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Strategic Management

Processes
Strategic management is a combination of three main processes which are as follows:
Strategy formulation
Performing a situation analysis, self-evaluation and competitor analysis: both internal and
external; both micro-environmental and macro-environmental.
Concurrent with this assessment, obectives are set. !hese obectives should be parallel to
a timeline; some are in the short-term and others on the long-term. !his involves crafting
vision statements "long term view of a possible future#, mission statements "the role that
the organi$ation gives itself in society#, overall corporate obectives "both financial and
strategic#, strategic business unit obectives "both financial and strategic#, and tactical
obectives.
!hese obectives should, in the light of the situation analysis, suggest a strategic plan.
!he plan provides the details of how to achieve these obectives.
!his three-step strategy formulation process is sometimes referred to as determining where you
are now, determining where you want to go, and then determining how to get there. !hese three
%uestions are the essence of strategic planning. S&'! (nalysis: )*' +conomics for the external
factors and ,-. for the internal factors.
Strategy implementation
(llocation and management of sufficient resources "financial, personnel, time,
technology support#
+stablishing a chain of command or some alternative structure "such as cross functional
teams#
(ssigning responsibility of specific tas/s or processes to specific individuals or groups
)t also involves managing the process. !his includes monitoring results, comparing to
benchmar/s and best practices, evaluating the efficacy and efficiency of the process,
controlling for variances, and ma/ing adustments to the process as necessary.
&hen implementing specific programs, this involves ac%uiring the re%uisite resources,
developing the process, training, process testing, documentation, and integration with
"and*or conversion from# legacy processes.
Strategy evaluation
0easuring the effectiveness of the organi$ational strategy. )t1s extremely important to
conduct a S&'! analysis to figure out the strengths, wea/nesses, opportunities and
threats "both internal and external# of the entity in %uestion. !his may re%uire to ta/e
certain precautionary measures or even to change the entire strategy.
General approaches
)n general terms, there are two main approaches, which are opposite but complement each other
in some ways, to strategic management:
The Industrial Organizational Approach
o based on economic theory 2 deals with issues li/e competitive rivalry, resource
allocation, economies of scale
o assumptions 2 rationality, self discipline behaviour, profit maximi$ation
The Sociological Approach
o deals primarily with human interactions
o assumptions 2 bounded rationality, satisfying behaviour, profit sub-optimality.
(n example of a company that currently operates this way is 3oogle
Strategic management techni%ues can be viewed as bottom-up, top-down, or collaborative
processes. )n the bottom-up approach, employees submit proposals to their managers who, in
turn, funnel the best ideas further up the organi$ation. !his is often accomplished by a capital
budgeting process. Proposals are assessed using financial criteria such as return on investment or
cost-benefit analysis. Cost underestimation and benefit overestimation are maor sources of error.
!he proposals that are approved form the substance of a new strategy, all of which is done
without a grand strategic design or a strategic architect. !he top-down approach is the most
common by far. )n it, the C+', possibly with the assistance of a strategic planning team, decides
on the overall direction the company should ta/e. Some organi$ations are starting to experiment
with collaborative strategic planning techni%ues that recogni$e the emergent nature of strategic
decisions.
The strategy hierarchy
)n most "large# corporations there are several levels of strategy. Strategic management is the
highest in the sense that it is the broadest, applying to all parts of the firm. )t gives direction to
corporate values, corporate culture, corporate goals, and corporate missions. 4nder this broad
corporate strategy there are often functional or business unit strategies.
Functional strategies include mar/eting strategies, new product development strategies, human
resource strategies, financial strategies, legal strategies, supply-chain strategies, and information
technology management strategies. !he emphasis is on short and medium term plans and is
limited to the domain of each department5s functional responsibility. +ach functional department
attempts to do its part in meeting overall corporate obectives, and hence to some extent their
strategies are derived from broader corporate strategies.
0any companies feel that a functional organi$ational structure is not an efficient way to organi$e
activities so they have reengineered according to processes or strategic business units "called
S-4s#. ( strategic business unit is a semi-autonomous unit within an organi$ation. )t is usually
responsible for its own budgeting, new product decisions, hiring decisions, and price setting. (n
S-4 is treated as an internal profit centre by corporate head%uarters. +ach S-4 is responsible
for developing its business strategies, strategies that must be in tune with broader corporate
strategies.
!he 6lowest7 level of strategy is operational strategy. )t is very narrow in focus and deals with
day-to-day operational activities such as scheduling criteria. )t must operate within a budget but
is not at liberty to adust or create that budget. 'perational level strategy was encouraged by
Peter 8ruc/er in his theory of management by obectives "0-'#. 'perational level strategies are
informed by business level strategies which, in turn, are informed by corporate level strategies.
usiness strategy, which refers to the aggregated operational strategies of single business firm
or that of an S-4 in a diversified corporation refers to the way in which a firm competes in its
chosen arenas.
!orporate strategy, then, refers to the overarching strategy of the diversified firm. Such
corporate strategy answers the %uestions of 9in which businesses should we compete:9 and 9how
does being in one business add to the competitive advantage of another portfolio firm, as well as
the competitive advantage of the corporation as a whole:9
Since the turn of the millennium, there has been a tendency in some firms to revert to a simpler
strategic structure. !his is being driven by information technology. )t is felt that /nowledge
management systems should be used to share information and create common goals. Strategic
divisions are thought to hamper this process. 0ost recently, this notion of strategy has been
captured under the rubric of dynamic strategy, populari$ed by the strategic management
textboo/ authored by Carpenter and Sanders ;<=. !his wor/ builds on that of -rown and
+isenhart as well as Christensen and portrays firm strategy, both business and corporate, as
necessarily embracing ongoing strategic change, and the seamless integration of strategy
formulation and implementation. Such change and implementation are usually built into the
strategy through the staging and pacing facets.
"istorical development of strategic management
irth of strategic management
Strategic management as a discipline originated in the <>?@s and A@s. (lthough there were
numerous early contributors to the literature, the most influential pioneers were (lfred 8.
Chandler, Br., Philip Sel$nic/, )gor (nsoff, and Peter 8ruc/er.
Alfred !handler recogni$ed the importance of coordinating the various aspects of management
under one all-encompassing strategy. Prior to this time the various functions of management
were separate with little overall coordination or strategy. )nteractions between functions or
between departments were typically handled by a boundary position, that is, there were one or
two managers that relayed information bac/ and forth between two departments. Chandler also
stressed the importance of ta/ing a long term perspective when loo/ing to the future. )n his <>AC
groundbrea/ing wor/ Strategy and Structure, Chandler showed that a long-term coordinated
strategy was necessary to give a company structure, direction, and focus. De says it concisely,
6structure follows strategy.7
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)n <>?F, Philip Sel$nic/ introduced the idea of matching the organi$ation1s internal factors with
external environmental circumstances.
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!his core idea was developed into what we now call
S&'! analysis by Hearned, (ndrews, and others at the Darvard -usiness School 3eneral
0anagement 3roup. Strengths and wea/nesses of the firm are assessed in light of the
opportunities and threats from the business environment.
)gor (nsoff built on Chandler1s wor/ by adding a range of strategic concepts and inventing a
whole new vocabulary. De developed a strategy grid that compared mar/et penetration
strategies, product development strategies, mar/et development strategies and hori$ontal and
vertical integration and diversification strategies. De felt that management could use these
strategies to systematically prepare for future opportunities and challenges. )n his <>A? classic
Corporate Strategy, he developed the gap analysis still used today in which we must understand
the gap between where we are currently and where we would li/e to be, then develop what he
called 6gap reducing actions7.
