Feature Article

The Strategy Concatenation

-Integrating formulation with implementation

Ajit Prasad1

Abstract

Traditionally the process of strategy formulation and implementation has been dealt with in often water-tight
compartments- limiting the efficacy of both processes. The seminal work by Drucker (the Theory of
Business, HBR, 1994) provides an interesting approach of looking at the two processes as an integrated
whole. Drucker’s assertion that the “theory of business” of a firm can get “corrupted” when the assumptions
relating to the specific mission, environmental composite and the core competency do not (1) fit reality, and
(2) fit one another, allows the paper to develop the logic that these two gaps can be identified as the
“formulation gap” and the “implementation gap” with the understanding that it is only by looking at both the
gaps simultaneously, can strategy be successful.

Key word : Strategic Management

Introduction formulation is never the problem so far as strategy is

On of the problems in the field of strategy has been
the relatively water-tight compartmentalization
between strategy formulation and strategy
implementation: with the naturally romantic and
power based strategy formulation gaining the upper
hand1. Infact this has reached an often ridiculous
point that most consultants while are more than
willing to advise top management in strategy
formulation, they are often unwilling to “dirty” their
hands in the implementation process. This
paradoxically is surprising, as most will agree that
concerned, implementation is.
In 1994, Peter F Drucker gave us “The Theory of
Business”, an article published in the Harvard
Business Review. This is perhaps the least known of
Drucker’s work. Ducker not being a “strategist” in the
strict “Porter-Hamel-Prahalad” context, this work has
been (sadly) by and large ignored in the
development of strategy thought in the last decade.
Nevertheless, the Theory of Business [hereafter
referred to as the “ToB”] provides remarkable insight
so far as the integration of strategy formulation with
strategy implementation is concerned.

