Strategy Business Information And Analysis Business Essay
Strategy – a common term used in the day to day activities of an individual or business – is an important factor generally overlooked but critical to the decision making process. As common as the term may seem, it is very complex in nature and it is applicable in all aspects of operation. Mintzberg, Ahlstrand and Lampel (2005) suggest that “no self-respecting business today will be in operation without a strategy.” (cited in Maritz 2008: 2). The objective of the paper is to demonstrate how strategy has evolved over the years with a basic structure of examining how strategy is crafted via several approaches and its application. It further details the common approaches to strategies development and answers the question “should strategy only develop from detailed rational planning”.
While the goal of the paper is to examine the role of rational planning in strategy development cum crafting by different scholars, it however reviews other approaches and schools of thought to strategy development by relating it to the emergent approach of strategy development. In addition to this, the paper aims to demonstrate how there is no single way to crafting and development of strategy by proposing a mix to the several approaches.
Strategy: Definition and Meaning
Strategy is a broad concept that has evolved over time with no specific definition however several writers and scholars have developed several schools of thought and views about this concept. Markides (2000) alludes to this view of strategy that “we simply do not know what strategy is or how to develop a good one” (Cited in Whittington 2001: 2).
Mintzberg et al. (1998) equally share this view of the complex nature of strategy as they state in their book that “the word strategy is so influential” (1998: 9) but the question is still asked “what does it really mean?”(ibid.: 9). Eventually strategy “turns out to be one those words we inevitably define in one way and yet often also use in another way” (ibid.: 9).
In order to fully appreciate and understand how strategy is defined and crafted; Mintzberg suggests that “an explicit recognition of the fact that there are multiple definitions to strategy, can help practitioners and researchers to manoeuvre through the difficult field of strategic management” (1987b: 11) notwithstanding this view by Mintzberg, there are a few definitions of strategy which are not explicit enough to expose its complexities.
Mintzberg (1987b) defines strategy in in five different ways in his paper “The strategy concept I: Five Ps for Strategy”. These definitions “have various relationships between themselves but none takes precedence over the others” (Mintzberg 1987b: 20). As will be observed in different studies to understanding strategy; the definitions “compete and complement themselves by adding important elements to our overall understanding of strategy.” (ibid.)
These definitions by Mintzberg contrasts strategy as either a plan (intended activities of looking ahead to the future) or as a pattern (realized strategies that are emergent in nature from the past) (Mintzberg 1987b, Mintzberg et al 1998: 9). As Mintzberg et al states “the definitions are applied in organizations when strategy is developed for their future plans and evolve patterns out of their past” (Mintzberg et al 1998: 9). This can be compared to an organization’s operating plans; these strategies are intended to be achieved as realized strategies (deliberate) but along the line not all of these strategies are achieved (unrealized strategies) (ibid.). The organization equally achieve unplanned strategies which are emergent in nature but follow a pattern of action (ibid.).
Additionally, Mintzberg defined strategy by contrasting it as either a position or as a perspective. Citing the example from the “Strategy Safari” by Mintzberg et al (1998); McDonalds repositioned itself as a breakfast restaurant on introduction of the Egg McMuffin (the American Breakfast in a bun) whilst maintaining its existing perspective as a restaurant. This was “achieved successfully because the introduction of Egg McMuffin as the new position was consistent with their existing perspective of operating as a restaurant” Mintzberg el al quoted (ibid.: 14).
The fifth definition by Mintzberg sees strategy as a ploy. In the corporate world; it can be termed as “a specific manoeuvre intended to outsmart competition” (ibid.: 14). Rumelt (1979) suggests that “an individual’s strategy is seen as another’s tactic” (cited in Mintzberg 1987b: 14)
Approaches to Strategy Formation (Crafting)
Due to the complex nature of strategy, strategy cannot be developed via a singular model however several models has been developed for crafting and developing strategy. Mintzberg et al (1998) developed three models which became popular in the book by Mintzberg et al. These models gave rise to the various schools of thought that formed the approaches to strategic planning.
These models for crafting strategy consists of the prescriptive, descriptive and configuration models and as suggested by Mintzberg (1987b), these models form the basis of development for at least ten schools of thought to strategy development (cited in Idenburg 1993: 132). Mintzberg (1987a) further compared Managers to craftsmen and strategy as their clay metaphorically where a suggestion was made that “like a potter, Managers sit between the past of corporate capabilities and a future of market opportunities and will bring to their work an intimate knowledge of the materials at hand; if truly they are craftsmen” (Mintzberg 1987a: 66)
The prescriptive model of strategy; which focuses on how strategy is formed through “a process of conceptual design of formal planning and of analytical positioning” as suggested by Mintzberg (1990: 171); constitutes three schools of thought that includes the design, planning and positioning schools of thought (Mintzberg et al. 1998) whilst the descriptive model constitutes six schools of thoughts that includes the entrepreneurial, cognitive, learning, power, cultural and environmental schools of thought (ibid.) and the configuration model forms the tenth and last school of thought is “argued to combine all the other schools of thought”(ibid.: 6) for its pattern of strategy formation however it is also seen as a “process which incorporates much of the huge prescriptive literature and practice on “strategic change”” (ibid.: 7).