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Peter 8ruc/er was a prolific strategy theorist, author of do$ens of management boo/s, with a
career spanning five decades. Dis contributions to strategic management were many but two are
most important. Iirstly, he stressed the importance of obectives. (n organi$ation without clear
obectives is li/e a ship without a rudder. (s early as <>?G he was developing a theory of
management based on obectives.
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!his evolved into his theory of management by ob#ectives
"0-'#. (ccording to 8ruc/er, the procedure of setting obectives and monitoring your progress
towards them should permeate the entire organi$ation, top to bottom. Dis other seminal
contribution was in predicting the importance of what today we would call intellectual capital.
De predicted the rise of what he called the 6/nowledge wor/er7 and explained the conse%uences
of this for management. De said that /nowledge wor/ is non-hierarchical. &or/ would be
carried out in teams with the person most /nowledgeable in the tas/ at hand being the temporary
leader.
)n <>J?, +llen-+arle Chaffee summari$ed what she thought were the main elements of strategic
management theory by the <>F@s:
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Strategic management involves adapting the organi$ation to its business environment.
Strategic management is fluid and complex. Change creates novel combinations of
circumstances re%uiring unstructured non-repetitive responses.
Strategic management affects the entire organi$ation by providing direction.
Strategic management involves both strategy formation "she called it content# and also
strategy implementation "she called it process#.
Strategic management is partially planned and partially unplanned.
Strategic management is done at several levels: overall corporate strategy, and individual
business strategies.
Strategic management involves both conceptual and analytical thought processes.
Gro$th and portfolio theory
)n the <>F@s much of strategic management dealt with si$e, growth, and portfolio theory. !he
P)0S study was a long term study, started in the <>A@s and lasted for <> years, that attempted to
understand the Profit )mpact of 0ar/eting Strategies "P)0S#, particularly the effect of mar/et
share. Started at 3eneral +lectric, moved to Darvard in the early <>F@s, and then moved to the
Strategic Planning )nstitute in the late <>F@s, it now contains decades of information on the
relationship between profitability and strategy. !heir initial conclusion was unambiguous: !he
greater a company1s mar/et share, the greater will be their rate of profit. !he high mar/et share
provides volume and economies of scale. )t also provides experience and learning curve
advantages. !he combined effect is increased profits.
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!he studies conclusions continue to be
drawn on by academics and companies today: 9P)0S provides compelling %uantitative evidence
as to which business strategies wor/ and don1t wor/9 - !om Peters.
!he benefits of high mar/et share naturally lead to an interest in growth strategies. !he relative
advantages of hori$ontal integration, vertical integration, diversification, franchises, mergers and
ac%uisitions, oint ventures, and organic growth were discussed. !he most appropriate mar/et
dominance strategies were assessed given the competitive and regulatory environment.
!here was also research that indicated that a low mar/et share strategy could also be very
profitable. Schumacher "<>FE#,
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&oo and Cooper "<>JC#,
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Hevenson "<>JG#,
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and later
!raverso "C@@C#
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showed how smaller niche players obtained very high returns.
-y the early <>J@s the paradoxical conclusion was that high mar/et share and low mar/et share
companies were often very profitable but most of the companies in between were not. !his was
sometimes called the 6hole in the middle7 problem. !his anomaly would be explained by
0ichael Porter in the <>J@s.
!he management of diversified organi$ations re%uired new techni%ues and new ways of
thin/ing. !he first C+' to address the problem of a multi-divisional company was (lfred Sloan
at 3eneral 0otors. 30 was decentrali$ed into semi-autonomous 6strategic business units7
"S-41s#, but with centrali$ed support functions.
'ne of the most valuable concepts in the strategic management of multi-divisional companies
was portfolio theory. )n the previous decade Darry 0ar/owit$ and other financial theorists
developed the theory of portfolio analysis. )t was concluded that a broad portfolio of financial
assets could reduce specific ris/. )n the <>F@s mar/eters extended the theory to product portfolio
decisions and managerial strategists extended it to operating division portfolios. +ach of a
company5s operating divisions were seen as an element in the corporate portfolio. +ach
operating division "also called strategic business units# was treated as a semi-independent profit
center with its own revenues, costs, obectives, and strategies. Several techni%ues were
developed to analy$e the relationships between elements in a portfolio. -.C.3. (nalysis, for
example, was developed by the -oston Consulting 3roup in the early <>F@s. !his was the theory
that gave us the wonderful image of a C+' sitting on a stool mil/ing a cash co$. Shortly after
that the 3.+. multi factoral model was developed by 3eneral +lectric. Companies continued to
diversify until the <>J@s when it was reali$ed that in many cases a portfolio of operating
divisions was worth more as separate completely independent companies.
The mar%eting revolution
!he <>F@s also saw the rise of the mar/eting oriented firm. Irom the beginnings of capitalism it
was assumed that the /ey re%uirement of business success was a product of high technical
%uality. )f you produced a product that wor/ed well and was durable, it was assumed you would
have no difficulty selling them at a profit. !his was called the production orientation and it was
generally true that good products could be sold without effort, encapsulated in the saying 9-uild
a better mousetrap and the world will beat a path to your door.9 !his was largely due to the
growing numbers of affluent and middle class people that capitalism had created. -ut after the
untapped demand caused by the second world war was saturated in the <>?@s it became obvious
that products were not selling as easily as they had been. !he answer was to concentrate on
selling. !he <>?@s and <>A@s is /nown as the sales era and the guiding philosophy of business of
the time is today called the sales orientation. )n the early <>F@s !heodore Hevitt and others at
Darvard argued that the sales orientation had things bac/ward. !hey claimed that instead of
producing products then trying to sell them to the customer, businesses should start with the
customer, find out what they wanted, and then produce it for them. !he customer became the
driving force behind all strategic business decisions. !his mar/eting orientation, in the decades
since its introduction, has been reformulated and repac/aged under numerous names including
customer orientation, mar/eting philosophy, customer intimacy, customer focus, customer
driven, and mar/et focused.
The &apanese challenge
-y the late F@s people had started to notice how successful Bapanese industry had become. )n
industry after industry, including steel, watches, ship building, cameras, autos, and electronics,
the Bapanese were surpassing (merican and +uropean companies. &esterners wanted to /now
why. Kumerous theories purported to explain the Bapanese success including:
Digher employee morale, dedication, and loyalty;
Hower cost structure, including wages;
+ffective government industrial policy;
0oderni$ation after &&)) leading to high capital intensity and productivity;
+conomies of scale associated with increased exporting;
,elatively low value of the Len leading to low interest rates and capital costs, low
dividend expectations, and inexpensive exports;
Superior %uality control techni%ues such as !otal Muality 0anagement and other systems
introduced by &. +dwards 8eming in the <>?@s and A@s.
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(lthough there was some truth to all these potential explanations, there was clearly something
missing. )n fact by <>J@ the Bapanese cost structure was higher than the (merican. (nd post
&&)) reconstruction was nearly G@ years in the past. !he first management theorist to suggest
an explanation was ,ichard Pascale.
)n <>J< ,ichard Pascale and (nthony (thos in The Art of Japanese Management claimed that
the main reason for Bapanese success was their superior management techni%ues.
