is the most exdting' of the management disciplines.

Strategic management is about uccess and failure, about the ability to plan wars and win them. Big mergers=perhaps the most visible sign of strategic management in action-catch the headlines. Effective rrategic management can transform the performance of an organization, make fortunes for sbareholders. or change the structure of an industry. Ineffective strategic management can bankrupt companies and ruin the Career of chief executives. Strategic management is both a skill and all art. 11:s a skill because there is a body i of knowledge that can be learnt and techniques that can be used with greater or lesser competence. ~[i .an art because it deals with the futore that is unknowa btl' and with the hearts and minds of p ople that transcend reason, Good trategic managemeni requires both dear thought and sound judgement. trategic management is the formal and structured proces by which an organlzarion establishe a position of trategic leadership. trategic leader hip is about the achievement of sustained comparative advantage over the competition. SttatJgic leadership is the outcome of the strategic management process. lt is a 'late ofb ing rather than a management mechanism, So strategic leader hip does, not replace strategic management it results from it. Strategic management skills a.re not only ritical for those who have made it to the rop, Executive and managers at: earlier stages of their career need to havean understanding of strategic managemen t to increase the value. of their contriburion in their present as ignmel'lLS. It can help them to master the corporate jungle and to achieve individual career aims_It instils the habit of reaching an identified goal by developing the necessary competence and seizing available opportunities. ln short. an understanding of srrategy enhances performance and improves career prospects,
T1lA1'tGIC management

5-

Aims of this book

aim to a Iilf Q u eful our readersis whoprovideonlysummaryto pas.strategic to not want exams
V£RAll

have learnt inlCo pracuce. In suppon; throughout the book, first. we hope that tilt ,book is easy to understand. It is intended to give easy acce s to strategic management to readers who have not studied the subject before, Strategic management is not a simple subject but its difficulty should derive from applyina effective ideas to the complexities of'a unique context raeher thanfrem the

management that will be but also to put what they of this aim W~ have applied four principles

INT tiD rnON

application of complex ibeorie ' Managers fail when th y do not apply relatively imple principle properly. not because they had not read h latest research article. Secondly. we believe that it is necessary 1:0 combin the best of tilt:' accepted theory in the subject with a pragmatic viewpoint, We ate concerned nor just with the theory itself'but also with bow best to apply it in practice. To do this we have drawn on our o\w experience as managers and management consultants, We have tried to balance ;1. adernic and pragmatic perspecdves and to take the best from each. Thirdly. we believe that good strategic management requires a particular way of thinking and a mental discipline rather IDaD a p cific body of knowledge. This book aims to provide an intellectual framework for the. rudy and a pplication of strategic management. We hope that this framework i. cl arenough to be quickly under tood by all reader and y t robust and flexible en ugh to form a sound base for a lifetim of learning from further reading and experience, We have Dot tried to include everything that may be valuable to the body of kn wledge of a traregisr, As a result t Iii book Is significantly shorter than many of,'h textbooks in the field, Fowthly. we have nOL attempted to 'chase too many oftbe current har S. Over the years, managers have been offered mantras and quick fixe that purport to avoid fundamental and hard thinking about the appropriatestrategy for their particular enterprise. The quality movement and the concept of excellence both bad their day. Most :recently. E-commerce and knowledge managemem lJ,ave been offered as strategic pana eas, We de not deny the importanc of either Ecommerce Oil' knowledge management but they are not a substitute for a proper process of strategi manage. ment to addre all the relevant issues in a full perspective of the context. Our view is [hat a robust strategy u13k:ing process effectively applied will take into account the constant stream ofnewidea$ and new technological cpportunitlesand positton the enterprise I take ad'tantag<e of them, Fifthly, w hope th t thi book will help readers not only to think traregically but also to act t(l arhi ve strategic hange in real rganlzations, G od strategic thinking L nee a:ry and a good start to successful strat gi mang menr but it i not enough, Strategic tlwl.king that do nor lead to action that meets customer need better i waste ef'time and resources. WehopetJ1attbi book will enable reader to understand the nature of the ac ion that will be needed to make straregy happen, for this reason. this book gives as much weigh! to the impleraentauon of trategy as to its formulation.

.strategic .management

DI'stinct~ve co.ntributions 'to thinking on

PRAomONERS.

acad mics, and managernen censuttants have all contributed to the current undersmndirng of ·tra.tegi.c man gemenr, Each group bas strengths and
depends on combining their different

weaknesse so that the fullest understanding perspectives.

INTRODUcnOIll

The p ronal

ment thaI

experi nc of ractitloners can demon trat an intensity of involveften I nds strength and credibility to their p rceptions. There are

undoubtedly born specific lessons and more general principles to be deduced from tudying exactly how the movers and shakers of uccessful companies achieved what they did and in their perspectives on what was important in achieving their success. The strength of these contributions is ill their depth and coherence. They are al 0 likely to be particularlycredible to pliaCtising managers becau e the: appreciate the manager' perspective and th constraiats within which managers have to operate. One limitation Is that they may be describing particular ircumsranees of limited general relevance. rnetimes, too. their views may reflect individual eccentricity as much as universal truth. G od academic work ontribute rigour and scholan hip to the subject. There ar few universal truths about busine bu. good analysi can larify the balan e of pr bability by objective ob ervaticn, ,very strategist hould have orne of this cool objecrivityto temp r his or her enthusiasm. Another valuable contribution from th academic world is diverslty of lninking about rrategy. Academics have come to trategy from a ... vide variety of previous, discipline . Each discipline brings iffi O'WJ] P rspecrive to the subject, Originality is more likely to emerge from this diversity of thought than from any single view ofllie way the world works. One limitation of ebe academic contribution i tl'lal it ometimes eems a little weak in it appreciation of how managers w rk in practice [0 achieve results in realenterpri es, Management consultants have also made a notabh contribution to thinking in strategic management. tt may even be that more genuinely flew ideas have come from consultants than. from academics, Management consukan .. are paid to solve problems. Nothing focuses the mind as much as the need. to come up with. a solution Loa problem inalimited lime. Management: consultants have to make ideas work in re 1 nterprises and rnong real p ople. Good trategic management does not usually dep nd on the most compl x or sophi ticat d idea. but rather from working with idea that are rel vant, understandable. and workable. Managem n onsulr n u U· ally understand how to do hi. We hope that this book wiU help readers to understand strat gic management and to apply this critical management discipline.

nrre on strategic management has

5-

TIlATiEGIC tllA1JagemeIlt must form a cereelernent

gtQIWD

of any business course as It provides me glue that holds the other business subjects togetber, The body of lite 1';· rapidly and this increase means that many

textbooks <on the subject have become very large. The,re has not. however. been a 'cotresponding increase ill the time available' for teaching strategic management so that few students read the tbick textbooks. 11'li,ssuggests the need for a textbook shorter chan. the full te'x!;5 but mote compreaensfve the 'Basics' or 'Essentials' books on the subject. Second1y. most students are 110pil'l:g W derive some usable knowledge fromthe time that til y spend on stra:tegi.cmanagement as well as the academic knowledge to pass their examinations. This l-equil'flS an appmach. to strategic man.agem.enr: that takes practice intoacCOUD.t as well as the academic literatnre andgWes full weight eo the problems of implementing strategy. OUf aim in writillg this book has been to' provide a.u~'xtwhich has enougb .a.ademic content to meet the requtremenrs of degree courses but which j,s,also prn.rtical en.ollgb. to be' mefrtll'o business practitioners. It is, in short. the' book we' would like to have to support the tellic:hing we do .and have dane, We hope t~l?rov:ide a S\unmary of those: elements of strategic mansgemantthat win be useful to students who want to

man

put what they have learnt into practice.

The study of strategy 'in action endeavours to understandarrd explain why 'orne enterprises have been more successful than others in the past. This is useful knowledge to the future strategist hut it is not enough. Winners in today'sor tomorrow's world 'wiU need to breilll~outs,ide the box of e.xisting thinking. An effective stra~egi5t must be able to, undersrand the current rules of the game but must also be able to invent new rules for the fumze, In addition. strategic management is Do£just about ideas. it also requires the ability to implement those ideas in practice, We hope mat this bookwill h,elp its rea.deTs 'to do this.

Targeted Ir,eadership
The book Isintended for stu:dents wbo wish to ,acquire a broad understanding of

stra:r:eglc management

qUicldy. It will be 'easier for those who have had a few years of

work experience to understand and interpret its' contents. [t should, therefbre, be particularly suitable fur both core MBA courses and for shorter professional management courses in strategic management. [t will afso be ofhelp asa stra,tegy primer for those studying for other professicnal examinations such as personnel manage-

ment. accountancy, company secretarial practice.

Gil"

taw.

We hope l!:bat the style is accessible so that the book. willalso be of value to general who wish to' gain an overview of the subject of str<ltegjc: man<fg,ement: from their own reading,

Dla.nagers already in leadership positions in enterprises

vi

PREFACE

It is likely that both lecturers and readers will wanl to supplement me book with reading in areas where greater cleptb of discussion is relevant to their pecific needs. Many suitable books and articles are referenced In. thf' text and in. me htDIiogrnphy.

,St'ructure of the book

The hook is divided intil) six parl:S. Pan I defines the meaning of stta[~ and describes the' structure and content of tbe book. as a whole. Part D examines the importance of distinctive classes ·of con ten. Part HI describes the processby which strategies are formulated. Part IV Jceks at the contenr ·(jf strategy and suggests the questions to which bUSi:l1fSS and corperate strategies should provide theanswers, Part V examines how the pra.ctica~ problems of implementing str>1tegy can best be approached. Part ~ eonslsts of 'case examples. referenced in rbe ~:n as examples of the principles described. Chapter 1 describes the overall structure in more detail.

context in dete.rmin.i.ngthe agenda for strategic management and describes orne

Learnln!lliaids
The beokaims to help readers 'to understand how the principles of strategic managementapply in the real """m·ld.To assist in this aim we have incorporated 'of leaming aids: • • • • • a number

Clear division into parts to g~v,efecu ro partieularasp ('1 aCthe subjeaas needed: Diagrams to illustra~c the overaU Iegic OfL11 subject: Summaries of'each 'PaT£ in me first cbaprer ofrhat part; Summaries at the end ofeadl chapter; Ca e examples W demonstrate the prindples described in the text in practice; I. A bdef commentary and questions for discussion on each GISt' example; • A glossary fa·r ea.sy reference to the definitions of speCial terms.

Ackn.owl,edgemenls
We should like to thank the various people who nve helped to bring-this book to .completion. First of all, weshould like to thank Roger Lovell and. Gary S,n:mdm for .contributing case examples" each of which is from an enterprise with which thl?Y

have been associated over several years, Secon.cUy.we must acknowledgethe

helpful

cosamerus of the two anonymous, reviewers, who reviewed as it was written: we hope
that they will recognize the effects of their commenrs in the final result, Thirdly, we should like to thank Brendan George. Ruth Mal'shall. Miranda Vernon. and Virginia Williams of Oxford Unlversity Press who ha¥e hel,ped the writing of the. book. from inception to publication. Fourthly. and perhaps most importantly. we shoutd like 00 thank. Shei1'lCi nd Judith for their support during the writing of Illis book. a

Chapter 1

he St'ructlure of thls
B,o'ok
T and content
Chapters
1. 4.

HIS book

is divided into IX p. Jots. Readers who want II quick overview of the sco~e as a whole should read me first chapter of Pans 1 to V- hat 1
6.13. and 16.

:l describ s tru rur of the book with more explanation than in the Table of Content. Ch pter z considers the natur > of strategy and how id a about trategy have originated from military, academic. and practical origins ..Chapter 3 attempts to trucrure

Part I - concerned with th ba ic of strategic managem nt. Chapter

th

thecurrentlyaccepted body oftiterature on trategtc management.

Parts IV, and V addresseach ofthe four elements of traregic managemeno-c contexr, the strategy formulation process, strategy conrent, and Ute stratlegy implementation proces . Figure 1.1 illustrates how these four elements form a conceptual framework for strategic management. This figure lS. the basis of the strucmre ofthis bo k. Part n is devot d to examining the first element-Context-which form the background to the model ill Figure r.r. Strategy and strategic management can only exist in a particular context. The context is unique for each enterprise and has numerouscharacteristics+botb of the enterprise itself and of its external environment, The context determines the issues which strategic management must address. and hence the agenda and scope of trategic management for thatenterprise. The context may present a range of rraregic issues or a single strategic dilemma which SITat gic management has to resolve. All eff ctiv str tegic management must start from a deep understanding of the context. Chapter 4 is concerned with context In general Chapter 5 discuss . some ofthe diver e omen th exi t in an attempt to al rr the f" ader to the impact that different industry and organizational factor may have on strategy farrow tion and implementation. Part addresses the e and element of strar glc management-the Strategy Fonnulation Process. This is the proces by which strategies are thought about. cone Ived, compared, and chosen within a particular enterprise over time. It i the proo ss of strategic thinking in that enterprise, 'I1:1ere is no universally correct process that will generate successful strategies nor are there dny proven means by which

n. m.

5TRAT tv AND 511IATE"C MANACEMENT

1

Figure

1.'1

The four elements

or strategic

manaqernenr

infallible strategic

thinking' can b caused to occur, Some processes may be fonnal and involve a. large number of people; other processes may be completely informal

and involve only a handful; a sudden flash of insight may sometime be worth mOT than year of aoaly:iis. The pnrpase of the strategy formulation process is [0 arrive at an agreed VleW of bow the enterprise will succeed .in the future. The' strategy formulation process bas three logical elements, as illustrated lnPigure 1.:2 and described further in Chapter 6. Strategic Intent is the highest level purpose of the enterprise. It is therefore a driver of the trategy process since all meaningful action must originate in purpose.
-

Figure 1.2 The strategy formulation process

IHE STRUctUOE

,DF nus, BOOK

!I'

SlTategJic intent may also change or develop 3S a result of the strategy formulation process. Strategic intent is described at more length in Clwp~er 7. Strdtegic Assessment 'is an overall assessment of the context at aparticular time and the effects of possible fi.:Jt:l:!I:re actions. Stratl!!gic assessment involves standing

back from the everyday activities of the 'business. 11requir-es consid'eratiolil in bfO~d
terms of the capabili.'th!s of the enzerprise and the caaracreristies of the business en~ronment in whkb the enterprise operates. Strategic assessmentcoasiders how J:.[kely the enterprise is to .reauUzeits strategic intent as the busiaess environment dlanges. Strategic assessment takes in 0 account current perforrna:nce. expected, future. trends. the aims, Qfthe enterprise. and tne seccessorpase strategies. Stl'<l(jegic assessment irwnlves both .allla,lysis and judgement, TIl principles of strategic ass 5S' ment are described in Chapter 8. Some of the tools and techniques that. may be usefu] in practical straregie assessment are described 'in mere length in Chapters 9

and to.
Strategic Choice invo]v,e deciding what actien to take and how to take it for [he future health and direction oftbe enterprise, It r~qui:l'es faith that actiens taken now 'Will improve future out,comes. The degree of uncertainty in. strategic Choice is often very hi,gh, But if there are no chokes ttl be made. there is no val.uE! in the strategy formulation process. Strn.tegic cheices should address strategic issu s or l'fsolv,e the strategic dilemma posed by the eontext in n w,ny that fiTS with the sll"~tegic intent. Sttateg:ic choice is decscritbed in more detail. in Cb:aptJE!r 11.. Formulating strategyllSUaTIy involves an;tIysis and the manipu_laIiOll.of data and ideas, Ch3pter :12 describes how analytical tools (usually programs running on personal: computers) can support the straliegy formulation process, in practice, The strategy formulatfon process delivers the Content of Strategy. This is the 'third element of strategic man<lgemen,t and is addl'cssecJ in Part ]V. Chapter 13 exam· Ines the content of strategy in, general and discusses What results can reasonably be expected from a strategy proces " Chapter 14 focuse~ on Business; Strategies and on what is likely to make the business strategy ef an enterprise more tfective. Chapt~r 1S is devoted to the subject of Corpornl::e Strategy-the additional component of stral!egy required if an enterprise has lnor,e I!hiil'Q business. one Strategl~ management is-incomplete and of little value v.rithouteffective implementation. The fiml1 element of.strategic management is the Strategy Jmp1emen-tatiOIl Process described in Part V. I:tnplernentation is tOD often seen as separate from strategic management, Om' view is that imp1ementl tiofi is an integral part of strategic management so that tbe process and content of strategy should take the needs and capabilities for impiementation ID.to account. Many st::raregic Ichange ini· tiacives fail to aduev, theil' stated objectives. Ofi:en this failure is, due as much to underestimation of the diffia:t1Lies of implementing tile changes as to poor
1

,ex cution.
Pigul'(! '1.3 shows the parts of'the strategy impletuentation process. Chapter 16 summarizres the key themes of tbe stJrallegy .implementatio-n process. Chapters 17 and 18 distinguisb b· tween the leadershIp of.strategie change and the management of a !Change p:rogranmJe. Leadership and management are both essential fur successful im:p~ementa.tiQD and. fon;1l the verticalclimension of Pigure

10

STItATEGY ANO 5TRATEC:I[ MANAroEMENT

-

Rgure

1.)

The strategy implementation

process

flItugri1mr:n_ Management
Culture (hang, StruttUreChang ,al'll! PrClject

iCIlallge

Leadership

Pro: ess Change

1,
a new trategy

"

-'

.. ..... ...
....

Tr.msfarm d Enterprise

1.3. To implement

busines

processes, the culture, and the

approaches to 21. Chapter 22 addeesse the question of Ad ptabiliry-an org;m.izarionaJ competence which adds to the chance. of future nrcce in an unpredictable world. The four elements of strategic management relate closely to each other. The COhtext sets the eene, po es the is-sues to 'In' resolved. andconstrains [be style of the trategicmanagerneur process, The qmilil:yof the trategyformalaricn proces and iLS suitability to the context will tend to detennine the quality of the strategy content that results TIle strategy content is oftittle value unless it has taken implementation Issues into account and leads to an effective proc 55 of impI mentation mal rums ideas into realities. The. results of the strategic implementation (and other unrelated change) will in du cour e affect the cent xt so that the elem nts of tra egic management interact in a cycle. Figure 1.4 combines thecoucenr of Figures UlO 1.3 into a single diagram. Figures 1.1 to :1.4are original to rIDS book. TIley are derived 'from da rical models of snaregic management. TIle main extensions to other models are that context i peeifically represented and implementation i given more emphasis. Part Vendswitb a. bri.efEp~logue to conclude the book. PartVI conti.I]U slxca 'e ex:amp~eli. A ca e example differ from a case study in that it is structured to be useful a' an example of principles de enbed in the text. Specific references 10 the e case examples occur throughout the book. It i hoped that the cas examples ive a fuller understandiag of context is possible in brief vignette examples on their own. Reader: may find it useful to read the ca e example through in parallel with th main text to get wider feel for each of the six contexts. We hope th t we have avoided unneces ary jargon. Terms that are defined in the ext are also listed in me G]o~sary for ea!iy reteren e. The structure of rhe book was designed to foeu on key elemen ts of strategic managemen:r.Ead1 element: stands Oil. its own and will offer a grounding in lUte theme

it is likely lhat change will be 11 ed d in the trucrure of the earerprise. Pta tical for cau. ing change in each of tbe. e three are described in Chapters 19

me

man

lHE SlRUCTURE Of ,"&SISOOK

-

11

Figure 1.4 Our complete model

• manual 1

covered. Taken as a whole the book offers. in a comprehensive and digestible format . of strategic management from which either rudents or practitioners can benefit quickly.

Chapter 2

Wlhat is, St,r'a't:eg'y1

2.1 'The,nature ,of st~ategy

book is about strat gi rnanag ment. Almost everyone thinks tho t th y trategy is. However if you a k what the word strategy means to them. the range of repli is surprisingly varied. To some the term . trategic' i no more than synonym for 'important'; to other it may be a plan of action and for a third group it might be a blueprint for uccess. lore 'COnsidered replies are likely to reveal different shades of meaning within this broad range, To us. strategic management is about envisioning and realizing the future, Note that this definition requires th· t strategy should both prtfl.ri,de idea of the future and generate the an action neces ary to realize that idea. Impleraentation is part of strategy and not a eparate activity.
HIS

. know .... at h

,2.2 Sbiil1tegy from the' Im'ana:ger's pOint

of'view
,M.

the the mu
not

jANAG,£R5 are responsibl f~r the health of ~heir enterprises .~th in the present , and in the future, Strategic management IS the part of their job that relate to future. Strategic management.is about taking action today to achieve benefits in future. The future is always uncertain 0 that strategic management decision [be made with information that is always incomplete and often wrong. This is a new issue, Peter Drucker (1955: 85) put this very dearly:

MaIl<Jgemen:t Ilas 0.0 choke bur to anticipate the futll.j.J'c. o attempt to mould it and ro balance t
1101't-lctngeand long·range goals. ]tis: not given [() mortals ro do either oftbese thillgs well. Bu[

WHA't IS STRATEGV?

!Ill

latking, divine gujdancc. business maaagemenr must make sure that these difficult responsl' bilities, are not overlooked or neglected, but lalu!nl7lre of as w. 11as is humanly pos!>ible. It is not ,easy for managers to ID3Jnrage strategically. Henry Minrzber"S ("1989) has observed and most nlanagerswill be persolmllly aware tildit,: ·Marutgers work at an, unrelennng pace and their actrviries are Charaderised by brevity. variety and discontinuity'. Managers have 1::0 manage strabilgicaUy ."vilhin this pattern of work. The objecti,ve of sn:ategic management is to prepare an enterprise for future success-to conceive and secure the future oftl:l.<Itenterprise. The ob}ective of this book is to help maeagers m achieve this, Sttategic management requires both th.inkirtg and action. Strategic management oliUy takes place when acuon fonows thaught Thought on its, own may be intellectually stimulating but it is not strategic tnaaagement, Tlrere are limits to the ability of managers 1:)0 foresee the future, to undel'st<md the significance of changes. to con eive strategies, and to 'iJm,plement strategies successfully. Managers need to be aware archese limits but cannot avoid their responsibility for taking action .. In summary. the manager's pe.rspectirve of st:l:'ategy has three characteristics, Fitst of all, 'the concern, of managers is with a particular enterprise at aparticu1aJ' time. Secondly. they need to ha.ve a concept of what the future will be like. Thirdly, they ba:ve to take action, This is the essence ohtrategk management.

Z.l

Definiti'ons lof skategy

IM'ANV writers have attempted to define strategy. ueh definitions emphasize one :I ., or more of the aspects described above. A definition that included all the aspects

would have to be very long.

One of the earliest definitions of strategy comes, front the ancient Greek writer Xelil.ophon (Cummingll t993: 1341: 'SL1.·ategy iis Imowi.llg tlle' business you propose to ,earlY cut', This definition stresses dJ_a:t trategy requ.ues "' knowledge of the business, s an mt.eD.tion. fo:r th future, and an erienration towards action. This definition alse empbasizes the Hnk between. leadershlpand sl:J.ia~egyfnrmulation, Xenopbrm saw strategy as a direct responsibiJity of'thase in charge, not ali a spectator sport, Kenneth Andrews '1:19'71)1 defined strategy as: The pattern of major objectives. pur~ poses Lorgoals and essential polides or plans fur a.chieving thosegoals, stated l,n web a way as to define what business the company is in or is to be in and the kind of company it is or is to be'. Note that in this definition su;ategy isccucerned with both purpose and the means by which purpose will beacbieevcd. It implies that strategy must address the fundamental nature of the busmess in the future. Tlili suggests t.b t strategy wiU beseasilive to values and culture as well as to business OPPQrlUDity. It also implies that maeagers are able and :res,p.onsjb~e for malting deliberate choices about the future Q3Uire and scope a f thetrbustness.

14

5TR"RGY

AND nRIlTEC:;IC: IMA'N. C'EM

NT

Igor Ansoff (1987: 1965)

om rs

bri f deflnitlon:

. trategy is a rule for making

decision '. An offalso distinguishe b tw Jl polky and trategy. A policy is a general decision that is IlIW'.J.ys made in the sam> way when ver he arne circum tance an e. A trategy applies similar principl but allows different decision a the
circumstances dille,t. Kenichi Ohmse (198:r 92} defines srrategy as: 'The way in which a corporation endeavour' to differentbte itself positively from its competitors. using its relative strengths to better satisty customer ne ds'. This definition addre ses both the competitive aspect" of traregy and the n ed to build capabilities. It al 0 explicitly mentions customers and the satisfaction of their needs as a driverof'srraregy, More recentl ~and reflecting his persp ctiv a a practising management onsultant. Mich'e] d Kare-Silver (1997) niggests that strategy hould have ju t two

elements-future

intent and' ources ofaclvantag '. He is therefore restating the view

that intent and b'a~egy are inseparable. The word 'source of advantage' has a similar meaning to capability but mphasiaes t'hllt capabilities only have valu when they meet the real needs of customers. Our own deRnition of strategy is: 'Ideas c nd action 10 conceive and ecure the future', This definition hlg'blights th fact that trategy requires ioughtab ur the future but also effective ction to realize the conception. 'his defini len. though brief. does not imply that 5U'a't~g}'cannot hav !:he m nyaspects discus ed above, It is apparent thai definitions of strategy vary. To under tand the rea ons for [hi variation. it may help to hay orne understanding of where the ideas com from, Military thinkers. politi al thinkers. academics. and practitioners have all consider d

the issue ofsO'tltegy.

2.411he militaryori'gins of strategy

Twar. The word .

HE

concep

oCstrategy j an ancient Dill" and originated in the study of success in trategy comes from the Greek 'sfrtll,()s' (army) and 'ageil'l' (to lead).

The 'SlTtltegDS' in Athens was an elected ge.llera.l, a post created wh n Ath n wa at Will' \"rith Persia in s06 DC. The Gredlts saw 'strategy setting as one' of the respon ibilil::ies of a leader, 3. connection that continues in modern thinking. The Greek also gave erious thought to what kine! of per on would b suimbl [0 the role and how they should be trained. Interestingly. they ccnclud d that lnr Ilectu J kilt. while es entiat for a g d strategi t, w re not suffi ieut unl s supported b practicat learning gain d from experience.