1
Professor of Economics & Strategy, International Management Institute, New Delhi

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Feature Article
In an essence, the ToB concerns itself with
addressing a fundamental question: what is wrong
with organizations is not that wrong things are done,
right things are being done, but they are being done
fruitlessly. To amplify this, Drucker proposes that all
organizations have a theory of business, which is the
basis of the organizational philosophy and which
drives organizational growth: the difference between
successful and unsuccessful companies is the
difference between “valid” and “not so valid “theories
of businesses.
What is the Theory of Business of a firm? It is the set
of assumptions that a firm makes regarding three
parameters: the external environment, the specific
mission, and the core competencies.2 Valid theories
of business must pass the following tests:
1. They must fit reality
2. They must fit one another
3. They must be communicated throughout the
organization, and
4. They must be tested constantly.
While heuristically, this may sound “simplistic”; these
tests of a valid theory of business provide us with an
incisive insight into the linkage of formulation with
3. Between the two, the opportunity vector is likely to
implementation.
THE FRAMEWORK
A useful framework for
analyzing the
A useful framework for analyzing concatenation is
the concatenation is through the
Competence-Opportunity Vectors. through the
Competence-
Consider the opportunity vector VǾ
;{o1,o2,o3..om}, representing the Opportunity Vectors
different opportunities facing the
firm; This vector is likely to be
unstable, the environment will
change. i.e. new opportunities will be inserted into
the environmental domain, and some of the existing
opportunities will be removed, or the organization
may deliberately decide to drop them from its “radar
screen”. Thus in time period, t=1, VǾ will transform
itself to V1; { o4, o5...om, o(m+1), o(m+2)}, with three
opportunities being dropped and two new
opportunities being added.
Going back to Prahalad’s assertion3 that it is time to
look at an organization not as a portfolio of
businesses but as a “portfolio of competencies”, it
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GROWTH, VOL 32, NO 4, JAN-MARCH 2005
will be possible for us to define a competency vector
associated with each of the environmental
composites. Let CǾ; {c1,c2,c3,…cn} be the
competence vector associated with time period t=0.
With the change in the environmental composite and
the change in the opportunity vector from V0 to V1,
there will be a demand for organizational
restructuring to transform the organization from CǾ
to C1; {c2,c3,…cn, c(n+1) c(n+2) }, which may for
example involve the acquisition of two new
competencies and the dropping of one competence,
The following stand out:
1. Opportunities may be unlimited, but competencies
are likely to be limited. Again reverting to
Prahalad; “companies are unlikely to have
more than five or six competencies”
2. There need not be a strict one-is-to-one
correspondence between competencies and
opportunities. Several competencies can serve
one opportunity (Example, 3M’s competencies
in innovation and marketing in the familiar
yellow “Post-it Pads”); while one competency
can serve many opportunities. (Example:
Sony’s competency in miniaturization can
serve several market opportunities.)
change first. Competencies tend to
be more “sticky” to the stable states.
Additionally, environmental
composites like shortening of the
PLC, innovation, rapid
commoditization of brands, all will
mean dealing with unstable
environments. Competencies once
developed are likely to be prone to
“rent seeking behavior”. The familiar
debate on whether there is a conflict
between existing core products and
future core competencies will bear
this out.
4. Once the Opportunity vector changes, there will
have to be changes in the competence vector,
which will involve either dropping of
competencies or creating new competencies4.
This change will be facilitated in three ways: a.
Strategic alliances; b. Joint ventures and c.
Mergers and acquisitions
Of the three, it is clear that the choice of
competence restructuring5 will depend on two
factors: commitment and cash. The option of
THE STRATEGY CONCATENATION – INTEGRATING FORMULATION WITH IMPLEMENTATION: PRASAD
strategic alliances has the requirement of low
commitment and low cash. On the other hand the
option of M&A, has the precondition of enterprise
commitment and the presence of significant cash
reserves.
Given these factors, let us determine what is the
application of Drucker’s Theory of Business to this
model?. The answer lies in the first two assertions
made by Drucker.
1. The assumptions that the firm makes about the
environmental composite (the environment, the
specific mission and the core competencies],
must fit reality. This is nothing but the
formulation6 gap: the gap between what is the
environmental reality, and the environment
perceived.
2. The assumptions that the firm makes about the
environmental composite, must fit one another7.
This we assert is nothing but the implementation
gap: the gap between the changes that we make
in the organizational structure and the changes
that are required.
The picture becomes somewhat clearer by the visual
illustration of the gap (Figure below).
While the change in the opportunity vector does not
represent too much of a problem, the changes in the
competence vector that is required to sustain and
exploit the new opportunities becomes critical to the
success of the organization.
Both the formulation gap and the implementation
gap assume critical importance so far as the success
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Feature Article
