Strategy Analysis 1

Running Head: Strategy Analysis

Strategy Analysis

By

Walter A Van Stone

October 2009

TABLE OF CONTEXT
 Strategy Analysis 2

Abstract...………………………………………………………………. 3

Introduction…………………………………………………………… 3

Design School Origins…………………………………………………. 4

Design School Content………………………………………………… 4

Risk…………………………………………………………….. 5

Uncertainty…………………………………………………….. 6

Managing Uncertainty…………………………………………………. 7

Influences of Market structure…………………………………………. 7

Environment…………………………………………………………… 8

Environmental School Origin………………………………………….. 8

Environmental School Context………………………………………... 9

Risk…………………………………………………………….. 9

Uncertainty…………………………………………………….. 10

Managing Uncertainty…………………………………………………. 11

Influences of Market structure…………………………………………. 12

Environment…………………………………………………………… 13

Conclusion…………………………………………………………….. 13
 Strategy Analysis 3

Abstract

The two schools of strategy that were selected for analysis are the design school and

environmental school. An attempt will be made to analyze both strategic schools of

thinking through three dimensions: root, content and process, and contextual. Secondly,

evaluate how risk uncertainty and how effective resource allocations are best managed.

Thirdly, evaluate how market structure influences strategic options. And lastly, evaluate

how fast-moving environments are best approached.

Introduction

Many organizations today are seeking to understand-and many experts are

writing about organizational strategy formations. These strategy formations are focused

around ten distinct schools of thought (Mintzberg, Ahlstrnd, and Lampel, 1998) two of

which schools are referred as to the design school and environmental school. Countless

articles have been written about the design and environmental schools and how

organizations attempt to create and incorporate these strategy formations effectively.

There are numerous reasons for the popularity of the topic. These concerns of

organizational strategy formations are heightened by an organizations global market

structure, and the environment in which they operate; such as risk, uncertainty and

resources.
 Strategy Analysis 4

Design School Origins

According to Mintzberg, Ahlstrand, and Lampel, (1998), “The origins of the

design school can be traced back to two influential books written at the University of

California and at M.I.T.; Philip Selznick’s Leadership in Administration of 1957, and

Alfred D. Chandler’s Strategy and Structure of 1962” (p. 24). It was Selznick’s

conception of “distinctive competence,” which brought about a need for firms to align

(implement) its internal capabilities to its external expectation.

Design School Content

According to Mintzberg, Ahlstrand, and Lampel, (1998) organizational strategy is

made up of ten distinct separate schools of thinking; of these ten schools the design

school is one of them. As Carlopio (2009) points out that the design school is not the

process of designing or creating a strategy; “the term “design” is used in its noun form, in

the sense of a form or a structure, rather than in its verb form, in the sense of generation

or creating strategy” (p. 1). However, when used (Carlopio quoting Mintzberg, 1990 and

Mintzberg and Lampel 1999) “in its verb form, it is done so only in the sense that an

organization’s structure must be “tailored to the individual case” or designed to gain “the

essential fit between internal strengths and weakness and external threats and

opportunities” (p. 1). The design school is divided into two clear-cut strategy processes.

The process examines an organization’s internal strengths and weaknesses to its external

environment threats and opportunities. The examination establishes the organizations key

success factors (external) and its distinctive competences (internal) fit through what is

known as strengths, weakness, opportunities, and threats (SWOT) analysis. The design

school model also takes the view of the organizations social responsibility and

managerial values during the creation, evaluation and choice strategies.

 Strategy Analysis 5

Ansoff (1991) argued that “Mintzberg makes no direct reference to the context in

which his prescriptive principles should be used” (p. 454) However, according to Ansoff,

Mintzberg does indentify two contexts that if possible may apply; with a new

organization, and its initial strategy development and during an organizational change to

a stable environment.

Risk

Risk is something for which solutions can be developed proactively, with

foresight and based on known information, in order to reduce the chance for mistakes. To

lessen the risk an organization must identify their calculated risk and manage it. The use

and benefits of tools for project risk management article by Raz and Michael (1999) state

that "Risk management is one of the key project management processes" (p. 9). Their

study revealed (through questionnaires) that in the software and high-tech industry the

efficiency of risk management is though the use of tools. They found that the tools

implemented were those that were currently used in contemporary management practices.

