Exploring Corporate Strategy

7th Edition

Part V

How Strategy Develops

Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Exploring Corporate Strategy

7th Edition

Chapter 11

Understanding Strategy Development

Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Understanding Strategy Development Outline (1)

Intended versus emergent strategy development

Intended processes of strategy development
Strategic planning systems Strategy workshops and project groups Strategy consultants Externally imposed strategy

Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Understanding Strategy Development Outline (2) Emergent processes of strategy development

Logical incrementalism Resource allocation routines Cultural processes Organisational politics

Multiple forms and different contexts for strategy development Issues managers face in strategy development
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Strategy Development Processes

Exhibit 11.1
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Strategy Development Routes (1)

Exhibit 11.2
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Strategy Development Routes (2)

Intended strategy
Expression of desired strategic direction deliberately formulated or planned by managers

Unrealised strategy
Frequently strategies do not come about in practice
Plans are unworkable Environment changes Influential stakeholders do not agree with plan

Realised strategy
The strategy actually being followed by an organisation in practice

Emergent strategy
Comes about through everyday routines, activities and processes
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Strategic Direction from Prior Decisions

Exhibit 11.3
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Strategy Development
Intended strategy development
Strategic planning systems Strategy workshops and project groups The role of strategy consultants Externally imposed strategy

Emergent strategy development

Logical incrementalism Resource allocation routines Cultural processes Organisational politics
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Strategic Planning Systems (1)

Systematised, step by step, chronological procedures involving different parts of the organisation
Structured means of analysis and thinking about complex strategic problems Questioning and challenging received wisdom Longer-term view of strategy Means of coordination

Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Strategic Planning Systems (2)

Facilitates conversion of strategy into organisational action:
Communication of intended strategy from the centre Agreed objectives or strategic milestones to measure progress Coordination of resources to implement strategy

Psychological role
Involvement of people creates ownership Sense of security
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

A Strategic Planning Cycle

Source: From R. Grant, Strategic Planning in a Turbulent Environment, Strategic Management Journal, vol. 24, p. 499, 2003.

Exhibit 11.4
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Problems with Strategic Planning Systems (1)

Misunderstanding the purpose:

Danger that strategy thought of as the plan Confusion between budgetary and strategic planning processes Obsession with search for a right strategy Documentation gives false appearance of proactive approach

Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Problems with Strategic Planning Systems (2)

Problems in design:
Line managers may cede responsibility to consultants
no power to make things happen becomes an intellectual exercise

Cumbersome process may result in not understanding the whole Can be over-detailed information overload Formalised and rigid systems can stifle ideas

Failure to gain ownership

Lack of broad involvement Removed from organisational reality
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Strategy Workshops and Project Groups

To reconsider or generate the intended strategy of the organisation To challenge the assumptions of the current strategy To plan strategy implementation To examine blockages to strategic change To undertake strategic analysis To monitor the progress of strategy To generate new ideas and solutions
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Strategy Consultants
Reasons for using consultants
To get an external objective view of issues To cut through internal disagreements To symbolise the importance of the work

Consultants roles
Analysing, prioritising and generating options Knowledge carrier Promoting strategic decisions Implementing strategic change

Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Externally Imposed Strategy

By powerful external stakeholders
Government regulation/deregulation International requirements for JVs/alliances Imposition of strategy from parent to operating unit

Deliberately forces strategic change

Interventionist special measures in UK public sector

Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Logical Incrementalism
The development of strategy by experimentation and learning from partial commitments rather than through global formulations of total strategies
(Quinn 1980)

Managers have a generalised rather than specific view of future direction Cannot know environment, but sensitive to signals via constant scanning Develop strong, flexible core business and experiment with side bet ventures Experiments emerge from subsystems Top managers utilise mix of formal/informal social and political processes to pull together emerging pattern of strategies
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Resource Allocation Routines

Strategies emerge through formalised routines and systems of the organisation
The Bower-Burgelman explanation Day to day decision making about resource allocation across businesses Managers proposals competing for funds Decisions may be made at a lower level than conventionally thought to be strategic Cumulative effects of such decisions guide the strategy
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Cultural Processes
Incremental strategy development can be explained as the outcome of the influence of organisation culture The paradigm and the way we do things around here mean that managers try to minimise ambiguity/uncertainty by defining situation as something familiar Self-reinforcing pattern Over time may result in strategic drift
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

The Dynamics of Paradigm Change

Source: Adapted from p. Grinyeh and J.-C. Spender, Turnaround: Managerial recipes for strategic success, Associated Business Press, 1979, p. 203.