of strategy is concerned. The former in its ability not
only to identify new opportunities, but more important
in its ability also to recognize that some opportunities
have vanished.
The implementation gap is critical as this will govern
the success of organizational transformation. The
process and speed by which the organization
transforms its self from one competency vector to
another competency vector becomes critical for
organization survival. The subsequent sections will
deal with both the problems of the formulation gap
and the implementation gap.
The Formulation Gap
Formulation failures can be analyzed successfully
using Mintzberg’s model of the three fallacies. In his
path breaking work on planning8, Mintzberg identifies
three fallacies that lead to inappropriate formulation.
These are:
a. The fallacy of prediction: in which he examines
how inappropriateness of the assumption that it is
possible to predict the future on the assumption
that the past will continue, and that the present
will stand still.
b. The fallacy of detachment: in which he
examines the inappropriateness of the
assumption that planners are not biased and do
not have irrational preferences
c. The fallacy of formalization: in which he
examines the inappropriateness of the
assumption that it is beneficial for the
organization to have fixed targets, the absence of
which will lead to confusion.
It may be interesting to put these fallacies in the
Drucker’s framework: the assumptions that the
organizations makes about the environment and its
competence. The fallacies would arise when these
assumptions do not fit reality, ie the assumption that
the present would stand still, the assumption of
unbiased ness, and the assumption about the
sacrosanct(ity) of numbers. All these would stand in
the way of accurate formulation.
Feature Article
Formulation failure would thus take place on the
following accounts.
1. fallacy of prediction
a) not recognizing environmental changes
b) acting on the wrong uncertainty level9
2. fallacy of detachment
a) assumption of the core competencies do
not fit reality, the typical, “it can never
happen to us” reaction
b) this is our business, let us stick to it
3. fallacy of formalization
a) assumption that numbers are sacrosanct
b) wrong assumptions of specific mission
The composition of the formulation gap gives a good
analysis of the potential formulation failure. In
Drucker’s terminology, the gap between
assumptions made about the theory of business, (i.e.
the specific mission, the core competence and the
environmental composite) and the reality about the
theory of business gives us a good learning of the
potential pitfalls that we have to watch out for in the
formulation of our strategic plan.
The Implementation Gap
The second gap that emerges from Drucker’s ToB, is
the gap/ inconsistency between the three
components. These can be listed as:
1. competency-mission gap
2. competency-environment gap The composition
3. mission-environment gap formulation gap gives a
All three gaps indicate varying levels good
of requirement so far as strategic
change in concerned. Taking a
broader view, every planning
implementation failure
process will involve organizational
change. Missions may have to be
redefined, competencies will necessarily have to be
redefined, and the environmental composite will
certainly change faster than expected. All these
changes will then have to be incorporated in the
planning process, if the implementation gap is to be
minimized.
Failure occurs very often in the change process.
While it is convenient for us to put most of the failure
down to the external factors and the “formulation” of
GROWTH, VOL 32, NO 4, JAN-MARCH 2005
strategy, we must acknowledge that most of the
strategy failure is due to implementation and to
internal factors10.
Implementing change is always a difficult process.
For one thing the implementation process is always
internal, which means that the “people” factor is
going to loom very large in the success of the
implementation.
Andrews [1968] would have us understand that there
are three main barriers to the implementation
process. [1] Organization structure and relationships,
[2] Organizational processes and behavior and of
course [3] the role of leadership. These three can be
conveniently broken down into their five
components, which we may refer to as the “five
strategy stoppers11”.
1. Structure: One of the basic barriers to
successful implementation of strategy is the role
of organizational structure. The seminal work by
Chandler in the 1960s regarding the nexus
between organizational structure and strategy
success is a case in point.
Structure becomes a strategy stopper primarily
as structure introduces rigidity. Since any change
process involves “stretching” the organization,
the rigid structure introduces a counter force to
the change process. Often structure can be at
total loggerheads with the
strategy. Consider an organization
that adopts a generic strategy of
product differentiation, which to
of the say the least demands creativity
and an inter-disciplinary approach.
A matrix form of organization
analysis of the would probably be more
potential appropriate here. If the
organization has on the other hand
a divisional structure, it is easy to
see that this structure would not
support this particular strategy at
all.
On the other hand, if the organization were to
adopt a generic strategy of cost leadership: a
strategy that would depend on the ability of the
firm to exploit economies of scale, then a
functional form of the organization is the best.
A matrix form on the other hand would
introduce a “drag” so far as the implementation
of the strategy is concerned.
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THE STRATEGY CONCATENATION – INTEGRATING FORMULATION WITH IMPLEMENTATION: PRASAD