At about the arne time. and quite independ nlly, th Chinese general, un Tzu strate IT. also relating it do ely to the duties of a leader: 'Only a brilliant ruler and an excellent leader, who is able to conduct their inteltigenc ' with uperiority and cleverness, is certain to achieve great results. The entire force relies on r:hls for eve.ry move, This is the e senee of :;tl·ategy·.
(IT. 1997) wrote about

un Tzu saw the aim of strategy s defeating the nerny by fighting as few battles a pos ible, He define prioriti '. for gaining advantage 0 er an adversary. Tile highe [ priority is [0 foil the enemy's plots, second to ruin hi . alliances. third La attack hi armie • and lowest of all to besiege his castles. In his view. strategy is as much about avoiding battles as it is about ,fighting them. SUD TSl1 's book TILt? a/Waf" has someArt times been used as a management text because of the ret vance of its ins~ghts to

bu ine s strategy.
Perhaps the besr-l own military strategist or more recent history is Carl Von Clausewitz l1832J. One often-quoted entence highlights an important paradox about trategy in that good trategie are inherently simple but hard to conceive: 'Thu . then, in trategy everythi ng i very simple, but not on that account very easy'. Von Clausewitz saw 1,.'"0 trategie a difficult to conceive and even more difficult d to implement so thar only very few p ople ever ucce d as str' regt ts:
A Prince or General who Mows exa Uy how [0 orgnnize hi' war according to his object lind mans. who does, neither too lIltl .nol' t 0 much. gives b~llhllt rhl' greatest proofof bls genius. But to follow thai way stra:ightfor\Mard. [0 carry Oll.r the plan wltheut bemg obliged 10 deviate fT0n11t a thousandtimes by <I thousand varying infiuene-es. requires beside great strength of character. great cleamess and steadiness of mind. and our of a ureusand men who are remarkable. some of mind. others for penerradcn. others again for boldn s· or srr-engr.h of will. perhaps aor eaewtll combine III him~lfall bose quali ie whkh ate required to raise a.man above rnedi crity in the career of a general.

Military thinking certain! has ome relevance [0 busine traregy, ft emphasis on winning. on the importance of leadership. and on raking action to achi lIe desired results: ar all themes whlch resonate, 01] the other hand, war campaigns are aliu'lUed analogy to the realities wbich modern enrerpri es face. TIl military analogy lack any equivalent to the customer. Modem enterprises rarely have he simple hierarchical structure nor obedience to order. which military models a ume. Military writer and patti :uIarl Clausewirz saw war as a zero- um game. Bu ines competition often allows opportunities to avoid Lhe d tructive result 0 a zero-sum game by creating diversity. [f we ceept [he analogy that busln s is a war th D the military model of tI:'"dtegy can be an tmportarustartmg point for an exploration of bu ines strategy. SITat RY a] 0 has a political role.

2.5

The political. irol.e of strategy

IN. ICCOLO Machiavelli I r. 1961) added a political dim nsion to th study of strategy. . l1w Prince publi h d in the arly sixteenth e ntury wa notable for its detached ob ervarion ef'events. Francis Baron aid of M~cbiave!ll atiy 19871 'He set forth openly and sincerely what men are wont I.D do and nlal[ what t.hey OUghl te do',

Machiavelli is also the artie t writer to concern himself with the realities of implementing strategies. One particular e:Kample of this quoted by Jay is bow to handle take-overs. Machiave1Ji was, of course. writing bout aprince raking control of a ountry, His advice was that it was necessary either to treat the powerful citizens well or to crush them so cotnpletellY 0 that they could not retaliate. jay points our: that there is a parallel in how 'I!o manage companies which have been recently taken over and thar advice on such matters is rarely available in onventionaJ management books. Machiavelli moved be ond the ancient writers in his concern for effeetivene s as much as describing ideals.

2.6

The academi:c contribution to strategy

A NOfHER major ource of knowledge about strat gy i provided by academics. /"\ Modem thinking OR btl ine S srraregy fir t evolved into a recognizable form in the 1960s in the USA. Writer such as Drucker (1955). Chandler (tg62). Ansoff (1987. 1965). and Andre-ws (1971) tudied the dev lopment oHarge succe sful American corporations before and during the Second World War. Their work set the scene for what is now usually referred to as the 'Classical Scbool' of business sU-3tlegy. The classical school saw direction etting (stra e'i!:j ormulation) as an important responsibility of top managers and believed mat it could be separated from strategy implementation. Corporate thinkers in headquarters headed by the chief executive formulated the strategy: divisional management teams implemented it. The analogy with the general and his headquarters staff and field officers ill dear so that the cbs leal school eems to have Its roots inEhe military model of st:rategy. One major addition to Ilh.i:o.king was the inttod ction of ecnmoraic goals-p<"rtkularly return on capital=as the driving objective of'busine . The thinking of the classical school hasnever been. replaced bY.3 better total view of what business strategy is "tIl about but it has come in for significant criticism from at least three directions. Ftrst. the companies that bas ed their strategies on [he cia • sical theories have not ne s arily be n more ucce sfu! than others who did DOL Over-rigid applicadon of classical ,approache ted to strategic planning becoming a .taft" role separated from, and often not well re zarded b . tine management a result. the concept thems lve were r jected even though the failures may have resulted from poor application ofl:h con epts as much as from the limitations of the
concepts themselv .
econdJ r. it was suggest d rhat the te hniques and concept of the classical hoot could well. have b en appropriate [0 large companies based in the USA at a time when America bad a dominant share OfWOl'ld economic activi.ty. The same techniques and ideas might be less relevant in other business contexts. For example, it might be possible fo r DuPont in 1960 In a growing chemical market to set world-wide strategies centrally and to expect them, to be iInplc'mented suecessfull . It might not be pos ihle

WH'AT

rs 51RIJECi,y1

1:7

for a sm.11lcompany in the. same way.

sl:l:uggling in a depressed economy to go about strategy making

Thlrdly"tbe classical school thinking was too closely tied to its military;ma eco-nomic models. Other fields of 'thought-paTti.culaI'ly psyc.hology, sociology. and biology-ofFered new and relevant ways of thinking about strategy. The volume' of academic writing in the field of strategic management is both very large and diverse, The value to the business strategist is in providing multiple differentways oftbinkingabout trategy. It is, however, important te realizetha:t academics are lookiincg for generalpattems that they can prove by analysis. This may not be
directly helpful to tile strat,egist who Is seeldng a unique solution to a unique strategic

dilemma for a particular enterprtse, Tbe academics are seeking to understand the rules: the manager is seeking to get round the rules for the advantage' of his or her own enterprise. lo addition. academicscan sometimes seem unaware of therealkies
of the constraints and pressureswithin which. managers, have to work. Political pressures and imperfi"ect knowledge can make cold logic less relevant tnthe needs ofihe

practising manager. l3,usiness success may ofteneeme widl an imperfect Sb11.tegy.

from carrying peopt along

- 7' -, Z.~ Th e -,

t-:' '- -0__~. radii--ers con_r.-b'Uti~ n 0f Ip__,_,_-t~D '_'_ _

I
l

.h. ve. to fa.ce stfil.tegic .issues and tak.'e aCti.ont. 0.. reS.Q1Ve t.h.em. Some a have written convincingly about their experiences. Alfred P. Sloan {19631' was, president and tbenchalrm3nof General M1ot"Ol!'S between 1923 and 1·946. The strategic issues facing Sloan were how te handle the vast enterprise !!:hat General MotlJl's had become and how to catch Ford who bad 'tak.fn a lead in. massproductioD. techniques. S.loan (who. WIlLes o.f 'policy' :rather than. 'strategy') pioneeredthe Dhr:is,ionalizedCorporation that becamaa model for many large companies. The divisionalised form allowed poUrcy making by tlae centre 10 be separatedfsom execution by the divisIons. It thereb~ allowed General Motors to
ANAG.ER.5

become mor.e cliv@rse than lIord. wtthout giving up any ecenemies of scale. The central sttategy tl'lakel."~werenble ee g/il!llier- de~iled kn,owledge of wftat execution

in:volves and

set .strategies for the separate divisions that were both different
ar::bievable. SLoan faced a particular dilemma and describes

from each otherand his solutions .. cbairman

john Harvey-Jones (:1988)wrote his book Making it Happen just after he retired as
of [CI. One of his principal dilemmas was hoW to make the board of lC[ work better. Asa resulr, hi particular contributioos nathe cencept of .strategy include his insights into, how boards. should operate and on the mix of people necess<UY'to devise strategy for a latlle organization at. tne highest level He also

18

STRATEGY AND SlRATEGIC M'ANACiEME1'lT

emphasize th re pen 'ibility for communicating the strategy to all concerned and tresses the importance of people in m king any trategy happen. "Dohim uco lie in getting a Iaeger part of a strategy implemented rather than conceiving a more brilliant strategy, .gain. Harvey-Jones's elutions were effective forthe particular issues faced by JCl ar file time, Andrew Grove (19961 wrote a pre ident and CEO (chief executive officer) IOf Intel Corporation. lnt:el faced particulm' issues in th micro-electmnie indusU1'. This industzy may be atypical of business in general because of its rapid speed of technological advance. Such a rapidly changing environment provides an opportunity 'to srudy strategic change at higher pe d-just as genetici t tudy fruit Hies because weir reproduction cycl is so hort. Gr1We de rib ' trategic infIexioll point in which radical change in buin ss parameters require radical strategic change in respon . His ideas are relevant to other industries as they face moment of radical change but may be less us ful in lower-moving strategic ccnte x x, The advantage of tudying .strategy as seen by practitioners is that they approach

the issues of su'ategy from the perspective ,of practising managers-the

n edro we

action to solve a problem, The disadvantage 1 that the dilemma is diffe,ent for each case' and so the lessons may not be relevant to other situarions, Case studies have had an irnportam role in the teaching of, trategic managem nt, Th purpos > 0 a case discussion i to cause the participants to address the two generi questions: 'Wba.t are the strategic i sues in lhi case'and 'What would you doT While the particular dilemma described in a ca wiD never reoccur. ach Win build a useful body of knowledge for tackling other dilemmas, Case studies therefore illuminate trategic mauagemenr from the same perspective as reading theaecourus

of practitioners,
example describ be resolved.

We bavein

luded six case examples in Pan: Vl of this book Each case

110

. a different context and h refore different is aes and dilemmas

2.8

strategiC dilemmas,?

A theo'retical ,general ol.uti'on to'

interesting question is wbether it. will ever be possible to have orne general theory for trategic management. john Kay considered this que 'on and concludes that trategy is till at a level of development equivalent to early medicin when doctors based their conclusion an un cienri c categorization such humours and elemen .. Heob erves (Kay 19931 that: '111 prestig of a datto!' re ted more on the status afhi patients and the confidence of hi a ertion than on th evideno of hi cures'. It is evident that an equivalent stat of affairs exi t in the field of trategy at the present time but Kay seems to be optimistic that greater knowledg will in time make the ubject more scientific.

-E

WHAT IS S1&ATV;y7

"

Gal Ham 1 ha also. ddre s d this que tion by referring to the 'dirty tile Secret of the strategy indu try' (Hamel 19971. The dirty littla secret to whi h he referred is the fact that all m hod f devising strategies alway leave a gap. Only genuin Iy creative thought can bridge the gap and no tandardtzed method can provide this. OUf own view is that [( y']; optimism about the future Q1f thinking about strategy may not bejustif d. Strategies are successful. partly because: they are different. This means that if there were ever to be a method for devising strategies thatcame to be generally accepted, succe: s would come to those who ignored it or rewrote the rules. Th refore it may be pOSSJbl~to analyse 'in retrospect wby a particular company has been successful but it will always be impossible to dev:i e rules of how to devise uch a strategy. WhIle sdl0lars are studying what has made bu. iness successful in the past, creative entrepreneurs are finding new ways to make companies successful in (be future. It follows thar, as soon a all the player in an'i.ndustJ.'Y· begin to see their strategi in 'the arne way. there' is :l.il~'eJy to be an opportunity for an outsider to rewrite the rules.

2.9

Summary
concept of strategy is more complex than it mightat first appear and has
11

number of aspects, Definitions of slll"ategy tend to emphasize one or two of these a.'peets but cannot succinctly lucludeall of them. Soldiers, academics, and practitioners have all studied strategy and written about strategy. The perspective of each of the e groups is of relevance to the practising manager but each also ha it limil ations, While an understanding of h origin of the ideas may be intellectually stimulating. the practical problem for a manager is: to understand the. nature ofrhe. particular strategic dilemma that he or she mu t addres . Themanager must select ways of thinking which are helpful in deciding what action to take now 0 resolve the dilemmaand ensure succe s lt1 the future. A broad knowledge ofthe relevant thought' hould help to achieve this but the ability to select and pursue useful ways ofthi.n.king roy be valuable a br adtb of knowledge. The simple view of Wit gy a grand plan worked Out by some mastermind at the centre of the enterprise is too simplistic. A degree of suspicion is necessary and th 11 ture of cause and effect is often more complex than may appear at first glance, Our vi w is [hat the classical concepts of stra tegy still u efully fonn a start point for traregic thinking but are no longer sufficient. An competent strategist has both to be able to understand other way of thinking about strategyand he", the skill to be able to judge which perspective is most valuable in particular-situaticns, The greatest generals understood the current state of the art of war fortheir time

tlE

ZO

STRAY""

ANP STRATEGIC MANAGEMENT

but also knew when to break the rules. They en tered their battles with a .negy but were still able to act spontaneously on the battlefield. These should perhaps be the ideals for the modem day business strategist

References,
Andrews. K. R. (1971) The COl!C~t of Corporate Strategy [Homewood, Ansoff. H. HIII,1965). III.: Irwin).
1St

r. (198711965) Corporul:e5trotegy,

rev. edn, (London: Penguin;

pub. McGraw-

Chandler, A. D. (1962)

StrotesJY and Structure (Cambridge.

tr, GranaI'll',

Mass.: MIT P.ress). Classics. 1982).

Clausewitz, C. Von (1832) On War,

J. J. (loAdom Penguin

GlImmfngs, S. (19.93) 'The first StrategiSts', tong Range Plannlng, 26J3: 133-5. de Kare-Silver, M.(1997) Strategy In Crisis (london: Macmillan).
Drucker, P. ('955) Tne Practice of HeInemann).

Management, paperback edn, ,(Oxford: Butterworth

GI ave, A. S. (1996) Only rhe Paranoid Survive: How to Exploit the Crisis Points (hat Challenge every Company and Coree, (london: Harper Collins Business). Hamel, G. (1997) Talk to the Strategic Planning Society Conference, Nov.

Harvey-Jones.

J. ·(1988)Making it Happen

(london: FO(1ti1l1'1a).

jay. A. (1g87) MOlJogemt!f'ltond Machiavelli (London: Busines-s Books).

Kay.]. (1993) Foundatforrs .ofCorpofOte Success (Oxford: Oxford University Press'. Machiavelll,N. Mlntzberg. 1982). Sloan. A. P. (1963) My Years with General Motors (New York Macfadden (1951) The Prince,

tr, George

Bull (London: Penguin Oassics). (New York: Free Press).

1St

H. (1989) Mintzberg on Management

Ohrnae, K. (1983) The Mind of the Strategist {New York: Penguin;

pub. McGraW-Hili. Books).

Sun Tzu (l997) The Artof5tmtegy. tr, R. L. WIng (London: Thorsons),

Chapter 3

Schools of Thought on

5'trategy a, d Strategic Management

3.1

Introduction

2. introduced strategy and strategic ~anagem~nt and l~oked at the Ori.ginS of Ideas about ·trategy. The pnrpose of this chapter ISto outline the structure of strategic management as it is now accepted as an academic subject. Readers whose interests are more practical than academic may choose to omitthis chapter at a first reading. It will be of more value to those wishing to bridge the gap between practice and the academic literature-a gap which sometim s eerns to be wider than it should b .

HA~R

].2

Aspects of stra!tegy
has

'. 5 below.
RAnGY

multiple aspects. Some of the more important aspects are listed

Strategy as a state.me,nt of ends" purpose, and •. tent n

Purpose or intent must act as the driver of the future, No useful activity can occur without some unde:tlying purpose. The role of strategy is to determine. clarify, or

STRATEGY

AN'D STRATECIC

ANACEMtm

refine purpo e..This may require creating new visions of he fu.t1U'eto inspire the organizatlon to greater efforts or wider cop'. Ir may entail recon iling con:tlicting
purposes or stating purpo e in more concrete terms.

Strateg'y as a high Ilevel plan

Strategy is also concerned with the m aru by which intent or purpose will be
achieved. The strategy will define such means in broad and general terms. As de.tail is added and answers the questions: who. when. where. how. and with what ..the strategy develo s into a plan or perhaps a set: of plans with varying scope and focus. It is impossible to draw a hard distinction between a trategy and a pian. In general. strategies rend to be at a higher level. and to take an. overall view; plan, Lend to be more detailed. more quantified, and more' pe iHc about times and responsibilities. However, orne details may be so e sential to' the strategy that they become

, traregic',

Strategy as the means of beating the com!petiition

Many ideas about strategy derive from analogies of war and game. One aim of strategy is to win and thi means beating the enemy or the competition in a game whick may be won 01' lost. Strategies are therefure required to keep ahead of the competitor as a bunch. Companies may at 0 have straregies (or stratagems) for OUlmanoeuvring particular competitors at particular time for particular kinds of business.

Strategy as an element of leadership

Strategy has dose association with leader hip and etting' strategy i one of the ~'espousibiHties of: leaders. Nobody can lead an enterprise if he or she does nor agree with its strategy. Conver ely. organizati n that are teaderles or inadequately led have difficu1tydefJ.njng clear strategie even if they continue to fun don in their dayto-day activities. When lead rs change. traregies tend to change, Conver ely. if (he strategy needs to change. it may be nece ary to appoint a new leader. A change of leader may be both ill symbol that a change in strategy has occurred and an opportunity to appo' tan individual with a leadership style appropriate to the new trategy. For example, some chief exeeutiv sp cialize in b ing 'company d tors' and develop the I ad rship style nece sary to achieve clear re ults in adverse condition " Other leader' may posses characteristics more appropriate for the long low building of an enterprise ove.rma..IlYyears.

SCHOOlS Of tHOUGH'

ON STRATEC;Y 21

Strategy as positioning for the future

Strategy may be seen as preparation ['0,1' the uncertainty of the future. Some trends may be apparent bur other changes may occur which may contradict the gen ral direction of the trend. All trends eventually end 'but it is often difficult to predict turning points, One purpo se of tra regy is therefore to positionthe enterprise for the future so as to be prepared for this uncertainty, One way to achieve this is to mak the enterprise more adaptable,

Slrategyas bUiUding ,capabUity

Certain capabilities may b se n as improving the chances of future success so that strategy may relate to building these capabilities. The capabilities of an enterprise may be exceptional or even unique. Th 'essence of any firm is partly defined by the unique set of skills and know! dg of its people and teams. Strategic building of capabilities an exploit this uniquenes . For example, thi may involve maintaining a lead in specific technical skills 01' inve ting to sustain a generalability 10 react fa t to unexpected circumstances.

One aim of strategy is to achieve urvival and future success. uccess results from a good match between the capabilities of the enterprise and the opportunities to serve the needs of customers better than competitors. One a pect of strategy is to improve the fit between capabilities and the opportunities available and thereby to make the business more successful.

Strategy as the result of deep invoh/e'ment

with the business

Thisaspect contrasts with the idea of strategy as detached thinkingabout the business. Mintzbe.rg (rs.g87)coined the term 'crafting strategy' and uses the analogy of a potter throwing a pot on a wheeL While the potter will have had an original intention for the de ign of the pot. the final shape oftbe pot depend also ou the interaction 0 the potrer' hands with. the day <IS it rotates on the wheel. It bas been suggested [hat japane e firms are particularly good at aIlowillg their strategtes to emerge from deep

involvement: of managers strategy formulation.

with the business

rather than doing abstract exercises in

'Strategy as a pattern of Ibeh,av;i~our resulting from embedded Iculture

E,very enterprise ha' }I;$ own, 'culture. TI'l.is culture is ,easy to obseree but hard to change. Th.e strategies that an enterprise is ab,le to adopt are partly delermmed by this culture. Those within the enterprise see the outside world through their own conditioned perspective and this influences everything '!.hey do and permeatestheir stralJegyev m though they may be unaware of this. I'll addition. since cultures ilre hard to imitate, cultulleOlay sometimes be a source of competitive advantage.

Stir,ategy as an emerginlgl pattern '0,' su(,c:'essful

Ibehavi'our
Few st:ra,tegies axil!implemented in. their enti:rety in. the form, in which they were formulated. Similarly;, the reasons for success when analysed retrospectively 1'l1.ay be di.ffe:J!ent from wh:at was expected in adv,an.ce. Part of stra~egy may tbex,e.fore be in, reco~g the pilttlems that seem to havE' led to :SUCCE!SS even if these patterns arose by ehances am!!!'rthan as a result of~planned actions. are separable but not 'Usually contradictory. Several artempts have been made to classify the literature 'on strategic management. TWoof the bestare due to Whittington (1993)and rvtintzbe.rg. Ahlstrand. and Lampel (19981. These multiple aspects of'strategy

-----

---

-----

3.J

Wh'lttington"s four gene ..:c lapp"roil.ches

,to ,strateg¥

HITIINGTON (1993) defines fOUf. distinct schoolS: Classical. Evolutionary. 5ys. temic, and Processual, differentiated by their stance on two axes. The first axis separates those wbo believe that leaders and managers are able to determine what their strategies should be by a deliberate process of 'thinking; The opposite view is that managers have very limited ability ttl determine outcomes and that strategy emerges as events unfold. Thuisaxis distinguishes between a detenainistic view and an emergent 1liewof strategy,

SCHOOLS OF THOUGHT 0111STRAIECY

-

25

Table 3.1 Whittington's

Characteristics

four schools of strateqy compared

Oassical
Determlnlsti c

firocessual
Detesmlnlstlc Plural
Crnfted

Evolutionary Emergent Single £ffident Econom

Systemic Emergent

Deterministic/emergent

Single goal/p'luralistk .Strategy style Influences

Single Fonnal Economics, military

1960s

Plural
Embedded

Psychology 19705

biology
19805

csl

Sodology
1990s

cade 'of Influem:e

Sourc~ Adapted from R. WhittlngL'On, 1M1atis Strategy-Arld Does It Matrer7 (Routfedge 1993)·

Th S cond axis dif:[el:entiates between tho 'Ii! who see strategy seekingasa single goal (usually a financial goa] in business) from those who ee enterprises as having multiple purposes that may conflict. This axis therefore distinguishes between tho e who take a single dimensional view of purpose (u ually profit or hareholder value) and those who place greater emphasis on complexity and politics in the reality of business. The two directions of each of the two axes lead to the four schools. Whirtington postulated that each f the four schools tended to d rive from different contributions to thinking on strategic management from diffi r nt ubjectsand that each h d tended to be dominant, al least among academic writers. in a particular decade. The subject origins and decades are sbown In Table 3.1. Writing in 1993. Whittington saw soci logy as having an increa ingly imports nt rot in thinking about srraregi management It might be po sible to defend this point 0 view ina debate but it is certainly not true tha t economic pressure (partieularly the search for shareholder value) ncr the importance of people and their psychology have in any way reduced in importance during the 1990s. TIle four chools therefore may b more usefully seen as complementary p rspecnves rather than eVOlving truth.

3.4 A.safari through the strategiC

I I .

lanagement literatu.,e
ORE

Mintzberg, ~SU'and, and Lampe! l19~8). have outJi~ed (~ee nd even de cnptive chool of traregi thought. will hdiffer according to their premises and the nature of the strategy proc 5S. TIle characteristics of the schools are sununaJlzed in Tables 3..2. and 3.3re.c~tly.

prescnpnv

itS

5,T ATECV AND

iTllATECI

NAC[

ENT

Table 3.21 Three prescriptive schools School

Design

Ni! ure of ProCl!ss Conception Formal plallning Analysis

Principal'Relevance Emphasis on chief exec.utlv 's res-ponslbHityJnd ov~rall simplicity of successful stra'teg,ies GUrn!ntly blamed for the failure of formal ruategt( plilllnlng departments Particularly strang in large companies and where management consulrarrts have an analytical role

Planning
Positioning

Sl;!UITI>; AdaDted from H. Mlntzberg

er 01.. Smnegy Safari (Pr nUc:e Hall. '998).

The Design, chool sees strategy formulation as a deliberate process of con cious thought: with responsibility resting with the chief ex cetive, Stnnegieshould b unique to. the enterprt e and to [he moment The proc s:; for formulating strategy should be kept simple and inforrual. The resulting mat git!should be explicit and must therefore also be simple, The Planning hool see strategy as a formal I roc and provid 'a dear model of how [0 do strategic planning u ing dear and logical methods. The model d fines clear step to be performed in eqsence: objective setting. e rternal assessment, inremal asses me nt, strategic choi e. and strategy implementation. Strategies result from analysis wirh liule need for intuition or ynthesis, Mjmzbcrg (1994) has pointed out that straregtc planning of this kind can often prevent strategic thinking. TIle Posi tioning' School· ee the formation of st'ra.tegy as,depending on an analytical, process. This school owes much to the work of Mi huel Porter and thri ves on tl1:eUse of'analytical techniques and frameworks, lt is pllrticularly strong in larger companies and where management consulranrs are active in defining the proce's of tr:!Lf!gj'

formation
These ee prescriptive schools may all be een a variations of what we and Whittington called e Classical School. The Design School is the Classical chool in its original form; the Planning School is recogni able a . the Classical School distorted by excess bureaucracy; the Positioning chool is a developmenr of me: Cia leal School. structured and extended by later work. Thes pr .ctipti~e model are the most obviously relev:ant to th needs ofpracti lng managers 1.0It Ip them form strategies and to take a lion. The seven de cri.1U'J'eschool add in ight: into th nature of trategy, They are summarized in Table 3.3. The Entrepreneurial chool emphasizes the tmponance of a dear vi ion 0 the future. probably promot d by a single-minded or ev ob e ional Ie. der. The prernj es of thi school ar that the process of trategy formation L semi-con cious at be t and that strategy exi ts in the mind ofrbe leader. Strategy i therefore deUber te in long-term dir cdon hut emergent in detail. This school may be particularly rel vant [0 stal't-ups rurnarcunds, and owner-managed businesses. The Cognitive School studies strategy formation as a cognirive process which lake

5CHOOl!S '0' THOUGHI' ON :5TIIATtGY

ZJ

place in the mind of'the strategist. Flashes ofinsight axe often a significant element of
strategy formation, There is value in understanding arrnd 'perhaps changing the rnent I

maps inside the heads of key managers. This schoolceJtainly

has relevance to the

successful implementation of strategy in large organizations where obsolete mental models can often block: progress. The Learaing School takes the view that the complex and unpredictable nature of the ,en.v.ironment precludes deU{:Jf'f'lltecontrol so rb~al:s!X<I.tegy must take the form of learning; Wh1.crhonly occurs a ~a result of action. The Learning School thus recognizes rh . importance fi)t emerging as opposed to deliberate 5trategy, Stra.tegy fotmatic:lll

cannot therethr·@ be neatly separated from strategy impleme.ntation, The end result of' an effective strategy may b an adaptive organization as much as it is aplan of action, The Power School. which resembles Whittington's Precessual School •.sees strategy formation as a process of negotiation. among the relevant possessors of power within the enterprise. It also sees power as. important in dete.m.1inin,g the interaction between the enterpriseand its extematenvtroumect. TIlls school certainly is relevant [0 practice as power tructures m.ay be as important as logic in determining strategies, The Cultural School. which is: Lik;eWhittington's Systemic School. sees strategy forma Lion as a collective process, The culture can both be a constraint to be overcome
Table 3.3 lhe seven descriptive schools School Ent~epreneurIOil! Naturo 00f' Proce.s'> Vision Prindpal Relevance
Emphasis on vision for the [iUt.I.lf@. ~el!lvan(e for business start-ups, turnarounds, or where there is,a charlsmll.ti( I'fader

Cognitive

Mental pr.o'cess

Examines the mental processes andmaps uf'leaders. Examines the flashes of In5:ight from which strategy may
originate

Leamlng Power
Cullum!