In addition they also uncovered those organizations who managed risk well, used tools to

reduce the risk; through analysis or the use of check lists. Moreover, the mangers that

used tools to lessen risk felt that using risk management tools contributed to the success

of their project; therefore managers tend to use a risk management tool. However, the

authors caution that “during the life of the project managers become "busier” and are

subject to mounting resource and time pressures and are likely to neglect the risk control

phase. Consequently, risk control tools are used sporadically or not at all..."(p.11-12).

The risk of the design school strategy is the “separation of formulation from

implementation: detaching thinking form acting. The formulation-implementation

dichotomy is central to the design school,” (Mintzberg, Ahlstrand, Lampel, 1998, p. 36).
 Strategy Analysis 6

The strategy formation is only viewed as a thinking process (formulation) while the

actual execution (implementation) of the strategy is over looked. For example

Mintzberg’s basic design school model (Mintzberg et al, 1998). Thus the school views

strategy as an end to its means of a process. Moreover, its simplification may over look

the complexities and authenticity of implementation, as well as, non adaptability to a

changing environment and its organizations lessons learned (emergent strategy theory).

On the other hand, its simplicity creates a clear sequential flow process that suite a stable

environment and promotes strong management leadership, mainly the chief executive

officer (CEO).

Uncertainty

Uncertainty, unexpected or unforeseeable changes, cannot be proactively planned

or predicted and must be dealt with in a more reactive manner; uncertainty therefore,

creates risk. The challenge to the design school strategy is the resolution of uncertainty

through SWOT analysis. It can be argued that design strategy cannot identify every

possible scenario for an organization to become successful even with its distinctive

competencies to insure a best-fit strategy let alone its organizations social responsibility

and managerial values during the creation, evaluation and selection of the best-fit

strategies. In fact, the design school assumes that decisions made to ensure best-fit

strategies are known. If that is truly the case then American and United Airlines, through

design school strategy, would have known about 9-11 and the resultant effect it had on

their companies as well as the whole airline industry for that matter.

Managing Uncertainty

Coping and managing uncertainty is easier said than done. Uncertainty,

unexpected or unforeseeable changes, cannot be proactively planned or predicted and

 Strategy Analysis 7

must be dealt with in a more reactive manner. However, according to Mason-Jones and

Towill (2000) uncertainty can be managed. Moreover, the authors argue that companies

that are proactively involved with uncertainty can reduce its uncertainty occurrence.

“Those companies who design business strategies which acknowledge the presence of

uncertainty and provide mechanisms for pro-actively tracking it are rewarded by an

opportunity to enable best practice ahead of competitors whose responses are purely

reactive” (p. 40). Therefore, uncertainty can be managed by indentifying environmental

changes and then embarking upon and reducing uncertainty either sequentially or

concurrently.

Influences of Market structure

The design school strategy market structure examination establishes the

organization key success factors (external) and its distinctive competences (internal) fit

through what is known as SWOT analysis. It is through SWOT analysis that originations

influence market structure. SWOT analysis establishes goals of an organization and as

goals are establish than a strategy or game plan is implemented to achieve the goals.

Kotler and Keller, (2007) cites Porter’ “three generic strategies that form a good starting

point for strategic thinking: overall cost leadership, differentiation and focus” (p. 31). For

example, firms that adapt the cost leadership strategy become the lowest production of

products that produces a product lower than their competitors thus establishing

economies of scale.

Environment

Once again, the design school uses of SWOT analysis looks at the external or

internal threat, through scanning its environment. The examination establishes the

organizations key success factors (external) and its distinctive competences (internal) fit
 Strategy Analysis 8

Zajac, Kraatz, and Bresser (2000), argue that “organization’s strategy should fit (and/or

changed to fit) with its environmental and organizational context” (p. 432). Threats to

firms can be identified as either major or minor threats. Kotler and Keller (2007) caution

that major threats must be monitored by firms to change and adapt its strategy if

necessary. Zajac, Kraatz, and Bresser (2000), also caution that “One central feature that

may affect the propensity of organization adaptation is the competitive environment of a

local area. Organizations often look to local competitors for clues regarding the

appropriateness of potential strategic changes,” (438).

Environmental School Origin

In Mintzberg, Ahlstrand and Lampel (1998) environmental school the strategy

formation is seen as a reactive process. Its genesis started with the “contingency theory.”