Chandlers work fails expand into its logical
conclusion, i.e. the correspondence between
authority and responsibility. Obviously, points
on the organizational structure must represent
a correspondence between the responsibility
for value added and the authority that is
delegated to the post. If there is then a
relationship between structure and value
added, as value added will change according
to the environmental composite, the structure
needs to be flexible and that the structure must
reward authority and responsibility
concurrently.
An often neglected aspect is that OS also has a
role to play in the formulation of strategy. The
formulation gap is basically the inability of the
environment to correctly assess the
environmental changes. This may take place for
a variety of reasons; the absence of well defined
“nodes” of authority and responsibility, the
ineffective role of competitive intelligence, and
information not being “allowed” to flow up to the
correct decision maker, as also the absence of
clear cut feedback mechanism may result in the
“formulators” of strategy being left groping in the
dark.
2. Systems: Systems represent
the “internal processes” in an
organization. Systems make up
Systems represent
and correct the errors that may the “internal
have crept in the structure of
the organization. In any change processes” in an
process, a very important role
is played by the systems that organization
have been formulated in the
company.
While the organizational structure tends to be a
physical manifestation of rigidity that is present
and opposing the change process, systems tend
to be more intangible in their support or
opposition to the quest for sustained competitive
advantage.
Systems can be of two types, formal and
informal. The former are those processes that
have received the sanctity of the management.
These may be simple things like the submitting of
TA forms in duplicate. They represent yet
another layer of supporting “structures” within the
organization.
The other forms of systems are the informal
variety, and they tend to rather implicit in their
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Feature Article
role of support or destroy. They represent the
informal network of political processes that are
important characteristics of any organization.
The formal systems do not pose too much of a
threat to the implementation process: they are
well recognized. Strategists will tend to use the
systems or work around them in ensuring
successful implementation. The informal systems
on the other hand impose a severe constraint.
The tendency of informal systems to create
parallel organizational structure becomes an
important constraint in the implementation
process as sometimes they act as “invisible
walls”. This is their real danger. Implementation
strategies must take into account the dangers of
informal systems as barriers in the change
process.
3. Culture: The culture of the organization is the
result of historical evolutions and distortions.
These are the systems and values that are
embedded in the fabric of the organization and
are not easily amenable to change.
Culture may also be looked upon as the
consequence of the informal policy and
informal systems. There is also a
certain collective dimension of
culture, in the sense that individual
culture may not be relevant for an
organization. When we talk about an
organizational culture, there is
certain inevitability so far as the
collective is concerned. The culture
component also has a certain time
elasticity of change albeit low. It is
not that culture cannot be changed,
but it changes very solely and herein
likes the important role that leadership has yet
play so far as the change process is concerned.
The three levels of culture (universal, collective
and individual) can have different implications so
far as the implementation of strategy is
concerned, and can raise different level of
resistance. Indeed it is often the conflict between
the individual level and the collective level that
puts the breaks on successful implementation.
Culture is often looked at in the bio-genetic
framework in terms if inheritance at the individual
level, but can be extended to the organization.
When Tata merged with Honeywell12, there were
issues of the “inherited” culture that affected the
implementation strategy.
Feature Article
4. Ethics: The fourth strategy stopper is that of
Ethics, or the values and principles for which the
individual and organization stands for. Andrews
suggest that there are four components to
strategy, and each asks a different question
based on different attributes:
Andrew’s Model of Strategy
Attribute Question
Organizational Competencies What can we do?
Industry threat and opportunities What might we do?
Values and aspiration of key
What do we want to do?
implementers
Social responsibilities What ought we be doing?
Ethics clearly is the practice of moral principles,
and these moral principles depend on values. It
is important to realize that these values are a
vector: they have direction and intensity. The
message for top management this is that it is
not enough to believe: you must act.
Ethical constraints encompass all organizations,
especially as ethics are not defined at the
organizational level, and then to be more
individual specific. Ethics thus are culture and
geography sensitive. Giving presents in Japan is
construed as good business practice but in
America it may be construed at bribery!
Strategy implementation thus has to take the
ethical values of the implementers into account:
if it does not, then the barriers to change will
become reinforced.
5. Leadership: The question of appropriate
leadership is critical to the success of the
