LESSON 13: APPROACHES TO STRATEGY
CHAPTER 4 DIFFERENT APPROACHES TO STRATEGY
STRATEGIC MANAGEMENT
The Need For New Models
These bikes had a defined market, and we. sold through dedicated motorbike dealerships. Disaster struck when Hondas larger machines developed faults - they had not been designed for the hard wear and tear imposed by US motorcyclists. Honda had to recall the larger machines. Honda had made little effort to sell its small 50 cc motorbikes its staff rode them errands around Los Angeles. Sports goods shops and ordinary bicycle and department stores had expressed an interest, but Honda did not want to confuse its image in its target market of men who bought the larger bikes. The faults in Hondas larger machines meant that reluctantly, Honda had no alternative but to sell the small 50cc bikes just to raise money. They proved very popular with people who would never have bought motorbikes before. Eventually the company adopted this new market with enthusiasm with the slogan: You meet the nicest people on a Honda. The strategy had emerged, agents managers conscious intentions, but they eventually responded to the new situation.
The 5 Ps
Henry Mintzberg overview of the work of many writers on strategy suggests five ways in which the term strategy is used. A strategy can be a plan, ploy pattern, position or perspective. They are not mutually exclusive. A New Perspective The example below puts into a radically different perspective the issues raised in the previous chapters. It will show why the rational model cannot always be trusted. Example Activity 1 (10 Minutes) Here are some issues of strategy. Which of Mintzbergs categories (plan, position, ploy, perspective, pattern) do you think they fit into?
Honda
Honda is now one of the leading manufacturers of motorbikes. The company is credit with identifying and targeting an untapped market for small 50cc bikes in the US, which, enabled it to expand, trounce European competition and severely damage indigenous US bike manufacturers. By 1965, Honda had 63% of the US market. But this occurred b accident. . On entering the US market, Hondas planned strategy was to compete with the larger European and US bikes of 250ccs and over.
'P' Plan Ploy
Comment A 'consciously intended course of action'. A maneuver in a competitive game. For example a firm might add unnecessary plant capacity. The strategy is not to produce the goods but to discourage a competitor from entering the market.
Pattern Position
Emergent strategies. Environmental fit and relationships with other organizations. A position might be a distinctive niche, whereby the firm makes distinctive products or services or exploits a distinct competence.
Perspective
A unique way of looking at the world, of interpreting information from it, judging its opportunities and choices and acting. Different strategic perspectives might respond to the same environmental stimulus in different ways.
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a. The general manager of the Beardsley Hospital prepares a strategy. To minimize the time doctors spend walking from place to place she has rearranged the hospital so that services are clustered around patients. She has the resources so that this change will be phased in over three years, firstly Ophthalmology, secondly Oncology, thirdly Pediatrics, and so on. b. Two market traders sell fruit and vegetables. One decides to specialize in exotic fruits, as he feels there are enough well-off and/or experimentally minded people in his area to make it worth his while. Competences The distinctive competence of an organization is what it does well, uniquely, or better than its rivals. For example, for a relatively undifferentiated product like cement, the ability of a maker to run a truck fleet more effectively than its competitors will give it competitive strengths (if, for example, it can satisfy orders quickly). Strategic opportunities must be related to the firms resources. A strategic approach involves identifying a firms competences. Members of organizations develop judgments about what they think the company can do well - its core of competence. T4ese competences may come about in a variety of ways. Experience in making and marketing a product or service
The talents and potential of individuals in the organization The quality of co-ordination
lower own the hierarchy. They may not initially be recognized as being of strategic importance. Emergent strategies develop out of patterns of behaviour in contrast to planned strategies or senior management decisions, which are imposed from above. An activity will make the point clearer. Activity 2 (20 Minutes) Aldebaran Ltd is a public relations agency founded by an entrepreneur, Estella Grande, who has employed various talented individuals from other agencies to set up in business. Estella Grande wants Aldebaran Ltd to become the largest public relations agency in North London. Management consultants, in a planning document, have suggested growth by acquisition. In other words, Aldebaran should buy up the other public relations agencies in the area. These would be retained as semi-independent business units, as the Aldebaran Ltd group could benefit from the goodwill of the newly acquired agencies. When Estella presents these ideas to the Board there is general consensus with one significant exception. Livia Strange, the marketing director, is horrified. How am I going to sell this to my staff? Ever since weve been in business, weve won business by undercutting and slugging off the competition. My team has a whole culture based on it. I give them champagne if they pinch a high value client. Why acquire these new businesses - why not stick to pinching their clients instead? What is the source of the conflict? Deliberate and Emergent Strategies The diagram below should help explain the point a Intended strategies are plans. Those plans or aspects of plans, which are actually realised, are called deliberate strategies. b Emergent strategies are those which develop out of patterns of behaviour.
