Competitive Corporate Strategy Strategy In Context Commerce Essay
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The very definition of strategy is elusive as there are many different opinions on what strategy actually involves. Often a generalised description is given such as ‘top management’s plans to attain outcomes consistent with the organisation’s missions and goals’ (Wright et al., 1993, p3). However, De Wit and Meyer (2010) state “There is no simple answer to the question of what strategy is.” They continue to describe strategy in terms of three main dimensions: process, content and context. These are referred to as the input, throughput and output of strategy, or the How, the What and the Where.
Each of these dimensions should be regarded as parts of the whole and while one can focus one’s attention on any single dimensions it should never the less be in regard to the interaction with the other two (De Wit & Meyer, 2010). Accordingly it is with this proviso that this report looks at the strategy process.
The complexity and contradictions of strategy with regard to the above mentioned dimensions offer many different strategy perspectives, often contradicting one another. This gives rise to particular tensions and result in strategic paradoxes that are best analysed using a dialectical approach (De Wit & Meyer, 2010). By analysing two opposing points of view the strategist can identify the tension as a paradox and reconcile the opposites as best as possible, hopefully arriving at a ‘best of both worlds’ conclusion.
Figure . Tension as a paradox (Aidan O’Driscoll, 1986)
3.0 The Strategy Process
3.0.1 Aspects of the Strategy Process
De Wit and Meyer (2010) identify strategy process in terms of how, who and when. How is the strategy to be made, who is involved and when do such strategic activities take place?
Many argue that the strategic process is not linear, such as in analysis, formulation and implementation, it is more intuitive and creative.
It is considered that there are three areas of the strategic process: strategic thinking, strategy formation and strategic change – but that these are not ‘phases, stages or elements’ of the strategic process but rather different aspects of the strategy process, which are linked and overlap ( De Wit & Meyer, 2010)
Figure . Aspects of the Strategy Process ( De Wit & Meyer, 2010)
Foe each of the strategy topics certain paradoxes can be identified and associated with two complementary perspectives.
Figure . Strategy topics, paradoxes and perspectives ( De Wit & Meyer, 2010)
For each of the strategy topics case studies (or short case studies) have been used to illustrate the strategic dichotomies that exist and show how the individual companies implemented the opposing types of strategic perspectives.
3.0.2 Strategic Thinking
De Wit and Meyer (2010, p 53) suggest that managers must go through a ‘strategic reasoning process’ in order to find ways to resolve the challenges of strategic problems. This strategic reasoning is “a string of strategic thinking activities directed at defining and resolving strategic problems”.
The cognitive activities involved in strategic thinking are categorised as defining a strategic problem and solving a strategic problem. As can be seen in Figure 4 below defining constitutes identification and diagnosis while solving consists of conception and realisation.
However, the thought processes adopted by managers do not always follow such a formulated and logical ideal. It is often a case of a mixture of structured analytical process combined with intuitive reflection.
Figure . Elements of a strategic reasoning process ( De Wit & Meyer, 2010)
It is this mixture of opposites, analysis and intuition, in varying degrees that create a tension and produces a paradox of logic and creativity. Logical thinking involves analysing empirical facts, formulating strategic options and subjecting them to formal evaluation (De Wit & Meyer, 2010). This allows the manager to understand what is actually happening rather than what is perceived to be happening, based on habits, routines, and personal beliefs.
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Generative reasoning and creative thinking describe the use of intuition to bypass the restrictions of logical thinking to make’ leaps of imagination’ and create new ways of looking at old problems (De Wit & Meyer, 2010). This is not without substance; such reasoning is based on knowledge gained through education, experience and interaction with others. This knowledge resides in the form of cognitive maps (Tolman, E., cited by Downs and Stea, 2005) which combined with observed behaviour can then lead to the prediction of behaviour (Eden, 1992).
The paradox of generative reasoning and creative thinking is further discussed in Appendix 1 where two short case studies are used to compare the different approaches applied by Berkshire Hathaway (rational reasoning perspective) and Google (generative reasoning perspective).