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!hey divided
management into F aspects "which are also /nown as 0cNinsey FS Iramewor/#: Strategy,
Structure, Systems, S/ills, Staff, Style, and Supraordinate goals "which we would now call
shared values#. !he first three of the F S1s were called hard factors and this is where (merican
companies excelled. !he remaining four factors "s/ills, staff, style, and shared values# were
called soft factors and were not well understood by (merican businesses of the time "for details
on the role of soft and hard factors see &ic/ens P.8. <>>?.# (mericans did not yet place great
value on corporate culture, shared values and beliefs, and social cohesion in the wor/place. )n
Bapan the tas/ of management was seen as managing the whole complex of human needs,
economic, social, psychological, and spiritual. )n (merica wor/ was seen as something that was
separate from the rest of one1s life. )t was %uite common for (mericans to exhibit a very different
personality at wor/ compared to the rest of their lives. Pascale also highlighted the difference
between decision ma/ing styles; hierarchical in (merica, and consensus in Bapan. De also
claimed that (merican business lac/ed long term vision, preferring instead to apply management
fads and theories in a piecemeal fashion.
'ne year later The Mind of the Strategist was released in (merica by Nenichi 'hmae, the head
of 0cNinsey O Co.1s !o/yo office.
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")t was originally published in Bapan in <>F?.# De claimed
that strategy in (merica was too analytical. Strategy should be a creative art: )t is a frame of
mind that re%uires intuition and intellectual flexibility. De claimed that (mericans constrained
their strategic options by thin/ing in terms of analytical techni%ues, rote formula, and step-by-
step processes. De compared the culture of Bapan in which vagueness, ambiguity, and tentative
decisions were acceptable, to (merican culture that valued fast decisions.
(lso in <>JC !om Peters and ,obert &aterman released a study that would respond to the
Bapanese challenge head on.
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Peters and &aterman, who had several years earlier collaborated
with Pascale and (thos at 0cNinsey O Co. as/ed 6&hat ma/es an excellent company:7. !hey
loo/ed at AC companies that they thought were fairly successful. +ach was subect to six
performance criteria. !o be classified as an excellent company, it had to be above the ?@th
percentile in G of the A performance metrics for C@ consecutive years. Iorty-three companies
passed the test. !hey then studied these successful companies and interviewed /ey executives.
!hey concluded in In Search of Excellence that there were J /eys to excellence that were shared
by all GE firms. !hey are:
( bias for action 2 8o it. !ry it. 8on5t waste time studying it with multiple reports and
committees.
Customer focus 2 3et close to the customer. Nnow your customer.
+ntrepreneurship 2 +ven big companies act and thin/ small by giving people the
authority to ta/e initiatives.
Productivity through people 2 !reat your people with respect and they will reward you
with productivity.
.alue-oriented C+'s 2 !he C+' should actively propagate corporate values throughout
the organi$ation.
Stic/ to the /nitting 2 8o what you /now well.
Neep things simple and lean 2 Complexity encourages waste and confusion.
Simultaneously centrali$ed and decentrali$ed 2 Dave tight centrali$ed control while also
allowing maximum individual autonomy.
!he basic blueprint on how to compete against the Bapanese had been drawn. -ut as B.+. ,ehfeld
"<>>G# explains it is not a straight forward tas/ due to differences in culture.
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( certain type of
alchemy was re%uired to transform /nowledge from various cultures into a management style
that allows a specific company to compete in a globally diverse world. De says, for example, that
Bapanese style /ai$en "continuous improvement# techni%ues, although suitable for people
sociali$ed in Bapanese culture, have not been successful when implemented in the 4.S. unless
they are modified significantly.
Gaining competitive advantage
!he Bapanese challenge shoo/ the confidence of the western business elite, but detailed
comparisons of the two management styles and examinations of successful businesses convinced
westerners that they could overcome the challenge. !he <>J@s and early <>>@s saw a plethora of
theories explaining exactly how this could be done. !hey cannot all be detailed here, but some of
the more important strategic advances of the decade are explained below.
3ary Damel and C. N. Prahalad declared that strategy needs to be more active and interactive;
less 6arm-chair planning7 was needed. !hey introduced terms li/e strategic intent and strategic
architecture.
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!heir most well /nown advance was the idea of core competency. !hey
showed how important it was to /now the one or two /ey things that your company does better
than the competition.
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(ctive strategic management re%uired active information gathering and active problem solving.
)n the early days of Dewlett-Pac/ard "D-P#, 8ave Pac/ard and -ill Dewlett devised an active
management style that they called Management y 'al%ing Around "0-&(#. Senior D-P
managers were seldom at their des/s. !hey spent most of their days visiting employees,
customers, and suppliers. !his direct contact with /ey people provided them with a solid
grounding from which viable strategies could be crafted. !he 0-&( concept was populari$ed
in <>J? by a boo/ by !om Peters and Kancy (ustin.
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Bapanese managers employ a similar
system, which originated at Donda, and is sometimes called the E 31s "3enba, 3enbutsu, and
3enitsu, which translate into 6actual place7, 6actual thing7, and 6actual situation7#.
Probably the most influential strategist of the decade was 0ichael Porter. De introduced many
new concepts including; ? forces analysis, generic strategies, the value chain, strategic groups,
and clusters. )n ? forces analysis he identifies the forces that shape a firm1s strategic
environment. )t is li/e a S&'! analysis with structure and purpose. )t shows how a firm can use
these forces to obtain a sustainable competitive advantage. Porter modifies Chandler1s dictum
about structure following strategy by introducing a second level of structure: 'rgani$ational
structure follows strategy, which in turn follows industry structure. Porter1s generic strategies
detail the interaction between cost minimization strategies, product differentiation strategies,
and mar%et focus strategies. (lthough he did not introduce these terms, he showed the
importance of choosing one of them rather than trying to position your company between them.
De also challenged managers to see their industry in terms of a value chain. ( firm will be
successful only to the extent that it contributes to the industry1s value chain. !his forced
management to loo/ at its operations from the customer1s point of view. +very operation should
be examined in terms of what value it adds in the eyes of the final customer.
)n <>>E, Bohn Nay too/ the idea of the value chain to a financial level claiming 6 (dding value is
the central purpose of business activity7, where adding value is defined as the difference between
the mar/et value of outputs and the cost of inputs including capital, all divided by the firm1s net
output. -orrowing from 3ary Damel and 0ichael Porter, Nay claims that the role of strategic
management is to identify your core competencies, and then assemble a collection of assets that
will increase value added and provide a competitive advantage. De claims that there are E types
of capabilities that can do this; innovation, reputation, and organi$ational structure.
!he <>J@s also saw the widespread acceptance of positioning theory. (lthough the theory
originated with Bac/ !rout in <>A>, it didn5t gain wide acceptance until (l ,ies and Bac/ !rout
wrote their classic boo/ 6Positioning: !he -attle Ior Lour 0ind7 "<>F>#. !he basic premise is
that a strategy should not be udged by internal company factors but by the way customers see it
relative to the competition. Crafting and implementing a strategy involves creating a position in
the mind of the collective consumer. Several techni%ues were applied to positioning theory, some
newly invented but most borrowed from other disciplines. Perceptual mapping for example,
creates visual displays of the relationships between positions. 0ultidimensional scaling,
discriminant analysis, factor analysis, and conoint analysis are mathematical techni%ues used to
determine the most relevant characteristics "called dimensions or factors# upon which positions
should be based. Preference regression can be used to determine vectors of ideal positions and
cluster analysis can identify clusters of positions.