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Ad hoc choices In the Honda case example at the beginning of this chapter, we mentioned that the planned strategy of selling large bikes had
Example The task of strategic management is to control and shape these emergent strategies as they develop. 3:PP began life as a training company. Lecturers had to prepare course material. This offered for sale in a bookshop in the BPP building. Owing to the demand, BPP began offering its material to other colleges, in the UK and worldwide. BPP Publishing, which began as a small offshoot of BPPs training activities, is now a leading publisher in the market for targeted study material for the examinations of several professional - dies. It is unlikely that this development was anticipated when the course material was first prepared.
to give way to a strategy which had emerged by accident, almost. Henry Mintzberg develops this theme further. Definition Emergent strategies do not arise out of conscious strategic planning, but from a number of ad hoc choices, perhaps made
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No realized strategy will be wholly deliberate or wholly emergent. The line between deliberate and emergent elements within each strategy will be in part influenced by organization structure and culture. Implicit or Explicit Strategies Entrepreneurs often have a theory of the business, which they mayor may not document.
Implicit strategies may exist only in the chief executives head Explicit strategies are properly documented
b Resources. It may have future implications for resource use elsewhere: in most organizations, different parts of the business compete for resources. c Managers might wish to build on the strategy by actively devoting more resources to it. Mintzberg uses the metaphor of crafting strategy to help understand the idea. Strategies are shaped as they develop, with managers giving help and guidance, devoting more resources to some, exploiting new opportunities and responding to developments. For example, Hondas management reacted to the emergent strategy, eventually, and shaped its development. Separating thinking and doing has the following result. a A purely deliberate strategy prevents learning. For example it is hard with deliberate strategies to learn from mistakes, or stumble by accident into strategic growth.
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Some plans are more explicit than others. With these in mind, Mintzberg identified eight styles of strategic management. Crafting Emergent Strategies Managers cannot simply let emerging strategies take over. Why?
Planned strategies Entrepreneurial strategies Ideological strategies Umbrella strategies Process Strategies Disconnected strategies Consensus strategies Imposed strategies
Precise intentions Explicit intentions (ie written down, documented) Imposed by central leadership Large number of controls Maximizes predictability Intended strategy derives from the vision of strong leadership Not always explicit Intended strategy is the collective vision of the organizations members Control is through shared values These strategies involve changing the environment Strategic targets ('ends') are defined and deliberate How they are achieved ('means') is emergent Processes are formal (e.g. hiring) and deliberate Content of strategies (what is done) is emergent Members of subunits 'do their own thing' Strategies are emergent for the whole organization, deliberate for subunits Groups in the organization converge on common patterns of Activity Strategy is imposed by the environment (e.g. a strong customer) which pre-empts the organization own choice
a. Direction. The emergent strategy may be inappropriate for the long-term direction of the organization and may have to be corrected.
b. A purely emergent strategy defies control. It may in fact be a bad strategy! Deliberate strategies introduce strategic change as a sort of quantum leap in some organizations. In this case, a firm
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undergoes only a few strategic changes in a short period but these are very dramatic. The strategist must be able to recognize patterns and to manage the process by which emergent strategies are created. In other words, the strategist must be able to find strategies as well as invent them. How to craft strategy Mintzberg lists these activities in crafting strategy.