3.0.3 Strategy Formation
Strategy formation is concerned with realising both strategic formulation and strategic action. It encompasses intended strategy (a pattern of decisions) and realised strategy (a pattern of actions) (De Wit and Meyer, 2010). This concedes that strategy is a pattern as in ‘a consistency of behaviour over time’ (Mintzberg et al, 2009, p 10).
While still using the four elements of a strategic reasoning process discussed earlier (See Fig 4) there are additional activities that can be further developed into eight basic building blocks of strategic formation process (Fig. 5).
Figure . The main strategy formation activities (De Wit and Myer, 2010)
Who carries out strategic formation in an organisation varies from CEO’s to those on the shop floor. De Wit and Meyer (2010) identify three variations in who carries out these activities:
Top vs. middle vs. bottom roles
Line vs. staff roles
Internal vs. external roles
De Wit and Meyer (2010) also give a warning regarding a formalised strategic planning system. While this can give a framework for the setting of tasks and responsibilities etc it can also become over bureaucratic and not only stifle innovation and creativity but become a means of demotivation.
Mintzberg et al. (2009) identifies a formalisation edge where a structured, formalised system has a break-point, after which instead of supporting strategic activities it begins to become intrusive.
Figure . The formalisation edge (Mintzberg et al, 2009)
Mintzberg (1987) argues that definitions of strategy as a plan and strategy as a pattern (of behaviour) can be independent of each other. He describes a planned strategy as intended strategy and a pattern of strategy as realised strategy. This allows us to distinguish between deliberate strategy, where previous intentions were realised and emergent strategies, where patterns developed without prior intention (or unrealised intentions).
Figure . Deliberate and emergent strategies (Mintzberg, 1987)
The tension between deliberate strategy and emergent strategy are discussed in Appendix 2 in relation to the case studies of Strategic Planning at United Parcel Services.
3.0.3 Strategic Renewal
Organisations change, whether to maintain competition with its rivals, change through innovation in technology or the changing environment of the business. Growth itself is dependent upon change and management of such changes is paramount. Clarke (1994) states “Change is an accelerating constant” (cited by Senior et al, 2006).
De Wit and Mayer (2010) suggest that change can be strategic or operational stating that “While operational changes are necessary to maintain the business and organisational systems, strategic changes are directed at renewing them”.
Organisational structure, organisational processes and organisational culture are the pillars on which the business system stands (De Wit and Meyer, 2010). The hierarchy of a company, its policies and procedures and its shared beliefs determine the company’s capabilities, what type of renewal it is capable of and how such renewal can be managed and implemented.
Much of these organisational components are hidden within the company as informal elements and requires careful consideration to identify accurately the true situation within a company (see Fig. 8).
Figure . The Iceberg Model (Senior and Swailes, 2010)
There is a distinction in particular between disruptive change and gradual change.
Revolutionary and evolutionary are used here to describe the paradox between these two types of changes (Greiner, 1972). De Wit and Meyer (2010) state that it is widely accepted that a balance is required between Strategic (revolutionary) change and operational (evolutionary) change.
Figure . Types of change (Prime Minister’s Strategy Unit, 2010)
Appendix 3 discusses the application of change in the case study on Ferrari – Transforming the Prancing Horse.
The tensions that are apparent throughout the strategy process and their resultant paradoxes suggest strategic activities are either of one side of the paradox or the other. In some case this may be accurate; the acquisition of a company by another may well, though not always, constitute a revolutionary, big bang, change where fundamental changes are made across each company in a relatively short space of time. However, in order to facilitate the actual implementation of the change and to provide some consistency during and after such a change will require the adaption of existing systems, processes and procedures within each company. This suggests that even in such a situation there is a combination of strategic approaches both revolutionary and evolutionary, indicating that a pluralistic approach is required to develop, implement, manage and sustain change.