Emergent Negotiation Collective process

Sees planning as leading to learning. An enterprise' which an 'Ieam and .ildapt may succeed in uncertilinworld Examines the processes of power and negotiation by ""hioh strategies are formed in .enterprlses Strategies derive from a collective process and the culture of the ent'erprise wnic11lTlilY be uniqlle alild hence a source ·of adllantage' Organizations duster In dl.stinct ecological niches until resources. become scarreos cortdltlcns hostile. Then. they die
Qrganizations exist ,in stable configurations for considerable periods but then have to tri!llsro~m

Environmental

Reactive process

Configuration

Transformational process

them5e'!ves

Sourr",: Mapted from H, Mll1tZbe:rg~t oj., stn:!r~gy Sof(lri (Prentice H",II"'998),

STRATUY

AND STIlATE(;

c: MAN'ACEMENIT

for implementing change but also a potential ource of competi ive advantage because cultures may be unique. The Envircnmeatal School sees strategy formation a a reactive process and hen e has much in common with Whittington's Evolutionary School. Organization duster ogether ill distinct ecological-type ruches where they remain until resource become scarce or conditions too hostile, Then they die. mally. the Configuration School sees strategy sa process of'transfermatioa from one stable configuration to another, This view see enterprises as being in stable configurations for long periods. These stable periods are interrupted from time to time by 4ldic~1 transformations involving major change with multiple dimensions.

many aspects. Different writers 'end to emphasize particular aspect , nder the influence of'thelr own original academic discipline. Two comprehensive attempts to provide an overview and structure for the academic literature on strategy have b en summarized. These may be valuable a frameworks within which to plac-e further reading and [0 understand difference between differing academic per pectives,
TRATEGY has

Spossibly

References
Mintzberg, H. (1987) 'Cr1!fting Stf<ltegy". Harvard Business ReVIew. 6Sf4! 66-75(1994) The Rise and Fall ofsrroreglc Planning (London: Prentice Hail}. Ahlstrand. B. and Lampel,

J. (1998) Stmtegy Safari

(London: Prentice Hail).

Whlttlngton.

R. (1993) What is Stnlte9y-And

Does it Matter? (london: Routledge),

----

---

---

---

Chapter 4

WI'

Y Context Matters

4.'1

Iintrodudion
(.."O[]

chapter will discuss what coo text is and why iris important. Chapter 4 explores orne of the diversity that exists in contexts at a general level, Detailed techniques for as essing contexts are de cribed in. Part TIl (Chs, 8 to ro]. igure 4.] shows again the ba .ic model of strategic rnanagementon which this book is based. Context j the environment within which an enterprise operates,

trategic on undersu riding the S objective of Panmanagement depend significance of .ext context. The overall n is to consider the in more depth. This
OUND

Figure 4.1 Context: the background to strategic management

------

CONTUT

Context sets the cen for: trategic management and therefore forms the background to the model. All the other elements of strategic management have to be appropriate CO the context, Poor trategies often re ult from a Iailure to take inro account ome important aspect of the context.

4.2.

What do we mean by context?

is an elusive reality of strategic management because contexts consist of both fact and perspective. every context involves some hard fatts. for in tance, the enterprise will currently be offering particular services to particular groups of customer and in competition with known competitor. Such fact'S are important to the context but the context is also influenced by how you interpret the facts. Context is both objective and subjective. As Theodore Levitt (1960) pointed out in hi famou article 'MarkeLing Myopia', how you see your context influences the strategies which you will pursue at least as much as the fart . For instance, railway companies can ee themselves as in the train business or the transporr bu ine s or indeed in the entertainment (leisure travel) business. lf'you are running a railway what you see as your context depends on which of the e views you chco e. You could. of course. choose to be in all three. If you did, your context would b different from if you eho 00 be in passenger transport and. different again if you choose to be in ft~ighl::transport, Thus the perspective of context is .fundan1.entalto the whole of strategy. It has to be dear evenbefol'e deddingyour strategic inrem; In this chapter we try to peel the onion of context. Anyenterprise exists in a context that is unique to that enterprise at that ti me. The context is the setting within which the enterprise has chosen to exist and from which it plans to draw irs revenue and profit streams. Because ofthi he traregic management process must begin by understanding context within which the business ha decided to compete and SuMVe.. The context includes everything 'that is important to the future of the enterprise bot:hin the external environment in which the enterprise operares and in the internal characteristics of the enterprise itself Understanding context is the start point for strategic management, In general, thb will mean Identi1YiRO' the dimensions and scope of the context and focusing on the most important issues which the' context poses. We hall examine each of these in rum.
ONTEXT

me

WHY C:OIlfJEXT MInTERS

33

-------------------

4.1

The dimensio'.ns of cont-ext

eentexrts likiely to have several dimensions which may Include,

THE

• an industry context (le. is our mythical railway company (Competing in [be people transport industry or the leisure: .indust.l.Ji?); • a nationaJ or international context (i.e. is our mythical rallwa.y company in 3. single country or is it multi-national and if so in which part of the globe?):

.an

.organizational context ,!i.e, the particular railway company ami its people);

characterfsties

and capabilities

of our

• a self-perception context (i.e, is our railway catering only to <II .sp~dal group. (e.g, commuters in limited comfort at' lUXUlY coaches forti. small exdusive group such

as t he Orient Exp1"ess?~; • an intention context [i.e, is it aimed at displacing the road 'transport gers or just filling up its available rolling stock to make III pl'Ofit?),

or irs passen-

4.4,

Focus irn context

our defin~tion Q1f,comext is all-embrQcin~. ir is inlpossib~e to sa.y what m~y~e unportant in practice, but what we can. say 15 that not defirung the context within which the company plans to compete would make strategic management invalid, Vfhi1e the dimensions above may be useful, a more important classification i between the more impOl1:ant and. the less important aspects of the context so that the ,organization can prioritize its in.vestments and. sharpen irs focus. For example. the. })uvatized railway companies in. the UK need to decide whether they wisb to please:
1.1

A~

shareholders:

1.1 passencgers;

• the regulator: .1 the government; .1 or all of them at the same tim

Similarly. they need to decide whether the service is aimed at:

• protecting the existing base; • attracting road users to abandon their cars and 'let the train take the strain'; • attracting inter-city airline passengers to abandon the shuttles and take the train. Failure to anSWI:!Itbese quesrions wlll result j,n weak str-ategic direction and a

tendency to react to e ch media-driven cri is wi hout addr ing more fundamental i sues such as infra tructure and rolling stock. In an -indu try where il i almo l impossible '0 in rease capacity overnight, a lack of traregy and vi ion may prov disastrous. It is apparent that the focus within any particular context derives mom identifying whanheri ht questions are to address. This iwhy the first tepID. many case' tud discussions is: 'What are the issues in this case , Similarly an early question for trategic management 'is: ''Wha are the important issues for us now?' Th . context presents. me que tion . issues, and dilemmas which strategic management needs to resolve and 50 sets th agenda for strategic managemen

4. ... The

sig!nificance of ~he uniqueness,

of context
tis apparent {hat enterprise face very different i. sue a they contemplate their furores. I is, therefore. important to undel rand [hat there are limit EOthe relevance of studying other com xts, There may. of course, b similarities between one context and others but there will also alwa s b dis imilaririe . The xacr cornbmatien of characteristics in any contru!:i: will never have occurred before nor will it ever eccur a:gain. There call, therefo["e. ben.ol alternative to studying the ccntextas it is and de·vising and implemenriog a unique srrategy in response. TIll uniquenes means that. while general ffil!ldels of strategic management are I) value, it is necessary always to consider the relevance of a particular model to a particular conre :t and to choose the most relevant models. General models may help to understand a particular conte t but wiU rarely provide the whale truth, No organization can urvive unless it is able to read its context well both for the pre ent and the futureand under- tand the issue presented by its context. If a context does not pr sent any qu tionor issue. there is no need for strategic management a everything can run 0[1 quite happi.!yas [I is. orne enterprises enjoy tlu happy Slate at time but ar more o:l'\en the conlext presents management either with a Ingle major dilemma or with In ultiple is ue which requ ire action if the en terprise is to LITViveand pro p r, A ingle major dilemma InGY require a single major and obviously strategic choice. For example, a ailing bu ma,y demand a turnaround strategy of a slash and bum type to ensure survival a a firs tep before taking ction to bring itself back into profitability, Multiple i ue may require changes which are both more subtle and more inter-related so that there is a need (i r a coherent ll'ategy which responds to the i sues and. to the relatiorn hip b tween them. In either case, the context sets the agenda and the response must be appropriate. Because context are unique, each context presents a unique dilemma 'Or set of issues to a. single enterprise. A stra~egy lis the UJ11que response. It i therefore

me

WHY (ONTEXT""E'

J5

meanin zless totransfera trategy from one enrerpris to another, Thi is one reason why tmitartcn rraregtes are almost lways i'Ll· ffecnv .The imitator neces arily fi c different issues from th imitated. Even in the cas of direct comp ntors in [he arne indu try. the actions of the first mover will have aIte!' d the context, The context i also d.ifferent for the imltaror becaus the imitator has different organizational capabilities and il1din. tiens. It 1. b cause context are uniqu hat case studies are so comm nly used to teach trategic management, A case study' ttempts to describe a particular context and the dilemmas that it imposes on a particular enterprise at a particular lime, The effective discu . ion of a case depends on und [standing the contest and identitJring the
dilemma or the i ruesthat hav£, to bl(' resolv d. This is the close t itis possible to gel n lh cL r om to p jog rh trntegic dilemmas fa ed b manager in rea] ont xts. edl 0 say. the nature Oflh i su in a case may be arguabl .The trat gic is u s

farill a real enterpris may be just <I: arguable. Arguments ab ur the nature of the issue' are an important step on the \/'lay to devising g od strategies; eff Clive trategic managem nt depends on !'I elving he e arguments. Strategic management is about resolving the is .ue and dilemma that the strategic context presents using whatever frameworks and approaches help. The strategic context and me issue are the start point; the frameworks and analytical models are econdary. Many ofthe best strategies result from an ,intuitive response ~o(be is 'ues pr sented by the.conrext, but tlashe oflnsjgln are cnlyetfective if they result from a correct understanding of the context,

4.6
T

Typical issues and dilemmas posed

i impossible to provide a comprehensive checklist of all ehe is ues and dilemma menrt D addre . The foUo.... quite ring often playa significant part:

Iwhich contexts may lose far strategic manag

• the acti enof a dominant camp tor may l" quire a response: ~. resources are scarce so that priorities have to be set; rechnologicalchange affects products, processes, or both: • key p ople are di satisfied with the ("unent situation or are in confli t with others: • new own rs t different kinds of objectiv or expect a differen lev lofre ult; • political change requires new patterns of'behaviour; • customers and supplier are affected by economic c:hi'l'1l1ge: • environmental c n ems and pr ure groups require changes in P1'3Cti e.

!.

<

arb enterprise ha to understand the separat dimensions f its ·Ol3text. to identity i 'own issues and dilemma. and to forrnulate and Implement i own strategies in response. Effectiv strategi.c m nagem.ent statts wIth it good und er 'tanding ()' context,

4.7

T,heoretical m.ode'ls ·of the Jleleuan:Cle· of

about strategic oo.n~'t is

co,ntext
,0.· .•

NE. way .of thinking

enterprtse and Us context and an animal and itS habitat, An animal species beeemes adapted to its enviromnent by natural selection. Sirn:ikl:r~y. an enterprise makes management decisions and takes action to survive and thrive in us coaeext,
Animal species are able to get it right by evolution over many gelleratiOHli~euter" prises cannot do this. so they have to make the needed acljustments ·by competent strategic management, The enterprise bas [Q define. a 'viable system' which will. allow it to liv(!"rithln its context and exploi,t that conlext to maximum advantage. To do this it is neoessary to understand both the exremal.enviroument and the organization.d capabilities that lend themselves to explOiting the context in which it lives. Beer 1(19!'1.:J.j descrtbesa viable SY5t~mas one that can: 'Survive under considerable permrbatlens becan ·e it can take avoiding action, because it Can acclimatize, because it accotnm:od:ne· • because it is adaptive', This Il)JeaRS that the enterprise is able to adjUst its structure, sys.rems.cu~ture. and the sttituces ants people at the same rate (If change as rhe environment i:n which iLis and hopefully do so faster than its competitors. Esp jo (1989) points out thsc Viable systf,'i!D:S:U'(I tbose mat:

t? draw.

a parallel .beMeen

~n

Me able to maintailll a separate existenee, Have thei.r own !?J:oblem"sol.ving ca{)adty. J, Have the capacity terespoad to familiar distuJ'ballCrul, 4. Havethe potential m res:poocl to uoImov.'n disturbances.
·1. 2.

Stra.tegi,c mdl:Ulge.men[ is a.bo1;lt giving an e:nrerprise the advantages that Beel' and Espejo drum fur viable systems and. the fi:r:ststep must be te understand theecntexr in depth. Recenrlythere has been a generalview that business contexts are becoming more complex and rurbulent, This has led 'to attempts to apply c:olTlpIexity theory to business. Complexity theory has created the concept ofComplex Adaptive Systems (CASI, which by the interactions between components following relatively simple rules can achieve spontaneous self-orgatl:ization. A commonly used exampl~ of a CAS is a group of birds
0

fish :form.i:ng themselves iJlt!oorderly flocks or sboals. Bach fish or bin:)

applies a few simple rules that define. fOT iastanee, how close' <md in what position to, swim or fiy in relation to its nearest neigIlbours. Complexity theory suggest that CASs that are too chaotic can impravetbeiJr perfermanre by imposing tighter rules whereas (ASs which are WOI rigid can improve their performance by allowing more flexibility. A successful c,AS will tb.erefore move towards a state of ,equi.Ubrium bet:We,I!!Ilhe fortes of organization and disorganization. t This stable state has been caned the 'edge ef caaos', AppJ.ying this Idea t.O strategic business COntexts suggests

WHit' CONTEXTMAnERS

37

that the ence ofslI-aregy i to hunt for th right 1'Ul to allow the enterprise to live on the edge of haos in tel tionship to its strategic context (WaJdl'O,p 1992.). There are orne dangers to the application of complexiry theory EO business. Th theory has It roots in biology where evolution takes many generations oftriaI and error to achieve its results: managers only have one. 01.' ar mast a few. Chances to get it right. One attempt to demonstrate how complexity theory is relevant to business (Lissack and RODS 1999) differEDtiates complex conrexts fi.'om complicated contexts. They point out [hat [he word 'Complicated' is derived from the Latin word to roJd whereas the word 'Complex' is derived from the Latin word to weave. Compl context have far rnoreinter-relationship than merely complicated contexts. Th y uggest thal coheren e is the essential ingredient for success in complex contexts. This sounds like good general advice but coherenc may not be the only ingredient ne dcd 01' ucce s: some com xr lso r quire th right decisions and actions.

4.8 IExamples of differing contexts

and dilemmas
in Table 4:1.

S each of 'the

OME importa~t

features of the .context and the strategic i sue.' or dilemma of SIX case example. m Part VI have been tabulated ill summary form

The features of tile contexts and the nature of the i sues, or dilemmas faced are ne e arily very briefly stated in Table 4.1. Ther i C zrrainly much more to each context than can b shown. Clearly omeone who kn wan nt rpri e, an industry and its environment well can describe the context and th· j su ill far more detail Conver Iy an independent observer may have the detachm Ant or a comparative perspective to see the issues more cleart . An effective under tanding of a context depends on theability to focus on rne right issues=-not on the length of the ~i t of issues. There are twa impcnanr points to make a bout Ta bIe 4.1,. First, it should be apparent that each of the contexts is completely different from the others. Stx examples are not many but if there were six thousand or ix rnilli n they would each still be differ nt. This is why trategic management has to tart wi h the unique context not with some theoretical model offering a universal solution. Secondly, there are patterns of similarity betw en different contexts and imilar kinds of dilemma pre rent them elves to different enterprises. Th theories of srrat gic management are d rived from study of thes similaritie and help [0 tran fer experience from one ceme to another. However. it is e sential to s art uy thinking about the' particular context and rh n to use th one thilt seem genuinely relevant and helpful. II is llsually disastrous roimposea theoretical framework without having

]8

tONT[XT

thought. w.ry carefully about the particular context. One of the weakne es of the . traregy indu try'i that it has ometimes failed to r ogniz this point. Table iP at 0 illustrates that it may be difficult to agree what the strategic i ue which the context poses really are. Thi may happen in practice b cause no two people have exactly the arne knowled ze or per'p etive of the context. Typica.lIy TablE! 4.1 Case examples=-contexts
Example SorneIrnportant
Conteltt

and issues
Feiitures of the
Some

DiJemm*)

StrategiC I SUes and

Nolan. Norton 1986

• Small knowledge-intensive company

• Resource limits at present scale

• Continue rnternal _growth or 5~1

• lncreasinq impact of computers on business

• Owned by'twQ individuals with personal ambitions • Growing healthily in short term 'but vulnerable In ecencrnk downturns ICl 1981

oue?

• Choice of partner

., Productfservice direction in,postmainframe world

• Emergem new technologies

such <IS microprocessors and desktop computing Long-standing strategy al being a universal supplier of mainframe computer>

• Survival in the short term • R turn to profit and growth In lenqer terrn • Need for new strategy in changed

• Hnancial crisis ., Preferential procuremen

stf.ategies ofgovemment public bodies challenged eroded

computer buslness • Choice of partners to enhance

resources stakeholder 'groups

• Managing ex:pectatlons or severe,,1

and

and

• DistributIon channels unsuited to selling new products • Introduction of solunon s@llIng in the market by minicomputer
~upprrers

• Reluctance offinancial instill! ions to ba ck " failing

ol"gallization , BMW 1994-9

• Car market maturing and

beoornlnq ,global • Erosion of margins In principal

• Several ~t'rategk dlreClions

possible.

markets of Europe and USA • Brands weakening as cars tend to b com commodities • BMW much smaller than pnndpal dlrectcompell ors but With a strong brand • R&D spend to maintain diverse product range growing exponentially

1. GfOW by evolution rl~king margins and brand image Z. Become niche provider 3. Grow by acquisition but most ettrartlve acquiSitions already gone 4. Seek 'White Knight' to avoid risk of hostll ta~e-oveJ' S. 00 nilthing for the present ., I'mpl'ementation dl.ffltult in technical and pe.ople terms

WHY (ONT XT MATil.R5

:S,

Marks & Spencer 1999

.' UK b

threatened by changing tastes of once loyal customers=demand 'lor

• HoW to stem the downward spkal?

• How to meet new custerner

de§ignE'r tabetsetc.

• Reluctanl consumerstcrdnq all UKretailers to reduce margins .' Traditional UKsupplystrateqles falling aft~rlong period of success
• Overseas investments not

expectations without eroding values and tr,ading principles of the company • How t.o recover past gfory? Difficulties in successlen to

I.

Chairman/em

paying off

Intervention Board

for Agricultural
Produce 1990-3

• public Sector • New manageriallsm • External pre ..sure to produce more rorle~ • General polley directives i),ppliedto whole public secter • NatIonal subsld i1ryof European parent
• IncreaSing purchasmg power of aJ,stomers • Increas ng costs of R&D • Pharmaceutical industry

• Mismatch between general directives and needs of the

en erprlse Itsel], Need 'to (hang!! culhrr,e, ~}'stems,

and organization at the same time I.: lack of experlence of change or c\I'lture for cl1al1gl2' '. Choice or future Vlsioll .' Retaining Ind pendenee • Vislon"<lrlllen change • Achie\ling change in rnultlfunc.tlonal camp<lny .' Internal d velopment of needed
capabilities • SU5t1l111ed implementation process

EumPhiJrm UK 1993-8

consolidating • Strong values of ~taff

'there ma.y.be a divide between oursiders who can mereeasily lift' the big picture but Jack knowledge of me detafland insiders who know t h details but' may be unable to see the. wood for the trees. There may also be differences in perception between people in different functions or at different management levels. This can often lead to arguments about what the really traregic is ues to be resolv dare. These arguments may be among the most important in the whol strategic management pro ess. An interesting example of this argument occurred in the motor industry in the lare 1990S.The conventional wisdom at the time was that the Cat' industry was consolidating. Alex Trotman the former Chairman ofFord stated publiclythat there would soon only be five global cal: producer in the industry, The many 141l<' -overs and merg rs in the industry betwe n 19% and 1999 suggest that Trotman was: expressing a view widely held among senior m, na ers in the industry. BMW bought Rover in 199 o tensibly to increa e its cale of operations, Daimler Benz and Chrysler merged in

1998with the apparen aim of achieving a place a one of the 'surviving giant 0 the indu try. Ford . quired Volvo in early 1999'. R nault and Niss: n fanned a strategic allian in 1999. John Ka 1999. howev 1'. argued that the facts did not support the vi W that the car indu , ry was a tually con olidating. He ornpared the figure for the car Industry in 1996 witb 1: 69 and conduded that the degr e of consolidation h d decreased over that period. The combined market share of the largest three produeers had dedined over this period from 51% to 36%.The number of manufacturers prodncingever a million cars a year had incn~:ased f!'Om 9 to 14 and the rmmber

40

COIIITD.'J

of cornpanl with more than 1% of th gl bal market had increased from 15 to 17. Kay's view 'WdS that the e enemies of cale (which rnlght be expected to drive the indu try towards consolidation) did not apply in modem manufacturing and that consumer preference would drive the indu51l), wward ontinuing and increasing diversity. It may b " that these apparently cenilirting views were both correct, The number of car market niches may continue to increase as hod. already eccurredin the 1990S wirn the emergence of Sports Utility Vehicles. the rebirth of the sott-top sports car, the arrival of the mini-people carriers such as the Renault Scenic and the Mercedes A Class, as wU as the r urgen e of the hyper-performers such as thejaguar no. At the same time, the number of manufacturers or a embl rs rna diminish as car conglomerates suck a Ford. Fiat, and Volkswagen successfully prove that it is possible to sustain different brands within same borne without harmmgcustomee perceptions. The strategic "battle' lIlay be about which form of organization-ethe conglotuerare or the diversified-will prove the best able to manage the uniqueness of the brands it manag s Into discrete market niches. There is another aspect to thisInrreasingly, th big and small manufacturers are sourcing whole units from third party suppliers such as Bosch in G rmany, TRW in th USA, and Magna in Canada; TIme magazin (1 March 1999) report d that:
II

me

These system-mnnuf cturing rm provide large chunks 'car cross the enure range of established autocornpnnle and are taking on their own global role alongside me global auto assembler .111 advilmage [0 the major carmakers include' faster deliv.ery time '. more f1exibUfty and more manageable inventories; a weU as redefined labor arrangements. If fhistrend escalates. being able 00 pur price and pedorrn.'trlce pressure on the e system suppliers will be a. significant factor in the showroom price. of cars. To achieve such buying power the auto-as iembler have to be big. The role that procurement poJ:ides 'have on car makers' profits is illustrated by the ignificanr Impact Volkswagen derived by employing pez and a king him to take charge of their upplier management. Our point is that it is crucial for any strategist in the car industry to c nsider the arguments in this debate that is essentially aeon the nature of the context of this industry. The perception of which dilemmas their strategies will h<'lV,eo resolve will t depend OD what tlley come to believe about the nature of their context.ti'the leaders of the car-industry believ ,that. they have to merge to survive then there are likely 1;0 be plenty of'mergers even if Kay's analysi wa correct. Perception may be as HIlportant as truth; dispassionate an ,lysis will have to wait for bu ine s tnstorians who will. of course. write hie tory from the point of view of the victors. Dispassionate strategy E:l1o'ly b an oxymoron. As we aid at the. stan of this chapter, context Is ubj dive as w 11as objective. The BMW ase example ilJu trates th e general points on the entext of the car industry will) the particular tory of BMW' acquisition of Rover. it m y be thar BMW read tbe context w.l'Ongty and addressed [he. wrong issues,

W'4V CONTEXl' MAnERi

41

4.9

Summary

ch~nging. Con~xts consist of both :f-actsand perspectives. The context poses the issues and dilemmas to which Strategic management has to respond, The nature of the strategic issues and dilemmas may be arguable and it is essential to resolve this argument The aim of strategic management is to enable the enterprise to respond to its context in a way that improves i s chances of remaining viable. Strategic management should start from a good understanding of the unique context.

ACH' context is unique, 1l1an~ faceted and continuously

References
Beer. ('984) 'The VIable System Model: Its Provenance. Development. Methodology and Pathology', Journal of Operational Research Society, 35. Reprinted in Espejo and Harnden (1989). Espejo, R. (1989) 'The VSM Revisited', in Espejo and Hamden (1989).

s.

and Harnden. R. (eds.) (1g8g) The Viable System Model (Chichester:

Wiley).

Kay,J- (~g9'91".Sometimes Size Is Not Everything'. Finam::ial Times, 3 Mar. Levitt. T. "'960) '''Marketing M~opla'. Harvard Business Review, July-Aug.
Ilssack, M., and Roos, J, (1999) rhe Next Common Sense: Mastering Corporate Complexity through Coherence (london: Nicholas Brepley').

Waldrop. M. M. (l992) Complexity: The Emerging Science at the Edge of Order and Chaos (New York: Simon & Schuster. '992; Penguin. 19941.

