Strategy Is it a plan, a plot, a learningcurve? No – itsstrategy!
The Organization in its Environment ENVIRONMENT ORG Inputs Outputs
Environmentaffectthestrategy So what is strategy…?
Strategy ”Strategy is a rule for making decisions under conditions of partial ignorance, whereas policy is a contingent decision. Business strategy is the broad collection of decision rules and guidelines that define a business’ scope and growth direction.” – Ansoff 1965 “Strategy formulation involves the interpretation of the environment and the development of consistent patterns in streams of organizational decisions” – Mintzberg 1979 “Strategy is a broad based formula for how business is going to compete, what its goals should be, and what policies will be needed to carry out those goals. The essence of formulating competitive strategy is relating a company to its environment.“ – Porter 1991 “Strategy concerns creating a vision of the future and the means and policies which will enable the organization to reach that vision” - Edwards et al 1991 4
My simple take on strategy Strategy = Desired future – Current status So strategy is all thathappensbetween the offset and at the point wedecidethatweare at the goal Is it a plan? A learningcurve? Letsletstake a look at howwe plan a (strategy) project and seehowthatconcurs with ourlevel of knowledge 5
Strategy Formation as a VISIONARY PROCESS 42501 - Organizations and IT THE ENTREPRENEURIAL SCHOOL
What is describing the Entrepreneurial School? • The strategy formation process is focused on the single leader • Strategic vision is a central aspect 42501 - Organizations and IT
Strategic thinking as “seeing” Seeing ahead Seeing behind Seeing down Seeing below Seeing beside Seeing beyond Seeing it through 42501 - Organizations and IT
Administrator Difference in making decision Entrepreneur What recourse do I control? How can I minimize the impact of others on my ability to perform? What opportunity is appropriate? Where is the opportunity? How do I capitalized on it? What recourses do I need? How do I gain control over them? 42501 - Organizations and IT
Characteristics of the entrepreneur • Strategy making is dominated by the active search for new opportunities • Power is centralized in the hands of the chief executive - bold courses of action • The chief executive thrives in conditions of uncertainty, where the organization can make dramatic gains • Growth is the dominant goal of the entrepreneurial organization – the need of achievement 42501 - Organizations and IT
Visionary leadership • True vision is something you can see in your mind‘s eye • A vision has to distinguish an organization • Vision articulates a view of a realistic, credible future for the organization • A vision should be simple, easily understood, clearly desirable, and energizing 42501 - Organizations and IT
Contribution, Critique & Context of the Entrepreneurship School • Aspects of strategy formation: • Analysing the consequences of vision is important because problems do occur frequently in entrepreneurial situations. • The role of the leader to catalyze a clear shared vision for the organization which can be accomplished through a wide variety of management styles. • Leadership and rich vision in usually needed in an organization, since direction must be set and niches secured. 42501 - Organizations and IT
Strategy Formation as a PROCESS OF CONCEPTION 42501 - Organizations and IT THE DESIGN SCHOOL "Gentlemen, let us pool our expertise."
Introduction to the Design School • The most influential view of the strategy-formation process. • “Establish fit” is the motto of the Design School. • General Management group at the Harvard Business School • Business Policy: Text and Cases, 1965 42501 - Organizations and IT
Basic Design School model • Appraisals of the external and internal situations. • SWOT model as centerpiece. • A “Creative act” • Evaluate alternative strategies: consistency, consonance, advantage, feasibility. 42501 - Organizations and IT
Critique of the Design School • Narrow perspectives to particular contexts. • Assessment of strengths and weaknesses: bypassing learning. • How does an organization know its strengths and weaknesses? • Structure follows strategy... as the left foot follows the right. • Yet what ongoing organization can ever wipe the slate clean when it changes its strategy? • Making strategy explicit: promoting inflexibility. • How can a company come "to grips with a changing environment" when its "strategy is [already] known" ? 42501 - Organizations and IT
Contexts and contributions 4 conditions to tild toward the design school model : • One brain can handle all of the information relevant for strategy formation • That brain is able to have full, detailed, intimate knowledge of the situation in question. • The relevant knowledge must be established before a new intended strategy has to be implemented. • The organization must be prepared to cope with a controlly articulated srategy. 42501 - Organizations and IT
The strategic Planning: Definition It’s projecting where your organisation expects to be in 5, 10 or 15 years and how your association will get there. Strategies result decomposed into distinct steps. Responsibility for that overall process rests with the chief executive in principle; responsibility for its execution rests with staff planners in practice. Strategies appear from this process full blown, then they can be implemented through detailed attention to objectives, budgets, programs, and operating plans of various kinds.
The strategic Planning: The Basic Model “…take the SWOT model, divide it into neatly delineated steps, articulate each of these with lots of checklists and techniques, and give special attention to the setting of objectives on the front end and the elaboration of budgets and operating plans on the back end” The objectives-Setting The external Audit The internal Audit The strategy Evaluation The strategyOperationalization Scheduling the wholeProcess
RecentDevelopement: Scenario Planning If you cannot predict the future, then by speculating upon a variety of assumptions, perhaps, hit upon the right one.
