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A CRITICAL APPLICATION OF STRATEGY DICHOTOMIES

INTRODUCTION

The report examines three strategy dichotomies contained in the following


perspectives:

• Strategic Thinking
• Strategy Formation
• Strategic Change

Strategic management can be said to be the process that involves awareness of the
success and strength of an organisation in relation to its strategic opportunities. New
strategies need to be sought, formulated and implemented all which might mean
changes within the organisation. Not all strategies have to be planned: at times they
emerge from formal planning or as new ideas are tried out.

1. STRATEGY THINKING: LOGIC VS CREATIVITY

Before, during and after the process of strategy implementation starts a lot of prior
thinking takes place. Rational reasoning perspective requires constant analysis,
gathering and processing of data together with assessment of different options and
calculation of action towards achievement. Andrews (1987) argues that “the principle
sub activities of strategy formulation as a logical activity include identifying
opportunities and threats within the firm’s environment and attaining estimate of the
risk. The capacity to take advantage of perceived markets needs should be estimated
as objectively as possible”. This is the approach taken by Warren Buffett who based
evaluation of companies on a solid analysis of their fundamentals so as to separate
investment from speculation. He resisted irrational emotions in the 1990’s by not
investing in the then dot. Com companies and at the end was proven correct. De Wit
& Meyer (2004).

Ultimately, every strategy is directed into the future, it is the vision of a firm. Those
that take the generative reasoning perspective say that “some analysis can be done,
but, the strategist will have to intuitively judge which vision for the future has the best
chance of being created in the real sense”. They also suggest that “the heavy emphasis
placed on rationality can actually frustrate the main objective of strategic reasoning to
generate novel insight, new ways of defining problems and innovative solutions” De
Wit & Meyer (2004). The best example of creative thinking is that of 3M which is
known for its frame breaking approaches to business. De Wit & Meyer (2004).
Everything in the company is directed to foster innovation, spontaneity and creativity:
employees can spend up to 15% of their time working on their individual creative
ideas. Moreover, they are supported by financial and material resources. Ohmae
(1982) argues that “creative insight is the ability to combine, synthesise, or reshuffle
previously unrelated phenomena in a way that you get more out of the emergent
whole than you put in.” This is what helps 3M to be successful by taking a technology
from one business area and using it somewhere else.

However, for strategic decision making it is necessary to have the balance of


creativity and logic. It is possible to compare it with the left and right parts of the
human brain. The left side thinking is logical calculating and structured. It deals with
numbers and words. It is analytical, unemotional and lacking in creativity. The right
side thinking is more intuitive and extravagant. It deals with images and concepts,
links and ideas. It is flavoured by emotion and coloured by mood. (Clegg2000).
Ohmae (1982) argues that “no matter how difficult or unprecedented the problem, a
breakthrough to the best possible solution can come only from combination of rational
analysis and imaginative integration.” Although known for his creativity, this is what
Richard Branson came to as well. Always going after his innovative and sometimes
spontaneous ideas he nevertheless found rational thinkers like Nik Powell and David
Clarke to analyse the market and risks at all times. He also changed his strategy and
started to grow through joint ventures with established companies for example
W.H.Smith retail and Singapore Airlines. As a result he now thinks logically through
his new ventures.

It can be seen that to be creative the strategist needs both types of activity, in order to
improve on ideas.
2. SRATEGY FORMATION: DELIBERATENESS VS EMERGENCE

The paradox of deliberateness and emergence continues in the debate of rational


versus creative thinking. Managers who prefer logic will almost certain go for
deliberate strategic planning because they believe that logical steps will bring the
sense of direction, commitment to a course of action, coordination of all efforts in a
cohesive pattern, optimal resource allocation and programming of all organisational
activities in advance. De Wit & Meyer (2004). Those that advocate for strategic
incrementalism perspective suggest that organisations must stay open to new
opportunities, flexible to change if needed, learn by trying, have entrepreneurship
spirit to see different ideas, be aware of changing political and cultural environment
and act accordingly De Wit & Meyer (2004).