'thers felt that internal company resources were the /ey. )n <>>C, Bay -arney, for example, saw
strategy as assembling the optimum mix of resources, including human, technology, and
suppliers, and then configure them in uni%ue and sustainable ways.
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0ichael Dammer and Bames Champy felt that these resources needed to be restructured.
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!his
process, that they labeled reengineering, involved organi$ing a firm1s assets around whole
processes rather than tas/s. )n this way a team of people saw a proect through, from inception to
completion. !his avoided functional silos where isolated departments seldom tal/ed to each
other. )t also eliminated waste due to functional overlap and interdepartmental communications.
)n <>J> ,ichard Hester and the researchers at the 0)! )ndustrial Performance Center identified
seven best practices and concluded that firms must accelerate the shift away from the mass
production of low cost standardi$ed products. !he seven areas of best practice were:
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Simultaneous continuous improvement in cost, %uality, service, and product innovation
-rea/ing down organi$ational barriers between departments
+liminating layers of management creating flatter organi$ational hierarchies.
Closer relationships with customers and suppliers
)ntelligent use of new technology
3lobal focus
)mproving human resource s/ills
!he search for 6best practices7 is also called benchmar/ing.
;C?=
!his involves determining where
you need to improve, finding an organi$ation that is exceptional in this area, then studying the
company and applying its best practices in your firm.
( large group of theorists felt the area where western business was most lac/ing was product
%uality. People li/e &. +dwards 8eming,
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Boseph 0. Buran,
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(. Nearney,
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Philip Crosby,
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and (rmand Ieignbaum
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suggested %uality improvement techni%ues li/e !otal Muality
0anagement "!M0#, continuous improvement, lean manufacturing, Six Sigma, and ,eturn on
Muality ",'M#.
(n e%ually large group of theorists felt that poor customer service was the problem. People li/e
Bames Des/ett "<>JJ#,
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+arl Sasser "<>>?#, &illiam 8avidow,
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Hen Schlesinger,
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(.
Paraurgman "<>JJ#, Hen -erry,
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Bane Ningman--rundage,
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Christopher Dart, and Christopher
Hoveloc/ "<>>G#, gave us fishbone diagramming, service charting, !otal Customer Service
"!CS#, the service profit chain, service gaps analysis, the service encounter, strategic service
vision, service mapping, and service teams. !heir underlying assumption was that there is no
better source of competitive advantage than a continuous stream of delighted customers.
Process management uses some of the techni%ues from product %uality management and some of
the techni%ues from customer service management. )t loo/s at an activity as a se%uential process.
!he obective is to find inefficiencies and ma/e the process more effective. (lthough the
procedures have a long history, dating bac/ to !aylorism, the scope of their applicability has
been greatly widened, leaving no aspect of the firm free from potential process improvements.
-ecause of the broad applicability of process management techni%ues, they can be used as a
basis for competitive advantage.
Some reali$ed that businesses were spending much more on ac%uiring new customers than on
retaining current ones. Carl Sewell,
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Irederic/ ,eicheld,
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C. 3ronroos,
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and +arl Sasser
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showed us how a competitive advantage could be found in ensuring that customers returned
again and again. !his has come to be /nown as the loyalty effect after ,eicheld1s boo/ of the
same name in which he broadens the concept to include employee loyalty, supplier loyalty,
distributor loyalty, and shareholder loyalty. !hey also developed techni%ues for estimating the
lifetime value of a loyal customer, called customer lifetime value "CH.#. ( significant
movement started that attempted to recast selling and mar/eting techni%ues into a long term
endeavor that created a sustained relationship with customers "called relationship selling,
relationship mar/eting, and customer relationship management#. Customer relationship
management "C,0# software "and its many variants# became an integral tool that sustained this
trend.
Bames 3ilmore and Boseph Pine found competitive advantage in mass customi$ation.
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Ilexible
manufacturing techni%ues allowed businesses to individuali$e products for each customer
without losing economies of scale. !his effectively turned the product into a service. !hey also
reali$ed that if a service is mass customi$ed by creating a 6performance7 for each individual
client, that service would be transformed into an 6experience7. !heir boo/, The Experience
Economy,
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along with the wor/ of -ernd Schmitt convinced many to see service provision as a
form of theatre. !his school of thought is sometimes referred to as customer experience
management "C+0#.
Hi/e Peters and &aterman a decade earlier, Bames Collins and Berry Porras spent years
conducting empirical research on what ma/es great companies. Six years of research uncovered
a /ey underlying principle behind the <> successful companies that they studied: !hey all
encourage and preserve a core ideology that nurtures the company. +ven though strategy and
tactics change daily, the companies, nevertheless, were able to maintain a core set of values.
!hese core values encourage employees to build an organi$ation that lasts. )n Built To Last
"<>>G# they claim that short term profit goals, cost cutting, and restructuring will not stimulate
dedicated employees to build a great company that will endure.
;GC=
)n C@@@ Collins coined the
term 6built to flip7 to describe the prevailing business attitudes in Silicon .alley. )t describes a
business culture where technological change inhibits a long term focus. De also populari$ed the
concept of the "AG "-ig Dairy (udacious 3oal#.
(rie de 3eus "<>>F# undertoo/ a similar study and obtained similar results. De identified four
/ey traits of companies that had prospered for ?@ years or more. !hey are:
Sensitivity to the business environment 2 the ability to learn and adust
Cohesion and identity 2 the ability to build a community with personality, vision, and
purpose
!olerance and decentrali$ation 2 the ability to build relationships
Conservative financing
( company with these /ey characteristics he called a living company because it is able to
perpetuate itself. )f a company emphasi$es /nowledge rather than finance, and sees itself as an
ongoing community of human beings, it has the potential to become great and endure for
decades. Such an organi$ation is an organic entity capable of learning "he called it a 6learning
organi$ation7# and capable of creating its own processes, goals, and persona.
The military theorists
)n the <>J@s some business strategists reali$ed that there was a vast /nowledge base stretching
bac/ thousands of years that they had barely examined. !hey turned to military strategy for
guidance. 0ilitary strategy boo/s such as The Art of War by Sun !$u, n War by von
Clausewit$, and The !ed Boo" by 0ao Pedong became instant business classics. Irom Sun !$u
they learned the tactical side of military strategy and specific tactical prescriptions. Irom .on
Clausewit$ they learned the dynamic and unpredictable nature of military strategy. Irom 0ao
Pedong they learned the principles of guerrilla warfare. !he main mar/eting warfare boo/s were:
Business War #ames by -arrie Bames, <>JG
Mar"eting Warfare by (l ,ies and Bac/ !rout, <>JA
Headership Secrets of (ttila the Dun by &ess ,oberts, <>JF
Philip Notler was a well-/nown proponent of mar/eting warfare strategy.
!here were generally thought to be four types of business warfare theories. !hey are:
'ffensive mar/eting warfare strategies
8efensive mar/eting warfare strategies
Ilan/ing mar/eting warfare strategies
3uerrilla mar/eting warfare strategies
!he mar/eting warfare literature also examined leadership and motivation, intelligence
gathering, types of mar/eting weapons, logistics, and communications.