RecentDevelopement: Strategic Control • Is a means to review and acceptproposedstrategies • Robert Simons’ four levers of control: • Belief Systems • Boundary Systems • Diagnostic Control Systems • Interactive Control Systems
The fallacy of Predetermination « I thinkthereis a world market for about 5 computers » (Thomas J.WatsonPresident of IBM, 1948) • Strategic Planning relies on: • Predicting the course of the environment • Controlling it • Or Assuming its stability
The fallacy of Detachement Strategists are detached from the objects of their strategies The data upon which strategists rely can be flawed due to excessive aggregation/missing contextual information
The fallacy of Formalization The process of making strategy is too complex to be formalized Based on the notion that formal system outperforms human systems in terms of information processing and decision making Hinders new strategies and new interpretations
Conclusion Black Box of StrategyMaking Strategy Analyst Strategy Programmer Strategy Catalyst
Porter on strategy Strategy is (also) about trying to establish a perceived difference that the company can preserve – it must: Deliver greater value to customers Create comparable value at lower cost Or do both A strategy should also provide a future direction for the company and actions to reach the goal. 28
Resource-based view S Competences Products Financials W Business processes Strategic idea Strategic process Strategic plan O Socio-cultural Political Technical Business models T Environmental Competitors By Niels Bjørn-Andersen 29 29
Introduction to the ”Positioning School” • Strategy formation as an analytical process • Focuses on the selection of strategic positions • Also called “Strategic Management” • Only a few key strategies should be used in any industry - Generic strategies Positioning School
The First Wave • Sun Tzu, 400 B.C • The Art of War (1971) “Generally, he who occupies the field of battle first and awaits his enemy is at ease; he who comes later to the scene and rushes into the fight is weary.” ( The first mover advantage) Position School
The First Wave • Von Clausewitz • On War (1989) “To make strategy happen, it is necessary to put together an organization with a formal chain of command in which orders are executed without question.” Position School
The Second Wave • BCG and the “Growth –Share Table” Position School
The Second Wave • BCG and the “Experience Curve” • firms learn from experience—at a constant rate. • PIMS (Profit Impact of Market Strategies) • Data base for sale • Indentifies a number of strategy variables “…a trained strategist can usefully function in any business” “Product characteristics don't matter“ (S. Schoeffler) Position School
The Third wave - Michael Porter • Bargaining Power of Firm's Suppliers – Power struggle, less to loose wins • Bargaining Power of Firm's Customers - depends on howmuch they buy, how well informed they are with alternatives • Threat of New Entrants - "barriers to entry” economies of scale, basic capital requirements, and customer loyalty • Threat of Substitute Products – No one is irreplaceable • Rivalry - Factors colide, War or peaceful diplomacy Position School Porter's Model of Competitive Analysis ”The fiveforces”
Porter'sGenericStrategies • "three generic strategies for achieving above-average performance in an industry: • cost leadership, differentiation, and focus” • CostLeadershipgaining experience, large-scale production facilities, economies of scale, • carefully monitoring overall operating costs • Differentiation. This strategy involves the development of unique products or services, relying • on brand/customer loyalty. • Focus. This strategy seeks to serve narrow market segments. A firm can "focus" on particular • customer groups, product lines, or geographic markets. Position School
Porter'sValueChain • Primaryactivities • - Inboundlogistics (receiving, storing, etc.) • Operations (or transformation) • Outboundlogistics (order processing, physical distribution, etc.) • Marketing and sales • Service (installation, repair, etc.) • Support activitiesexist to support primary activities • - infrastructure (including finance, accounting, general management, etc.) Position School
Summary • Limited set of strategies existing • Few positions for advantage in market place • Positions can be defended • Low defence needed means high profit • Strategies are generic and identifiable positions in the marketplace • Strategy formation process is selecting position based on analytical calculation • Top manager has control over choices Position School
Options for Evolving Strategy By Niels Bjørn-Andersen 41
Mission Mintzberg defines a mission as follows: “A mission describes the organization's basic function in society, in terms of the products and services it produces for its customers”. 42
Vision • To succeed in the long term, businesses need a vision of how they will change and improve in the future. • The components of an effective business vision – six key requirements: • Provides future direction • Expresses a consumer benefit • Is realistic • Is motivating • Must be fully communicated • Consistently followed and measured 43
The Cognitive School • Strategy formation as a mental process • Terra Incognita (Unknown land)
Biases and distortion TYPE • Search for supportive evidence • Illusory correlation • Selective perception • Wishful thinking • Underestimating uncertainty EFFECT • Reasoning by analogy • Illusion of control • Escalating committment
Cognition as Mapping • “Framed Construction” = Map: Navigation through confusing terrain with some kind of representative model. • When you are lost, any map will do. • A wrong mental representation is better than no representation at all,at least it gives encouragement, andso can stimulate action.
Cognition as Mapping (2) • In management: different kinds of maps, all with its own uses. • One example: schemas. • Representing knowledge on different levels – allows people to create the full picture by filling in the blanks. • Implicit assumptions go with a schema. • Oil crisis example.
Psychological Frames and schemata. Group Frames Personal Schemata A group needs many frames to avoid Group think