----

----

Chapter 5

_he Di ersity of Context

5 .•'1

In'roductio:nl

N Chapter 4. we emphasized the importan e and uniqu ness of the context within which an enterprise operates. Our point was that an effective strategy for an organizarion must be built to exploit the opportunitie afforded by the environment in which it operates. However. the organization needs W put its aspirations within the context oftbe bigger grouping of which it is. a part. In the private ector this wider group is often called an industry. In the public sector it tends to be collections of similar ervice providers such as Local Government or Public Utiliti.,es. Each. ofthese ccllectrvegreuptngs has its own context with its own peculiarities, similarities,and

general principles. Specific research results and relevant Literature exisr fOI' some of these collective entitle . The purpose of thi chapter is briefly to review orne of the more important of these. We hope that this chapter will achieve two objective. First. it will assi t reader with interest in particuiar cla, . of context to find relevant work in that field. Secondly. we hope that by describing ornedifferences in context, it will help readers to be .ome more sensitive to differences in context and become more able to understand the particular contexts with which they happen to be involved,

5.2

'Normal' businesses
strategic management writing business s which:
j

OST

concerned, either explicitly or tacitly. with

• are privately owned; • are moderately .lal'ge;

• have significant: Invssunent in tangible assets: • are grmving or intending to grow. has tended to be accepted as 'nomlal,' and 1,tis certainly a vel)' common class. These businesses are run principally for the benefit of their shareholders a the dominant stakeholder. Success is measured mainly. bul no entirely. by the a.bUi'ty to deliver value to shareholders .. In practice. success fOI this class of enterprise may be achieved ,eithu by i.mprovrn,g Opetatlon.u perlormance or byfin_ancial means" Operational perfonnance Call. be improved by either increasing revenues or im:re:asing effidl!llC}' or a combination of both, Pinaneial methods may increase the value as perceived by the market without any necessary change in uperarional perfcrmance, Common financial methods include leveraging equi:ty witb debt: andresteuctaring, Sophisticated finan~ eial means may be referred to collectively as finand,ale:ngin.ee:L.ingand may be unde irable if taken to eXll'emesand Wit11011t improvements in. operational performance, Most of the companies that catch the newspaper headlines fall into tills 'normal' class which therefore is seen. as the dominant medal and the 'uormalvcomext. It is. however, important to remember that the assumptions and habits of thought which defined the norma] class do rrot necess.trily apply to other types of business. to nonprofit-making enterprises, and [0 the public sector, [t is possible to build a mod 1 of strategic management in which therrraxlnuzation of hareholder valuei: built inro rhe model itself. Ma.tlll1T and K@nyon (19'17). for insta:nce, bas their analytical tram work for strategic menagement on the assump0.01] thatthe onJy Objective of a buSiness is to create value 1"01' its :sharebolderscThis This class of enterprise

assumptkm

bas the advantage that it allows rigorous aruLlysis ftn· those. cases where it

applies buf the disadvantage that it limits the scope of the model Ocr model o( strate'gic:rnanagem nt is inteaded tn be relevant to all forms of enterprise so that the nature of the context and the aims which that context:imposes bave to be conside:r1!d from first principles and nat assumed, In practice. there are fftw1enterprises that ClO focus on the-creation of shareholder value to the e:xdusil1ln of all otheI' aims. Some may be coJnstrain.ed by the needs of otherstakeheldergroups, some distracted by the personal whims ofkeyindiv:iduals. For exarnpl . none of [he case examples in Pan VI fits perfectly within the 'normal' context. rnA:1P !Intervention Board for Agricultural Produce) is in the public sector; personal chaeacteristics and aims dearly carried some weight in Marks & S:pencer and BMW; professional stakehelder groups had ether aims than just proflt making in Nolan. Norton; lCl. was fighting for survival, EUl0PhanTI WiHI gearing up to ensure an independent future among giants, In this chapter we are interested in the centexts of enterprises that do not fit the

tadtly accepted 'normal' model of conteNt.

...

cONTExr

5·.],

Knowledge-intensive ,enterprises

there has be~ Q ancetilof_ last everal yearswealth creator m ~its fnCI'eill~ingawareness o.f th~ imporfknowledge as a own nght. Large orgamzancns have
'It1I!R.

sprung up that package and sell know-haw. ill these knowledge..intensjve enterprises t:he intellertual assets embodied in the systems. darabases, products, people, and processes are more important than fixed assets. and financial capital, For a general description of this type of enterprise see, for instance. Stewart (1998). In many such enterprises, the Intellecrual capita'! that knowledge generates becomes the we.U'pring for long~te.rm profitable growth. Inro this category f-aU softwarepredueer . media corapanies, arnd some distance-learning organizations. The issues to do with how these type of bus in ss should be managed MV attracted thought and research. (See e.g, Quinn 19921;Leonard-Barton 1995: Fruin 1997: Kennedy 1989: Ros nbloom and Spenc('.1" 199IJ; Sakaiya 1991.) Clearly the knowledge-intensive enterprise is a modified farm of the normal business context in which the value of knowledge ha (0 be given more weight. Professional service firm (induding count nts, lawyers, investment banks. advertising agencies, and management asultant are knowledge-lntensive enterpri es who ell knowledg directly. They bave f w physical assets and their succes depends all how well .~hey develop the knowledge of their staff and transmit it as benefits to their customers. This sector has attracted a lfterarure of its Q1I'IIl (see, for instance, Mais~r 1993 and S ott 1998: Kelly 1985; Katz 1988;.Shapero 1985: Sveiby and Lloyd 1987; and much earlier Langrish er at 1972 and Carr-Saunders and WiLson :l933~, P:rofession.tI service firms are likely to provide some useful models of be t prao ice relevant to aU know] dge-intensive enterpri es and which have yer to be t'uUy explored, Creating trategies for the e types of organizations is different in many way. from developing strategies for asset-based businesses, Protecting th righ to exploiting knowledge is a aid al competence and lends 0 be taken sericnsly, For instance, software vendor , such as Microsoft. have establi hed an organization to monitor infringement of CO'pylight and with a remit toidenlify and prosecnee tho e wbo reproduce products fQr commernal exploitation without tire Oliginator' appreval, Copyrights. patents, and similar legal means c m protect orne furms of knowledge fa some degree, On the other hand, knowledze tend to migrate. The compedtive advantage rh l the knowledge b stows can often be fleeting, Ideas are often easy to imitate and the co t of entry may be Jower for the followers. 'or xample, offering a net-b ed ervice costs very li '11.' the expertise is often found among young computer buff: . and Obviously 011.1.' would expect many of the strategic is ues and dilemma in knGwledge-inte.nsiv· enterprises to relate to knowledge, its management and del)loyment. Successful stratgi mansgement will depend onnnderstanding the knowledge dimension of the context and the issue· t-o be resolved. It will be
c

DIVERSITY

OF CONTEXT

45

lmpertant to know what lmow'ledge is valu ble, how j~ is generated. and how it is ransmitred to customers. Among the most Importan trategtes are likely to be tho e relating to managing tile people and computer in whose head and databa es so much of the knowledge resides. Managing knowledge within the organization is another critical ccmpetenceand in some ways the most daunting. It is necessary to capture the knowt dge of the finn in reusable form and tiD encourage employees tn hare their knowledge. Unless the means of ea 'y knowledge tran fer are in place ..a kaowledge-intensive finn will find that it does nor have the critical mass necessary to offer a credible service or to build on its initial advantage. For the-se and other similar rea ons. keeping a signlficant competitive edge is the mot daunringc strategic challenges fur knowledg,e-Intensi'll'f busines res, Knowledge lnten ity do .not change the principles of trategic management but it win affe . the conten ofall the elements of'str gi' management, The implem ntation of 'trali:egy for these firms i ll~e1y to require changes in the culture. proce e. reward trategi· .and: tructure to lrnproverhe !low of knowledge.

5.4

ature business@s and dec:Uning:

mod I aSSUID.·ed that. the enterpris is intending to grow. orne busita!nces in wbicll an industry is declining. Managers 11. e the task of devising future strategie in a context that seems to offer few new opporrunitie . It is apparent th t many firms in Western Europe and the U A are in relatively mature indu ttl s. Ba.den-Fullerand Stepford (1'992) pe ffically stndi d this context and thequ StiOD of suitable. strategies for matur businesses. Their argument starts by dispatchingtbe myth that industry is a sig:ni:fic<lIlt factor in d t lIDinIDg the profitability of a busines . They quote research b Rurnelt t 99 ) Which howed that only about 8% of a business's profitability could be explained by choice ef industry compared with about 46% that could be lexplained by choice of strategy (44'% eQuId not be systematically explained at' all), Sud}' research results confirm the veryday observation that orne companies are mu h mare profitable than others in tb same industry. it also appears that while there is a ron-elation b tween market s are and profitability. there is little evidence that a large market share causes profitability_ It may bejust a true to say that firms become profitable because ,of their ability to innovate and out their profitability ill turn aUow them to prlc > L a level whi 11gives hem a large market share. Baden-Puller and Stopford argu that it is strategic innovation-the ability to rewrite the rule within which the industry operate --whi 11is the real key to uccess iu marure mdustrie , It follows that th ' is ue for the strategist to address in u h basiDe:SSe5 is to understand tile present rulesand then devise some im.aginatlve way of
·HE norma]

. r·

industries
ness s find them elves indrcum

changing til accomplished

• gafvanize:

e ru]es,13aden-FuUer and Stop,ford suggest.that I'cjuvena.tion should be

in four steps: create a 'top team dedicated to renewal: em complexity, develop new Glipabilities; maintain momentum and extend advantages.

• simpliIY:
• build: • leverage:

These findi1'l,gs are of wider significance ro many contexts as they emphasize the impertaace of lnnovarlen and o'eativil:y for achleving success .. it would seem that wtnle the principles of strategie management still apply to dec.lining Industries.the ability to innovare and create innovative strategie is even more impClltult forrbe:m limn in mote prosperous conditions.

5.5

Turnaround" recovery, and end-games

to ~lave ex~led Thi~ IS J generally healt hyindustry. The issue i t!O change the trend. from decline to renewed

of be:n A- researchers, rr-at~~c comext occ:~s often. enough for it dedim~ within a .by the enrerpnse that suffering relatl\lll
NOfHEIR typ~

growth. This area has generated a.vocabulary onts own. Corporate recovery covers all attempts torecoveF frotn a decline and also includes the specialized roles of receivers
who have to work within a specific legal framework, TUrnAround coeers businesses that do manage ro change dedin:e into growth. Sharpbenders are those who do this at a late stage and so fonnthe mostextremeexarnples oftuma:r;Qnnd. Bibeault ~1982) investigated the causes of decline. His ~urvey concluded that internal deficiencies were about twice as likeJy 10 caus tlu~decline as external causes {see.summaryin Table S.l}. and adminlstrarors

A major research study of the phenomenonofTumnronnd was carried out on z6 UK man.ltfactur:ing companies between 1982 and, 198'7 (Grinye.!: er al~1.988).This srudy dift'erenWltea between early-stage .. intermediate-stage, and late-stage tarnareunds (sharpbende-rs) and identified differences in (he causes, triggers, and actions taken for
each of the three stages. The study led to a general model of' how enterprises react to unsatisfactoryperformance. The model is shown :in F.igure 5.1. This model suggests !;hill tbe 'first reaction is cost-rutting. Only if 'this falls wi!] enterprises make strategic cl'langes witWn th~ir existing operating patterns. beliefs. and rules (OBi). Only if this

fails agaiD \'lliU they change the OBR itself.

This research findirl!g rends to support the field observation that organi;z;ations changeonly when lhey have to and that fundamental change l'are1y oecurs exCt!pl in dire circumstances, Sl<1ttell'1119'84.), updated and reissuedas Slatter and Lovett ~1999). provides more general guidance en the issues like.ly to occur in enterprises which are facing adverse

circnmsrances

and need to recover.

DIVIlRSlTY OF COI\JT£JCT 47

Table 5.1 Common causes of decline

Internal (67%)
Management Management Management defects

errors of omission
errors of commission

External (33%) Decline in government

demand or change in regulations

Increased fore1gn competition Economic variables Changes in demographic/soda! Changes. in product technology

variable

Sourar. Adapted from D. B. Blbeault, CorporolJ! TwnofOuna: How Managers Tum Losers into Winners (McGraw-HUI. '1982).

----

figure 5.1 Progressive reaction to unsatisfactory

--

performance

Stage 3,Change Change recipe alioOBR Stage 2 Change Strategic changes within same Q.BR

if stilges

1and 2

fall

IFruge

1 faUs

Stage 1 Change
Cut costs

RefoclIs

Strategy

outr.e: Adafltit(icfrom P.llllcKlsFlt1ln,s.mrttgies rnlP.fl1Qria(lfl/izQtion !ROI,l~I~d9,e. 19.92).

at Growth: Maturtty.Rerovel}'

~JI'Jd

IS.

COJIIT·!:XT
-

Table 5.2 Choosing an end-game strategy

Can the structure ofthe industry support a prOfitable-decline phase?
l'nt1lcatms of profitable dedlne include stow al1dpredlctabl'e dedlne wIth well,d fined r,emainillg nkhes, What are the exit barriers foreach signifiGJrtt !Competitor? Whfil wni ,~It quick Iy snd who wlH remain? Exit barriers are lower If assets are fuUy depreciated or easily converted. reinvestment needs low and plants shared.

Do your company's lrengths match remaIning pockets of demand? Thls is easier to achieve jf there are a few large well-defined residual markets rather than general decline in all segments.
Whatare ",our competitors' strengths in these pocke 7 How can their exit barriers be overcome? possibl~ suggested gambits include offerIng to take over customer support or acquire unwanted
0155ets. SoC/rce: Adapted' from K. .R. Harrigan and M. E. Porter, 'End-Game H01Wrd Buslne$$ Review, July-Aug.(lg83).

Strategies fur DecliningIndustrles',

Industrie evenrually move rewards terminal decline. This raises the need for 'endgame' strategies to pr vide the best rerum from a busin 5S that has no tong-term future. Harrigan and Porter (1983) examined end-game strategies, They ob erved that some end-game were much more profitable than others and identified the factors whicbe:xp]ain. this. The e include the shape of the decline in demand and whether there will be remaining niches and the barriers to exit for individual competitors. They suggest that the most appropriate strategic choices WiIlderive from answering the four questions in Table 5.2. This section has examined some context in which the growth and health of the enterprise are at risk to a greater than normal degree.

,5.1 ,Strategi'c

public sedor'

managem.en,t in the

ALL the contexts mentioned up to this. point have been related to enterprises that 1'\ are in private owner hip and intend to make a profit, Clearly the public ector is a
different clas of context. TIllS raises the question of how the public sector differs from the private sector and whether it is necessary to modity private sector practice before applying it to the public sector. The comments and examples used in the following sections relate to the UK publiic sector. \Nhile the structure and the timing of specific changes are unique to the UK, similar pressures for change and similar patterns of dlnn.ge are occurring in mo or Western countries.

an

PllIERSrrv

OF CON

X'T

49

I. I. I.

It has generally been sumed during tll 19805 and 1990 that puoli 'ector manaement an b improved by imp rting manag m nt ideas and pr cti from the private sector. Thi trend bas been called Pollitt 1991) the 'new manag rialisrn', Examp! . of th pecific actions taken to implement new managerial-ideas includ :

tran fer cf'approaches to strategy and planning ft:OID the privati sector: appointment of more 'pl'ofes ion. l' managers inro public services; setting explicit tandard for p rformance; • measuring the quantity and quality of autputs; ,.eorganizatioD into smaller unit! with clearly d fin d objective; • intr duction of real or-syntheuc competition. It i que tionabl whe her this new 'manazerialism' h been of benefit t the public ector but there L n d ubt that it has OCCUlT d, S rio doubts have be n expressed fsee e.g Willcocks and Harrow 1992: ·arnha.m and Horton 1993), Th questions rai ed indudetbe following.

,., Will management

practices that have become widely accepted in the private sector neces arily be appropriate to the differing needs of the public sector? .' H,I\'l" all the transplanted pta ice ttulyrel1 cted he current be t practice in th

private ector? • Have the n w pro ti eben

well implemented?

Whatever the objection . many managers in the public ector have to dntheir best to make these iniriatives worl . MAlIlYof them read books and articles or attend courses on strategic management in the private sector and then have to modify what they learn [0 their own conte rts.

5.7

Traditional public sector management

ANY examination of the public sector strar gic context must take into account the in which management in the. public sector in general tends to differ from the private sector. 01112 important difterem;e is that managers in rhe pubjic se .ror have diffet'em aim from those in the commercial s ctor, This colours the waystrategy is devised and implemen d in these two contexts. Manager in the commercial or privat sector generally aim to ptlmlze 11 rehold r value and to s rve customers' need. Managers in rhe publk ector generally aim to provid 'pu lie ervice'mean'ng th xpenditure of public money to m er public need a e.xpres ed by the po1ici of the government of the day. The commercial driv rs within the public service' gen>rally aim LO nsure that budg I.S r nm exec ded and thar rnon y i legitimately p ru to deliver the prorni ed ervices, Public iecior uategiesarrempt to b fair. even-handed, and consistent when judged by alltho e who are entitled torhe ben fits of the service. The Cabinet Office published a pam.phiet entitled A/ariceJur i'l"II!lI'O\'emcIlI

t'\. way.

'0

CONTE

in ~I](:UK Public enri~'1! in 1991. Thi listed the duties for public servants. from this ti t pubf hed in Tarnpoe [1994) is given blow,

An extrac

• Give undivided allegiance to the Crown • Put .official duty before private inrere ts and not u e their offida.l po ition to further their private interests • Be honest and avoid bringing discredit to the pubI:ic ervice • S rve Ministers with integrity and ability • Keep the confidence 1:.0 which tbey are party • C<trry out decision with energy and goodwill. whether or no they personally agree • Assist in the communi calion of government policy and decisions • Deal sympathetically, efficiently and promptly with the public

Notice how much emphasis this charter puts en ervice to rite Crown and Ministers rather than voter' aml taxpay r .The concept of the cu torner can also vary from that in 'the commercia) .'. ctor, In the public services rile recipient of the service i not nece sarily seen th customer. For example. a patient ill a hospital is DOl seen as a customer of the ho pital, Neith ria person claiming unernployrnen benefit seen a
a cus orner b the department that administers oda) ec:urity payments, The patient and the unemployed person are better d s ribed as b neficiaries ofth ervice. Customers of the public service are more likely to be the Mini rers than the gener 1 public to whom the specific Secretary of Stat and the d partmental head' have to account fur their reward hip. Neither party pays for rhe service provid d. This bonOUI' goes to th taxpayer who funds the public ervices through various forms of direct and i1ldirect taxes. Public ervants can broadly be cacegori;>:ed as either advisers or providers. TIl ' adV;isers tend to be dose to Ministers and convert policies into strategies, green papers and white papers which enable the framework of govemment to be built, The providers re tho 'e civil servants who are do ex to the beneficiaries. In recent years more and more of thee service providers have found themselves working in Executive Agencies and have be n floated free (rom the operational net of the civil service. It is the Executive Agencie in which rhe pressure to introduce private sector managemenr.approaches has been, rue tmngest (see the [HAPcase example),

Comparison of private and public sector management

5.1
Cli:NEfVI,IL distinction has b en made between 'management' in the private ector and 'administration' in the public sector (Ke.e1iog 1972). Keeling wrote before me new managerialist drive but it seems fair to assume that the traditional attitude!; of the public sector persist in. spite of the new initiative .. ome of the traditional

DI\lERStTy

Of CONTEXT

51

characteristlcs of aCll'runi tratten in contrast with rnanagement private sector are Listed in Table 5.3 below.

aspractlsed

in the

While Keeling was de~Cl'~bing a difference in the :It.titude [0' the role of management among ex..administracors, there are also identifiable differarrces in the situations in whim managers find themselses in the public rector. Some of these

differences are surnmarized 1:nTable 5.4 below.

From the point ofv.iew ofstl'ategic management, it would seem that public sector enterprises generally have less ,opponunity to develop their strategic intent as lhls is defined by a political pl'oc::es' outside the control of management, Strategic choices

are consequently focused more on how policy directives may best be achieved rather
than on what those polk.ies' heuld be. Figure 5.2 taken from Tampoe t19941 sumrnari es the links between policy. strategy. and strategy deliv IY,
Table 5.3 Characteristics of administrative systems compared with management

systems
• Administrative

I.
I.'

Adrninf'strative Jlystem.~ tend to give weightto a.voiding mistakes Acminlstratfve systems, place effiCient use ofeeseurces as of semntlary Importancf! to meeting senlice' goals I.' Admlnistr<ltfve systems have tigr,tJly defined responsibilities and hi'eralci1les with limIted delegatiO!, Admlnlo;tralor~ tend to refer problems upward~ in contrast to managers who al'@expectl!'d to tilke decisions, '.1 The role of administrator Is one of.a,·bltration and rure mterpretatlon. whereas the manager is a prntag.cmist

changed

systems

express dbjectives

in gE!llerai terms and these <Ire rarely reviewed or

I.

SOUfC"': Adapted frDm D, I':eeling, Managemenlln'

Gawmm!'nl

(Allen &. Unw n, '912).

Talbll€! 5.4 Differences

in rnanaqement

between

public and private sectors

I I

Pfivate Secter

St<1tutory regullation
I

National needs Relatively open Attention of general public: Multiple goals~pliimarilr:Y social Funded by taxes Responsible to political masters (omJ'leK and debated measures 4l!f

performance

III·defined policy directives

Boards of directors Market-place signals Relatively secret Mostly aittemion of shareholders onl,y Simple goals - primarily share;holder villue Funded by operiltional returns, loans. and flnandill! markets Respnnslble 10 shareholders Maifl'ly quantiflable measures flnandal performance Policies less ambiguous

or

SOIlm?: Adapted from L Willcocks ,and ). H'",rrow, R('d/sC(lverrng Public Srl'liCI'S MnnO!}l'menr 1-g5l2. p, ~xi).

(Mc(jrilw·l~fIt,

52

COIII'E>!T

Figure 5.2 Government policy and its implementation

pubrr, service str tegies to meet

government promises and public expectation

Revi e pdlfcy. stJrategy, or,butt. SfluI"e: M. Tampoe. 'Omanlsh~ Sscrnr(Wngman.1CJ194). for Customer
eIf\Iii:e'.

tn L ~1l1 Maoog1t19 €Ii1!1ngt in lIIe New PublIc L

___

-_-'f,-

5.9

Diffe..,ences among public sector entities

~bout the p~b~c sector m:e:of limited v:lue as there i a large range of. ategic context WIthin Lh public se tor. Tomkins (1987)ha ' suggested that a spect rum ( ee Table s.sl i .3 better model than a. imple division between public and privat sectors. This spectrum W uld suggest that the approach S 0 trategic management developed ior the private ector can b me r directly applied at the upper nd of'tlus pectrum and be lea l h lpful at the lower end. Executive agencies, such as the lBAP case example, are p rhap in about the middle of the pectrum, Specific contexts in the public sector al o havc their own peculiar characteristics unrelated to the' public/pt"ivate spectrum.
I

,G- 'ENER:ALlIZATION~.

DIVERSITY OF CONTEXT
-

53

tilble 5-5 Diversity in the public sector: a spectrum of organizational types

Fully private

Private wlrhpart stale ownerShip loint private and public ventures Private regulated Public inrrnstructure-operatlng pr1vately Contracted out Public with maollglld competition Public wlthoLlt competition
SoUf(;E': Adapted from C. R. tomkins. Acltlevirlg Economy. f(fidenq and rffed:ivenE's.5 in rhe pubrlc ~o, (II: egan Paul. 1987)

Local government
Local governments provide a set of ervices (e.g, school .policing, rubbish collection. librari ) which have very little in common except that they are paid for out of the same pool of taxes and provided for the same population. The slrdtegy for rhe local. authority asa whole i likely to determine tile total level of pending and how the total re ource available should be allocated among the different ervices. This strategy may also encourage certain values such <IS the extent to which services should be contracted out or public nor job' protected. This: overall ·trategy is dererrnin d mor' bya political proces than by the strategic managemenrapproachestypical of [he priv ,u! c lor. sa h parate ervice will have ir 'own 'strategy'. This is likely to focus on using th defined i el of r our e EO achi ve goals u a level of em e. The srrare ic choir to be made will be on the rel: Live priority of different goals and on how to achieve the best overatl achievement of'goals within the resource constraint . It is apparent thai the local authority context tends to Fe ernble a set of in depend. em enterprises linked bra political lltiry.

