changes, and makes the irrational factors in the framework of rationality play the active role of
cohering popular feeling, management innovation under the guidance of scientific way.
The function of irrational factors in strategic management
Irrational factor, as a kind of spirit composition and existence way, mainly concludes the needs, emotion,
feeling, will, faith, belief, unconsciousness, intuition, inspiration and so on. Irrational factors play an
important way in the whole process of strategic management, mainly in the following aspects:
Irrational factors guide the strategy manager to get information
Essentially, strategic management is a manager’s idea of future development of the enterprise, which
has uncertainty character. What the information the manager faces before he making decision is
complex and difficult to get by data analysis and logical reasoning. The most important information for
strategic planning may beside the manager’s hand, or may lose evanescently. It needs manager to
find and grasp information by rich experience and exceptional insight.
The three-year-old daughter of Lande, the leader of Polaroid asked him, why she could not see her
photos at once. Less than one hour, this scientist formed a strategic thought of image camera, which
took a turn for the better for his company. From this example we can see that this strategic thought
comes from the sudden comprehension for his daughter’s question and his broad technical knowledge.
Irrational factors support strategy manager to carry out information analysis
When a new environment comes quietly, or an enterprise faces crisis or the strategy turning point, people
cannot make data analysis at this time, and cannot forecast the future. To be brief, rational analysis
mode cannot provide an accurate answer at this time. People must analyze and make decision by their
own intuition and sense and insight under situation of uncompleted information, unsure circumstance
and unclear state.
Irrational strategic mode may be the only choice at this time. It is the manifestation of the two situations
that the strategies choose of the company of Intel from the number one company of memory production
to microprocessor market. In accordance with traditional analysis, this decision is simply inconceivable,
unconscionable. At that time, memory service is the company’s absolutely leading service, and the
sales volume of microprocessor is small among the 2000 kinds of products. For this, the former president
of Intel Andy Grove has a wonderful experience summary, “Sometimes, the experience tells you that
some factor is very weak now, and is insignificant in data analysis, but it has great development potential,
and you will change your management rule in the future. In other words, in the process of treating the
impact of budding trend, you should go out of the rigid data analysis, and depend more on perception
and knowledge to decide.”
Irrational factors help improve the efficiency and quality of decision making
Decision makers do not only depend on rational judgment when they choose programs among lots
of options. Simon affirmed that it was exist intuitive thinking during the process of program design and
selection. He thought that intuition is a kind of thinking pattern. Depending on intuitive thinking can
breakthrough the restrictions of logical thinking on the basis of logical thinking results in the past, and can
save time of reasoning. In the practice of strategy decision making, people who doing the choice of
decision making program by using intuition are mainly experienced experts and senior managers in the
organization. They do not do it by using logical thinking, but making decision as soon as possible under
the analysis of intuitive thinking and some rational analysis. When the company of Volvo in Sweden sold