Nevertheless, as with strategic thinking deliberateness cannot be separated from


emergence in the strategy formation. Mintzberg calls the process of strategy formation
‘crafting strategy’ Mintzberg & Quinn (1996). He states that strategies are both plans
for the future and patterns from the past: the planning does not always precede action;
action can drive thinking as well. Mintzberg concludes that to manage strategy it is
necessary to craft thought and action, control and learning, stability and change
Mintzberg & Quinn (1996). It is possible to observe this interconnectedness in the
example of PowerGen case study De Wit & Meyer (2004).

Before 1990 the company had a much centralised planning process: corporate staff
who gave guidance, then the plans in business units were constructed, reviewed and
finally consolidated into a long term corporate plan. However, this approach became
irrelevant with the opening of the market for electricity: PowerGen needed stronger
commercial orientation with increased operational flexibility. In 1992 the company
was reorganised and the central planning team was replaced by planning staff within
the divisions, although the guidelines were sill provided by corporate level staff. The
planning was deliberate with commitment to a chosen course and programming of all
activities in advance. Yet, the guidelines included overall business and economic
assumptions and scenarios, which offered plausible alternative views of how the
business environment might develop in the future. Johnson et al (2008). However,
although such an event as ‘capping’ was predicted it was not communicated early
enough to be taken into account as part of the context for business plans, which shows
lack of flexibility in the planning process of PowerGen.

In 1996 the company underwent a new reorganisation as response to environmental


changes. Within the new structure, the CEO was responsible for corporate strategy,
the group Managing Director for reorganised business units strategy and the Finance
Director was concerned with the financial aspects of plans. PowerGen added the
incrementalism perspective to their strategy formation by continually analysing
external environment and assessing its strategic options. They still used scenarios, but
they were elaborated by a cross functional team drawn from different business units
with consultation from outside experts. In the following years PowerGen used
deliberate strategising with long debates, discussions and lobbying between the
corporate strategy and planning staff and business units. Still, they left a scope for
flexibility regarding emergent issues that could affect business unit strategies and had
to be dealt with immediately. They combined short term and long term strategic
planning for different business groups departments. PowerGen also changed the
strategic planning hierarchy from being much centralised to being quite dispersed. By
the end of the 1990s strategic planning started at the bottom level in business units
and went up to the Board for approval, unlike at the beginning when the guidance
came from the upper corporate level down to business units.

Overall, it is possible to say that PowerGen took into account elements from both
deliberateness and incrementalism perspective and used them for their advantage,
which is probably a good example to follow. As Quinn (1978) said “Planning is just
one building block in a continuous stream of events that determine corporate
strategy”.

3. STRATEGIC CHANGE: MARKETS VS RESOURCES

According to Tushman et al (1986), there are three main drivers of strategic change:
industry discontinuities (sharp changes in macro and micro environment), product life
cycle shifts (different strategies are appropriate on different phases of the product life
cycle), and internal company dynamics (dependent on external forces internal factors
can trigger frame breaking change). These drivers lead to the following scope of
frame breaking change: reformed mission and core values, altered power and status,
reorganisation, revised interaction patterns and new executives. The authors conclude
saying that the most effective companies have relatively long periods of evolution
giving support to basic strategy, but such periods are punctuated by revolutionary
changes which reshape the entire organisation. Tushman et al. (1986). The author will
consider Continental AG case study as an example of evolution with revolutionary
changes. De Wit & Meyer (2004).