The National Health Service (INHSJ

The NBS has been more afie.cted by new managerial Illltiativ thau mest pans of the public sector. There have been so man new initiatives that one major initiative has rar ly bad a chanc to b implem nred b 'fore a new one ha started. In general. it would eem that 'strategy' in the NHS is determined by c ntral governm nt. Individual Trusts <Ireexpected to develop plans as to how they will implement me latest
directive,

The ervice i run by a v ryefficieiu and proficiem group of medi al pra nriener from nur ing auxiliarie . nur e . and do tors. the en-ice they provide is In incr asing demand as th population ages and liv . longer. 111 co t of the ervice increas s in geometric progression as new high-technology elutions to illn S5 are di covered and used. but unlike a comrnerclal organization the cost-effectiven 55 of rhes

54

tONTEI(l

p n ive and skilled ervice are not que Lion d-just demanded in ever-increa 'ing u ntityand sp d by th population at large, Hidden away in all of'thi i ttl constant bart! betwe n the healers and the administrators, the healer take rh view that life cannot be measured out on a COS[,!) nefit basis: be-sides unless, new techniques are triad IlI2W cures Callum be di covered. The administratoli's un the other hand use management and decision paradigm from. the commerelal and quasi-commercial world to manage a highly sensitive and invaluable service. This uppose th t the demands made on it and its respease to dlls demand can be predetermined and managed. Unfcrtunately, this is not the cas . To all inrents and purposes it i a nisi i-management organization. 1 workload cannot be predicted, neither can it be managed as an even flow as, for example, in 3. factory making widgets. This issue of en is management lies at the heart of the: problem that government, COnSWLll1ts,and academic have tried to solve. The.problem i made worse by the news media highlighting re.OUfre. . hortages during periods of epidemic: AI10'[hel' very rmportantconsideration for th planner is the evaluarion of'thecost of a Hfe.TIle NBS orfers a b nefit to anyone who comes for help. Some of th .benefits COS1 significant sums of money to provide. How i n doctor to decid who i worth curing by spendin the money and who sh uld be allowed to die as bis or her life is no worth ,lVing? The e ierts of qu tion lie de I in Ul srrategy and d ci iODmaking 1" ce <: in th Hea1 h Service. As ar a' Wi arc aware the politicians who finance th ervic have n r provided clear an wers to these questions. B Cause of thi th . H pr . nt particular difficulti to. t at gi -I .

in r asingly

Universities
Most of the genuine strategic cheicesubout higher educatien are made by central government, Influenced of COllI'S by major-Ll'a~egy!re\'iews sudl as the Dearing Committee (Dearing 19971, Go,vemment would appeal" to b a.pplying a imple strategic model in which input (funding) is expected [0 produce outputs (graduates and re ea.1"C:besulrs _Quality assessment mechanisms have been introduced to prevent r quality eroding too rapidly under the pre 'sure to produce more at decreasing cost. The Dearing Report (;1[] highe.r education provided numerous detailed recommendation but was le s clear in providing answer to strategic questions on th purpose and future of h:ighal' education, It therefor eemed to accept the principle that strategies for universitie - are set politically and Iha'i th mil' of strategy within individual inst itutio 'is merely to implement this de ign. In practice, each umver ity ha limited trar gk freedom within a funding framework del:! rrnined by c entral gov min nr. Tb main 5 ~a.teg:icchoice whi h j,t can mal" are DIl the rei tiv priority of subj ct ar a ,th relative emphasis to place on leaching," against research. and 111 d gree oi eff rr '0 supplement gove.mment funding bV other 'ouree 0 income-such as fe s from foreign student 01' ourmercial re arch. In practic , the management energies of universitie are largely devoted t playing the funding rule to incr a their rev, nu s, Real strategic change. such as rnaj r restructuring and increasinz diversity between institution , seldom occurs and appears to be almost impossible to mitiate Within present arrangements fo,r fundinU' and decision malting.

me

DIVERS'TY OF (0Nl'

55

Executive agencies
ln principle, each executive agency provides a erviceand the government departmenr to which ir reprts makes the polky. This separation of policy and service provisioa, it was thought, would enable 'Ute execufive agencies to adapt methods analogous to d:11! povat se ter 10 improve service quality and to reduce COS!;S. The stru ture of executive agen 'i looks much like those' of commercial enterprises with Chief Executive and a management beard Each agencywa set up (0 be -elf-funding and encouraged. where possible, LO find ways of generating new revenue streams. For example, the Vehicle Lie n ing Agency has taken to . elling personalized numberpl: ( a means of'revenue generation, Mall' g v rnmem r arch e -tabU hments now undertake research for the private eClO1'1I W 11as for the government d partment 0 which it was once a rnemb r. AmQng the many critical i u -s facing these agencies is that of dlanging co t-ba ed cultures into cu mmer-focn ed and r venuegenerating ones. orne oftheag ncies developed service charrer in accordance with
is reponed

til ,ideas put forward by rhe Prirne Minister ofl:h 'time, John Major. By March 1994 it in Lovell (1994] that: 'Of 5' agencie serving the public directly. 40 had
in place'.' orne went even further and published core values (Richard 1.994)

charters

covering

ncb. areas as ervice to customers, value fo money. caring for staff, and a

bias for action. Sak (1994) writing about pay and grading in HMSO points out that the HM 0 had been operating as a Trading Fund since t ll"pril 1.98Q. This meant that AM o had to:
commercial approache with clear flnancial target'. rigorous managemenr di cipltnes and a much sharp r approach 10 aU aC'l:ivitie • pardcular! aner A:prillg8l when govern· ment departments wl:rich previously IYd '110choice w re free to ,hOD e whelher or not to use fIMSO's ervices. The Trading Fund envtronmenr and the gl'ow:ing competition guaranteed [hat !-1MO's efficiency and effectiveness were under constant crulinya re ult of tile pressure of market forces, Introduce

The strategic challenge to thes rgani~ati ns 1 th t of marrying policy and provision. Policy maker rend to be orne distan ed from the customers 10 the agency and this b gins to impose on the ability of [he agency. Thi a] 0 means mar the policy makers can make promises to the customers of theagency that the management of the agency has [Q satiszy. But policy makers are not called to account for the policies the'Ylllake at the eperauonal tevel nelthenare they required to take heed of what tile management Qf the ilg ney say about the viability of the policies they are asked to enact ..The politicians and policy advisers have in one stroke pa sed the buck to tile agency management for any shortfalls between policy and execution while being able to take all the credit for what does go right. Formulating strategy in tb.i environment i extremely difficult. However. there i a case for developing straie W for op rational excell nee even if it is difficult to fI rmutatea trategy t concei e and ecur the future 0 the nterprise,

56

C;O N1U

r
----

--

5.10

Summary

has examined some contexts that differ from. the busine context which much strategic management literature assume as normal. Our aim in very limited space is ro draw attention to the enormous diversity of context that exist') and to emphasize yet again that strategic management must tart with. an. under tanding of the 'COntext and the strategic: issues which it po The principles of trategic management laid out in rest of this book broadly apply to all these separate contexts butwill ne d to be supplemented b additional ideas relevant: to ach pecific context.
HIS, chapter

me

References
Baden-Fuller, C, and Stopford,
Competitive Challenge (london:

J. M.

{l992J Rejuvenating Routledge).

Ihe Mature BUSiness; The l.asers into Winner (New

Blbeault, D. B. (1982) Corporate Turnaround: Yorl<:McGraw-Hili). Bkhard, M. (1994)'Chang,e Press), Dearlng. R. (1997l'Higher Education Committee' (LOndon: HMSO).
OIl

How Manogerslvm

and Managing it In tile Benefits Agency'. in lovell (1994).

Carr-Saunders. A. M.. and Wilson., P. A. ("933) The Professions (Oxford: O)t~Drd University the Learning Sodety: Report of the National

Farnham, D., and Horton. S. (1993) Managing ttle New Public Macmillan).

SaN;res

(tendon:

Fruin. W. Mark (199.7) Knowledge Works, Managing InMI'ectual CapItal at Toshibo. (Oxf()rd~ Oxford University Press),

Grinyer, P. H., and M(Kiernall, P. (1990) 'Cener,ating MajorChange Cernpanles', Strategic Management Journal, ,': nl]'-46.
-

In Stagnating

Maye.s, 0" and McKiernan. P: (1988) 5narpb tiden: Tile Secrets o(Untea.shing CorporatePo~ential (0 ford: Basil Blackwell). Harrigan, K. R., and Porter. M. E. (r983) 'End-Game Strategi Harvard BLt51nes Review, July/Aug. Kau, R. (ed.) (1988) Managing Professlonof5 in tnnovoliv Mass.: Ballinger Publishing Company). Keeling, D. (1972) Management in Covernment K@IiI!Y. R. E. (198S) The Gold Collar Worker. s [or Dedining tndustrles',

Organizations

(Cambridge,

(london: Allen & Unwin). WesJey).

(Reading, Mass.: Addison

·Kel1nedy. N. ('989) rhfl tndustri€Jllw.tl'on of [(Ilowl dg~ '(!london: UnWin) ...

DIV[R51TV

OF CONtEXT

57

Langrish. J .• Gibbons, M .• Evans. W. C •. and [evons, F. R. (197:2) Walth (London: Macmillan), Leonard-Barton" D. (1995) Wellspring, of Knowledge (Cambridge.

from Know/edge

Mass.; Harvard

suslness school Press],

'Lovell, R. t11994) Managing (/'lange in lileNew Public Sector (London: Longman). McKiernan, P. (11992) Strote_gies (london: Routledge).

at Growtlt

Maturity. RecCivery and Inl:emationalizotion

Milister; D. H. (1993) Managing the Professional ServIce Firm (New York: Free Press) Mathur, 5, S...and Kenyon. A. (1997) emoting Value: Shaping Tomorrow's BLI~ine 5 (Oxford; Butterworth Heinemann). Pollitt. C (1991) Manogeriolism (Oxford: Black.well],.
Quinn.

and the Public Services: The Anglo-American

Experience

J. B. (1992)

Intelligent Enterpris:e (New York: Free Press).

Res nbloorn, R. S.. and Spencer. W.]. (eds.) (1996) £ngines of Innovotion. (Cambridge, Mass.: Harvard Business School Press).

Rumelt, R. (1991) 'How Much does Industry Matter?' Strategic MonagementjoumaJ,'2 Mar. 167-86.
Sakaiya. T. (1991) The }(nowledge Value Revolution (Tokyo; Kodansha International). Salt, M. (1994) 'HMSO: Restructuring (1994). Scott, M. . (1998) Profiting and Leorning from Pro,fessl'o{lolService firms (Chichester: Pay and Grading in an Executive Agency', in Lovell

Wiley).
Shapero, ,A. (1985) Managing Penguin).

Professional People (New York: Free Press) ..

Slatter, S. (1984) Corporatf Recovery. A GtJide to Tumaround Management (London: and Lovett. D. (London: Penguin).
(1999) Corporare

Turnaround: Managing Companies in Distress Nicholas 8reilley).

Stewart, T. A. (1998) Intellectuol Capital (london:

SVE'iby, K. E., and Lloyd. T. (1987) Mrmagi119 KnoW-How (London: Bloomsbury). Tarnpee, M, (1994) 'Organising for Customer Service.', in Lovell (1994). Tomkins, C. R. (1987) Achieving (Landon; Keg'an Paul). WiJlC!Ocks, L. and Harrow, (London: McGraw·Hill).

Ewnomy. Efficiency and

Effectiveness In [he Public Sector Public Services Monagemem

J. (eds.) (19.92) Rediscovellng

Chapter 6

Th ,5trateglY
ormu atlon Overview'

rocess:

The importance of the strategy formu'lation process

6.1
NPan ,Iwe defuled strategy as ideas and action to conceive and secure the future of the enterpri e. In Part II we emphasized the importance of the. context within whichall strategic management Lakes place. Part ill focu e 011 th proces for formulating trategies within nterprises. The strat gy formulation proce s lead ro a cho en strategy. the oru nt of whith is described in more detail in Part IV. These relation hips are illu rrated in Figure 6.1. The purpose oftbe strategyformulation process i to cause : trategic thinking hat conceives [he future 0 the enterprise and how that future may b- ecured, The strategy fcrmulatinn proces should provide a mechanism to ease the communication of ideas and to co-ordinate efforts. It should inject structure but not rigidity into the thinking, Every enterprise has a strategy at any time, It may be that nobody has ever used the word strategy and that no deliberate or disciplined process has ever taken place, The trategy may be 1:0 ominue to do tomorrow what was done today, This is a somewhat neutral trategy but it rna sometime be appropriate and effective. rt certainly has the d antage that it is . a to irnplem nt and it may b mor likely to e ure the future than ill-conceived radical departures into new activitie . More often in pracice, howe er, it is apparent hilt the future 0 the nterprise is less secure than it might be so there is a need to consider and formulate suitable new urategies which will increase the> chance of success. Such new strategies do not just happen; til Y ~esult fro,m .3 'formulation process. The strategy forrrmlation process is important

62

TltEST1RATECOYfoAMUlAf;ION PROCESS

Figure 6.1 Strategic thinking: the second element of strategic management

bCC3lJ

e a 'b trer' proce

heuld produce bett r strategie

. It is. of cours . arguable

what 'better' mean, Good srraiegie are judged b I the r rults achieved not by the qllali'l:y of the process that generated them. 1JJ Chapter 3 we outlined ten S hoots of strategic management thinking each of wIrich postulated a. different view 00 the nature of the strategy formulation proce '. It il apparen rhar there is considerable divergence of view
among academic thinkers on what the 'be

r strategy

process would [oak like. Sucdo not all ao about

cessful enrerprise

adopt a formulation proces that marches their busine s, their

specializing in eraegy may offer their clients a proprietary method fur 'ormulating strategy and may claim thar!hi approach oIfel'S advantage over alternative approaches. Such claims
are bard to substantiate and the same proces is likely to work better in orne contexts than ,fier. Certai.nJy n .standardlaed approach can ever guarantee success. Gary Hamel '(1997) has r t: [Ted ro this as t.1l 'dirty little cret of the strategy indust1'Y'·He meant that. when management consultants guide th'eir client through a proce s. it is originality. cr ativity. and eff ctive implementation that lead to future busine uecess and nth process it elf, II is impo sible to be pre criptiv about what process will generate the be [ trat gie . In spite of thii awkward fact. m .t nterpri e do find it useful to think about the proces by which they formulate th ir future suz tegies and to 1.1)1 ro improve the process 0 as to increase the chane of creative thinking' happening. [0. pracrice, strategy proces es may be formal or informal, complex Or i:mple ..They may be exactly analytical Dr based on II broad! understanding of ltnportaat trends. The

CUlture, and the specific issues of the context. Th y certainly formulating trategy in [11 same way. Mllfl<ige:ment consultants

process may involve many pea ple or justa few. in ODe verysuccessful Life msurance company the Pl"OCCSS is almost entirely informal. The senior six 01' seven executive

director meet regularly and discuss strategy among other more tmraediate matters.
SHategir Ideas may be discussed at committees chaired by the same directors so that any difikultles 0.1: objections become apparent, At'tet' a period of gradual agreement, the strategies willbe reported to a meeting of the full beard, The expectation is that the board will nod them throlllgh. There are n'o strategic pla:ruwritten dawn and very little documentarfon of any kind. All the executive directors maintain. howeeer, that the sttal1egy is vcry clear, The company bas been highly successful over a long period

oftime,
At the other end of'the scale, many large multi-divisional cornpaniesstitl operate fonnal processes in which .individttal companies or cli.visioQS pres -tit their strategies to the 'beard torreview, Such formality may have the important advantage that it causes busy managers to think. boutthe futUre. O'n th other hand, fOl'mality Il13Y al 0 have the disadvantage that tllinking that is undertaken only to meet the requirements ora bU:l'eaucl'al'k process may be sooand unimaginative, The case examples give some indication of the broad range offomuality, style, and time-scale that occurs within planning processes. In ICl. under the pressure of a crisis. one or two people conceived a radically new sll'ategy in a period of'a few weeks, Marks & Spencer. also experiencing a crisis, found ir appropriate to have all off-site meeting for theentire board and to study a strategy document several hundred pages

long.
The strategy formulation process has LO be tailored to the current needs of the organization. The task .for the manager is to understand the process that has generated sqategi;eil in the past in thatenterprise and to consider how [0 develop tnat process in the future. This may reqnir minor adjustment's. such as changes of emphasis, invojye.lII.ent of new groups of people, or new analyses of data .. There is some evidence (.Brew- and Hum 1999) (.bar planning processes need severa! years. 'to bed down and begin to produce-results. This a.!:gues for gradual develepment ofthe existingprocess, Sometimes, however, it may be appropriate m introduce an entirely new process for formulating strategy so a to generare new insight.'! about the future of the business and to break out of accepted patterns of thought. the value of the process is ('hal it can trigger new ideas. capture ideas for discussion, and diu·ify ideas for irnplern nratioa, The process must lead 1:0 ideas about how tbe furure can be secured lind must lay the ground for effective action. The strategy formula'l:ion process should. in 8.1101'1:, I,e<tdto good strategic thinking. Effective strategic thinking usually has certamcharacteri lics, It considers the

enterprise a a whole and is more about the longer [ I'm than the immediate. Strategic thinking must address both the relationship of the enterprise wl'th its external environmclll and its own capahilitles and resources, Good strategk rh]nking is based on fact and reality and is supported by ngoroos analysis. On the other hand. analysis is not enQugh: good strategic lhinking also requires imagination. An. eifcclivl:' strategic thinker hasa good under tanding ,ofrhe- present, is able to imagine the future, <lnd i also a:b]e to thinl~ beyond the CWTet1t constraints in an original way. The de ign of the strategy proces must cause stnltegicthiinking' to happen, It is

64

THE STfI'Af£.GY FORMULATlO

PROC£.SS

important that all parts 0 th . tegy prates <II' appropri te to the context. TIl pro ess must be oherent. Good trategic lhinking r qu res the righr combmation 0 analysis ;.tn' .imagination. Kanichi Ohmae (l98:s) put tills point w. 'il:
In my opinion. these lWO .11'(' complementarv, I'or the .u'Olte"'ic mind to work creatively. it needs the sl:hnu lus of:. good, in ightful analysts, In order 'to cnnducr a good <lnaly is, it lakes a tTCItegicand jnquisil:ive mind to come up V"itll [he righl questions lIud phrase them as solutionoriented issue _Analyse done for the !oakeof vindicating one's; own preconceived notions do not lend to eative solutions. lntuition or gut-feel alone does not ensure secure busine _ plan _ It rakes good balance (0 come up with a auccessful strate .

omerimes

a strategy Iormularion

proces

may fail to achieve this balance, This

may be because it is [00 analytical The highly formalized approach to trategic planning which became very commen in the 1960 and 19705often involved large
planning departments. The e did extensive analysis but often failed to generate or communicate strategic thinking. This may have been because ofa luck ofima~rimltJon er because they failed to relate well to the line manag r with the detailed knowledge of the busi ess. Mintzberg (19941 uggestsrbar higltly formallzed strategic planning 0 . this kind may ctually prevent strategic thinking, Proce ses th<tt are I tall informal or n t upponed by ound analysi . can 1 0 fail T11 Y may result in unrealistic lists of de Ired futur outcome for which (he re ources are nor avail. bl nd for which there i no drive to find the re our e or to build te c pabililie ,

---

6.2

strategy formulation process

HE

The three logical elements of the

· three essenrial el menr of the strategy process are illustrated in Figure ·6_'~. T Straterrk Intent js the driver of the strat ~gy process, Without an underlying

Intent. strategy lack an overall sen e of dire tion and there is no reason to choose one direction rather than another, Sa;'!{egic Intent provides the answer to [ile question 'Wber;(~ do we want to goT Strategic intent is addressed in Chapter 8. The fundamental role of traregic Ass sment i to provide relevant I nowled e about the strategic context. It has no a' (.'5 both the out ide world and the r lati e capabiutie four own enterprise. The role of straregi . ss ment is to anchor future trategies in r Jiry.' trategi as e sment must address the question 'Where are we now?' Pot atial future trategies also have to he asse ed. atesic asse ment i de cribed ill Chapters toro, Strategic Choice is fundamental to the strategy pn.lc:e~:i because it is the link to action. It must address the question '\I\lhkh options will we choose for gen:ing when: we want tel be from where we. are?' If strmegy is: to be anything mare than an

OVERVIEW

65

intellectual relaxation then actions must result from the strategy proces , Strategic choice is xamined in more depth in Chapter 11. The model in Figure 6.2. i useful as a start point but needs to be refined ro differentiate between the proces and the results which the process achieves, This distinction in made is Figure 6.3. The 'trategy formulation process has three imerlocking artivitiea: Intending, assessing. and choosing, Each of these activities relates to the other two. In "a. good strategy process. the activities fit tog ther into a oherenr whole and are in balance. 111 e interlocking a .tivities produce related results: strategic intent. rrategic a ment, and availabl options. ote that the eventual strategy which is hosen

Figure 6.2 The strategy formulation

process: three

inter-locking aspects

Figure 6.3 Process and results both inter-relate

ActMtJes In PrQ~ess

Cho en Strategy

fiG

THE STRIUEC" FOflMULA'ION

PROtES

depend on II three element as shown in Fi ure 6.3. TIle methods Ch piers 71011 re built on the uructure of Figur 6.3.

described

in

__ L_

6.3 IEffective'strategy formulation processes

in. practice
HILE it

is Irnpo: ible 1 define a univ 'I' 1 licit ~'Yfonnulation proce rhat will for ny enterprise in all circum tan e • it is possible to ob erve rh charact rime. t <It eem 10 lead to SUCL"E!SS in practi .The eleven points below. derived a much from xperience as from theory, are among the moot important.

W worl
1.

Customer Iilwar'~mess The process must ake account ofeustemers'

needs. how existing-needs are changing, and what new nr eds are emerging. Thi may be called being market-dri en but u is more than mere reaction lO co remer needs; it i nee s arv to anticipate future need '. 2.

Supplier relationships

The scope of the process 1. -normally h boundarie of the organization. Exrernal relationship with suppliers of all kind extend the boundarie ofth .enterpri e in an untidyway, The proce s ha (0 b aware of changes fum affect supplier nd ensure that their "ignificance is underst d.
1.

Stakeholder influences

The proce s mu t take into C DUn! h expectarions and influence of important group' of stakeholders, Shar holders. regulator', and lobby group. may be particularty important in many contexts.
,I.

an

Understanding

of competenc::e

The peoces mustequaUy take account of the competence of the enterprise, As well as taking an honest view of the relative competence of the enterprise against it cornpetitors, it inu t also make a dynamic a ssessm nt of their likely respon e.
5.

Awareness of technological change and innovation

TIle process mu 'I be ortent ted toward change, nderstanding the nature of h nge is likely to --equire <I onnd understanding 110W technology i adding value to the busmes .Thi is not the arne thing as lind "1' 'Lauding the leadtng-edg appli ations of technology in the industry,

OVEIl111EW

67

6.

Mix of pe.opfe Invol.ved in the process

Bu ine ses ar-e usually rnple 0 different people hav different perspectives and different fields of knowledg . Marketing people see the world differently and know different things from development engineers: long- " rving employees differently from n wtGIDf'tS,.lJoal'd members differently from middle managers. central staff differentll from field staff. No one grcup has a monopoly on useful perspectives so an effe tive mix of views is important. An effective moderator may bee ential to ensure thar views are heard. 7.

Eneouragementand

understanding

oftop management

Ultimately the power to tak acriou resides with senior manager and particularlytbe chief executive. If the p:rooess does not have top management actively behind it then it: will usu'ally fail.
i8.

CommunIcation 'of results and reactlen to feedback

Good straregi s do 1101 appear suddenly, A good raw idea needs 1'0 lind support from rh e who have to mak it work. The raw edges of the idea have be rubbed off. Uli i achieved by go d two-way communication. Id a ar improved hy valid criticism. Secret rrategies 31' rar ly impl merued if the affect a large numb r of people. 9. A

sound logic and balance to the process

figure 6.3 illustrated the uarure of' th . balance that is necessary. If the proce has been unbalanced In the past, one: of the three elements n;Jay need more emphasis than [h.e oilier two at II particulartime to redress the: imbalance. Cnnversely, one element may already he in place and so can be given less attenrion,
10.

Process design but not over-des'ign

The design of the process require some thought. It is usefulto consider [he strength and weaknesses of the existing trategyprocess. The pro e should be tailored to addre s current strategic issues and hence ensure relevance. Some outline (J runeseal and method is necessary. However. the methods mu t be flexible 'enough to allow time to react to findings and to delve into critical detail, The balance between analysis a~1dtsynthesis is important, The process needs to deve1p from. year 10 year to avoid th process becoming a baring and bureaucratic rmnin
11.

IConsidered

,r,o'lleof external support

Management con ultant can make a valuable contribution provid d tha their r le hr been thought through. Con ultauts can help with proce s design, provide analytic 1 upp st. offer ornparative perspective, and contribute to strategic thinking, They can also catch attention. contribute objectively in p lili aJ discussions. and cut acto s organizational boundaries, Consultants cannot. however. take responsibfUty for implementation nor are [hey .Iikely w understand their client's busine s in as much dep~h as.insiders do.

THE STRATEG\I

fOR

liON

PRDCE.SS

Ir I ential that the strategy formulation process is designed to meet the needs 0 the enterprise and its bu tines need', Til re are dangers in imitating pro e s that eem tc have worked well in prominent and successful companies. This point i made very clearly by Campbell (1.999)who comment. that th re i still wi:de pread di sansfaction among mana 'ers with tbe stl"ate&,ticplal1ni.ng processes as they are practis d in then: companies even a.fter many year efrefinemenr; He attrifmtes much of me' problem t·J imitating the processes of ieading companies rather than designing a process appropriate to the specific needs, In particular It is critical that the process . hould be clear about how the enterprise' trying to create value, Campbell illu trates his article with examples of three dlfferent proces es in use. The value-creation focu j, differ nt for each of the three C3 res. ln one tae foeu is LO make dramatic increases in profit; in the second it is oncost reduction; for the third it is to find incremental performance gains. In each case th . process is successful beeau e it is focused on a particular kind of value and because it fit the style of the chief execurive. The planning t chniques, the fonn of the prece ,rol.t- of different function in the process, length and ton of meetings and foUow·upare all taffored to b coher nt with the r quired focus and tyle in each COl ,

Results, from the strategy form:,lation process

6.4
choice and supportrng srrategie who e content IS dLS ussed rn Pd1'[ IV. Robert Grant (1995: 8] sng ests four criticalelements to the results that have to b achieved from trategy formulation process:
L 2.

HE.strategy fOl'mu13ti~D ~I"ocess t~sults in strategic

GOalsthat are Simple.consistent ;lDdlong term Profound understanding of the c tn])etitive environment
Objl!cti\f!1!appraisal of'resourees Effective irnplementr cion

3.
4.

Grant's list echoes the frarnewerk of Figuneo 6.3, Claar trategic intent may be expressed as. goals. The results of trategic assessment are 31'1 objective and profound understan ing of re 'OUI'(;es and an objective apprai 10 the competitive environment. A good strategic choice is one ingredient of effective implementation, Other relev nt ingredien .. are discu ed in Part V. On the 01 her hand Grant' li t does not guarant e su cess. There may 31 0 be other nee sal)' l.. eful re ults hat ar not n h1 Ii t. The four items on the list b g furth r questions ..'Clearly sliUlH:l goal . may sound good but may b extremely woolly in their practical meaning. ·P:ro[ollndunderstan.ding of rile competitive envircnment' is a worthyairn but bow can one know what degree 0 proruncUry is adequat ?What if 'me present competitors ate aU equally blind [0 the nature of futare change like a

OVERIlIEW

69

group of dodo? 'Objective apprai al of re ouree ' may not b enough a it may b po sibl to find new r ource to trerch the organlzari n to meet future challenge. e rtainly the strategy formulation process must generate trat egies which are capable of implementation butactiorts \..rill hay to be' morlified i'n the light of events so that what Is implemented is not the same as what eemed capable oj' implement-ation. More gener-ally, the strategy formulation process will produce beth 'hard' and . oft' results. The.hard results of the strategy proces form the cent nt of 'lrategy describ d in Pan: IV. Softer results include rhe increased awareness ofopportunities, increased commitment of staff, a. dearer understanding of the future dlrecti on of the i ndus try,

and appreciation of the extent of change required. These rna often be as"important
;1'

the hard results. as illustrated

in the EuroPharm

case example.

The: Interaction between any two of the thr,e!! element of the process produ e intermediate results, which may be of value in providing supporting argtmlents and
justification for the strategic choice. These issues are discussed further in Cbapter
11.

6.5
HE

Summary
WhICh LTl'l~egie' are to be

- i to. ensur T conov~rall aim. of tho stratcgyormulalion proceenterpnse. The thet has ived will s 'cure tb fueureof the process

designed within the unique context of a particular enterpriseat a particular lime. The strategy process has three logical elements (strategic. im~n:t, strategic assessment, and strategic choice). These three elements are closely related and need to be balanced in a good process. Th r ' is no perfect proces for formulating strategies but there are some characteristi that are more 1i ely to lead to a process being successful. Stl'at~ egy formulation processes produce hard and soft results. Both are important.

References
I!lrews. P. J,. and Hunt. M. R. (1999) 'Learn1ng to Plan and PI.mnh19 to Learn: ResolvIng the PlannIng School/learn ng School Debate', Strateglc Mat'JQgemenlJolJrIlai. 20/10,

A. (1999) 'Tailored, not Beachmarked: Harvard Bu.sinessReview, Mar.-Apr.

Campbell. Grant, R. M. (199S} (ontemporor

A Fresh Look at Corporate Planning'"

Blackwell).