-y the turn of the century mar/eting warfare strategies had gone out of favour. )t was felt that
they were limiting. !here were many situations in which non-confrontational approaches were
more appropriate. !he 6Strategy of the 8olphin7 was developed in the mid <>>@s to give
guidance as to when to use aggressive strategies and when to use passive strategies. ( variety of
aggressiveness strategies were developed.
)n <>>E, B. 0oore used a similar metaphor.
;GE=
)nstead of using military terms, he created an
ecological theory of predators and prey "see ecological model of competition#, a sort of
8arwinian management strategy in which mar/et interactions mimic long term ecological
stability.
Strategic change
)n <>F@, (lvin !offler in $uture Shoc" described a trend towards accelerating rates of change.
;GG=

De illustrated how social and technological norms had shorter lifespans with each generation,
and he %uestioned society1s ability to cope with the resulting turmoil and anxiety. )n past
generations periods of change were always punctuated with times of stability. !his allowed
society to assimilate the change and deal with it before the next change arrived. -ut these periods
of stability are getting shorter and by the late C@th century had all but disappeared. )n <>J@ in
The Third Wa%e, !offler characteri$ed this shift to relentless change as the defining feature of the
third phase of civili$ation "the first two phases being the agricultural and industrial waves#.
;G?=
De
claimed that the dawn of this new phase will cause great anxiety for those that grew up in the
previous phases, and will cause much conflict and opportunity in the business world. Dundreds
of authors, particularly since the early <>>@s, have attempted to explain what this means for
business strategy.
)n <>>F, &atts &a/er and Bim !aylor called this upheaval a 9?@@ year delta.9
;GA=
!hey claimed
these maor upheavals occur every ? centuries. !hey said we are currently ma/ing the transition
from the 6(ge of ,eason7 to a new chaotic Age of Access. Beremy ,if/in "C@@@# populari$ed
and expanded this term, 6age of access7 three years later in his boo/ of the same name.
;GF=
)n <>AJ, Peter 8ruc/er "<>A># coined the phrase Age of (iscontinuity to describe the way
change forces disruptions into the continuity of our lives.
;GJ=
)n an age of continuity attempts to
predict the future by extrapolating from the past can be somewhat accurate. -ut according to
8ruc/er, we are now in an age of discontinuity and extrapolating from the past is hopelessly
ineffective. &e cannot assume that trends that exist today will continue into the future. De
identifies four sources of discontinuity: new technologies, globali$ation, cultural pluralism, and
/nowledge capital.
)n C@@@, 3ary Damel discussed strategic decay, the notion that the value of all strategies, no
matter how brilliant, decays over time.
;G>=
)n <>FJ, 8erec/ (bell "(bell, 8. <>FJ# described strategic $indo$s and stressed the
importance of the timing "both entrance and exit# of any given strategy. !his has led some
strategic planners to build planned obsolescence into their strategies.
;?@=
)n <>J>, Charles Dandy identified two types of change.
;?<=
Strategic drift is a gradual change
that occurs so subtly that it is not noticed until it is too late. -y contrast, transformational
change is sudden and radical. )t is typically caused by discontinuities "or exogenous shoc/s# in
the business environment. !he point where a new trend is initiated is called a strategic
inflection point by (ndy 3rove. )nflection points can be subtle or radical.
)n C@@@, 0alcolm 3ladwell discussed the importance of the tipping point, that point where a
trend or fad ac%uires critical mass and ta/es off.
;?C=
)n <>JE, Koel !ichy recogni$ed that because we are all beings of habit we tend to repeat what we
are comfortable with.
;?E=
De wrote that this is a trap that constrains our creativity, prevents us
from exploring new ideas, and hampers our dealing with the full complexity of new issues. De
developed a systematic method of dealing with change that involved loo/ing at any new issue
from three angles: technical and production, political and resource allocation, and corporate
culture.
)n <>>@, ,ichard Pascale "Pascale, ,. <>>@# wrote that relentless change re%uires that businesses
continuously reinvent themselves.
;?G=
Dis famous maxim is 6Kothing fails li/e success7 by which
he means that what was a strength yesterday becomes the root of wea/ness today, &e tend to
depend on what wor/ed yesterday and refuse to let go of what wor/ed so well for us in the past.
Prevailing strategies become self-confirming. )n order to avoid this trap, businesses must
stimulate a spirit of in%uiry and healthy debate. !hey must encourage a creative process of self
renewal based on constructive conflict.
)n <>>A, (rt Nleiner "<>>A# claimed that to foster a corporate culture that embraces change, you
have to hire the right people; heretics, heroes, outlaws, and visionaries
;??=
. !he conservative
bureaucrat that made such a good middle manager in yesterday5s hierarchical organi$ations is of
little use today. ( decade earlier Peters and (ustin "<>J?# had stressed the importance of
nurturing champions and heroes. !hey said we have a tendency to dismiss new ideas, so to
overcome this, we should support those few people in the organi$ation that have the courage to
put their career and reputation on the line for an unproven idea.
)n <>>A, (drian Slywots/y showed how changes in the business environment are reflected in
value migrations between industries, between companies, and within companies.
;?A=
De claimed
that recogni$ing the patterns behind these value migrations is necessary if we wish to understand
the world of chaotic change. )n 6Profit Patterns7 "<>>># he described businesses as being in a
state of strategic anticipation as they try to spot emerging patterns. Slywots/y and his team
identified E@ patterns that have transformed industry after industry.
;?F=
)n <>>F, Clayton Christensen "<>>F# too/ the position that great companies can fail precisely
because they do everything right since the capabilities of the organi$ation also defines its
disabilities.
;?J=
Christensen1s thesis is that outstanding companies lose their mar/et leadership
when confronted with disruptive technology. De called the approach to discovering the
emerging mar/ets for disruptive technologies agnostic mar%eting, i.e., mar/eting under the
implicit assumption that no one - not the company, not the customers - can /now how or in what
%uantities a disruptive product can or will be used before they have experience using it.
( number of strategists use scenario planning techni%ues to deal with change. Nees van der
Deiden "<>>A#, for example, says that change and uncertainty ma/e 6optimum strategy7
determination impossible. &e have neither the time nor the information re%uired for such a
calculation. !he best we can hope for is what he calls 6the most s/illful process7.
;?>=
!he way
Peter Schwart$ put it in <>>< is that strategic outcomes cannot be /nown in advance so the
sources of competitive advantage cannot be predetermined.
;A@=
!he fast changing business
environment is too uncertain for us to find sustainable value in formulas of excellence or
competitive advantage. )nstead, scenario planning is a techni%ue in which multiple outcomes can
be developed, their implications assessed, and their li/eliness of occurrence evaluated.
(ccording to Pierre &ac/, scenario planning is about insight, complexity, and subtlety, not
about formal analysis and numbers.
;A<=
)n <>JJ, Denry 0int$berg loo/ed at the changing world around him and decided it was time to
reexamine how strategic management was done.