implementation process. In fact, if we look at the
relative importance of strategy stoppers above, it
is clear that perhaps the most important is
leadership. Why? Because once we have good
leadership, the barriers imposed by the other
strategy stoppers can be overcome. If on the
other hand we have bad leadership, then even if
the constraints imposed by the other stoppers
are minimal, strategy implementation may not be
very successful.
So far as the strategy process is concerned,
there are four components of the role of
leadership13 that have a bearing on the success
of the implementation process.
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GROWTH, VOL 32, NO 4, JAN-MARCH 2005
[1] Envisioning: every leader needs to have
a vision: a dream; a central idea that takes
the organization on a defined path. A dream
that guarantees convergence between the
different ides that may be present in the
organization, a dream that merges individual
goals into organizational goals.
[2] Strategizing: it is not enough to dream,
every dream has be converted into reality.
Thus visions need to be broken down into
objectives and goals, and the way we map
the present situation into the future is by the
process of strategizing. Here we will stress
on the Porters distinction between
operational efficiency and strategy, in that it
is managers that need to be concerned with
operational efficiency: leaders must
strategize. And some times strategizing
means taking inferior decisions in the short
run so that the long run objectives can be
met.
[3] Communication: Visions and strategies
need to be communicated. History is witness
to the fact that every great leader has also
been a good communicator. [Communication
not only in the verbal but also non-verbal
sense], and the communication must result in
a two-way negotiation. Thus negotiation skills
become integral to the determinants of
leadership. Negotiation implies that the two-
way communication channels are
successfully operating. History abounds with
examples of leaders whose rhetoric have
survived the aegis of time. Marc Anthony14, M
D K C Gandhi15, Martin Luther King16, John F
Kennedy17, Winston Churchill18 are some of
the names that comes to mind when we look
at the use of communication in supporting
strategy
[4] Empowering: Every leader needs to
stress that the organizations bigger than him.
Thus succession planning becomes an
important function for any leaders. Even if
succession planning is not done in a formal
manner, the process of empowering must
continue, so that in the case where the leader
does not exist, the organization dies not
crumble. This is perhaps the most neglected
aspect of leadership that has not been
addressed.
It may be interesting to recall that Andrew
Grove [1988] makes an impassioned plea for
introducing strategic dissonance within
THE STRATEGY CONCATENATION – INTEGRATING FORMULATION WITH IMPLEMENTATION: PRASAD Feature Article
organizations. As CEOs are lonely and mission, and core competency, i.e. minimizing the
relatively shielded from bad [?] information, risk of implementation failure. Between the two, the
there is a need for a group pf people playing first risk is perhaps more easily minimized.
the role of company “Cassandra” that Pragmatism and correct identification of uncertainty
become the Devil’s Advocate within the levels, with the correct use of tools, can result in a
organization, to make sure that the CEO has fairly low level of risk (please not this may never be
his feet firmly on the ground. This will help typically eliminated).
ensure the success of the implementation
process. The implementation risk on the other hand merits
possibly greater attention than has been traditionally
given. For one, this risk involves not technology, or
machines, but people, along with
their associated irrationality. Risk drivers are far
The Integration more, the degrees of freedom greater, and
possibilities of convergence less.
What prevents the successful
change in organizations? Why is it It is this where the attention needs to
that only some organizations For strategy to be be concentrated. The strategy
survive in the changing stoppers of structure, systems,
environment? What are the
succeed there has to culture, ethics and leadership are
characteristics19 of survivor firms? be both successful factors that slow the organizational
response and thus the resilience of
Are some of the questions that
come to mind? Related are
formulation and the organization to risk to
question of the genre that is successful environmental challenges. All
stoppers are internal. All stoppers
strategy failure more of a implementation involve people. All stoppers can
formulation or implementation failure?
have a fatal impact on strategy
Answers to questions like this are never easy. But success.
the Drucker framework provides us a useful tool of
integration (the concatenation!) of the issues of Drucker has given us a sensitive framework for
formulation and implementation. analyzing strategy success. His assertion that
companies need to test their theory of business at
For strategy to success there has to be both regular intervals20 stands validated. Companies that
successful formulation and successful want to ensure strategy success need to focus on
implementation. Failure in either of the two will lead two systems that will drive their theory of business,
to strategy failure. Too many of us, while writing [1] abandonment, and [2] the study of non-
corporate plans, put a period at the end of the customers. While the former will take the
exercise of completing the document. This is organization back to testing the fundamentals of its
incorrect. Formulation is important, implementation is business, the latter will help the firm diagnosing why
however critical. strategy has soured.