The design school of thought for strategy formation has been widely used as the main model of strategic management as a result of its mechanistic nature. This perspective has played a vital role in strategy research development, teaching and practise (Farjoun 2002: 561). This school of thought is the most influential view of strategy which proposes a model of strategy making that seeks to attain a match or fit between internal capabilities and external possibilities (Mintzberg et al. 1998: 24).
The planning school of thought formed the background formal strategic planning which originated at about the same time the design school was developed (Mintzberg et al 1998). This school of thought grew to have an enormous impact on the strategic management practise but had several pitfalls as criticized by Mintzberg (1990, 1991); however Goold (1996b) suggests that Mintzberg’s account is valuable to the field of strategic planning but the principles of planning cannot be ruled out in combination with learning from others in selecting strategies (Goold 1996b: 95)
These arguments between the prescriptive and descriptive models have brought about a definitive view to the approaches of strategy formation under the learning and formal planning schools of thought. The schools of thought is further discussed as the Rational (Classical/ formal) approach to strategy formation and the Emergent (Learning) approach to strategy formation.
Concepts of Rational (Classical) Approach to Strategy
At the beginning of a reporting period for example financial year, the organization where I work; shares a plan (AOP – Annual Operating Plan) which is in line with its mission, vision and set objectives with the employees. This plan requires input from all functional business units within the organization and consolidated as a single document that forms the basis of operation for that year. The plan is developed based on the input of the board and cascaded down to the senior management for implementation by functional groups as a rational plan. Idenburg (1993) suggests that “the implementation of this plan is based on the evaluation of the opportunities and threats in the external environment and the strengths and weakness in the internal environment.” (Idenburg 1993: 133)
This approach to strategic planning is one of the oldest forms of strategy crafting and “the most popular prescriptive model of the process of strategy formation” (Anon 2009: 33) that however “attempts to deliver an economically sound basis for a form of planning” (ibid.); consequently formal planning demands rationality in the economist’s sense of the term planning. This has led to Steiner’s (1969) opinion that “comprehensive planning is important since it stimulates the future and provides a common decision making framework throughout an organization”(Cited in Mintzberg 1973: 48)
Idenburg (1993) proposes that there is a deep involvement of top management in development of strategies and action plans within the rational planning approach because this approach is based on an assumption of a perfect environment so the future position of an organization is perceived to be known and determined via quantifiable objectives. (Idenburg 1993: 134)
This approach to strategy assumes that people act in a structured and rational manner which is mechanistic in nature and poses a high risk in producing plans that are based on insufficient analysis. This shortcoming of rational planning is not a justification to dismiss the basis of rational planning as criticized by Mintzberg. (ibid.: 134).
Schendel and Hofer (1979) also gave an insight to rational planning where they proposed that “the rational planning perspective is an essential factor to be considered within the strategic management paradigm” (cited in Anderson 2000: 185) although several performance effects of planning has led to the disapproval of this perspective by Mintzberg, where; strategic planning is proposed to be a calculated style of management and not a committing style (Mintzberg 1994: 109). However further studies and research “indicates that under certain conditions, strategic planning is favourable to higher performance” (Anderson 2000: 185) in an organization.
The supreme goal for this approach to strategy is profit maximization and this places great confidence in the readiness and capacity of managers to adopt this goal via long term rational planning (cited in Whittington 2001)
Concepts of Emergent Approach to Strategy
In a bid to achieve set objectives and goals in an uncertain environment, it is vital to be reactive in a flexible manner by taking chances at opportunities that abound (Idenburg 1993). This act of implementing flexibility in strategy development is known as emergent strategy as coined by Mintzberg. The concept of emergence strategy formation, though controversial is seen to be “compatible with adhocracy configuration whereby managers at all levels are involved in the establishment of precedents and strategies” (Mintzberg and McHugh 1985: 162). This is also seen in Quinn’s (1980) discussion of “logical incrementalism” that classifies strategy as a learning as well as a manoeuvring process (cited in Mintzberg and McHugh 1985: 193)
An organization may take a decision to acquire a chain of business in order to be competitive in the market within which they operate. This decision may not be intended but is required. This view of strategy formation enables organizations react in unstructured manners and learn by mistakes (Idenburg 1993)
For example, General Electric’s acquisition of mining interests and a later divestment is a similar situation to the organization I worked before it was acquired by Zain Kuwait in 2006. Telecommunications industry in Nigeria was a young, developing and profitable market which top global organizations brought investments to. After the acquisition by Zain, the Nigerian market conditions affected general operations thereby making Zain divest and sold to (another investor a large corporation from India) Bharti Airtel. Airtel’s entrance into the Nigerian telecommunications market came in with its own set objectives and plan but has had to adjust to the situation in the Nigerian telecommunications market by being responsive to market forces over the years of operation.