;AC=;AE=
De examined the strategic process and
concluded it was much more fluid and unpredictable than people had thought. -ecause of this, he
could not point to one process that could be called strategic planning. )nstead he concludes that
there are five types of strategies. !hey are:
Strategy as plan - a direction, guide, course of action - intention rather than actual
Strategy as ploy - a maneuver intended to outwit a competitor
Strategy as pattern - a consistent pattern of past behaviour - reali$ed rather than intended
Strategy as position - locating of brands, products, or companies within the conceptual
framewor/ of consumers or other sta/eholders - strategy determined primarily by factors
outside the firm
Strategy as perspective - strategy determined primarily by a master strategist
)n <>>J, 0int$berg developed these five types of management strategy into <@ 6schools of
thought7. !hese <@ schools are grouped into three categories. !he first group is prescriptive or
normative. )t consists of the informal design and conception school, the formal planning school,
and the analytical positioning school. !he second group, consisting of six schools, is more
concerned with how strategic management is actually done, rather than prescribing optimal plans
or positions. !he six schools are the entrepreneurial, visionary, or great leader school, the
cognitive or mental process school, the learning, adaptive, or emergent process school, the power
or negotiation school, the corporate culture or collective process school, and the business
environment or reactive school. !he third and final group consists of one school, the
configuration or transformation school, an hybrid of the other schools organi$ed into stages,
organi$ational life cycles, or 6episodes7.
;AG=
)n <>>>, Constantinos 0ar/ides also wanted to reexamine the nature of strategic planning itself.
;A?=
De describes strategy formation and implementation as an on-going, never-ending, integrated
process re%uiring continuous reassessment and reformation. Strategic management is planned
and emergent, dynamic, and interactive. B. 0oncrieff "<>>># also stresses strategy dynamics.
;AA=

De recogni$ed that strategy is partially deliberate and partially unplanned. !he unplanned
element comes from two sources: emergent strategies "result from the emergence of
opportunities and threats in the environment# and Strategies in action "ad hoc actions by many
people from all parts of the organi$ation#.
Some business planners are starting to use a complexity theory approach to strategy. Complexity
can be thought of as chaos with a dash of order. Chaos theory deals with turbulent systems that
rapidly become disordered. Complexity is not %uite so unpredictable. )t involves multiple agents
interacting in such a way that a glimpse of structure may appear. (xelrod, ,.,
;AF=
Dolland, B.,
;AJ=

and Nelly, S. and (llison, 0.(.,
;A>=
call these systems of multiple actions and reactions comple)
adaptive systems. (xelrod asserts that rather than fear complexity, business should harness it.
De says this can best be done when 6there are many participants, numerous interactions, much
trial and error learning, and abundant attempts to imitate each others1 successes7. )n C@@@, +.
8udi/ wrote that an organi$ation must develop a mechanism for understanding the source and
level of complexity it will face in the future and then transform itself into a complex adaptive
system in order to deal with it.
;F@=
Information and technology driven strategy
Peter 8ruc/er had theori$ed the rise of the 6/nowledge wor/er7 bac/ in the <>?@s. De described
how fewer wor/ers would be doing physical labour, and more would be applying their minds. )n
<>JG, Bohn Kesbitt theori$ed that the future would be driven largely by information: companies
that managed information well could obtain an advantage, however the profitability of what he
calls the 6information float7 "information that the company had and others desired# would all but
disappear as inexpensive computers made information more accessible.
8aniel -ell "<>J?# examined the sociological conse%uences of information technology, while
3loria Schuc/ and Shoshana Puboff loo/ed at psychological factors.
;F<=
Puboff, in her five year
study of eight pioneering corporations made the important distinction between 6automating
technologies7 and 6infomating technologies7. She studied the effect that both had on individual
wor/ers, managers, and organi$ational structures. She largely confirmed Peter 8ruc/er1s
predictions three decades earlier, about the importance of flexible decentrali$ed structure, wor/
teams, /nowledge sharing, and the central role of the /nowledge wor/er. Puboff also detected a
new basis for managerial authority, based not on position or hierarchy, but on /nowledge "also
predicted by 8ruc/er# which she called 6participative management7.
;FC=
)n <>>@, Peter Senge, who had collaborated with (rie de 3eus at 8utch Shell, borrowed de 3eus1
notion of the learning organization, expanded it, and populari$ed it. !he underlying theory is
that a company1s ability to gather, analy$e, and use information is a necessary re%uirement for
business success in the information age. "See organi$ational learning.# )n order to do this, Senge
claimed that an organi$ation would need to be structured such that:
;FE=
People can continuously expand their capacity to learn and be productive,
Kew patterns of thin/ing are nurtured,
Collective aspirations are encouraged, and
People are encouraged to see the 6whole picture7 together.
Senge identified five components of a learning organi$ation. !hey are:
Personal responsibility, self reliance, and mastery 2 &e accept that we are the masters
of our own destiny. &e ma/e decisions and live with the conse%uences of them. &hen a
problem needs to be fixed, or an opportunity exploited, we ta/e the initiative to learn the
re%uired s/ills to get it done.
0ental models 2 &e need to explore our personal mental models to understand the
subtle effect they have on our behaviour.
Shared vision 2 !he vision of where we want to be in the future is discussed and
communicated to all. )t provides guidance and energy for the ourney ahead.
!eam learning 2 &e learn together in teams. !his involves a shift from 6a spirit of
advocacy to a spirit of en%uiry7.
Systems thin/ing 2 &e loo/ at the whole rather than the parts. !his is what Senge calls
the 6Iifth discipline7. )t is the glue that integrates the other four into a coherent strategy.
Ior an alternative approach to the 6learning organi$ation7, see 3arratt, -. "<>JF#.
Since <>>@ many theorists have written on the strategic importance of information, including
B.-. Muinn,
;FG=
B. Carlos Barillo,
;F?=
8.H. -arton,
;FA=
0anuel Castells,
;FF=
B.P. Hieles/in,
;FJ=
!homas
Stewart,
;F>=
N.+. Sveiby,
;J@=
3ilbert B. Probst,
;J<=
and Shapiro and .arian
;JC=
to name ust a few.
!homas (. Stewart, for example, uses the term intellectual capital to describe the investment an
organi$ation ma/es in /nowledge. )t is comprised of human capital "the /nowledge inside the
heads of employees#, customer capital "the /nowledge inside the heads of customers that decide
to buy from you#, and structural capital "the /nowledge that resides in the company itself#.
0anuel Castells, describes a net$or% society characteri$ed by: globali$ation, organi$ations
structured as a networ/, instability of employment, and a social divide between those with access
to information technology and those without.
Stan 8avis and Christopher 0eyer "<>>J# have combined three variables to define what they call
the *+, e-uation. !he speed of change, )nternet connectivity, and intangible /nowledge
value, when multiplied together yields a society1s rate of -H4,. !he three variables interact and
reinforce each other ma/ing this relationship highly non-linear.
,egis 0cNenna posits that life in the high tech information age is what he called a 6real time
experience7. +vents occur in real time. !o ever more demanding customers 6now7 is what
matters. Pricing will more and more become variable pricing changing with each transaction,
often exhibiting first degree price discrimination. Customers expect immediate service,
customi$ed to their needs, and will be prepared to pay a premium price for it. De claimed that the
new basis for competition will be time based competition.
;JE=
3eoffrey 0oore "<>><# and ,. Iran/ and P. Coo/
;JG=
also detected a shift in the nature of
competition. )n industries with high technology content, technical standards become established
and this gives the dominant firm a near monopoly. !he same is true of networ/ed industries in
which interoperability re%uires compatibility between users. (n example is word processor
documents. 'nce a product has gained mar/et dominance, other products, even far superior
products, cannot compete. 0oore showed how firms could attain this enviable position by using
+.0. ,ogers five stage adoption process and focusing on one group of customers at a time, using
each group as a base for mar/eting to the next group. !he most difficult step is ma/ing the
transition between visionaries and pragmatists "See Crossing the Chasm#. )f successful a firm
can create a bandwagon effect in which the momentum builds and your product becomes a de
facto standard.