The contingency theory argues that the solution for a managerial problem is contingent

“it depends” on factors or other forces (environment) that are imposing on the final

outcome. For example if an organizations external environment was balanced then the

organizations internal environment was also balanced. Thus, the environmental school

strategy is reactive (depends) to its external and internal forces. Later, theorists known as

“population ecologists” claimed that external forces put organizations into a niche

environment which forced the organization to adapt to it environment.

Environmental School Content

Mintzberg, Ahlstrand and Lampel (1998) argue that the environmental school

strategy is a response to the challenges imposed by the external environment. “The other

schools see this as a factor; the environmental school sees it as an actor-indeed the actor”

(p. 286). Like contingency theory, the environmental school strategy general forces are

the central actor in the strategy process. Theorists of the environmental school believe
 Strategy Analysis 9

that there is no one best way to organize; it depends on the organization’s structure, its

size, technology and requirements of its environment. Therefore, the organization will

react to these forces. Leadership “becomes a passive element for purpose of reading the

environment and insuring proper adaptation by the organization” (p.288). However the

“organizations end up clustering together in distinct ecological-type niches, positions

where they remain until resources become scarce or conditions too hostile. Then they

die” (p.288). Like the design school the environment school also uses SWOT analysis

Risk

The environmental schools strategy shortcomings are that the magnitude of the

environment forces lend to ambiguity. Therefore the strategy formation becomes useless

and not realistic. According to Grant, (2003) “increased volatility of the business

environment makes systematic strategic planning more difficult. Rapid change requires

strategies that are flexible and creative…” (P. 491) Thus, the risk to organizations using

an environmental school strategy is that it is susceptible to change; change takes a long

time in a large organization structures. Moreover, during this time period of change

competitors can aggressively attack an organizations market, thus, regardless of its

environment; the result is that organization fails to survive. In addition, it can be argued

that an organization-even if it had time and unlimited capital-risks their existence due to

the endless possibilities to any indisputable best possible resolution to any given

environmental condition. Simply said, there are too many unforeseen and uncertain

possibilities in developing a strategy formation. According to Alessandri (2008) risk is

one of the fundamental factors that impinge on an organization’s strategic decision

process. “Perceived risk and the organizational context can lead to differing approaches
 Strategy Analysis 10

to making decisions…environmental, organizational and cognitive factors appear to play

significant roles in risky choices” (p.198).

Uncertainty

One of the unforeseen possibilities in developing an environmental strategy

formation is uncertainty. Uncertainty, unexpected or unforeseeable changes, cannot be

proactively planned or predicted and must be dealt with in a more reactive manner.

Theorists of the environmental school believe that there is no one best way to organize; it

depends on the organization’s structure, its size, technology and requirements of its

environment. Thus the organization will react to these forces. For example, Jensen,

Johansson, and Lofstrom (2006) investigate interactional uncertainty with respect to

projects. The authors identify factors that cause uncertainty in an organizational

environment and how uncertainties affect project formation, processes and results; a two

dimensional model, through vertical and horizontal uncertainty analysis. It is through

these models that the authors concludes “how different degrees of uncertainty affect the

conditions of various projects and their accomplishments…that uncertainty can operate

on many levels at the same time: interactional uncertainty goes together with both

operational and institutional uncertainty” (p. 10-11). Although, there is evidence through

Jensen et al. (2006), and others who have researched uncertainty in organization on

making strategic decisions; there is no single tactic to strategy decisions that will

completely eliminate uncertainty, however, it will help guide, and inform organizations in

managing their uncertainty.

Managing Uncertainty

Courtney, Kirkland and Viguerie (1997), warns CEO’s of the dangers of

managing uncertainty. They suggest that the biggest danger in uncertainty is that
 Strategy Analysis 11

organizations management or leaders should not view uncertainty as either certain or

uncertain; what is referred to as a “binary way” a narrow thinking of strategy for

uncertainty. Courtney et al., (1997) suggest that “uncertainty requires a different

approach- one that avoids this dangerous binary view” (p. 68). The authors identify four

levels of uncertainty; circumstances for which organizations can determine uncertainty

during strategic decisions. Additionally, organizations that are confronted with a highly

uncertain business environment, more often than not, differentiate its products and its

business units so that an organization can focus on a smaller market and certain

challenges; thus an origination becomes a strategic business unit and enters into its niche

market. For example, if the British fondness of motorcycles is different than American

fondness in motorcycles then it becomes a challenge to a manufacturer to produce a

single motorcycle that will satisfy both markets. Therefore, it would be necessary to

adapt to the environmental forces and create two separate markets as well as strategic

business units to diminish uncertainly. Moreover, undervaluing the management of

uncertainty will lead to strategic decisions that neither defends against a market threat nor

takes advantage of market opportunities.