It can also be seen that even with such paradoxes as logic vs. creativity there is a balance between the two in how they are applied. In the short case study for Google, for example, it is clear that this is a highly creative organisation with a deliberate strategy of promoting free thinking, but within boundaries. These boundaries allow for intuition and creativity but only within a cooperate structure that is very much aligned to the business model and its goal to sustain and increase the company’s profitability.
It would also seem that few strategies are purely deliberate or purely emergent; there is generally a mixture of the two to some degree. Strategies have to form as well as be formulated (Mintzberg et al., 2009).
So, in essence, it is the decision of the strategist to reconcile these opposites, decide what sort of balance is to be made and provide the ‘best of both worlds’ solutions.
De Wit & Meyer. (2010). Strategy: Process, Content, Context (Vol. 4th). Andover, Hampshire, UK: Cengage.
Aidan O’Driscoll. (1986). Exploring paradox in marketing: managing ambiguity towards synthesis. Retrieved March 20th, 2011, from Journal of Business & Industrial Marketing: http://www.emeraldinsight.com/journals.htm?articleid=1657811&show=html
Buttel, M. (2010, March 3rd). 10 years on:When the bubble burst. Retrieved March 20th, 2011, from Financial Service Technology: http://www.fsteurope.com/news/when-the-bubble-burst/
Downs, R. and Stea. D. (2005). Image & Environment: Cognitive Mapping and Spatial Behaviour. New Jersey: Transaction Publishers.
Eden, C. (1992, May). Journal of Management Studies. Retrieved March 20th, 2011, from Wiley online Library: http://onlinelibrary.wiley.com/doi/10.1111/j.1467-6486.1992.tb00664.x/
Greiner, L. (1972). Evolution and Revolution as Organisations Grow. Harvard Business Review.
Mintzberg, H. (1987). The Strategy Concept I: Five Ps For Strategy. California Business Review , 13.
Mintzberg. H, and Alhstrand. B, and Lampel. J. (2009). Strategy Safari. Harlow: Pearson Education.
Prime Minister’s Strategy Unit. (2010). Change Management in Practice. Retrieved March 20th, 2010, from Strategy Survival Guide: http://interactive.cabinetoffice.gov.uk/strategy/survivalguide/skills/pd_change.htm
Wilson, I. (2010). From scenario thinking to stratgic action. In D. w. Meyer, Corporate strategy: process, content, context (p. 153 to 157). Andover: Thomas Renvoize.
Wright, P., Pringle, C., and Kroll, M. (1992). Strategic Management: Text and Cases. Needham Heights, Massachusetts, USA: Allyn and Bacon.
The paradox of generative reasoning and creative thinking
1) The Rational Reasoning Perspective
Two short cases studies have been used from the course book De Wit & Meyer (2010). Strategy: Process, Content, Context (Vol. 4th).
The first is Exhibit 2.2 (p66), The Rational Reasoning Perspective – Berkshire Hathaway:Not Outside the Box (2009).
The study introduces Warren Buffett (‘The sage of Omaha’), a highly sucessful investor and owner of the insurance and investment conglomarate Berkshire Hathaway. Although at his peak as an investor in the 1980’s and 1990’s it was regarded that he had failed to grasp the investment potential of the ‘new paradigm’ for the ‘Information Age’ based on the Internet .
Instead he continued to invest in established old firms, such as Coca Cola and Gillette and completely avoided the opportunity to invest in Internet stocks, which he regarded as ‘chain letters’.
As the dotcom boom subsided it was clear that the volume of those trying to exploit the opportunity had far outweighed the actual performance of the companies involved. It is not accurate to say the dotcom boom was a failure, those that had good business models succeeded spectacularly (such as Google, Amazon, Wikipedia sites & eBay) but it is clear that the over investment was not justified and that many companies were just not generating enough profits to continue.