+vans and &urster describe how industries with a high information component are being
transformed.
;J?=
!hey cite +ncarta1s demolition of the +ncyclopedia -ritannica "whose sales have
plummeted J@Q since their pea/ of RA?@ million in <>>@#. 0any speculate that +ncarta5s reign
will be short-lived, eclipsed by collaborative encyclopedias li/e &i/ipedia that can operate at
very low marginal costs. +vans also mentions the music industry which is desperately loo/ing
for a new business model. !he upstart information savvy firms, unburdened by cumbersome
physical assets, are changing the competitive landscape, redefining mar/et segments, and
disintermediating some channels. 'ne manifestation of this is personali$ed mar/eting.
)nformation technology allows mar/eters to treat each individual as its own mar/et, a mar/et of
one. !raditional ideas of mar/et segments will no longer be relevant if personali$ed mar/eting is
successful.
!he technology sector has provided some strategies directly. Ior example, from the software
development industry agile software development provides a model for shared development
processes.
(ccess to information systems have allowed senior managers to ta/e a much more
comprehensive view of strategic management than ever before. !he most notable of the
comprehensive systems is the balanced scorecard approach developed in the early <>>@1s by 8rs.
,obert S. Naplan "Darvard -usiness School# and 8avid Korton "Naplan, ,. and Korton, 8.
<>>C#. )t measures several factors financial, mar/eting, production, organi$ational development,
and new product development in order to achieve a 1balanced1 perspective.
The psychology of strategic management
Several psychologists have conducted studies to determine the psychological patterns involved in
strategic management. !ypically senior managers have been as/ed how they go about ma/ing
strategic decisions. ( <>EJ treatise by Chester -arnard, that was based on his own experience as
a business executive, sees the process as informal, intuitive, non-routini$ed, and involving
primarily oral, C-way communications. -ernard says 6!he process is the sensing of the
organi$ation as a whole and the total situation relevant to it. )t transcends the capacity of merely
intellectual methods, and the techni%ues of discriminating the factors of the situation. !he terms
pertinent to it are 6feeling7, 6udgement7, 6sense7, 6proportion7, 6balance7, 6appropriateness7. )t
is a matter of art rather than science.7
;JA=
)n <>FE, Denry 0int$berg found that senior managers typically deal with unpredictable
situations so they strategi$e in ad hoc, flexible, dynamic, and implicit ways. De says, 6!he ob
breeds adaptive information-manipulators who prefer the live concrete situation. !he manager
wor/s in an environment of stimulous-response, and he develops in his wor/ a clear preference
for live action.7
;JF=
)n <>JC, Bohn Notter studied the daily activities of <? executives and concluded that they spent
most of their time developing and wor/ing a networ/ of relationships from which they gained
general insights and specific details to be used in ma/ing strategic decisions. !hey tended to use
6mental road maps7 rather than systematic planning techni%ues.
;JJ=
8aniel )senberg1s <>JG study of senior managers found that their decisions were highly intuitive.
+xecutives often sensed what they were going to do before they could explain why.
;J>=
De
claimed in <>JA that one of the reasons for this is the complexity of strategic decisions and the
resultant information uncertainty.
;>@=
Shoshana Puboff "<>JJ# claims that information technology is widening the divide between
senior managers "who typically ma/e strategic decisions# and operational level managers "who
typically ma/e routine decisions#. She claims that prior to the widespread use of computer
systems, managers, even at the most senior level, engaged in both strategic decisions and routine
administration, but as computers facilitated "She called it 6des/illed7# routine processes, these
activities were moved further down the hierarchy, leaving senior management free for strategic
decions ma/ing.
)n <>FF, (braham Pale$ni/ identified a difference between leaders and managers. De describes
leadershipleaders as visionaries who inspire. !hey care about substance. &hereas managers are
claimed to care about process, plans, and form.
;><=
De also claimed in <>J> that the rise of the
manager was the main factor that caused the decline of (merican business in the <>F@s and J@s.
Hac/ of leadership is most damaging at the level of strategic management where it can paraly$e
an entire organi$ation.
;>C=
(ccording to Corner, Ninichi, and Neats,
;>E=
strategic decision ma/ing in organi$ations occurs at
two levels: individual and aggregate. !hey have developed a model of parallel strategic decision
ma/ing. !he model identifies two parallel processes both of which involve getting attention,
encoding information, storage and retrieval of information, strategic choice, strategic outcome,
and feedbac/. !he individual and organi$ational processes are not independent however. !hey
interact at each stage of the process.
,easons $hy strategic plans fail
!here are many reasons why strategic plans fail, especially:
Iailure to understand the customer
o &hy do they buy
o )s there a real need for the product
o inade%uate or incorrect mar/eting research
)nability to predict environmental reaction
o &hat will competitors do
Iighting brands
Price wars
o &ill government intervene
'ver-estimation of resource competence
o Can the staff, e%uipment, and processes handle the new strategy
o Iailure to develop new employee and management s/ills
Iailure to coordinate
o ,eporting and control relationships not ade%uate
o 'rgani$ational structure not flexible enough
Iailure to obtain senior management commitment
o Iailure to get management involved right from the start
o Iailure to obtain sufficient company resources to accomplish tas/
Iailure to obtain employee commitment
o Kew strategy not well explained to employees
o Ko incentives given to wor/ers to embrace the new strategy
4nder-estimation of time re%uirements
o Ko critical path analysis done
Iailure to follow the plan
o Ko follow through after initial planning
o Ko trac/ing of progress against plan
o Ko conse%uences for above
Iailure to manage change
o )nade%uate understanding of the internal resistance to change
o Hac/ of vision on the relationships between processes, technology and
organi$ation
Poor communications
o )nsufficient information sharing among sta/eholders
o +xclusion of sta/eholders and delegates
!riticisms of strategic management
(lthough a sense of direction is important, it can also stifle creativity, especially if it is rigidly
enforced. )n an uncertain and ambiguous world, fluidity can be more important than a finely
tuned strategic compass. &hen a strategy becomes internali$ed into a corporate culture, it can
lead to group thin/. )t can also cause an organi$ation to define itself too narrowly. (n example of
this is mar/eting myopia.
0any theories of strategic management tend to undergo only brief periods of popularity. (
summary of these theories thus inevitably exhibits survivorship bias "itself an area of research in
strategic management#. 0any theories tend either to be too narrow in focus to build a complete
corporate strategy on, or too general and abstract to be applicable to specific situations. Populism
or faddishness can have an impact on a particular theory1s life cycle and may see application in
inappropriate circumstances. See business philosophies and popular management theories for a
more critical view of management theories.
)n C@@@, 3ary Damel coined the term strategic convergence to explain the limited scope of the
strategies being used by rivals in greatly differing circumstances. De lamented that strategies
converge more than they should, because the more successful ones get imitated by firms that do
not understand that the strategic process involves designing a custom strategy for the specifics of
each situation.
;>G=
,am Charan, aligning with a popular mar/eting tagline, believes that strategic planning must not
dominate action. 9Bust do itS9, while not %uite what he meant, is a phrase that nevertheless comes
to mind when combatting analysis paralysis.
