Chapter 11- Strategy Development Process
Intended strategy is an expression of a desired strategy as deliberately formiulated or planned by managers.
Strategy development may be strongly associated with a strategic leader, an individual (or a small group of individuals) upon whom strategy is seen to be dependent. They are individuals whose personality, position, or reputation may result in others willingly defer to them and seeing strategy development as their province. That person may be central because they are the owner, or the individual that managed to turn the firm around at hard time (Ryanair), or that the person has a large important network of contacts, or in some cases the person still remains central after a business is publicly quoted (Rupert Murdorch at NewsCorp). In any of those cases, strategy may be seen to be as the deliberate intention of that leader. Such intentions come about in different ways:
· Strategy leadership as design: it could be that strategic leader has thought through the strtategy analytically, either via some technique or at his own logic.
· Strategy leadership as vision: it could be that a strategic leader determines or is associated with an overall vision, mission, or strategic intent that motivates others, helps create the shared beliefs, within which people can work together effectively, and shapes more detailed strategy developed by others in an organization.
· Strategy leadership as command: the strategy may be dictated by an individual, i.e in small owner managed firms with direct control of all aspects of business. On plus side it can mean speed of strategy adaption and sharp innovative, inimitable strategy. Downside can be excessive risk-taking irrelevant strategies.
Strategic Planning: may take the form of systemized step-by-step chronological procedures to develop or coordinate organization’s strategy. Rob Grant noted the following stages in the planning cycle for a large oil corporation:
· Initial guidelines: set of assumptions about the external environment and the overall priorities, guidelines and expectations of the corporate centre.
· Bsuiness level planning: business units then draw up strategic plants to present to the corporate centre who then discuss those plans with the managers.
· Corporate level planning: the corporate plan results from the gathering of the business plans. A corporate department with a coordination role may undertake this. The corporate board then has to approve this corp. plan.
· Financial and strategic targets: provide bases for performance monitoring of business and key strategic priorities on the basis of the plan.
Strategic planning systems (SPS) of companies differ from each other; while one firm is formal relying on written reports, fixed planning and formal presentations, another one places greater emphasis on informality and general financial targets. Central corporate planning departments acted primarily as coordinators of business plans, while in other, they were more like internal consultants. SPS may have many uses (i.e. play a role in how the future organizational strategy is determined) for ex it might:
· Help structure analysis and thinking about complex strategic problems.
· Encourage questioning and challenge of received wisdom taken for granted in an organization.
· Encourage a longer-term view of strategy (i.e in a fast moving consumer good company 3-5 year plans may be appropriate, whereas in companies with long term views on capital investments, 15 years plans may be more appropriate)
· Enhance coordination of business- level strategies within an overall corporate strategy.
SPS may also help convert an intended strategy into organizational action by:
· Communicating intended strategy from the centre to operating units.
· Providing strategic objectives against which performance and progress can be reviewed.
· Coordinating resources required to put strategy into effect
SPS’s psychological role:
· Involving people in strategy development, therefore perhaps helping to create ownership if the strategy.
· Providing a sense of security and logic for the organization
According to Henry Mintzberg, four dangers exist in the way formal systems of strategic planning have been employed:
1. Confusing strategy with a plan: strategy is the long term direction that the organization is following, not just a written document. Also there might be a confusion between budgetary processes and strategic planning which results in planning getting reduced to the production of financial forecast rather then other important issues.
2. Detachment form reality: managers responsible for implementation of strategies may be busy with daily operations that they cede responsibility for strategic issues to specialists who actually have no power to make things happen. Strategic planning becomes an intellectual exercise removed from reality of operation. SP may also be over detailed, for example some companies have huge amounts of information on their market but with little clarity about the strategic importance of that information (information overload with no clear outcome). For planning systems to be useful, strategic planners must draw on experiences and involve people throughout the organization.
3. Lack of ownership: the strategy created by corporate planning department or a senior mgt team may not be owned more widely in the organization. There is also a danger in that the process of strategic planning might be so cumbersome that individuals or groups might contribute to only part of it and not understand the whole. This results in the business level strategy not corresponding to the intended corporate strategy.
4. Dampening of innovation: highly formalized and rigid systems of planning especially if linked to very tight and detailed mechanisms of control, can result in an inflexible, hierarchal organization with a stifling of ideas and dampening of innovative capacity.
There has been a decline in the use of formal corporate planning departments and a shift to line managers taking responsibility for strategy development and planning. Strategic planning is becoming more project based and flexible- it ceases to be a vehicle for the top down development of intended strategy and more for the coordination of strategy emerging from below.
Strategies do not typically change in major shifts of direction. They typically change by building on and amending what has gone before. Prior decisions tend to affect future directions giving rise to a pattern shown below:
Strategic decisions
Product launch ------à
Acquisition ------à
------
Divestment ------à
<-------
Overseas expansion ------à
<-------
Strategies evolve and inform strategic decisions,
which in turn consolidate strategic direction
Emergent Strategy: comes about through everyday routines, activities and processes in organizations leading to decisions that become the long-term direction of an organization.
Logical Incrementalism: which James Quinn described, is the deliberate development of strategy by experimentation and learning from partial commitments. There are a number of reasons for why this is likely to be so:
1. Environmental uncertainty: which managers can’t avoid just by analyzing historical data or making predictions. Instead they encourage constant environmental screening throughout the organization.
2. Generalized view of strategy: that managers about where they want the organization to be in the future and they try to move towards this position incrementally. There is also reluctance towards specific objectives as this stifles ideas and innovations.