STRATEGIC MANAGEMENT
Activity Manage stability
Most of the time, managers should be implementing the them.
strategies,
not
planning
Detect discontinuity
Obsessions with change are dysfunctional. Knowing when to change is more important. Formal planning is the detailed working out of the agreed Strategy. Formal planning is the detailed working out of the agreed strategy. Environments do not change regularly, nor are they always turbulent, though managers should be on the lookout for changes. Some small environmental changes are more significant for the long term than others, though guessing which these are is a problem.
Know the business manage patterns Reconciling change and continuity
An intimate feel for the business has to include an awareness and understanding of operations.
Detect emerging patterns and to help them take shape. Some emergent strategies must be uprooted, others nurtured.
Crafting strategy requires a natural synthesis of the future,
present and past.'
Activity 3 (15 minutes) Britannia Hospital has just appointed a new director, Florian Vole, imported from the private sector, where he had run Hanky House a niche retail operation specializing in handkerchiefs and fashion accessories. The recession put the business into receivership, but Mr Vole was sought out to inject his private sector expertise into running a public sector institution. He calls a meeting of the hospitals senior managerial, medical and nursing staffs. What the public sector has been missing too long is vision, and when youre eyeball-to-eyeball with change, its vision that you need, not planning documents and statistics. We need to be nimble and quick to adapt to our customers ever changing needs. That is our strategy! What do think of Florian Voles approach?
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Johnson and Scholes state that strategy need to be understood as an outcome of social, political and cultural processes of management in organizations. They describe the following phases in the strategic decision-making process.
Step 1 Problem Awareness
Internal results, customer responses or environmental
Bounded Rationality In practice, managers are limited by time, by the information they have and by their own skills, habits and reflexes.
Strategic managers do not evaluate all the possible options
STRATEGIC MANAGEMENT
open to them in a given situation, but choose from a small number of possibilities.
Strategy making necessitates compromises with interested
changes can , make individuals aware of a problem. A trigger alerts the formal information system to the problem that organizational activity takes over from the individual consideration of the problem.
Step 2 Problem Kiagnoses
groups through political bargaining. This is called partisan mutual adjustment.
The manager does not optimize (i.e. get the best possible
solution). Instead the manager satisfies. The manager carries on searching until he or she finds an option, which appears tolerably satisfactory, and adopts it, even though it may be less than perfect. This approach Herbert Simon characterized as bounded rationality. Definition Incrementalism involves small-scale extensions of past practices.
It avoids major errors. It is more likely to be acceptable, because consultation, and
Managers try to analyze and get to the root of problem.
Step 3 Solution Developments
Some possible solutions are developed and, is selected.
Memory search: solutions which worked in the past Passive search: wait for a solution to suggest itself
Solutions begin with a vague idea, which is further refined and explored by internal discussion.
Step 4 Solution Selection
Eliminate unacceptable plans. This screening process
involves bargaining, diplomacy and judgment rather than formal evaluation according to the business case.
Endorsements. Many strategic decisions originate from
compromise accommodation are built into the process. . Disadvantages of Incrementalism
Incrementalism does not work where radical new approaches
management subsystems, which senior managers authorize. Junior managers might filter strategic information, or ignore certain options, to protect themselves. Johnson and Schools are less averse to planning than Mintzberg, but instead of assuming a rational objectivity, they anchor plans in the behaviour of the organization and the people in it.
are needed, and it has a built-in conservative bias. Forward planning does have a role. Incrementalism ignores the influence of corporate culture, which filters out unacceptable choices.
It might only apply to a stable environment.
Logical Incrementalism
Definition
Logical Incrementalism: managers have a vague notion as to where the organization should go, but strategies should be tested in small steps, simply because there is too much uncertainty about actual outcomes. Strategy is best described as a learning process. Logical Incrementalism has the best of both worlds. The broad outlines of a strategy are developed by an indepth review
There is still practical scope for day-to-day incremental
decision-making
For Discussion A criticism of the rational model is that it ignores the fact that strategists are human beings, and strategy formation reflects the internal politics of the organization.
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