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their cars to American market, all the analysis get the result that Volvo has no competition and it cannot
succeed in American market. But Benguela insisted on his own intuitive judgment, he thought that the
car will surely succeed in the largest market in the world through all kinds of methods. The result proves
his intuitive judgment. Just as the former CEO of this company said, “intuitive feeling really
significantly impact on strategic actions, though strategic decision, such as large scale investment
will be naturally influenced by economic analysis and forecast, strategy is dominated by feeling and
intuition to a certain extent, because the future profit is difficult to estimate. This is a complex thing, and
you cannot forecast forever, must be feeling right.”
Irrational factors promote the smooth implementation of strategic decision
Good strategic decision needs executor to implement. If strategy has not been smoothly implemented,
it will fail in the end. Therefore, the coordination and communication between decision maker and
executor are very important. The essence of communication is emotional communication. Emotion
promotes effective interaction between manager and executor.
Emotion, as an irrational factor, can promote all staff’s ambition and struggling spirit, and stimulate
activity through conveying goal to the staff to make them identical direction . For example, the Japanese
leaders pay attention to the role of emotional factor in strategic management. Komatsu proposes
the slogan of “surround Caterpillar”. Canon Corporation wants “to attack Xerox Corporation”, Honda
Corporation takes “to try its best to become the automobile industry pioneer like Ford” as the power of
going forward. They will stimulate staff’s enthusiasm through slogan or strategic intention, and achieve
the company’s final goal at last. Concerning the unique role of emotion in the process of strategic
management, Phillips, the famous learner, summarized exactly, he said, “strategy has no value in itself,
and it only has significance for people who participate enthusiastically.” From this aspect, good strategy
is to stimulate staff’s participation enthusiasm.
Management goes beyond the organization’s internal operations to include the industry and the general
environment. The key emphasis is on issues related to environmental scanning and industry analysis,
appraisal of current and future competitors, assessment of core competencies, strategic control and
the effective allocation of organizational resources. Irrational factor is a doubleedged sword. Due to
the non-logical and non-critical features of irrational factors, they inevitably have negative role which
can not be neglected in management activity.
Irrational factors easily lead to misleading information and decision errors. During the process of
information collection, one-sidedness of irrational factors may limit the scope of attention. The desire
of diversity will not make attention focus on a particular goal. The speed and accuracy of information
gathering and processing will be affected if the emotion and feeling are more than or less than a certain
level of intensity. Irrational factors, such as intuition and inspiration, are short of rigidity and reliability, or
even are illusion.
Abusing them will lead to major mistakes in decision making. Negative emotion will also make leaders
become inconstancy, bring hindrance for the communication, and lower management efficiency and
the effectiveness of organization activity and individual action, and effect the achieving of organization
goal at last.
Role of Irrational factors in strategic management - Paying attention to and cultivating irrational factors,
promoting rationality and irrationality harmonious development
The aim of learning and thought of strategic manager is not only mastering methods and rules, being
able to use conventional methods of strategic management to making strategic analysis and decision,
but also stimulating thought, improving creativity and innovational ability. During the management
training, managers should pay attention to emotional shape, will training and correct beliefs establishing
to improve managers’ EQ and accumulate management experience. During learning knowledge,
people should pay attention to improve intuition ability, and exert the creativity of intuition and inspiration
through continuous accumulation. On weekdays self-shaping, people should strengthen the critical self
awareness, and debug and change character and action by using the power of will, and persistently

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carry out self-examination and self-encouragement. So that they can exceed the knowledge constrains,
gain wisdom enlightenment, which can promote the harmonious development of emotion and reason
under the guide of sense.
Perfect the people-management, play the core role of people in management
The people-management, centered on people, is on the basis of scientific management theory and
method to make strategic management process, method and system correspond with human nature,
and focuses on people’s inner world, bases on the real need of people and guided by emotion, exerts
human nature, excavates people’s potential, mobilizes people’s enthusiasm and creativity to increase
members’ happiness, makes everyone get oneself development and satisfaction through serving for
organization, and achieve the aim of harmonious development between organization and people.
Strategic managers not only need respect people, but also exert people’s ability and value, meet the
needs of human nature, treat employees correctly, set the concept of unity among manager, employee
and enterprise, increase employees’ belongingness. Giving up the pursuit of efficiency, people should
pay attention to the embodiment of personal value in the work, and promote the smooth achieving of
strategic aim through achieving personal value.
Strengthen the emotional management and promote effective management communication
When the manager formulate and implement strategic planning, they should pay attention to the role
of management communication, and strengthen emotional investment, create a relax and warm
working environment, cultivate close relationship, strengthen positive incentives, pay attention to
two-way communication and exchange, attract, retain and cultivate talents to make employees get
self-esteem satisfaction, and reduce frustration, increase enthusiasm, inspire initiative and creativity,
enhance the cohesion of the organization, meet the employees’ needs of high-level demand, to
truly achieve the management of fitting human nature. Through the emotional communication in the
process of strategic implementation, the organization’s mission, desire and ideas will form members’
thought pattern and behavior through a variety of effective communication channels. They cultivate
employees the common belief. Finally, it internalizes organizational culture.
Establish a sound management system and norms, weaken the negative role of irrational factors
In the process of strategic management, we emphasize the management of human nature, people-
management, self-discipline of the people, at the same time, we also clearly recognize the irreplaceable
role of laws and norms. A comprehensive and rational management operational mechanism and perfect
management behavioral assessment system and monitoring system will help establish the concept of
contract, the sense of equality, and can strengthen action constraint, improve management efficiency,
thus, it can curb unreasonable needs, reduce the negative impact brought by irrational factors, such
as blindly emotional and conscious impulse, and intuitive mistakes.

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