S!rotf"gy Analysfs (london:

Hamel, G. (1997) Tal'k at the Strategic Planning SOCiety Annual Conference. london. Nov.

Mintzberg. H. ( 994) TIle Rise and Fall ofStrateg;c Planning (Hemel Hempste.ad: Prentlce-

Hall),
Ohrrrae, K. (19B31 Tf'I'e'Mind

of the

Stmtf'9isr (New York: Penguin; 1St pub, McGr<'lw-Hfll.

1982)

I
-------

----

--------

'Chapter 7

St,rateg'i'c Iinteinit

7,.1

The 'concept of strategic int-ent

is the fu-st of the three logical elements of the strategy process outlin d in Chapter 6. Strategy is concerned with hotb ends anp means. Strategic intent is eencemed with the ends and purpo e of tile enl.:erp,rise and combines a vision of! he fUIiU1'e with the' tntent to make that vision a reality, A visiou is a pleture in the mind. Sight is the most yj,v:ldof the senses and the word vision suggests all image of the' future that is both tlu:ee-di:rnensiona1 and in colour. The: vision must go beyo,nd defining the future products or services whlcll the enterprise will offer to cOIilce,ivingalso bow the entetprise will operate as aneutity, what its values will be, and what it will be like to work U1.To say that the enterprise will double in ~;izein a given period rails to meet our criteria for a. vislon staremeat, In our view a vision. statement provides a visual image which is exd,Ling and emotionally energizmg. Viliion is a necess aty part of strategic in til' nt but avision en its own may be imaginary 01' lacking in substance. Strategic. intent must tlrerefore combine vision with the will and the meaas to make the vision become reali;l3'. Neady all writers on strategy nave agreed. that clarif;yingan.d extending [he fundamental purpose of the enterprise is a De ESSary part of strategy. Andrews (1971) saw
TRJI;IiEGI,C intent

S··

the creatron of dear purposes and objeetiv

respOli1sibility of senior management,

S <IS

central to strategy and a clear

MOl'e rec ntly, Hamel and Prahalad (1989 and 19941(wbo first used the phrase strategic intent) see it a,l) the heart of strategy and as providing an .mimating dream fur the future. Onley see j[ as, providing a sense of direction. discovel1', and destiny for every person in the company. Clearly it is at prime responsibility of top managernent to generate such strategic tntent and to e.11StH'e that it is compelling, Hamel and Prahalad HI,ke the view that strategic lntene should stretch the a:spirations.and should not be constrained by existing resources. Rather strategic intent sbould focus the search. fer the necessacry resources and so drive the enterprise beyond the censtraints ot its present resources. Strategic intent may be seen as the apex of a pyramid ofpurpase as shown in Figure

5TRAIECIC I IE" T
--

71

Agure 7.1 The pyramid of purpose

Decision Crl ria

Strategies

7.1. The figur-e shows some ofth words- typicallyu ed. uch a pyramid ofterms tends to be orrned when purpose and strategic intent are discu eel Because different group. 0 people will interpret [be terms differentl ' and beaus some of me term will tend to overlap in their meanings. there is some value in defining such terms tel
improve communication.

7.2

St'rategic intent in pradic:;e

illustrates tb~ main fa
IT 'LOI"

likely to i"'fl~"r1ce traregii i~tent in pract~c . result m [be strategic mtenr becoming clearer, more developed, and more widely nnderstood. This occurs in practice bra proces of continuing discussion Informed by the results of strategic assessment and trategic options. There ate no magic methods to ach ieve quick results, The SITategic intent has m be acceptable to 'the various individuals or groups who are takeholder in the enrerprlse. The hareholders are normally th dominant takeholder group in <I publicly owned business but they are nor the only stake11 Id r to have a d groe of influence on the strategic intent. The strategic intent. will W omething to the hi tory and culture of the enterpri . '01' manyenterprises, ucce wi11 gradu By 'Up w y unles [he strategic intent uercbe. the enrerpn .e 1 trive eyond irs pre ent a pirarion and practices. One of tbe ke respon ibiliti of leader L to caus thi tretc'hing of intent LO OCCln', Finall . 111 strategic intent may b in part based on all in piredgues of what the future will be Like-a combination of evolving trends and deliberat ffort to tIffeclli'te future. Figure 7.2 also illustrate the fact thar strategic Intent is likely [0 include both goal
1:'1 Gti RE 7.2

rThe strategy formulari

proce should

72

TH£ STRATEev fa
-----

"",,ULAno", P OCE.SS
-------

figure 7.;1. lnfluences on strategic intent

--

CIIntut

History and culture

I Ownersnip structure

Corporate values

Strategy formulatll1D Process Strategic Assessment StriItegic ChoiO!

and vision. Goal are tangible and quantifiable, When times are hard. the goal will be urvival. Once urvival seem as ured, the goal for business enterprises is likely t be

to increas revenu " profits, or both. The relativ importance of thes , goals will vary
according t the context. In most publicly quoted companie , the dominant goal i [0 increase shareholder value. Goals are ne e sary but not sufficient for a rraregic intent. Goals on their own do not in: pi:re peopl . The trategic intent must also outline. something unique and inspirational Grear nterprises Seem always to have aspirations beyond pr clueing a profit. someuung that make them unique, The strategic mteru should inspire everyonewho works forme enterprise and perhaps also have an effect on customers and suppti rs, It faUmvs that there may be benefits if the strategic intent can be expre ~ed in a memorable form or <1$ a slogan. This form of strategic intent may act all ill rallying cry. On the other hand logans can in time degenerate into meaningles ness. Th British Airways logan 'The World's Favourite Airlia • rna be an example of b h the value and limiration of logan . Briti h Airways, i challenged, would have been hard pr ssed to prove this claim. During the earl 19905 British Airways was certainly ucce sful at improving ir customer service and image. B· the middle 19908 Bdlish Airways wa receiving high ratings in opinion survey suggesting that it wa at lea t one of the world's favourite airlines. The slogan may have been instrumental .in achieving this position and in inspiring staff to Improve their service to customers. Certainly both the slogan and

5T ATECle INTENT
---

73

Box 7.1 What is the strategic intent of the Virgin Group? Richard Branson made the foUowiog three pOints in a public ele.vision broadcas .
.• Til Virgin. GrOl.lp opera'tes in 'wid Iy diffe.rMt busillesses. llI1d"",ding mWik shops •.an aitliJ\e. l'ail services. cqla SiQ'ft drlnk!l. dnemis,. and 'An'lIIldal services. In each 'of these bu'S'lnesses the Virgin brand is ,lll'1port.ant lila ~ucce:s!i.
2.

Th Virgin (irol1ll will en er busmasses that have most of these charac:tBi:rtftt: • previo1JScompe iwrs who tended m monopoH2e the business; • opportunities to improve rustcrner service and value; • an epportu ty for the Virgin brand to add a percepticn of vatu :
• an opPQrtuni Y t@ introduc,e a sense of fun .•

]. The relative priority ,or srakeh Idel'S is employe s IFrr • customer se£or1o, and share:holders third. The rationale ,for this is that happy employees provide .good service that keeps customers happywblcflln fum willlNd 1:0 profits,

Comment. It would seernfrsrn the above that the $tnrt~glc Intent of the Virgin Grnupis centred on explolt:lng Its brand. The clear criteria for entering new marketssupaert this Intent and focus the use of the brand. The stakeholder prtorttles support the: brand im ge. I may be that the ohjediVes and priOrities ~I&.o reveal a deeper motivation such as 'Kill sleeping giants' Or 'Rock. complac:ent boat<;' that makes the strnteglc intent particulady suitable to Branson's personal inclInations and 5I:yIe.
So!.ln:i!: Nates on tilk by RKh~Id ~f.iln~en. DEICMl:ll1ey Progl'<lmm

51 Uly f!}98.
c

theatternpt to be p. s nger friendly w re very vi ible for i1 time. Later in the 1990 , however. the logan seem 10 have pa sed its sell-by da e, British Airways eerned to b com more oncern d with painting the tail fin' of its aircraft. The connection between colourful tail fin and p, eng r favour is ob cure. Briti h Airwayscustom r ervi 'e no longer stood our [Tom among its mfllp etitor ".The business result afthe 'om pany declined. The slogan bad lost its value as a sta tement of strategic intent. An effecti;lI'.estrategi intent can usually be expressed in relatively few words-a slogan may be mare effective than a long document A Mission. Stateme.n . may be used as 3 means of publicizlng the strategic intent of an enterprise, Good missioa statements are pithy and credible. Whe.n genuine sll'ategi.c intentexists: everyone i aware of it; the mission statement i therefore oo1y ill record of what is already known and understood. F w mission tatements achi ve thi . Too many rnis ion tatement on ito motherhood raternems or are the sub] t of mild scepti ' m or even mirh .:lmOIlI.T taff Lucy Ke1laway (1999).has suggested that til only way for a company to land all i by not having a mi ion rat em n at all. they 11 em to be tl e sam.

7.

ml[

51 RATiiCY' ,FORMULATION

P,ROCJE55

---

_-

~--=:-_

---

7.3

The ro'le of .,eadership lin forming stra,tegi" intent

HE

trategic intent may reflect the views 0 a single inspirational leader, Such leaders tend to be tUghly visible and to surround themselves with people who agree with their vision of the future. As a result the traregic intent become closely reluted to the leader but al .0 widely shared and understood. There are obvious examples of this In Ja.ck Welch and Bin Gates who are otten personally as ada ted with the szrategtc inte:nt:s ofGE (US General Electric) and Microsoft respectively. Unfortunately, strong leaders sometimes fail to recognize that their personal objectiv s may not be of value when the organization has reached a warersh d in its development. Alt such tim sthey need 'to move on, and allow a new leader to take control of the helm but this ,. rely happen. For e ample. en en at LIT held sway for so long that the company reflected hi p l'SOUa. it would eem in hindsight that he built accnglomerate that only he could manage. It took his successors many floundering m ves to right the hip once he leftand to st er it to calmer b\ilt equally lu rative wa ers, The cas examples Illustrate the importance a leadership in determining strategic intent. In r.h leL ea e example. it wa Robb Wilmot's leadership chat caused tCL to dopr a new and clearly . tilted strategic: intent that drove the company forward. Conversely" the problems of Marks & Spencer might have been addressed sooner if Sir Richard GI\eenbury had been less wcally dominant at a time when trategie change became neces ary. It would seem thal leadership hasa critical role in fo.!llling strategic rntent and mat it may be a force for weakne s as well as fGl" strength,

_ --

._ -

--

- _-

--

1.,4

5takeholde: ,S and thei,r ability to

influence strategic intent

TAKEHOLDERS 31'e any group with an intere in the acti ities and r salts of the enterpri e. The most obvious stakeholder groups are shareholders, managers. employee and cu torners. Suppliers. bankers. th government, secietyat larg may also be significant takeholders. Shareholders are gen rally the dominant stakeholder group. Different groups of stakeholders tend [Q differ in their values and hence will tend

to

h:1~edifferent

vlEMS

about what the strategic intent of. he enterprise should

be.

STRATI"'( INl _ T 15

Som stakeholder group are mor powerful than oth I' and som are more inclined ro exercis their power than other , It may b useful to classify stakeholder group on thi basis as shown in Figure 7.3. Analysis of takehold r power canner be precis - but it \ usu Uy useful to identify '!:he main st;tkebolder groups. and to consider how their valu s and ex.pectari,ons for 'the enterprise may differ, omegroups of stakeholders may be less coherent than expected For instance, among employees. the long . erving may have different vi w from recent recruits. The analysis has therefore to consider the. e s separate stakeholder groups. The role of management i to achieve a' trategic intent that satisfies most of'the takehold rs or at least ensures that no powerful stakeholders are left too unhappy, Unexpected stakeholder groups may uddenly form and have gr; ater power than expected. A group of stakeholder who rarely get a men ion are the middle managers of companies. While directors tend to make the decisions that often take organization into new directions, many of the strategk decisions that make evolutionary change possible depend on the goodwiU 0 middl managers to carry them through. In attempting 10 pur ue their personal ambitions the e manager can derail or divert a company from its rho en trategic direction. Becaus this happ os by "Stealth it is often nor detected or corrected. For example. two manag rs in charge of differ III bu ines unit who are camp ting for recogrution win set out to se U [be virtues 0 their re p ctive organization nd eek support and patronage for their busin unit strategie . If. however, re ource are carce, this lobbying can take a inister [UTD. The individual with the cash cow may divert resource to it atthe expense of the individual with the emergent star. thus starving the future busines for short-term gain .. The Nolan. Norton case example gives same insight into stakeholder power in practice. The owners, principals, ana sL"affofNolan. Norton aD had d_ifferent perspectives and interests about the future of the finD. The ru 'cess ofrhe merger with KPMG

Figure 7.3 Model for analy~ing stakeholder power

High Extent of

Avoid annoying
I

I
i

Coosultand

Involve

pow r
LoW

Least important

Inform HI.gh

Low

lm!1nii~llJfllOexe~(l5e power

16

THE 511IATE.C\' FORMULATION

Pr«JlW
---

Box 7.2 Example of power of an unexpected

stakeholder

group

S(;)met:imes rel'atively unlikel'y groups of stak holders can ,Innu@noethe eutcorne In Vfry surprising ways. F r e.xilmple, tn 199sSheU ClIedded after consideration ofenvironment~rl 15SIJ~ to sink its Brent SPilf oilll'latfarm ilHileep water in the Atlantik.(ie[miln drivels boycotted SheU fillil1g $tations anti these ellen lIally fo~(ed shell to reconsider thl~ dedsfcm. Brent Spar waHflWad to a NonN,eg<fanfiord InSh!ad.

N0bady in advance Of this ,event would hilve.predic ad that fuel consumers were powerful stakeholders in Shelt. Thls story dtle however, illustrate a trend away f1!oman Q . My modeJ of stakeholCleJ' power. A more appropriate view for the twentY-first C@fltury - ay havl' to Include the power of the media <IS both significant and unpredictable,

depended I n, among other things, balancing the e different per pectives. In the BMVVcase the intere ts and attitudes f theOuandt family dominated Lh decisions ken. sugge ·ting that a dominant shareholder l'< n signi icantly affect the direction and future of an organizati n.

~. we discussed the impolt~ce of the conte,xt as defin_ill:gthe ba~o~d to Context 1S also a factor III detenmmng strategic mtent, Some of the most common ways in which context matter are as follows.
N Part

Istrategic management.

Every orgautzation lim its own culture. This culture aff CLS what gets done. why thingsare done. and how they are done. Cultures form ov r time as the result of historical even and the influence of particular individuals who I ave Lh ir mark.

Academics and practitioner

have bath studied corp ra

culture. (Se e.g. D a1 and

Kennedy 1962; Hof tede 1991; Trompenaars 1993: Bale &9 4). Culture i 0: fund mental imp nan e in defining and often in limiting trategic intent. The recent history of the enterprise is relevant to understanding both its ulruee and its strategic intent. The pattern of recent performance. Is u uaIly Important, for instance. a mmpany which has been sueces ft.d for <1 long period bur is now under threat react diff.erently from one which is! beginning tcexperience success after a

STRAT£CICINlENT

"

long period of struggle. Rec nt traumari even me hay left rpe fi cars in th ulture and be crucial in d fining the altitude or key individual, Merger cause two differ nt culture [0 rome tog ther, 'The two separate nrlrures often remain diseernibl for many years after the rnel'ger. In.take-overs the acquiring .-ompany's culture will tend co dmnin'lte and may eventually eradicate the acquired company's culture, Eve:o when the two merger pal' .ners are supposediy equal, in practice one culture usually seem to dominate. In orne organizations the strategic intent has become 0 much a part of'tradirion th t they do not need slogan to rran mir them, For In tanre, Daimler Benz ha <I long-standing tradition of ex .ellence in engineering, It I clearly a part of'the strategic intent of Daimler Benz [0 maintain this excellence whatever its busine '. goal al a particular time. just as culture can influence straregic Intent, 0 a, bang; in trategic intent is likely [Q require a.change In. culture. There i, clearly a balance in practice between the view of the Cultural Sello,ol and the prescriptive view (If strat gies. The- Cultural . chcol would holdthat '[]·au.'!gi:c nem i httle more than th expres ion of the rulture of the h enterprise and hat lt i culture which determines its future, The prescriptive s hools would expect a chang in culrur [0 b a requirem nt of a radically new trategic intent and 0 requtr delibemte a [ion to cau a chancre in culture, Mo t context inv I an 'I· men! ofb til fin perspectives as describ d in .hapter 20.

Ownership, and power str,ucture

The ownership of Iargerbusines ses is u ·ua1ly divided belween a mixture of individual and institutional shareholder. Witb thi form of own 1'Sh11'he drive ofthe strategic t intent is likcly to be towards in .reasing shareholder valu . The major institutional hareaotders cannot easily di po e of their holdings without lowering the soar poe. This may lead them to place specific demands on the management or to sed to replace managers. Individual rhareholders may vary iJ1 the relative value they plac on di idends as again t inc rea e in share price, Managers have to understand the mix of owner hip lind rhe sp cific fOI1l'eS at work Other common ownership tructures include family firms, entrepreneurial enter-

prts

S,

mutua Is,

and

co-eperarives. for ach of

these

cases, the own r may have

di rinctive purposes tho, will influence the strategic intent of the enterprise. Family firm are oft n con .erned to maintain continuity of control within the family, They m y b unwilling ro raise capital or attractive investments ince this would dilut family hareholdings, nrnily firms may not concentrate on maximizing profits .ince an ad quare flow orpron1. to meet th zir own needs may be "erfe tl acceptable and le s risk'jl. Handover of uthoriry fr m one generation t another can be a particul I'ly deli cat i LIe and may cans a distortion in strategi iment and trstegy in gen r I over several years, lf the founder (or founders) oft'he finn j rill an arrive participant in its manageme nr, tl1CI'C is likely to be a dose connection between the strategic intent oftlu~firm

l8

TlHE 5TRA1l:(W FORMULATION PA0C£.55

-

80)( 7,3 Examples of impact of personal qoals on strategic intent Virgin Is an example ·ofthe relationship between corporate and persanal goals. The VirglnGrQup is engaged inan airline. r;etaiUng. enteftl1inment. rtnanclal services, cola, ilnd train' .larg~ par.t$ of l,he group are 1i111.!)fofitable and [he profltallilrlft¥of the entire gr~up is less than woUld 'be acceptable 1[11 a pubUdy own~d t{)mpany. At the same time the Group a II whole certafnly provides adequate incOme for li!icha~dBrallSO to pursue hLs1ntere!.t in ballooning and a pliltform 0111 whic.:hhe (an remain a,113ti!;)nal figure.
The 5tra~ic Inten of the Virgin Group is acceptable to Its preseAt OWner but might l1ave to change if. for !nstal1lce, VirgIn was to became iii publ.it cOn1pany,
~OOIU: JlOisedon 'Behll'ldlhanson'. rhI!- f.C'Onomf:d ~7

Feb_13911:~)..

This may result in deci

and the personal objectives of the enrrepreneur' or hi, ,.or her own n 'f! aims and style, fOR that appeal' irrational f1·0IU the point of view of the business as an entity, Customers, policyhold rs, r members own mutual, co-operatives. and associations. The owners may therefore be a large group of people with no natura] way of forming a consensus or of applying clear pre sure on manager. The manager may be free to act in b oad a eordance with the principle on which the institution wa founded. This sometimes re ults in great clarity and implidty of intent at other times :it seems to lead 1:0 stagnation or Jeepine . V!litHe power may in theory emanate from ownership, this is not necessarily the case in practice. It is useful to study the real. power structureof the context,

Contrasting views on the nature of suategic intent

7.6
harp :onU'3Sr to this view that ~tra(\egic, inrenr is at the ·very heart of strategy" . oilier wnters have supported the \1'Jl'W of Simon (1964) and Cyert and March 1963) and have denied that it is p sible for organizations to have either purpo 'or intent, Their view is that on] individuals. can have intents and purposes, They ee organizations as co si ting of a number of individuals who negotiate with each oth rand form temporary allianc through contr crs 'Mito other individuals. The out: orne of the e behavioural proce e determine the dire lion that the enterprise take. Thi view of tb world has a ring of truth to anyone who has observed the workings of a company board ar close quarters; individual agendas are often ~s imporrant as any hated Intent: committees make dedsionswhich owe mor-e to compromise than 1:0

IN

pdncipJ.e.

STRATE'IC

IllITE _

19'

A third vi wi r.h l the inten 0' an rganlzarion is deeply embedded in its ultur . Under hi view, managers have vel)' little cope to make the intent any different from th ernb dded pur
0

e. Real, change in intent can only occur after

a change in

culture and this will necessarily take time. Then isevidence to support this point of vi w from obr erving how hard it is for any organization to make d:r~.matlcchanges in. its way of doing things. For example, ruM wa. outstandingly successful as a provider of mainframe computers and this culture h.ad become deeply emb dded, IBM h1!5, therefore, found It much more difficult to sue .eed in a world where it is selling personal computers and ervices. Both the e businesses involve selling different products to different customers through different channel .
Th se divergent views on the nature and pas ibillty of trategic intent may be more Dr less useful depending on the context. 0 it is neces 'my to judge how relevant and valid each point of view might be in any specific context. Most managers will probably find themselves more in sympathy with the Andrews-Hamel-Prahalad perspective as a stan ing point, They will b • wiser. however. ifthey <II" also aware that this model may nat be (he whole rrurh,

7.7

Summary

i .one of the three essential elements of the strategy formulation .' ..process. Strategk intenr interacts witll strategi assessment and strategic choice in the thinl{in.g process from which strategies emerge. trategi' intent is particularly concerned with the purpose of th enterprise and hence the ends of strategies. trategic intent may be se n as the apex of a pyramid. of purpo e.

:5· TRAnGle intent

Strategic intent describe what the enterprise means [0 become in the future. Strategic intent will outline the unique visionof the enterpri e in the future and set goals to be achieved. The trategy f rmulation proces . leaders, stakeholder and
J

, ontext all influene strategic intent. Srrategi intent depends on the. differing aspirations of stak holder' groups. particulariy the most powerful. Strategic Intent may also be influenced by the history of

aheenterprise and its ownership structur .

TIle trategy fOL1I1UJatiOl1 proc s mustconcern itse.l:f with 1h fundamental purpo s for which the enterpri e exists. The purpo es nearly alwaysinctude the need for survival and to make a pl'ofit. Mo l businesses also aim for growth and to provide their harehold rs with vatu! . Great enterprise need a greater trategic intent than

just making money.

80

THE STRATEGY FO,R

OLAnON P 0C:155

References
Andrews. K. R. (1971)

The Concept of Corpo rote Strategy (Homewood, III.; !Irwin.).

{or eultuml Change (Oxford: Butterworth Heinemann).

B.. te .. P; (1994)5trotegies
Cyert, R and March.

L.

(1963) A Behavioural Theory of the Firm (New York: Prentice Han),

Deal. T. and Kennedy A. (1982) Corporate 1988).

Cultures (New York: McGraw-Hili

and Penguin.

Economist (1998) 'Behind Branson', 21-27 Feb.: (81-3), H mel. G. and Prahalad, C. K. (1g8g) 'Strategk
May/June. ('994) Competing (or the: FlJturf (Boston: Harvard 'Business Sehocl Press], 63-76. Intent', Harvard Business Review, 67/3.

,H fstede, ,G. (1991) Culture and Organizations; So(twor,e McGraw·HiU).

or the Mind (Maidenhead:.

Kellaway, L (1999) '.FIlII of Sound and Theory, but Signifying Nothing' finandal May.

Times, 10

Si'TIon. H. (1964) 'On the Subject of the Org nisatlonal Goal', AmerIcan 5dence Quarterly.

9 June:

1-22.

Trompenaars, F. (1993) Riding the Waves ofClJ/ture {london: Nicholas Brealey).

Chapter 8

St~'a'te,gicAsse,'s.sment: General Princi les

8.1

The purpose ,of str-ategic assessment

TRATEGIC assessment is the econd logical element of the strategy formulation , process. The role of strategic assessment is to anchor future strategies in reality, Thus strategic Intent drives towards the future but strategic assessment relate 1:1'3[egies to the present, The scope of strategic as essment must address botJil the internal and external aspects of the context. External assessment is concerned wi1lhchanges ill the business environment that will affect the business. with changes in the industry. and with the a tivities 'Of competitors. Internal assessment is concerned with the internal re ources, capabilities, and competen -es of the enterprise and the p tential for these to meet future customer needs. Strategic assessment combines analysis with judgement, Analysi without judgem nt is sterile while good judgement depends on ound analysis. Assessment is more than analysis alone. Doing more and more anaiy is doe not necessarily lead to better asse sment, Rather it IS important to relate the fOOlS of the analysis to testing pezentlaljudgeruent. Analysis on tts own ~ends to give undue weight to what can be readily measured and tlitis can distort judgement; As Albert Einstein is: upposed to have said: 'Not everything that can be counted counts and not everything that counts can be counted', Binstein wa , of com e, talking about s ience rather than about management and hi view has to be balanced against anoth r well-known saying: 'Ifyeu can't measure it. you can't manage if. Wh n it comes to strategic as es ment and analysis, these rwo apparently ontradictory statements ar both relevant and have to be weighed against each oth 1', Good assessment leads to the conviction that one has achieved a balanced understanding of the context and the issues to be resolved, This , caviction comes pa:I'ily from emotional commitment and partly from the support of SOW1d

analysis.