Another typical example of emergence in strategy development is seen in the smartphone market where Nokia was a dominant player with the “Symbian OS” until the entrance of “iOS” on the iPhone and “Android” which is available on several feature phones like the HTC, Samsung, LG, Motorola, Sony Ericsson to mention a few. Nokia announced a partnership with Microsoft in Q1 2011 in order to remain competitive in the smartphone market. This response was a result of decline in market share and sales of devices over the past 24 months after being the global smartphone leader with the “Symbian OS”. (Wilson 2012: 24)
This form of strategy arose as a result of the organization being responsive to market trends and customer interactions which may have not been considered during the process of planning as proposed by Mintzberg (1978). These unexpected activities affect the daily operation of the organization and it is used as a yardstick to measure competitive agility of the organization (Quinn et al. 1988, Stalk 1988) (cited in Osborn 1998: 487)
Classical Approach versus Emergent Approach
The end result of crafting strategy which typically is the realized strategy involves bridging the gap between the classical approach of planning (intended strategy) and the emergence approach (Anon 2009). Mintzberg (1987) proposed that “this process is more like a fluid learning process in which formulation and implementation merge to produce creative strategies” (cited ibid.: 74).
In a study by Quinn (1980, 1981) on strategic decision making, it was suggested that “the main roles of planning were to create a network of information, to force managers to focus on the future, to encourage rigorous communications about strategic issues, to raise comfort levels for managers and to confirm earlier strategic decisions.” (cited in Langley 1988: 40) however Mintzberg on the other hand perceives a need for strategy to function beyond boxes to encourage informal learnings that produces new perspectives and combinations thereby inventing new strategies rather than modifying old and existing plans (Mintzberg 1994: 109)
Very few organizations use a singular approach to strategy. As planning is not a one stop solution for solving problems of strategy making. Often times, the planning mode can be used effectively only when mixed with other modes of strategic planning (Mintzberg 1973: 53); This is as a result of planning being a short term approach for managing an organization’s existing activities (Stacey 1993: 17). It is important to note that “effective strategies develop in several ways and strange places as there is no one best way to craft strategy” (Mintzberg 1987a: 70)
Take for example the telecommunications industry in Nigeria and using the company; where I work as a focal point, the use of several approaches of strategy development is well-known. There was an urgent need to respond to competitions’ tariff drop which was leading to revenue drop on the network (where I work). This response, by the company I work for was an emergent approach to achieve set objectives of revenue growth from the initial intended strategy. An intended approach to strategy that turned out as a deliberate approach to strategy was increasing network capacity to a size, large enough to accommodate the launch of a promotion that enables subscribers to make calls of an additional five hundred per cent of their current usage provided they (the subscriber) use a fixed minimum usage.
The new promotion launch was an emergent approach to match competition’s strategies. The intended result was achieved within a few weeks whereby all other operators attempted to mirror the same promotion but not considering the plan that was already in place (increasing network capacity). This led to congestion on competition networks and increased usage within my network.
Conclusion
The paper has built on arguments on the process of strategy formation and crafting via the various schools of thought and has demonstrated that strategy is not crafted in isolation of the various schools however Idenberg (1993) stated “one-sided presentation of goal oriented techniques and models is insufficient” (Idenburg 1993: 137), it is very common for organizations or individuals to craft strategies by mixing several models of strategic planning.
From the study, it is observed that strategic planning usually starts out as a rational plan and ends with some form of emergence as a result of diversifications of plans and learning along the line of implementation of these plans as seen in Mintzberg’s (1991) response to Igor Ansoff on the design school. Mintzberg et al. (1998) further buttressed this in the “Strategy Safari” that “the real world inevitably involves some thinking ahead as well as some adaptation en route” (Minztberg et al 1998: 11). This, in essence confirms that; to effectively craft (develop) strategy, the process begins with a rational intent but ends with a mix of several other approaches as a result of learning and responding to external factors which make the initial rational plan adapt to the current situation (Mintzberg 1973).
Similarly Goold reviewed Rumelt’s approach which favours planning as well as Mintzberg and Pascale’s approach which favours emergence in the Honda effect and established that there is no best way to strategic approach but the approaches offer insights and assistance to which allows Managers use what is valuable within each approach whilst noting limitations of the approaches (Goold 1996a: 102).
Further studies in strategy crafting brought the view of Bartlett and Ghoshal (1998) where they proposed that “organizational learning is the key to adaptive strategic change” whilst upholding theories that support emergence in strategy crafting and de-emphasizes the role of planning (cited in Anderson 2000: 184). This view was agreed by Anderson (2000) in his study but subject to having a central master plan in the case of Ikea, the Swedish retailer of home furnishing that empowered its Managers to respond to changing market conditions (ibid).
It should be noted however that “rational (formal) planning works best and is executed in both stable and unstable environments (Ansoff 1991, 1994) whilst emergence as developed in the learning school approach by Mintzberg is executed in an unstable environment (Mintzberg 1991, 1994a, 1994b)” (Cited in Brews and Hunt 1999: 889).
To conclude, one will come to an understanding that, rational planning is equally important in crafting strategy but it is not a sufficient approach for crafting strategy. This is to say in essence that “Strategy should always develop from detailed rational planning whilst implementing other models (approaches) to strategy crafting”