3. Experimentation: managers seek to develop strong, secure, but flexible core businesses, from which they build on this experience to inform decisions both about its development and experimentation with side bet ventures. Such experiments are the responsibility of also what Quinn describes as ‘subsystems ’which are groups of people involved in for ex product development, product positioning, diversification, external relations…etc.
4. Coordinating emergent strategies: top managers may then use formal and informal social and political processes to put together an emerging pattern of strategies from these subsystems. These can be formed into coherent statements of strategy for stakeholders.
Quinn argues that despite its emergent nature, logical incrementalism can be ‘a conscious, purposeful, proactive, executive practice’ to improve information available for decisions and build people’s psychological identification with the development of strategy. Continual testing and gradual strategy implementation provides improved quality of information for decision-making. Also because the subsystems interact a lot, managers can learn from each other about the feasibility of a course of action.
The recourse allocation process (RAP): explanation of strategy development is that realized strategies emerge as a result of the way resources are allocated in organizations. RAP acknowledges a changing and uncertain environment together with cognitive limits of managers mean that strategy is better explained as the outcome of problems or issues being addressed as they arise. The formal and informal processes by which this is done:
· Negotiation across organizational level: the nature of problems and their resolutions are typically the outcome of negotiation across levels of an organization. Such problems or issues usually start with a discrepancy. There will be a need to make sense of the significance of that discrepancy from one level to another and align expectations as to what needs to be resolved. The problem will then be worked at the level most appropriate to the problem and a good deal of choice as to what to focus on and what choices to make may lie down in an organization’s subsystems.
· The influence of RAP: all organizations have within them systems, routines, and standards, for deciding upon new proposed ventures, products and services. These play a significant part on what sort of solutions to problems are advocated and those to which resources are allocated.
Strategy development through RAP (p412):
Corporate level
Discrepancy to be resolved Proposals in line with RAP
Business level
Discrepancy to be resolved Proposals in line with RAP
Operating level
The RAP highlights the role of negotiation between organizational level strategy developments. The strategy being followed by organizations are the result of the bargaining and politics power that go on between stakeholders. For example Motorola’s inability to move fast enough from analogue to digital technology and their market loss was due to groups each preserving their own self interest.
The political view of strategy development is that strategies develop as the outcome of processes of bargaining and negotiation among powerful internal or external stakeholders.
In approaching strategic problems people may be operating within an overall organizational culture, but within this they are likely to be differently influenced by at least:
· Personal experience from people’s roles within the organization
· Competition for resources and influence between the different subsystems in the organization who are interested in preserving the power of their position.
· The relative influence of stakeholders on different parts of the organization.
· Different access to information
In such circumstances, emergent and incremental pattern of strategy development are likely. Emergent in the sense that it is the bargaining and negotiation that gives rise to strategy rather then carefully analyzed and deliberate intent. Incremental for two reasons: 1) if different views exist and different parties exercise their political power, then compromise is inevitable. 2) it is impossible that it is from the pursuit of the current strategy that power has been gained by those carrying it.
The conflict and tensions that manifest themselves in political activity can be the source of new ideas or challenges to old ways of doing things. New ideas might be supported or opposed by different champions; if such conflict did not exist, neither would innovation. The productive management of such tension may be a learned competence or a dynamic capability in some organizations that provides them with a basis for competitive advantage.
A cultural explanation of strategy development: is that it occurs as the outcome of the taken-for-granted assumptions and behaviors in organizations. This works to define or guide how the people view the organization they are in and its environment. It also constraints what is seen as appropriate behavior and activity.
Patterns of strategy development:
· Multiple strategy development processes: evidence suggests that organizations with multiple processes may perform better then those with one. Note: there is no one right way in which stragies are developed. The challenge is for managers to recognize the potential benefits of different strategy development processes so they build organizations capable of adapting an innovating within a changing environment yet achieving the benefits of more formal processes of planning to help this where necessary.
· Contextual differences: processes of strategy development are likely to differ over time and in different contexts, for example an organization that is going through rapid change vs one in a steady state.
· Perceptions of how strategies develop: will be seen differently by different people. For ex: senior executives tend to see strategy development as intended, rational, analytic, planned processes, whereas middle managers see it as the result of cultural and political processes.
Managing intended and realized strategy: we as customers experience first hand situations that made us realize a organizations may behave differently than what their strategies state. Yet there may well be an intended strategy, agreed by senior executives, based on careful analysis and expressed in a formal document explaining the intended strategy in a systematic way with the intention that this will be implemented. However much of the intended is then not realized. Reasons may be that plans are unworkable, environment changes after the plan is drawn up, or simply that people in the org don’t go along with the plan. Realized strategy is one that is actually being followed by an organization in practice. 3 implications for strategy:
1. Awareness
2. Role of strategic planning: if this planning is to be employed managers need to lear 2 lessons- they are not a substitute for other processes of strategy development- second, there needs to be realistic expectations of the role of strategic planning.
3. The challenge of strategic drift: incremental strategy development processes leading to the emergence of strategy is the natural outcome of the influence of organizational culture, political processes, individual and collective experience and prior decisions. This highlights that strategy development processes in organizations need to encourage people in organizations to have the capacity and willingness to challenge and change their core assumptions and ways of doing thingsà hence ‘learning organizations’.
4. Managing emergent strategy: RAPS can be changed, political processes can be analyzed and managed; the challenge of the norms and routines of the culture can be encouraged.