Influences of Market Structure

Like the design school, the environmental school market structure examination

establishes the organizations key success factors (external) and its distinctive

competences (internal) fit through what is known as SWOT analysis. It is through SWOT

analysis that originations influence market structure. SWOT analysis establishes goals of

an organization as goals are established then a strategy or game plan is implemented to

achieve the goals. With the environmental school strategy, market structure is dependent

on the market in which an organization operates. Organizations that closely fit with their
 Strategy Analysis 12

environmental requirements survive, while organizations that do not fit disappear; thus

organizations adapt to their environment due to the competitive dynamics of their

industry. For example, the banking industry is just one case in point that will have to map

innovative strategies in order to survive or disappear in 2015. According to the article:

The retail banking industry in 2015: Trends and strategies to focus on and develop.

(2007), research that was conducted by IBM institute for Business; two mammoth

developments is forecasted to shape the banking industry, one of which is that “universal

banks and ultra-focused niche players thrive: large players benefit from super scale while

niche players aggressively pursue the most desirable customers. Banks in the middle will

suffer from this situation,” (p.32). The other development is that customers will change

the game in which banks operate; population growth, technologically savvy consumers,

and long life expectancies of older customers. Thus for banks to survive they will have to

be responsive to environment conditions, threats, and empowered customers.

Environment

Most organizations adapt to their environment. However, in the environment

school strategy the definition of the environment is so vague that it become of no use

when doing a strategy analysis. Therefore, two organizations in the same industry with

the same environmental factors will have two completely different strategies. (Cray,

Haines, Mallory, 1994). Oertel and Walgenbach (2009), suggest that an organization

which positively uses the environmental school theory, also use the basic concepts of

organizational ecology theory. The base of ecology theory is that “organizations are

selected by the environment, i.e., organizations that closely fit with environmental

requirements survive, while organizations that do not fit disappear. Organizational

 Strategy Analysis 13

environments prefer organizations that have a high degree of reliability and

accountability,” (p.252). To increase the reliability and accountability, Tan and Tan

(2005) who cites Hrebiniak and Joyce (1985), Khandwalla (1977) and Mintzberg (1979),

suggest that “strategic choice theories for firm strategy are that management should take

into account the multiple ways in which organizations interact with their environments

through the process of mutual adaption between the organization and its environment”

(P.146). Therefore, organizations can constructively recreate its environment with a

different approach to strategy, (Tu 2009).

Conclusion

These strategy formations are focused around ten distinct schools of thought

(Mintzberg, Ahlstrnd, and Lampel, 1998) two of which schools are referred as to the

design school and environmental school. Organizations attempt to create and incorporate

these strategy formations effectively. However, organizational strategy formations are

heightened by an organizations global market structure, and the environment in which

they operate; such as risk, uncertainty and resources.

It can be argued that design strategy cannot identify every possible scenario for an

organization to become successful through its distinctive competencies to ensure a best-

fit strategy let alone its organizations social responsibility and managerial values during

the creation, evaluation and selection of the best-fit strategies for their environment.

Most organizations adapt to their environment through scanning and SWOT

analysis. However in the environment school strategy the definition of the environment is

so vague that it become of no use when doing a strategy analysis. Therefore, two

organizations in the same industry with the same environmental factors will have two

completely different strategies.

 Strategy Analysis 14

Companies that are proactively involved with uncertainty can reduce its

uncertainty occurrence. The biggest danger in uncertainty is that organizations

management or leaders should not view uncertainty as either certain or uncertain; what is

referred to as a “binary way” a narrow thinking of strategy for uncertainty. Thus there is

no single tactic to strategy decisions that will completely eliminate uncertainty.

Organizations that undertake the challenges of designing, and executing strategies

for the future will; compete profitably, accomplish growth, and find themselves

becoming design strategy leaders among their global competitors.

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 Strategy Analysis 15

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Strategy Analysis 16