JHE 5TftATEe,V FORMULATION P Ott

This chapter

examine

the general

principles

of strategic ass ssment, Chapter

cribe : orne of'th more useful anal, ieal tools and frameworks for external and Internal a e menr respectively. Th principles o straregi asses rnent are easily to t in it rush to appJy the tools. It i important, therefore, that Chapter 9 and 10 . re read in the ligbt ofthls chapter, and
10 de

Strategic ,85 ess.ment ,ali part of the strate·· y formul'at·o,- , process

8.2,

HE proeesse that form traregy vary widely as we have discu sed in Chapter 6. Strategies may result from formal proce ses but probably JUSt as often they result from informal. conversations, chance meetings, or sudden in ighrs ar unexpected

moments. Strategy making may happen conti n 1I.01.J sly or in fi, and struts so there are dangers in 111inking of a begi.n.ni1lg or an nd to [he proces of formulating traregy, However, if rr• .uegy is formulated using a purposeful proces at a particular time. it is Ukely that it 'will prove useful to carry out a stl'aL'egic a. sessm nt ,early in the process. The purpose of trategica e sment i 'to come to a view on the current po lrionof me enterprise asa whole in its relation hip to the outside world. Stta:temc a e smear r lat to specific enterprise at a specific tim . The stra egi as essment attempts to answer the question 'WheTe are we now?' The answer to thisquestion is partly absolute btu partly dependent on strategic intent, sl!T,uegic bnlce.and implementation. The answer to ·Whe.re are we 110w'?' depends partly OIl the answers to the questions: 'Where do we want to go?'. 'How are we. intending to get there?' and 'Do we have the ability to implement the ne es ary changes?', Ultimate! • [be answers to all these questions must be coherent so strategic a sessment cannot be complete in isolation. Figure 8.1 illustra.lles the factors tbat aloe usually impol'tantin strategic assessment. The strateg c asse sment is set against the background of the context, The aim of trategic as essmem is to understand me context better in relationship to the trategic in rent and potential trateglc choices. Strategic intent defines the L1nderlying purpose for U1e enterprise and so et the foundation for strategic as essmcnt. Stta~egic assessment c nnot have any dear basis unles theft' is strategic intent. The a sessment of how weU we stand today depend on where we want to be in the future. Equally. strategic asse sment ma constrain or expand strategic intent. This is wby the arrow between strategic intent and strategic asses ment i double-headed in Figur 8.1. Similarly there i a close two-way link between strategic assessment ana stral' gic chotca Same options may seem more
< e meat: some may seem Jess e ttractive or even impo sible. Recent operational results are usually relevant in making a strategic assessment, It may well be that one of the reasonsfor onide.rmga change in strategy is thar recent performance bas not been acceptable. In addition. cl1eproces ctformulating st:r:ategy

attractive as a result of strategic

STRATECiIC A5SES5MEIIIT~ PRINCIPLES

-

83

Figure 8.1 Factors likely to influence strategic assessment

i often cyclical so that '!J, assessm nt in this iteration will take into account the 'thinking ef'previous iteration and the results of attempts to implement earlier tratgi . Strategy formulation will be more credible if arliersrrntegic thinkingand action has led to visible operauonalre uns, Bven If'earlier strategies have failed, the cau e of failure will inform the pre ent discu ion and enri '11'he traregic assessment, here are norm lIy P,IlU ular reasons that trigg r the need for t at gic asse sm Dr •t a. p rtrcutar time. For much of the time. enrerpri e operate within existing strategies. Results Will not exactly meet targets bur the discrepan .ies can be handled by doing better tomorrow whar was done yesterday. Occa ~ionaUy it becomes clear that thegap between expe tauons and achievement require more fuadamental change. The awareness of this gap may act as a trigger for new thinking and. new traregies, Other common triggers include the arrival of a new chief executive 01' a merger, A trigger may occur in recognition of the need to zespond to strategic i sues impo sed by [he trategic context. The nature of he trigg I' is llkely to influence the agenda and cope for the strategic as ssment, A fundamental type 0 rigger 0 curs when the btl ine i und rgoing a chanze in the rules that apply in its industry. And! w Grove (1996) refers to these as tnt! gic inflection points and uggests that such inflection points occur when there is a '10)( !si,]' (ten rime) change in any basic busine parameter su has ost pel' unit or time tc develop a new produ t, Whatevertbe root cause of the trigger, thelfect 0 such a l.rigge.J:' i [0 cause a shifl from an operationalcycie (that is 'business as usual'} to a strategic cyde as illu trated

14

THE: STRAUG\,

F'DOMULAt ON P DeESS

Figure

8.2

When do enterprises reconsider their strategies?

Operational Cycle

in FiguI'Q 8.2. The: setting up ofa task force to revi w trategy or the appointment of external consultants to assist with a strategic reviewate common symptoms that an enterprise has embarked on a strategic cycle, figure 8.2 is a simplified version for strategic revil:'Ws of reas.Qin.·ibly healthy 'enterprises whiCh may be seen as an ,early stage 'Of Figure 5;1 which applied. to sharpbending and turnaround enterprises,

18.3

The questions that strategic assessment should address

follow trom analysis alone. These Judgements follow from a process of setting and answering que tions. A good strategic asse srn nt will pose and answer relevant trategic questions. Examples of ths kinds of questions thnt may be relevant are: What are our chances of urvival Ifwe continue a we are? Where are the best opportunities for growth given QUI' exi ling capabiliti Where are OUT competitive advantage and disadvantages? Where can we invest to imp.J1ove ou:r capabilities most effid,ently7' Wha:[ changes can we reallitically implement?

5TRATECiI~

as essl1le~t requires con~lm;ionsand!udgements tnat never dire:Uy

81

STRATEGIC ,Il55ES5MENT:PRINtIPlUBS

It i V ry hnportam thai strategic assessment sh uld identity and address the particular questions that at relevant to the context, In Chapter 4. we discussed how a cout xt poses issues or a . ingle strategic dilemma. TIle straregi a essmem start the process o:fidentifying the response 1:0 these issues. Time and effort need to be spent in formulating the questions before attempting too much detailed analysis. A key question to ask is 'Which questions are the right questions in the 'current circumstances?' Taere is a tendency for students on strategic management courses to msh into applying the many aaalytical frameworks availabl witbout considering whar the important questions are. Thi . likely to make the analysis less usefuJ than it might be. Analysis for Its own sake may be a complete waste of time. Naturally, the answers to early questions [end to raise 0 her questions, Strategic asse ment is a process not a single analytical frameworl lt Is an ill:'! as much as iI. cience,

Selecting analyt,ical frameworks and tools to support. strategic assessme.nt

8.4

T·

range of nal:ytical tools. techniques. approaches" and frameworks availabl to support strategic assessment is very large. Some of the most comm.on1y used tools and [oechniques,are described in Chapters 9 E1n_Q 10, Particular contexts are likely to require analyses peculiar to that context as wellas some of the general frarn wow.
HE

Each of the ten s('11001sof thought about strategy de cribed in Chapter 3 tends to suggest a different set of questions for strategic as essment to answer. Particular frameworks tend to be effective at answering particular type of questions and to relate to particular ways ofthinking about strategy. It is usual to employ more than one framework for analysis. A survey by Wilson (1994) produced the data in . igure 8.3 from a survey of fifty companies in various industries and countries. The survey demenstrates clearly Lba most cornpaai in tile survey were using more than one technique, The popularity of core comp ten ie may refleet the date of th . survey which was just after the publication of Ham 1and Prahalad's Competing .for the 'utll're (1994). It is also intriguing that Busines Pro .e R de tgn . hould be included a a te hnique of rategi analysis. The urvey suggests that the variety of rechniqu s in u e wa broad. Hopefully this would m an that all the companies concern d had carefully 011 id red what he que tion for their s regie asse rnem hould b and had selected th techniques pproprtote to til if particular needs. Wilsoo' survey did not examine whether this was the cas . It is also apparent from this survey that some possible ways oHhinkiu<T about strategy-esuch as the Cultural chool or the Environmental School-ewere not "being app1i d in the field at bat time. As well as being relevant to the questions a ked. the selectien of'technlques will in

.6

nlE STRATECY FD MULAnON

PROCESS'

Figure 8.3 Techniques in use in strategic planning processes

technique %Usfog

COre ,Ilampe'tenllles analys.1 ScenariO plannmg

Benml1l:arkiflg lotal quality lJ'la.J;lagemeJ1t. Shareholder VillueanalysIs

72
139
56

44
44
44

Value chainanalysJs
Business proce5S redesign

TIme-basedcompetition

2S

33

SoulnzAdapled from . Wllsoo, 'Strilteg c PlannIng lsn 't ~d,...:jl (han!led', tJlIlg Rrm!P' fJllannmg, Au9"lg94.

practice depend on what information is av ilable or obtainable within limit of time and effort. Many of the frameworks provide wa: s of thinking which help to link traiegi intent, ass ssment, and choice. Thus, in practice, the ools tha prove effe eve for as sessment will be coherent with rae strategic: intent and capable of providing a rationale for irat gic choir . The tools andtechniqu re group d in Chapters gand 10 fOl" the convenience of the read r bur logically they sh uld be spread across Parts n, UI a nd IV of the boolt.

t
-

_
-

-----

8.5

Assessing'competitive advantage

most important aims of rtrategic a se sment is to discover whether the proposed options andeventual choices deliver competitive advantage. Sucres fur business -trategies are those lhat u .ethe capabiliue 'Of the finn tooaddress cuscorner nee s in a way that lead to sustainable competitive advantage. Competitive advantage has characteri tics imilar to the Holy Gl·a.il: it' ~ highly d sirabte, hard to define or measure, and may even be imaginary. Because of its central role in en urine iuccess therehas been more written about competlnve advantage than about almo ny other 19le a peer of rat gic management bservauons of most industries would suggest that clear-cut competitive advantage is the e ception rather than the rule and nrategic choice can rarely guarantee to deliver it. More often. within a group of cam petit r , there are one 'Or two clear leade-rs ami one 'Or two clear tragglers, Each of the r est 'Of the group often hill strengths and weaknesses in particular segments of a market that is 110t complete) homogeneous. The decision-makers h_<lve make their choices based on an accurate to assessment of the-current positioning and a realistic \"i,ew of what Is possible for the
NE ofthe

5THlnEGIC A.5s65M'Ellfn

PRINCIPLES

81

future in terms of competitive leader hip. A dearly expressed trategic intent i often helpful in this d clsion-making pro e , Competitive advantage may more often be relative rather than ab olnre, The wry of'the bear hunters may provide a relevant allegory ( ree Box 8.1 ).,. \lVhile admitting that competitive advantage may be a Utt1e hard to nail down. no, one denies its importance and its centra] tole in determining business success, This role has been. well umrnarized by John Kay (1993:4):
Corporate success derives from a comp tirive advantage which is based on distinctive capabilIties. which is most often derived [rom the unique ch acier of a firm' relationships with it suppli !'S. customers, or employees. and which is precisely identified and applied to relevant markets.

This neatly balances rhe need to identify capabilities and to choose appropriate markets. Competitive advantage comes from matching internal capabilities to external opporrunitie ..As essing competitive advantage is th refore mkely to require combinations ofthe frameworks and techniques described in Chapters 9 and 10. LDassessing wh ather the options and ev ntually th choices will deliver sustainable competitive advantage it is neces ary [0 te t the propo als against the different way in which competitive advantag can be achieved for a time. These are:
I.

Cost-based advantage

Thi i tile roo t obvious way of achieving competitiv advantage. Customers arc als ays aware of the price and will choose the lowes! price if all else is equal. Low prices are only sustainable if costs are .low.
.. 2

Advan.tag,e fr,o·ma differentiated

product or servke
value then it may effer a comp n-

1£ the offering is different in a way that customer rive advantage. 3,

First mover advantage

Th first player to adopt orne new product or approach may derive competitive advantage just b. cause it was first. Such advantage may OCCur if'[11e first mover is able eo grab a Iar~e share of th • vailable market while it offerin.g is still unique. By the time tbat competitors have bnita;t'ed the o.ffedng. the fir.' t mover n1<ly have achi ved eeonernies of scale or brand recognition whi h sustain. its adv'ln:tage. Obviously if
--

80)( 8.1

The bear hunters

Two young men were preparing for a bear-hunting expeditlol'l. One sugge$ e:d that he wanted to buy new ralners to be able to run fast. His friend pointed out that he could not run 'Fa5tllrthan a bear what vertra ners he wore. The fir.st repfred~ 'That's not: we ppln~ t only howe to be able to run faster tlla~ YDll.

&8

THE STltAlECY fORMULAnON

PROa5S

there are high costs for customers to slNilochsuppliers. this contribute [0 tb.e first mover's a fvanrage, Unfortunately while i is easy to find examples of companies who have done well by Ii) ing first into a new market, there are • 1 0 many ex mple of fast followers who have been able to grab the lead even after a late staet. lateI' starters can avoid th mistakes of the leadersand so save both time and money in their launch, Table 8,1 gives somE example • Table 8.1 also shows the risks of offering such examples. Many of the 'winners' may be winners only for a limited time. The successful first mnver may yet be overtaken by a fast follower yet to appear or a first mover into a new direction. SUIJc.essfid fast followersmay be overtaken. by even more successful followers of followers.
, followers
, --

wm

Table 8.1 Examples of success of first movers and fast

Iindunry/Product Passenger Jet Airc.raft Direct Motor tnsurance
First Mover

~astfOllowers Boe:lng 707

De Havilland Comet First Direct

C.hur,c;hil1. any others m 111.C 10

Compilq

I'ocket <ialculators
Personal Computers
Nolr. Winn rs if) bold: type.

Bowmilr
Apple

~-------------------------------------------1

4.

Timembasedad:Vantage

There are other occasions in whiCh time can be a source of comp titive advantage. Tin'le can often be as important as price in modem business. For Instan e, the time [0 bring new products 1)0 market can be critical in high technology and fashion markets where product lives are short. The earlier offering has longer to earn its development cost in the market place, Much play has been made of the ability of Japanese manufacturers to design and produ e new mode) more quickly and to manufacture them more cheaply than W~stern competitor. These examples were cited more often before japanese ind.ustly I ncouneered rh difficulties of be 1990 but tb S~ difficulties are cer ainly not b -cause the ja pane e 31'1" fa st develo pets of new produ tsl In other circumstance the ability to d ltv T quickly or within vely tight time limits may be as important as pri e, Many eu tomers will pay more for fa t or reliable delivery. Pl' instance, SODle sp cialized components may be essential fm' work to proceed in a large building project; Since delays in the deHv ty of the component will stop the whole project.the abilittn deliver faster than the competition provides a competi ·ve advantage. The value of thi advantage may b v ry high it relate to the cost of delay. It is dear that time can be a factor in competitive trategy. For further di cussina of

this issue see Stalk (:1.988).

STRATECIC ASSESSMENT:

PIUNtIPl,

89

5.

Technology-based

advantage

Rapld advances in te hnology can have important effects on the ba is of competition. The most obvious xamples of this re ult frorn the rapid advan e in computer and communications technology. Onerelevant current example is, the Internet (and £cmrune.rce)-a tecl.mo:logy which generates new business opportunities fOl: providers of services and new ways for existing business to communicate with their customers. The shares in many companies providing services on the Internet have achieved very high prices in stock markets even thougb many of them are only serving very limi ted needs of the,ir CUStomers. The b.iggest winners in Internet service provision wilt be those who harness the power of the Internet to serve day,to-day 11. eds, For example. Charles Schwab, a stockbroker. has stolen a lead in elling securities on the Interner. As a result, Schwab bas moved from being a small brokerage company to being 3 very s~gnificant one.

The Internet will affect most enterprises as users rather than as providers. There are aJj1 ady pressures on companies to participate ill l:-conUl1erce and the implied
threat that those who do not will be left behind. fn fact, inappropriate participation may be worse than non-partidpadon. Those Who succ ed will have made sure that they deliver real benefits to their customers and h ve developed the right imernal capabilities to deliver quality resuns, Past experience of other technologies sugge ts that thes who get it wrong may experience the 'bleeding edge' of technology for

themselves.
Th overall lesson on eehnology-based advantage are that innovation may b ::I SOurce of'baslness .advantage and that Innovation may be based on technology. Tire trick of achieving competitive advantage from t!echnelogy is to harnessthe ledmology to create business innovation rather tha exploit technology or its own sake.

Any of the above means of achieving competitive

advantage may be relevant in ;,1 particular context. Thepractirioner. however, cannot rely On general prescriptions but must ra11rhe.l' understand the true basis of com peritlon ef'their particular business. This basis of competi 'on is likely to be changing and Ute winners will be those who understand the present rules of competition and how those rules will change in the future. I is also es ential to remember that success in the furore will d pend on finding new patterns of competi rive advantage sine the eld patterns axe known to all andtherefbre commonly available. Thinking outside the 'box' seems to be tile prime means of achleving competitive advantage.

8.&

Assessi'ng corporate a vantag'e

is the means by wbich one business Can win in comperi tion with another, Corporate advantage is the means by which a mnlti-bu iness eorporaucn call add value "to its 'businesses beyond what they would be worth on
OMPETITIVE ADVANTAGE

_0

lHI: S1iR'ATEiGlI'FOR

UlA1i1DN PROUn

tbeiF own. StI'a:te:gic assessment ofmulu-business companies will Deed to as ess how much and by what meansthe corporate headqnarters adds value. It m.1Ybe that the v:atue added corporate headquarters is small. or even negative, in many enterprises. This issue is ofinterest both in practice "ntit for research, ln practice, the cost of a headquarters is J.lelativcl~easy to measure, If the head. quarters is adding little value, the costs of aoati.llg and operating the IcoDst:itue:m businesses as separate businesses mlghr be less than thf'cast of the bead quarters. ~bareholdef$ could then bold shares in the separate companies and choose to buy OJ.' sell these a5 they pleased. The argument is. ,in short. tllat stock markets are better at sorting out investment po,rtfolios than corperatluns, Many managers of subsidiary companies and divisions will suppott the geaeral view that 'group' is a waste of their

oy

lime and money! Collis and Montgomery ('l998) conClucMd a research study among a group of fifty companies who were struggling to create corporate strategies by which corporate headquarters co,l1kl add value to the separate businesses, They found that some of the companies were workiag on core eornpeteace- smae were restructermg their 1'0111:folies, while others were concentrating on building learning org&l!izatiolls. They concluded that it 'Wasnecessary to pull these dimensions into acoherent wbole ro optimize cOFpol'ate advantage. This thinking resulted in. their Triangle of Corporate Strategy [see Fig. 8.4}. Thi 'provides a pes Ible fram.ew·orl< for the Sll.'<ltegir3ssessIDa>nt of corporate a.dvantage.
The cern e of thE' triangle is vision, goals, and objectives wbich is what we have

referred to as stl'ategLc intent. The three sides of the triangle are resources, businesses, and the Ol'g<!DizatiOD, systems, and processes, Competitive advanrag~ ~s shown at the comt'[ of the triangle where resources and businesses meet, Corporate adva:ql:ag~ the result ora good match between rt business and its resnurces-ebeing is weU fitted to its oppo~tunitie.s. Th.e other two corners am marked co-ordination and conrml, Appropriate co-ordination. and control occur when the organization, systerns, and processes areappropriate to resources and basinesses respectively.
Figure 8.4 The triangle of corporate strategy

'Competitive

Advanlllge

Co-or:dinat1on

OrgiinfilatJon, SYltl!m:s.

Proc.eSse5.

COllltrol

5P!iFfii;Adapted from n.j. (QII~ lind C. A. Montgomery 'O"eatlnfl (!:orp:Dl'tlte Ailvantlge', HOMI'tI BlsII'1eSS ReVI-W" MolV-JUM 19911.

STRAnGle

A5USSI'IIIENT: P .JNCIPU;S

91

'Figure 8.5 Successful enterprises tend to make coherent choices

qene.ral

~
Natllre

I
I
I:If{l!So!lT(:e.s

,~

specialized

'"
icope (I~;lilDine5$

'"

I.

:shi1l'rl:ny

(O.clI'dlnatie1 m&:han1sms
(OntlrQl~yslems

... ,

smaH

I
Corporate office site

$arm;!!: ,AJ:!apted

from [t J. Collli.<lnd Co A. Montgomery 'Creatll'lg Co~porate Advantag e', I'latwrd Blisfhesol< Relliew" M!ly..J una 19.9~.

'"

Collis and Montgomery claim thai their research demonstrated that better corporate advantage resulted when there was a balance between the varieus elements of theirTlliangle of Corporate Strategy. Because of the inter-relatiouships implied. there is no single solution that will lead [Q the best: pattern of strategy. Rather strategies will vary along a number of dimensions and the most successful strategies were aligned 'in these dimepsiolJs as indicated in Fi~rr;L'(:-e 8,5This framewerk is not highly quantified but it does suggest a way of considering corporate advantage in the strategic assessment ofmulti~business· eompanies. Other possible techniques are described in Chapter 1:0.

,1.7'

to~ether --g ,

Pulli.ngl the strate,gic assessment

assessment involve'S asking questrcns, using analysis to answer questions"

better questions. refocusing analysis. and so on. The end result is a rich picture oftbe stmtegiC context and the potential choices to be made in the light ef'a strategic intent which may uselfbe evolving and becoming clearer, It is impcrrant that the results of strategic assessment are shared among ;'1 group of

S reformulaueg
TiRAl\EG,u::

9Z

THE STRATECV FO MUtATION ,PROCESS

people-tte trategy team. However rational the que tionjanalysis mechanism may have been. 'the value and inclination 0 th p ople involved will introduc an irrational elemenrinto the as essment, trategic assessment should lead to conviction and SI) implies th involvcH1ent of both Intell ct and emotion. both mind and heart. fu:ationali.ty is both inevitable. and necessary to provide the commitm nt to future action. Variou techniques are available to assist ill the process of pulling a straregic assessm Dr tog ther, It is likely that computer models and support of various kinds will be useful and these techniques are describ d in Chapter 12. It is likely that the attention of the strategy team will focus on a few analytical techniques. These may therefore ontribute to the prccess of irrtegration of'ideas, consensus. and onviction.. The value of computer models may be as much in their ability to assist communication. and agreement a . in their ability to extend analysis. The SMIDT (strengths •.weaknesses. opporrunlties, and threats) diagram' 00. technique that cannot be omitted from a textbook. on strategy. TIle SWOT diagram is now probably more comlmonly used in business school. than in the field. TIle SWOT is not itself an analytical technique but may be a convenient r.vay of summarizing the results of other anaJysesa illustrated in Figure 8.6. The internal analy i ends 0 reveal the trengths and weaknesses of the em rprise, External analy is t nds to reveal opportuni .cs and threats. Jt should be noted that in many ca the arne external change may represent both a threat and n opportunity. An appropriate r ponse an change a threat into an opportunity; One particular contribution of the WOT diagram is that it m"y h1ghligh th relationships of strategic intent and strategic choice to traregic assessment, Strengtl:ts <lnd weaknesses are not only related to competitors but also lie where we want to go and bow we intend to get there. The SWOT diagram is usually mosteffeetive when only the most important balf dozen or so pain are listed in each qu dram. Reducing much longer list'S of

Figure 8.6 The SWOT diagram may summarize the results of analyses

Streng Its W~41knesse~

Thl1!ats Opportunl res

.(.7"

lnternal Analyses

Allalcyses

External

t----...o::::oo----

STRATECIC ,ASSESSMENT:

PRINCIPlES

93

and threat can be a valuable source of discipline and insight. Thi: reduction proces involves making judge.mentsabout relative importance between variables thar cannot be related analytically-for instance. the cost of providing improved ervic versus the value 10 the customer ofthat service. An ideal strategy would use the strengths to exploit the opportunities while at the same time defending again t the threats and hiding the weaknesses. In practice, it is rarely 0 simple!

trength

. weaknesse

" opportunities,

8.8

a whole
NE

Strategic assessment ,of a business as

Is that the mass of derail can

of the busine s is lost. A powerful technique for broader assessment is to ask more general questions. Exampl of good questions (oIiginally suggested by Levitt 1.96'0 as antidotes to marketing myopia) include:
• What business are we really in?

of the dangers of many analytical techniques O obscure the big picture so that the integrity andessenc

• What real customer needs do we satisfy? • What problem do we solve for OUJ' customers?
to thel:rateg:ic strategy away from a routine per pee ive of the nature of the enterprise. This may help to generate thinking OUtside the constraints of everyday work and bringer ativity to the formutend 1:0 relate the strategic assessment The e kinds of question

uttem.Quesnons such a these can lift the proce s of formulating

lation of trategy. See Bo 8.2 for an xample.
------

Box 8.2 Examples of broadening

flectric Ortlls.

thinking on the nature of a business

1I1:1e need of 'the customer b rat a hole or for supporttn hang 5.cmethingl om a; wall. The chill is a Ti1!IeaM. Thl'!te are many other ways of meeting these needs, Cosmetio. The m5tomer Oiled I for pars-anal reGognlltjQI'lot some p.sycholog eal benefit. A msrne c rnanufacturer whc sees the purpo~e of its business as improving the customers self-Image will define thelr busrness more broadly than one that sees itself ill the market for face paints..
Source! Adapted f1l'()mT. Lelli~l. 'Marketing Myopia'. Harvard Bwfmm Re\lI!W. luly-Aug. 1960.

!MI,

THE STRATEGV IfOQ

U,l nON

PROCESS

B.9,Smmary
c

with a vi w to realizing the strategic intent, Strategic assessments tend to be carried ourfcrrnally in re ponse to ome clear rrigg r which may be poor performance or the

TRATiECICssessment SThe aim aof trategic

i ,0)'1'1 essenrilaJ element of tile s~<'ItegyfonmilatioD process. II essment is to take tack 0 the current btl ines situation

arrival ofa new chie exe inve.

Strategic asses ments will include analy is of the external business environment and how it j . hanging. Internal re ource and capabilities are also anal s d. There i a wide selection of te hnique to support thi. an Iy i ,The puepo e of the rrategic assessment is to provide a rich and shared under tanding of the context and the issues which it .imposes .. One critical requilre.mlentof strategic assessment is to build an understanding of me nature of current and future competitive advantage. This can be' one means of taking a broader view ftb bu in 5S as a whol . Thi ea 11 have the effect of integrating the analyses and bould also lead to conviction among th members of the strategy team. Chapters 9 and 10 describe some general tools and techniques that are often used (0 assist in strategic a. .essmenr, The e tools will be most effective when they are deployed within a clear idea of what the rraregic as e srnene is auimingto acni ve as described in this chapter,

References
Co lis. O. J. and Montgomery, Review,Jul-Aug. CA. (19.95) 'Competing on ResourCi!S'. Harvard Bus;ness ( 998) 'Creating Corporate Advantage', Harvard Business Revi w. MaY-JUne,

C;~t)Ve, . (1996) Only tile ~aranoid Survive (London; HarperCollins Business; paperback A
edl1., 1998).

Hamel, C;"and Prahalad, C K. (1994)

Harvard Busine s 5chool Kay,

CrJll1petJng

fvrthe fuwre (Cambrldg,e. Ma5S.~

Press).
of Corpo rote Success (Oxford: Oxford University Press).
Myopia'. Harvard .Busne5S'Revlew. Jul-Aug. Next Source of Competitive Advantage',

J. (1993) The foundolions

Levitt, T. (1960) 'Mafketing Stalk. G. {'988) "rJrne-the Rl!lIiew. Jul~Aug.

Harwrd Business

WI,lson, I. (1994) 'Strategic Planning' isn't Dead-1t Changed'. Long Range Planning. 2714

Aug.