Exhibit 11.5
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Organisational Politics
Political view of strategy development is that strategies develop as the outcome of processes of bargaining and negotiation among powerful internal or external interest groups (or stakeholders)

Negative influence
Obstructs analysis and rational thinking Emphasis or de-emphasis of data can be source of power Powerful individuals may influence identification of key issues and strategies selected Results in emergent or incremental patterns of strategy development

Positive influence
Political conflict and tensions may produce new ideas Champions will support new ideas
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Multiple Processes of Strategy Development

No one right way to develop strategy Processes of strategy development may differ over time and in different contexts Perceptions of how strategy develops will differ
Senior executives see it as intended, rational, analytical and planned Middle managers see it as the result of cultural and political processes Managers in government organisations see it as imposed

No one process describes strategy development

Multiple processes at work

Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Some configurations of strategy development processes

Exhibit 11.6
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Planning Incrementalism (Logical Incrementalism)

Characteristics Standardised planning procedures Systematic data collection and analyses Constant environmental scanning Ongoing adjustment of strategy Tentative commitment to strategy Step-by-step, small-scale change

Rather than

Intrusive external environment Dominant individuals Political processes Power groups Manufacturing and service sector organisations Stable or growing markets Mature markets Benign environments
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Typical contexts

Incremental Cultural Political Configuration

Characteristics Bargaining, negotiation and compromise amongst conflicting interests of groups Groups with control over critical resources more likely to influence strategy Standardised ways of doing things Routines and procedures embedded in organisational history Gradual adjustments to strategy Deliberate, intentional process Well-defined procedures Analytical evaluation and planning Deliberate managerial intent

Rather than

Typical contexts Professional service firms (e.g. consultancy/law) Unstable, turbulent environment New and growing markets
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Imposed Political Configuration

Characteristics Strategy is imposed by external forces (e.g. legislation, parent organisation) Freedom of choice severely restricted Political activity likely within organisation and between external agencies Strategy determined within the organisation Planning systems impact on strategy development Influence on strategic direction mainly by managers within the organisation

Rather than

Typical contexts Public sector organisations, larger manufacturing and financial service subsidiaries Threatening, declining, unstable and hostile environments

Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Challenges for Strategy Development Strategic drift

Incremental strategic change influenced by
organisational culture individual and collective experience political processes prior decisions

Risk of getting out of line with faster changes in environment Need to encourage challenge and change of core assumptions
Learning organisation
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

The Learning Organisation (1)

The learning organisation is capable of continual regeneration from the variety of knowledge, experience and skills of individuals within a culture which encourages mutual questioning and challenge around a shared purpose or vision

Collective knowledge of individuals exceeds organisational knowledge Formal structures stifle organisational knowledge and creativity

Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

The Learning Organisation (2)

Need to unlock individual knowledge and encourage knowledge sharing
Importance of social networks

Learning organisation is inherently capable of change Context for organisational learning

Pluralistic organisation Experimentation as the norm

Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Managers perceptions of strategy development processes

Exhibit 11.7
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Strategy Development in Environmental Contexts

Exhibit 11.8
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Managing Strategy Development Processes

Organisation needs different processes for different purposes What is the right emphasis at a given time? What is the role of top management? What are the strategy development roles at different organisational levels? Do the different managerial levels acknowledge and value different roles?

Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Key Points (1)

Intended versus emergent strategy Intended strategy derives from:
Planning systems carried out by top management Strategy workshops/project groups Strategy consultants Imposition by external stakeholders

Strategies may also emerge as a result of:

Logical incrementalism Resource allocation routines Organisational culture Political activity
Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Key Points (2)

Challenge of strategic drift
Need to challenge taken for granted assumptions

Multiple processes of strategy development required

To create a learning organisation To cope with dynamic and complex environments

Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005