At the end of the day, an organization needs to This will be the ultimate test of strategy success.
minimize the gap between the assumption and
reality, the minimizing the risk of formulation failure. ▲▲
It also needs to minimize the gap between the
different components of environment, specific

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Feature Article
References
1) Andrews, K., The Concept of Corporate
Strategy, Homewood: R. D. Irwin (1968)
2) Chandler, A., Strategy and Structure:
Chapters in the History of the American
Industrial Enterprise MIT Press (1962).
3) Courtney, H.G., et al, “Strategy Under
Uncertainty,” Harvard Business Review, Vol.
75, no. 6 (November-December 1997): 66-
79
4) De Geus, A., The Living Company: Growth,
Learning and Longevity in Business,
Nicholas Brealey Publishing, (1997)
5) Drucker, P.F. , “The Theory of Business,”
Harvard Business Review, Vol. 72 no. 5;
(September-October ,1994):190-197
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GROWTH, VOL 32, NO 4, JAN-MARCH 2005
6) Grove, A.S., Burgelman, R.A., “Strategic
Dissonance, ” California Management
Review, Vol. 38, No. 2., (1996) : 8-28.
7) Mintzberg, H., “The Fall and Rise of
Strategic Planning,” Harvard Business
Review, Vol. 72 no 1, (January-February
1994): 107-114.
8) Porter, M.E., “What Is Strategy?” Harvard
Business Review Vol. 74 no 6, (November-
December 1996) : 61-78.
9) Prahalad, C.K., Hamel, G., ”The Core
Competence of the Corporation”, Harvard
Business Review, Vol 72, no 3 (May-June
1990) : 70-90
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THE STRATEGY CONCATENATION – INTEGRATING FORMULATION WITH IMPLEMENTATION: PRASAD Feature Article
End Notes
1
Tragically, most of the emanating research addresses only formulation. Even in the teaching of strategy, the implementation portion
of the course is often dealt with “second cousins” from the Organizational Behavior area.
2
It must be pointed out here that Drucker, not being a “strategist”, does not use the standard definitions of strategy. For example,
“mission” is not the boundary definition, but is the reason what the organization is paid for. Again, “Core Competencies” are not
defined in the strict Hamel-Prahalad framework, but have a more liberal interpretation of being those attributes where an
organization must excel over its competitor.
3
Prahalad, CK & Hamel, G., (1991), The Core Competence of the Corporation, Harvard Business Review, May-June, pp 79-90
4
Here we will depart from the strict Prahalad’s assertion that competencies represent the “collective harmonization of several
constituent skills and technologies”, implying that (1) competencies cannot be isolated to a single factor or individual in the
company, and (2) they, (not unlike wine) have to be nurtured within the organization.
5
There is of course a fourth option : that of internally financed growth. For obvious reasons, we are choosing to underplay this
option.
6
See also Mintzberg’s three Fallacies of Planning, the fallacies of prediction, detachment and abandonment in The Fall and Rise of
Strategic Planning, Harvard Business Review,
7
Some reference may also be made to the McKinsey 7-S model which is also based on a similar consistency approach
8
Mintzberg, Henry, The Fall and Rise of Corporate Planning, HBR 1996
9
Reference may be invited to the work of Courtney, et all on strategy and uncertainty, wherein four levels of uncertainty have been
recognized, Level 1=Past Predictive; Level 2=Discrete Options; Level 3=Multiple Options, and; Level 4=True Ambiguity.
10
The fault dear Brutus is not in our stars but in our selves... ”Shakespeare, Julius Caesar, Act III, Scene II
11
There is a danger of looking at these five as non-intersecting Venn diagrams. This could not be further from the truth. In reality all
five will intersect and be contemporaneously correlated.
12
It may interesting to remember that the single reason why most joint ventures and strategic alliances break up is not because of
money matters, but cultural differences. Strategy if it is to lead to sustained competitive advantage has to be culture supportive
and culture conducive.
13
It is certainly very tempting to delve into the debate of Managers Vs Leaders, but I will desist.
14
It is interesting to contrast the two speeches by Brutus and Anthony and their resulting impact on strategy (implementation)
Brutus: “Romans, countrymen and lovers, hear me for my cause and be silent so that you may hear. Antony: “Friends,
Romans, countrymen, lend me your ears..” The ordering of the three segments gives good insight into the dictum that
communication has to be target (hearer) specific.
15
Gandhi’s short and terse, “Quit India” call in 1942
16
Who can forget the poignant appeal of “I have a dream…”
17
The moving “Ask what not your country can do for you, but what you can do for your country...”
18
The patriotic appeal of “We will fight them on the beaches...”
19
Arie DeGeus seminal work on the “Living Company” (1988) would pinpoint four longevity personality traits; [1] financial
conservatism, [2] sensitivity to environment, [3] organizational pride, and [4] commitment to society.
20
Which would of course be determined by a myriad of factors like industry and product life cycle duration etc.

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