C(S+ S!48L )K S!,(!+3)C 0(K(3+0+K!
88 is the )ndia5s premier public service broadcaster with more than <,@@@ transmitters covering
>@Q of the country5s population across on estimated F@ million homes. )t has more than C@,@@@
employees managing its metro and regional channels. ,ecent years have seen growing
competition from many private channels numbering more than A?, and the cable and satellite
operators "C O S#. !he C O S networ/ reaches nearly E@ million homes and is growing at a very
fast rate. 885s business model is based on selling half T hour slots of commercial time to the
programme producers and charging them a minimum guarantee. Ior instance, the present tariff
for the first C@ episodes of a programme ,s.E@ la/hs plus the cost of production of the
programme. )n exchange the procedures get FJ@ seconds of commercial time that he can sell to
advertisers and can generate revenue. -rea/-even point for procedures, at the present rates, thus
is ,s.F?,@@@ for a <@ second advertising spot. -eyond C@ episodes, the minimum guarantee is
,s.A? la/hs for which the procedures has to charge ,s.<,<?,@@@ for a <@ second spot in order to
brea/-even. )t is at this point the advertisers face a problem T the competitive rates for a <@
second spot is ,s.?@,@@@. Procedures are possessive about buying commercial time on 88. (s a
result the 885s proected growth of revenue is only commercial time on 88. (s a result the
885s proected growth of revenue is only A- <@Q as against ?@-A@Q for the private sector
channels. Software suppliers, advertisers and audiences are deserting 88 owing to its unrealistic
pricing policy. 88 has options before it. Iirst, it should privates, second it should remain purely
public service broadcaster and third, a middle path. !he challenge seems to be exploit 885s
immense potential and emerge as a formidable player in the mass media.
i. &hat is the best option, in your view, for 88:
ii. (nalyse the S&'! factors the 88 has.
iii. &hy do you thin/ that the proposed alternative is the best: "C@ 0ar/s#
(nswer
"i# Ior several years 8oordarshan was the only broadcaster of television programmes in )ndia.
(fter the opening of the sector to the private entrepreneur "cable and satellite channels#, the
mar/et has witnessed maor changes. !he number of channels have increased and also the
%uality of programmes, bac/ed by technology, has improved. )n terms of %uality of
programmers, opportunity to advertise, outreach activities, the broadcasting has become a
popular business. -roadcasters too have realised the great business potential in the mar/et. -ut
for this, policies need to be rationalised and be opened to the scope of innovativeness not only in
term of %uality of programmes. !his would not come by simply going to more areas or by
allowing bureaucratic set up to continue in the organisation. Strategically the 88 needs to
undergo a policy overhaul. 88, out of three options, namely privatisation, public service
broadcaster or a middle path, can choose the third one, i.e. a combination of both. !he whole
privatisation is not possible under the diversified political scenario. Kor it would be desirable to
hand over the broadcasting emotively in the private hand as it proves to be a great means of
communication of many socially oriented public programmers. !he government could also thin/
in term of creating a corporation "as it did by creating Prasar -harti# and provide reasonable
autonomy to 88. So far as its advertisement tariff is concerned that can be made fairly
competitive. Dowever, at the same time cost of advertising is to be compared with the reach
enoyed by the doordarshan. !he number of viewers may be far more to ustify higher tariffs.
"ii# !he S&'! analyses involves study of strengths, wea/nesses, opportunities and threats of an
organisation. S&'! factors that are evidently available to the 8oordarshan are as follows:
S T Strength
0ore than <@@@ transmitters.
Covering >@Q of population across F@ million homes against only E@ million home by C O S.
0ore than C@,@@@ employees.
& T &ea/ness
,igid pricing strategy.
How credibility with certain sections of society.
Muality of program5s is not as good as compared to C O S networ/
'T 'pportunities
)nfrastructure can be leased out to cable and satellite channel.
8igital terrestrial transmission.
,egional focused channels.
(llotment of time, slots to other broadcasters.
! T !hreats
8esertion of advertisers and producers may result in loss of revenues.
8ue to %uality of program the reach of C O S networ/ is continuously expanding.
(s the CO S networ/ need the trained staff, some employees of 88 may switchover and ta/e
new obs.
-est of the mar/et-technology is being used by the private channels.
"iii# )t is suggested that the 88 should adopt a middle path. )t should have a mix of both the
options. )t should economi$ed on its operational aspects and ensure more productivity in term of
revenue generation and optimisation of use of its infrastructure. &herever, the capacities are
underutilised, these may be leased out to the private operations. (t the same time %uality and
viewership of programmes should be improved. -ureaucracy may reduce new strategic
initiatives or ma/e the organisation less transparent. Complete privatisation can fetch a good sum
and may solve many of the managerial and operational problems. Dowever, complete public
monopoly is not advisable because that denies the government to fully exploit the avenue for
social and public use. !he government will also lose out as it will not be able to ta/e advantage
of rising potential of the mar/et. 0ay C@@J T PCC +xam )n C@@A-@F P!C Iood division decided
to enter the fast growing "C@-E@Q annually# snac/s segment, an altogether new to it. )t had only
one national competitor-!repsico1s !rito. (fter a year its wafer snac/ brand- ,ingo, fetched C@Q
mar/et share across the country. ,ingo1s introduction was coincided with the cric/et world cup.
!he wafer snac/s mar/et is estimated to be around ,s. C?@ crores. !he company could ta/e the
advantage of its existing distribution networ/ and also source potatoes from farmers easily.
-efore the P!C could enter the mar/et a cross-functional team made a customer survey through
a mar/eting research group in <G cities of the country to /now about the snac/s of eating habits
of people. !he result showed that the customers within the age-group of <?-CG years were the
most promising for the product as they were %uite enthusiastic about experimenting new snac/
taste. !he company reported to its chefs and thechefs came out with <A flavours with varying
tastes suiting to the targetted age-group. !he company decided to target the youngsters as
primary target on the assumption that once they are lured in, it was easier to reach the whole
family. (dvertising in this category was extremely crowded. +very wee/ two-three local
products in new names were launched, sometimes with similar names. !o brea/ through this
clutter the company decided to ban/ upon humour appeal.
!he )ndustry sources reveal that P!C spent about ,s. ?@ crores on advertisement and used all
possible mediaprint and electronic, both including the creation of its own website,
,ingoringoyoungo.com with offers of online games, contests etc. 0obile phone tone
downloading was also planned which proved very effective among teenagers. !he site was
advertised on all dotcom networ/s. +m !., Shine !., -ee !. and other important channels
were also used for its advertisement along with I0 radio channels in about A@ cities with large
hoardings at strategic places.
(nalysts believes that ,ingo1s success story owes a lot to P!C1s widespread distribution channels
and aggressive advertisements. Dumour appeal was a big success. !he U,ingo1 was made visible
by painting the ,ailway bogies passing across the States. )t has also been successful to induce
Hovely -rothers1 Iuture 3roup to replace !rito in their -ig--a$aar and chain of food -a$aars.
P!C is paying GQ higher margin than !repsico to Iuture group and other retailers. ,ingo to
giving !repsico a run for its money. !rito1s share has already been reduced considerably. ,etail
tieups, regional flavours, regional humour appeals have helped P!C. -ut P!C still wants a
bigger share in the mar/et and in foreign mar/ets also, if possible.

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