When in 1991 Dr. Von Gruenberg took the position of Continental Executive Board
Chairman he introduced a 10 point programme for the company’s long term
evolutionary development. However, almost all of these 10 points were revolutions in
different areas. As Johnson et al. (2008) describes it, the company was in the phase of
flux and had three outcomes: to die, to be taken over, or to go through a period of
transformational change. Led by Dr. von Gruenberg, Continental began to change.
The functional orientated centres were restructured into profit centres. Brand
orientation was switched to market orientation in order to put customers and markets
at the centre of attention. The marketability of the technological innovation was
introduced as a key criterion in the evaluation of these innovations. The strategy was
refocused to become a dominant supplier of complete automotive systems. It seems
that every step was deliberately planned. The largest planned activity was to foster
entrepreneurship: evolution within revolutionary change. In order to do this
management development ran a Junior Management Training Programme for about
ten years. They looked for young venturesome managers who accepted and
exemplified the new entrepreneurial mindset. At the same time the company let go
managers and even Board members who did not comply with these new creative
requirements. Dr. Hausmann, Head of Corporate Purchasing and Strategic
Technology said that “the dismissal of managers who failed to deliver had a shock
effect for Continental, which had been more accustomed to a consensus oriented
corporate culture” De Wit & Meyer (2004). This example shows the
interconnectedness of discontinuous and continuous renewal: long term evolutionary
process of changing the mindset of the company was accompanied by revolutionary
shock therapy of managers’ dismissal.
Considering Baden-Fuller and Stopford’s four stages of rejuvenation (1994), it is
possible to say that Continental AG went through all of them. The first stage is to
galvanize: create a top team dedicated to renewal. Transformation began with the
arrival of Dr. Hubertus von Gruenberg who led the change and achieved what he
planned. The second stage is to simplify: the business concentrates resources on a
smaller agenda and so increases chances of gaining positive results in the short to
medium term. Restructuring of Continental and profit orientation of service functions
helped the company to get the figure back into the black. The third stage is to build:
this is developing new capabilities. Development and manufacturing of innovative
products made Continental one of the key players in the further development of the
worldwide automotive industry. The last stage is to leverage: to maintain momentum
and stretch the advantages. Continental’s expansion into new sphere of its operations
was achieved by the acquisition of Teves. This brought additional sales, development
capacity and technological innovation force of around 2500 researchers and
developers.

The changes that took place in Continental were small and incremental in small steps
to allow a build up on skills, routines and beliefs.

5. CONCLUSION

From the above it can be seen that the three dichotomies are interrelated. In some
companies opposite perspectives are used alongside each other or even at the same
time. De Wit & Meyer (2004). Others call it a paradox whereby two contradictory
factors appear true. This then makes the task of the strategist challenging as he needs
to keep the paradoxes and their complexity in mind in order to be able to arrive at the
right decision.
BIBLIOGRAPHY

Andrewss, K (1987) The Concept of Corporate Strategy. Homewood: Irvin

Baden-Fuller, C. & Stopfor, J.M. (1994) Rejuvenating the Mature Business. Boston:
Harvard Business School Press

Burnes. B. (2004) Managing Change 4th ed. Prentice Hall

Clegg, B. (2000) Instant Negotiation: Reaching Agreement with Others Now. Kogan
Page Publishers.

De Wit, B & Meyer, R (2004) Strategy, Process, Content, Context. 3 rd ed. Thomson
Learning.

Johnson, J. Scholes K., Whittington, R. (2008) Exploring Corporate Strategy. Text&


Cases/. 7th ed. Prentice Hall

Hofstede, G. (1993) Cultural Constraints in Management Theories. Academy of


Management Executive, Vol. 13, p. 129 – 132

Mintzberg, H. & Quinn, J.B. (1996) The Strategy Process, Concepts, Contexts Cases.
International Edition. 3rd. New Jersey: Prentice Hall

Ohmae, K. (1982) The Mind of the Strategist. New York: McGraw Hill

Quin, J. B. (1978) Strategic Change: Logical Incrementalism. Sloan Management


Review Fall, p. 7-21

Tushman, M. L., Newman,W.H. & Romanelli, E. (1986) Convergence and Upheaval:


Managing the Unsteady Pace of Organizational Evolution. California Management
Review, Vo. 29, No. 1, Fall, p. 29-44

Thompson, J.L. (2001) Strategic Management. 4th ed. Thompson Learning.


REPORT

CREATIVE STRATEGIES IN CONTEXT


PART 1 (Resit)

Student ID : 21041045

Tutor : Geoff Goddin

Module code :MS70004E

MBA Full time

THAMES VALLEY UNIVERSITY


CONTENT

INTRODUCTION

STRATEGY PROCESS

1. STRATEGY THINKING

2. STRATEGY FORMATION

STRATEGY CONTENT

1. BUSINESS LEVEL STRATEGY

CONCLUSION

BIBLIOGRAPHY