Chapter 9

S'trateg~c Assessment: Analysis of the Exter:nal

Envlronment

9.1

The, ipurpose of externa,1 analysis

S

'. environment and of internal re

TRATEGIC

srnent r

uires an under
OLl!)

tanding

of both the external

bu ine s

es, capabilities,

and culture. Thischapter

examine' some of the more commonly used frameworks for ana'ly ing thee" ernal bu iness nvironment. It i important that this hapter hould be read in conjunction with Chapter 8 which. described the general principle', of strategic assessment In general. the tools described in this chapter are only of value when they are appropriate to th particular context and ai applied with understanding of the wider principles, The purpose: of the external analysis, is to understand what may affect the future of the enterprise as a whete from outside itself. Theexternal analysis may often be usefully considered at thr-ee levels: • eneral changes in the businessenvlronment: • change within the industry: • known activi ie ofinun diate competitors and other specific events,

.. -

THE 5l--,AIlGY

FDRMUbUIDN

"BDCESS,

9.2

lenvi,r-cJi nment: !PE:5T an,ailysi:s

AnalYli:s of the overall business

P,',' ~nalysis 1,'51 ~e m,est commonapp~aCh I!ST .. £OJ' ,(I~n:~;id:ering tne ~te~al business eJl\IJl'omnent m general FEST (standing f01' poJii'tlcal:., economtc, social, and technological cbange) rougbly defines the' scope of what is required but the word
H'E

PES'f is no more than at, collvenient mnemonie, Each of the four bread areas subdivides into a ]onge'l list of areas that are likely to he warth considering. Th.is longer list will tend to Vaty according to theoonte.xt. PES'I' is not arigceous analytic.al tetb.nique but r-.athe.t'3 broad framework for reviewing cllanges in the outside worM that may aiffe,ct.1 particular enterprise.
of file PHST analysis is that the enterpris has to react to changes in its external environment. 'Ibis refiecl:Sth,e idea that strallegy lIequires a fit between <capabilities and theexternal envirenmeat aad so it hi, neressary foran encerprise 'to react to changes, Political change migbt be e%pected to ind'ude. for instance, general ch.anges in the domestic puUtital,cUmate, the effects ofEuropet1D integration, the after-effects, of the break-up of the Soviet Union. government change. world power srufts. as well as specifk legislation and regularicn, Changes in legiislatioD tend to OCCUl' in iii cycle extending over several years. The initial ideas mayfirstbecome apparent asa po1itical The undt'rlying thinking

concern, fulilawed by ,rus:cm.sion and policy documents befOTe the changes. become law. U maytherd'ore be possible to discern and possibly tnfluence the likely sbape of future legls[<1ltion in advance. RegUlation,. and particuJarlycllange in regulation. is critical to many businesses including. tor instance. brewing. financial. services. ami waste disposal Mostregula:don is announced some years before it becomes 'clfective .and future trends may become appru:ent even befo~e I:egislation is fm"lll.li1ated. RegLuati.oll. also tends to have effects tb.at are both wider and difli"er,ent from what the regula:.ters intended. E'trmomicI~hange is lik!ely 1:'0 include the effects of econorrric cycles, patterns ofwo,rld trade, currency eenverslon rate changes, commodity prices, changes, in capitaJ markets. labour market and rates, and economic effecl:son suppliers and I'artiadar groups of customers" !iCtiifiOmit: cycles a.ffect nearly all businesses but some' may be hit eMly inrecessioas, whil(e etbers tend to recover late in the eycle, Some businesses are 'COURtiercyclical, EX11mples include insolvency practitioners (for obvious reasons)' and perhaps
book selling (because reading is cheaper than some nther fbrms of ceDrerra:inment). Economic cycles,also occur in different geograpb:k markets at difterent times and each rec,essi.on tends to have sJj~tJydifferent characteristics. This means that simple extrapalation from th,e last recession is not enough_ Gapi:tal market cycles relate ID economic cycles: but not in a simple way. Timing in the capital markets can be very triti.cal for raising capital or for raergers and acquisitions. Mass labour market's are

StRARGle ASSESS am IEXtERNAL

97

b coming less import n fOl'busmes s [hat depend more on brainpower than elbo\ power. However, the ihcrt ge and hence high price of particule r skills can often be signifi ant enough to merit the trention ef a strategic asse sment. Social changeinclude the tJ'etts of demographic patterns, taste and habits. and concerns about tIll!! environment and sustainable development. Many products and services, [or instance. pension 01' popular CDs, tend to cater to the needs of partiCll.lar age groups :;0 that demegraphk' treads will affect the total number ohva.Ilable customers. Demographic trends are morepredictable than mo t long ..term social trends, Changes in tastes and habits, on the other hand, can occur very fast and may be totally unpredictable, For this reason, businesses that are rughly exposed to fashion tend not to attempt [Q predict the future but rather to gear themelves to be able to react fast to change as it O'CCllfS. Bnvironmental concerns have increased aver the last couple of decades and are now a Inajol~ issue for many bu ine es. legislation normally sets the. 10we.Tlimit of what is .required but many businesses wiU want to' exce d the 19u1 rninlrnum or to plan lheir long-tenn investments so that returns are not 31 risk from future legislation. The effects of environmental concern reache ar fl;lrther than merely the control of emi sian. For instance. property loans call be affect d by the long-tan liabilities of land wners. Technological change cover the effects of rechnologi al change on product . proc S S, and distribution channels, Obviously, particular technologies have direct relevance to industries that depend on them. Por instance, (be future ora pharmacentical company depends to an important extent on the flow 'Of new patents and [be expiry of old ones. Changes in fields such as telecommunications and information technology havea wi.dl.!~impact and are IH,e]y LOaffect almost all enterprises. The Impact of the Internet and Ecommerce is the latest (but unlikely LO be [he last) wave of change derived from technological advance in this field, Biotechnology may be as important as a driver of te hnological change in the twenty-first century as information technology has been for th.e later part of the twentieth. Preduct innovation tends to be particularly important for young and bigh technology busines es, Many stan-up businesses are founded to exploit a particular innovation so their tn ilia 1 growth and 'tJC(CSS depends on being at the leading dge of l'ec1mology . .lnterestmgly it seems that the econd phase of growth depends Oil developiQg [he ability to 'cross the chasm.' and sell high-technology products OClO mainstream customers (Moore 1991)-a technological change of a differerrt kind but which would still be higltly relevant in a P eST review. Proces innovation may be more important in more matur bu Inesses where th rate' of change in th produc has decreased. Development's in transport and communicadons are particularly likely [0 affect distribution busin sses while lean production techniques particularly aff ct manufacturers of mas consumer products uch as cars. Changes in technology may often lead to th entry of new corop titOl whose skill Is in die technology rather than in the business as it was. Such eompetimrs can initiate rapid change in Industry practices and structure. It is tmportanttaat any part of the PEST analysis should focus on those changes in

me

me

"8

THE STRAT[Cl¥ FOR

.1Iun10N

PRIK£5.§

Box g.l ~a_mple of change of critical importance

to a particular buslness

The Increa,Silng use of mlnl ilnd personal (ompU~er$ln farge oompanie& was of great Sf 9 nifian!:! te No len, NoAon by the rrndd Ie of ~e' 19805. These 11 types of eornputer ew welce ofter! Qi(J~ethe (,onblll ehhe ceatral inrnrmat]on te(hllOl'og~ ('IT}department 'lihat might therefore iCiS'eits mQnopol, rontml of IT buclg,e.ts.
Thls change was a fhre,aM:o NolaD, Norton whose pril'lEi,l'al custt1F1'1el' were the IT airector <lind t~ be:arEi member to wl:mm he or she r~porlied. The B~usof U.e boal1"d on il'iformatipn technoloQI{ became more Oiffm,ed. Nolan. Norton's mrvices became less dIrectly rrelevalnt ClcSt:hey could no I[onger orfen rhe board ill total vJew-af IT ilcroSS the orgi\l1iz;a~]o'liI.'ne central IT budget~rom which Nolan. NQlWlilI's fe_eswere pard ~ alsQ, eften cut back

Nolan, NJoJ'tOI'l'~ strategic response was to seek to lNln ai$~jgnmel1ts rela eel tu ne
tl1ll1Sform.llion

a$~igi1rnenb. and neW skills among consultants.

or buslnl:!ss enBbled by Informationtei:hl'lolom'. this new strategy requ{red cha:n!llGSrn marketlllg. new ifldiiViduals as principal cantact, a larger scale of

A.few rampIJters outside the oontrol of the central liT departmenl probably rarely seemed '$b'awg!c.· to the compall'ies concemed but j,t was '1:.0 Nolan. 1\40'("11:01\,
1

the external environment that are of importance [0 [he business, not Just change in general, Man:. major changes. for odetyat laree may have little erne signifieance [0 a particular enterprise, On the other hand, partin:i1n changes which ][[layseem insigllifu: .. nt in ge.nerdl~maybe crucial to a particular enterprise (see .Box 9.t). a Clearly a PESTauaIysis will require ID.• :"UlY and diverse sources of Informatica depending n the busi'ness in question. In larger enterprises, nl:Llcb of this informa!:ion.may already be callected for other purposes. The task is to ensure that relevant information became: visible to the strategy process to interpret-its strategic sigIlificance. A PEST analysis should addre I[hl:! drivers Qfl1ange as well as 'I he change it elf. One of the d~lngeFs tlfPEST and of many analytiOI] techniques is that they tend to be unduly semitive to historical data and past trends. All trends eventually end but turning points are hard La predict. Anecdotal evicl.~ncemily bf criticilllly important in detecting new trends early, as anecdotes may hIghlight Lhc eJGceptions wl1Jich give early indications of new trends ill fore they have shown up in formal reports, Useful anecdote ften come from people wbo are in direct contact with customers, They may notice changes in customer attitudes that occur before changes .in cu tomer behavioul·, When ill ch.mge in trend is suspected .it is necessary to track tile effect of the previous trend on the business historically to isolate the prebable future ,effect ora change in thetrend. The PEST.analysis is vel)' creneral in natureand Chi makes it diffi,j,llt to give dear rules on how best to apply it in varying circumstances. Global or gf!ographkaUy dispersed enterprises will have to conduct separate PEST analyses for diffe.rt:!.Ilt
i

SlJIAT1!GIC ASSESSMEN'r. EXTERNAL'

trends occur at different rates in different places. Some choices may have to be made across these regions 0 tha the PEST analysis 'will give results that are of doubtful value even if correct. TIl value! ·ofthe PEST is likely to relate directly to the quality of'th effort pur into it. This time spent thinking about how external. change will affectthe enterprise and its industry is likely to be well spent. regions
3S

9.1

and !responsibility

Stakeho'iders, corporate govema __e, e

HE :EST~na.l~si. i. concem~d with gen~ral change in the b.usin~ s environmenr, Thl. ecnon IS concerned with changes ill how the enterpnse V1 wS the external environm n . Changes in persp ctiv of the lema I world may be as significan as changes in the external world itself. The concept ·of 'rake.holdersand their influence on strategic intent was discussed in Chapter 8. Strategic assessment is likely to be most concerned with hifts in the part III of stakeholder pow r, This may be een ,1 . particularly relevant to the Power School of thought about trategy (Chapter 3'). uch hifts can occur gradually a a result of odal or te hnological change. For instance. a craft group may gradually lose power as a result of their skins being automated. Shifts .in sta.keholder power may also occurrapldly, particularly if there is a change of ownership, For in tance, a private firm may have to increase its focu on profitability when it floars on the stock market. Corporate governance is concerned with the balance of powe.r between (he owners [shareholders), managers, the employees. the government, and the public: at large. It can therefore, be een as a force that regulates the power of groups of stakeholders. Confli of interest tend to occur berwe n shar holders and managers and between manager and employees. The managers and nareholders may have different view about th relative contribution made by capital as against managerial kill. The nonexecutive director on the board have a particu lar duty to represent the: interests of th har holders 0 thai' differen es of opinion b tween the executive and nonexecutive members of the board may b ruper ',1 indicator 0 underlying i ue of corporate governance. The balance of power berwe 11'11 managers and employees has its roots in th relative value of capital and labour in contributing to uccess, Skills and knowledge ar now often as or more impcrrant than capital which tends to increase the power of ernpl 'lees and requires managers [0 lead and o-ordinate rath r than command. Corporate governance bas rome to thepublic attention in the UK over the last several year as a re ult of the Cadbury (l99z). Gl.·eenbury (1995). and Hampel (-1.998) reports. The Cadbury committee addressed issues ,1'~Ilt:lng to me -lTUCtUI"e5 of boards

1,001

ME SlIlAIE'"

FORMUlAIION

PRDtES.S,

and laid dnwn a code of best' practice relatingto board tructure, In parneular, it: advocated the , eparation of the Toles of chairman and managing director. the
of nen-executive dlrectors, and dear responsJbiline.s for audil: and committees. The G.reenbuzy cemmittee dealrwtth dtrecrors' pay. It laid down a code of best pra.crtice for how remuneration should be determined and reported in annual reports. The patterns of corporate go:ve:l.':llance dille): between countries. The USAand the UK have systems that are biroadly sillillar to each other, In this model the shareappoinrmenr remuneration

holders own ru,e compiUlY and elect the directors as their representatives,
ectors, including the ehairman,

All dit-

have equal legal responsibilities. There is notusually any formal structure for representiag employees at board level. Inpractice ..this form of eerporate governance tends to result in most day-t&day authority being held by a small group of di'rertor . The non-executive directors may beoome critical at partieu1M times-for instance. if there is a need toreplace the chief executive. financial

analysts are antmportant

sralceholder

group as 'tln.ey haw considerable power in

forming tbe opinion of shareholders. In. con tin ntal Europe, employees more often have rights offormaJ representatloa at board level Thel'e may be two levels of board. Tlle overall result is for a farger group of pe ple to be involved in major decisions. This may curb abuses of individual power but may s~owthe decision-making pFooe:ss.1'be power oftbe financial markets bas traditi01lally been less aItllOugb. this isbeginni:ng to change,

The Japanese model of corporate goverruulce is di.ffere:nt again as a result of the in.te.r1ocking share.holdingso.f'tbe I<airetsu system. Michel Albert (1994) has summarized the chara teristics of the three models as shown in Figure 9.1. l't is important to rememberthat there are mnny exceptions to these broad gene:ralizations. Any analy·
sis of the impa t of corporate alway apply. The pattern governance has to examine what governance

isms an! important in that particular context and not assume that
of corporate governance

rue general
strategie

mechan-

rules
are

may afi'-ect [he way inwbidl

approved and the nature of the strategic intent, General patterns of corporate
Figure 9.' Different models of qovernance

AIIglv5it!1ltl!l

llliine
1nstItutiilll1l

liI,piIIJeHi InstitutiOns
Kail1! u

OWnerstll Board
IMaf1iJgll'ment

Pu'bllc:

Shareholder
Reps. ~hainnan
ilndCEO

Sharehol'ders
andUnloTIS

Reps. eollectivpeopll")

ColIKtlve

(five to seven

S'outee: Adapl,(lIdIrern talk by M ttlel AilJer· ilt ~"e~trategil: Management 5ocie~. Nlurteennh Annuall Inte:matianaj (;anrerenu\ HE( Paris. S€Pt.19!}4.

5T11 """'Cit

55 E55M ENT: E:ntRNAl10'1

governance are evolvi.ngand practices in 'ufope ma~ tend to coalesce, Mucl10f cerporate govemance is advisory rather than sta1:Utm), so that enterprises lla:vC'chokes about fum stance on compliance. Large corporations in particular have to consider their respomibility for [he power that they 1ivield.This raises issues of 'corporate flfs.pons,ibtlf:ty that are -wid r Ulan tIle' issues directly affeGted by corporate go-vernanee practices and guidelines. Common issues of corporate l1i?sponsibility include the preservation of theenvironment, the proper use of chari,table donations. the rela,tionslu.p 'with disadvantaged social groups, and the reaction to :rruijor world events such asthe break-up of the. communist blo in Central and Eastern Europe. Legal firamoeworks may exist and may exert some influence in som of these fic,lds but there remain. and always Will remain. grey areas where conscience and the profit motive filay be inronfllct. Ther,e are no general mlesilbout how corporate responsibility can influence straregie intent but there are few contexts in whicll cerperate responsibility can be wisely Ignored. Cannon (1994.)attempts 10' structure the sub] (.1 of corpOl<lte responsibility and describes same of the historfical background. Issues of corporate responsibility tend to present tbcmcselV·s in untidy forms at inconvenient moments leaving the practising manager m n~ly very much on his or her own inner resources. Shifts in stakeholder power. the influence of ~()rporate governanre, and attitudes to corporate responsibility do not lend themselves to neat analysis but certainly any

strategi_Cil$SeSS1l1ent would be incomplete ifborh the current

of'change are not understood.

Status

and the direcnoa

--------------

--

----

--

9,.4

.'ndustry ,an.lys'is:a wo~d lof willinin.g

'TH.E second

level otexten1.."ll, analysls is likely to focus on the 'industry'. The changes in the overall business envirenmentwil! afliecL all the play,er!l irllthe industry but will often lend ~o'beo,eftt SOme players more: than others. The word industry has been put in inverted commas, as It is often vel')' diffiol-ult to d,efine wh<lltan industry is, For instance, do brewers c:oIIlpete in a beer industry. in .1 beverages industry. 'Or in the leisure industry? Attb.e most obvious Level. a beer drilliker merely chooses between One make ofbeer and another. However, drink'erg may alsochuose between beer and tea 110 quench their tilll'st so 'two beer-brands have a ,common interest in. em.phasizing !:be benefits etbeer agatnst lea. imilarly ..the quenching ofthirst is 'Only one possible use <creme so that both tea bl nders and beer brewers have a common interest in encouraging liquid rE'fr~shln(!Jl'~ breaks rather than TV watching. This simple example illcstrares a point that lends to be. just as important in more complex

'industries' . Conversely. some so-called 'Industries' are not industries t all ftmu a strategic perspective. For instance. the steel industry cov,ers a wide range of productsfrom steel beams fOor uilding to nuts and bolts tbr domestjlc use. Steel beams .ma.y be more b

102

THE 5TRATE:G'" FORMUlAT10N

PRO £55

usefully co idered a pan. 0 th consrru don industry while nuts and bolts may b more usefully s een as part of a fixtures and fitting industry. Th se simple example illustrate the very real dillku]' that commonly occur in trying to d fin wbat an 'Industry' is and who the real compentors are. It: is important IiO define eindustJ7 wisely and be. sensitive to the feact that much real strategic change originates at the b(luudaries of,·",ba:t had been seen. a . scahILl.! industries. The question '\IInurl industry are we in?' is do ely related to the qaesrion 'What business are we in?' which was discussed in Chapter 8 as a. fundamental issue [or strategic assessment to address.

9.,5 In: ustry alnal¥-sis: IPorter'.s five forces

model land 'its extension

ing School (Chapter 3} which sees the fuadamenral role. of strategy as positioning me enterprise f r the funire, Porter's Fi e Force Ftam.ewoJ'k is shown in Figure 9.2. The five force- are the hr at of entry of new competitors, the' threat of sub tltutes, the bargaining power of bl.'lyel's.the bargaining power of suppliers, and the degree of.rivalry b tween existing . competitor •. Porter's premi 'is that some mndustri s are intrinsically mor > attJ'3luve than others and the attractiveness is determin d by lh e five forces, The threat of entry i high wh '0 the indu try appears auractiveand when th re are

ICMA_E.L

P~rt~rma~e one of the most thorough t~empts to anaJ~ forces WIthin all industry. Porter's wor .has an important place

in

the econ_o~c the Position-

low barrier. to entry. Industries are attractive whenthe existing playersare making
good profit . Example 0 barrier to entry can include high requirement for capital. scarce sldlls, importance of reputation. or difficulti s in ace 5S to eli tribution. If barriers tn entry are relatively low, the threat 0 . entry place a limir on prices in the industry and may determlne the shape and extent of investment required to deter new entrants. The threat QJ~lJhstitut'iofl is high when the customer's needs can be met by buying something ether than the proauct of the Industry, The magnitude 0 .tins is reduced if there are high cost. of'switchlng or ifthe price performance ofavailable substitutes is poor. There is an imporranr rbeoretical distinction in Porter' mod I between what constitutes substitution and mer ly buying from a ompetiter, This di tinction is sometime more difficult ro make in pra tic than in the ry and also depends on bow the 'industry' being analys d i defined, The l:mrg(liniflg 170Wl.'r of buyers is high when buyers are able to switch b tween supplier easily 0 l they an seek discounts or additional ervice in r rum for coutinuing their ustcm. Buyers may be powerful if there are relatively few buyers and a l.a:tgenumber of sU,pplliel'S. Buyel'S may be powerful if they have strong brands.

to

Sft"'TECiIC
-

55ES5111lEIIIT: Ul',ERNAL

10']

Figure 9.2 Porter's five forces model

Th~eatDJ
nl!Wenl.:rants

Indurtry Competitors
Iintensityof

..

Barga !ling power '-

Buyers

--'

,rivalry

ofbuyel's

Thrstof

substitutes

Source: Reprln[,ed WlLh the perrnlsslon of The FreePll55, a Division or Simon and chuster, from Compel/tive Adl'onmge: Creating and SU!lDjlling SuperIor Pf:rfonnance by Michacr Potte;, Copyright C IS8S. 99B by Mlcl1 el'F.. Porter.

An example of this is large supermarket chains whose own brands are strong enough to make them independent of the manufacturers' brand repu ';ltions. The bargaining power qr suppliers i high if it i hard to switch from one supplier to an ther or ifth total supply to thi industry is only a small pan of the upplier's total output An example of this is the glas indu try that depend on specialized chemicals. These chemicals are a relatively minor part of the output of the large chemical companies that make them. As a result the products are more important to the zlassmakers Ulan to the chemical cornpanie 0 prices are. high. The dl?grce ujrilrahJ' anwng cr mpI'Uwr.>in an indu try i determin d by factors such as the rate (If industry growth, the tClldell<''Y for over-capacity to CUll', and the strength of brand identities.There <Ire Industries in which although competirion is apparently intense it i actually limit d to very specific fields. For instance. th maker of chocolate confectionery c mpere heavily in advertising but llwir prices remain remarkably imilar, The thre 1 ading comp '[Ol'S in the Eur p an market are Mars. Nestle, and Cadbury who betwe n them have over 70% of the UK market, The barrier to entry are very high and in .lude reputation. brand ,and access to distribution. Whil there appear to be mrens rival!', some of it is perh ps ritualisti . The Five Forces Pramework Can provide a powerful an.alytical rool tor understanding the dynamics of em indu try, It i . however. difficult to u e properly. One major difficulty is in defining the 'industry' (see Sect. -4). It is important that ind!.1SU'Yis

10

THE 5ntARC;Y'0

ULAnON PROfESS

defined dearly and that the chosen definition is applied consistently. Interesting findings may r III from repeilting the analysis with tightly varying defini ions of the industry. The indu'try structure Is also. subject ro change and some ef'this change may result from actions taken by the players, themselves. For instance. some new produetor service may tend !o decrease the barriers LO lenny.
Porter's .frameworrJ( ha also been criticized en thegroeeds tiUII: research findings seem to refute tll~ view !:bat some indttst.ries are more profitable than other . The variatien Dfpl'Ofltabillty seems to. vary as much 01"more between individual firms as between industrie I ee e.g, BadeJl·Full~ and Smpford 1992:13-34). In general. the Five Forces Framework can give valuable .insights into the forces at worle.within an industry as it is today. it may lead to glimpses of the way th indu t:Iy structure 1S changing and hence of how the rules of the game may change in the future.

Porter himseJf mentioned the importance of gcvemmenr and :regulation on industries as <I. possible iXlh fore to be considered. Certainly goveramem intervention whether through Iegislanon, r~gul<ltion.purch sing policy or direct support can be a powerful force. Grove (1996) added a ditrel'ent ixth force to the original five-the
power of Coreplementors, Complemenrors are other businesses from whom

cus-

tomers buy complernen 11' product. complementors are alIie as long as eir intere ts are aligned. However. new techniques, approaches. or techno!ogie can upset this alignment or change the rela "Ieinflu l1C of complementors. Two other powerful forces are now at play. The power of Lobby groups i increasing. The envimnmental lobby i perhaps the mostobvleus, best organized. and is gaining
stre:o,gtb year by year. The demonstratioas at the World Trade Organization conference in. Seattle in 19991 were just: eneexample of a well-organized lobby group able to tbwa_l"I: an organiaaticn from pursuing avenues W'hirh are seen to be harmful to the environmenr 01'peopll s. The activities of] bby groups, whatever their moral justifi. cation or lack of it. are able te influence the values of en romers and thu change the ground roles within which an enterprise operates. Finally. Changing fa.snion and the fick1cnl:S5 of allegiance to brands and lifestyle,

particularly among the young and afflu nt, Can seriously damage the healrh of a
business. J't seems likely that one of the major effects of the Internet will be to increase fickleness. The lnternet makl! it easier for consumers [0 compare a wider range of goods and price. and increase the vlsibility of choice and so Internet trading has bad an effec on thew: y customers hop. For elCample, some customers ,enjoy the 'shopping experience'. They like [0 browse wh n buying ueh items as clothes. books. motor cars. and 0 OU; wher as other customers may be quite haPPYlO order brandnamed goods via the Intern [. As a result. il is nece ary for vendors to rethink the nature of what they are offering rheir customer and whether they want to be providers of convenience or purv 'yOtS of Ieisure. The Internet al 0 tend tn force a change in the nature 0 the product it ·elf. For instance. the bank have had [0 tntrcduce Internet Banldng for the benefit of their more computer literate and often more affluent customers. The increased speed and volume of mImmation that can be pa,~secl to customers will influence the: demands which customer make on banks, Tbirdly, the latemet can. change the power balance

5TR TEG.C ASSESS MfNT:

EXTE1INAL

105

between competitors. For instance. retailers of white goods and non-perishable item are finding,that they can reach a mu h wider customer base by using the Internet a a . hop-window', thus enabling small enterprise to equal the reach of major players. It is apparent that the original Five Force. Model needs to be expanded to take into account these additiOl)al forces which have become more apparent over the last several years. As the industry to whith an organization belongs becomes harder ro define. it becomes necessary to understand how the e forces threaten the survival of an individual organization. This suggests that the centre of the model should relate to the individual organizanoas as much as as to the intensity of rivalry among competitors in an industry. An integrated mode] 0 the' hr ats to survival of an organization is shown in Figure 9.·3.All the eight.forces shown are capable of threatening 1:11survival and growth of the enterprise and therefore need to be considered as part of the process of external assessment,

I Figure 9·3 Corporate survival model

Government
Id'eolosyand:

Policy Re:d~fln:in,g j I'1dusiffres andmark$

I

fhre.at of
I

newefltrijllts

Bal"9alnlng power of~ppller:s

Bargalnh1f1 power
of buyers

Threa of sul!sti1iu tes

Compl'ementors

Sourc;e; Adapl!edfrufTI M. 'E. Port.et ComlJt?tl!lve AdvantogE' ('Free Press. 198!)1 and.,.,. S. Grove 011& rhe Prlronoid SI:/I1llWe (HlIrper(ollJns. 15196).