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There were added complications such as the US Federal Reserve had increased its interest rate six times over 1999 and the beginning of 2000, the federal court decision that Microsoft was a monopoly as well as the ‘bellwether’ (or ‘barometer stock’ – the stock of a company that is regarded as a leader in its given industry) sale of high tech stock shares of March 10th 2000. These include selling of shares of Cisco, IBM, and Dell etc. and while coincidental to the actual dotcom boom itself would have undermined further the confidence in an already falling market (Buttel, 2010)
Buffett’s insistence on sticking to a formula he understood and was well proven enabled him to escape the ravages of the dotcom bubble burst and instead of being derided as being outdated was again lauded as a canny investor. This was not the first time Buffet had gone against the trend, in 1969 he avoided the ‘stock market frenzy’ which other investors had thrown themselves into, declaring “I am out of step with present conditionsâ€¦â€¦On one point however I am clear. I will not abandon previous approaches whose logic I understand.”
Again, in 2008, Buffett went completely against the trend and, in the worst recession since the Great Depression (1929 to 1940) and despite already loosing up to 25 billion USD of market value within one year invested 5 billion USD in Goldman Sachs, quoting “Today my money and my mouth both say equities”.
Buffett states his reason for his success as including:
Analyse the company to separate investment from speculation
Meticulously diagnose the sustainability of the competitive advantage of the company
Stay away from ill-understood businesses in fast-changing environments
Understanding that risk comes from not knowing what you are doing
He is also wary of those ‘witch doctors’ proposing to be ‘scientific and rational’ while selling investment advice.
Buffett’s criterion for investment is a highly structured analytical method which appears almost devoid of any type of intuitive or innovative behaviour. It is based upon consistent, well tried decision making that refuses to stray away from what has been a successful formula. He is, without doubt, following a ‘strategic reasoning process’ in a highly formulated and logical manner. It is obviously a successful formula for Berkshire Hathaway but there must be some doubt about whether such a rigid style is suitable for other companies without the existence of such a charismatic character as warren Buffett at its helm.
And this raises its own questions: is the strategic thinking deployed by Buffett as rigid as it would first appear? Is there actually an element of intuitiveness inherent behind the strategy? Would someone else, using the same formula for investment, come up with the same results, or is the presence of Buffett in the mix the catalyst that makes for a successful formula?
2) The Generative Reasoning Perspective
This uses the short case study Exhibit 2.3 (p69), The Generative Reasoning Perspective – Google: Experiment in Anarchy.
Google, as mention previously, is one of the companies that managed to sucessfully navigate out of the dotcom era. Since 1998 it has continued to grow to over 22,000 employees and over 22 billion USD (figures for 2008). Google’s mission”to organise the world’s information and make it universally acceptable and usefull”. No idle boast, Google has introduced a phenominal range of products which has allowed it to achieve it’s stated mission, so much so that in 2006 the Oxfor English Dictionary include the verb: ‘Google’ : “intr. To use the Google search engine to find information on the Internet. trans. To search for information about (a person or thing) using the Google search engine.” (OED, 2010).
Google’s innovative company structure includes Google labs, small teams working on ideas and experimenting with possible solutions. Sharing all its development across its teams and allowing other teams to make suggestions and give feedback feed the innovative and intuition that is the hallmark of Google’s success.There 70/20/10 model allows for 70% of a person’s time to be spent on mainstream business activities, 20% on new, approved projects and, perhaps the most innovative of all, the remaining 10% on developing personal projects as ‘dreams’ as long as it is in line with the spirit of the core company value to ‘do no evil’.
The strategy of creativity with generative reasoning is clear and has had a fundamental effect on the success of Google and its impressive employment record. The bottom-up approach certainly allows for innovation and resulting ideas to be turned into working applications within relatively short timeframes. Google’s CEO, Eric Schmidt states “we don’t have a traditional strategy planning process, like you’d find in traditional technical companies” and while this may be true this does not mean that there is no planning or indeed a lack of a structured strategic process. Perhaps the final paragraph of this case study is most telling. Jim Lewinski, Google’s managing director, states “Creativity loves constraintâ€¦â€¦â€¦.let people explore, but set clear boundaries for that exploration.” Rationality is not absent in Google’s strategy, it is just tempered with the culture of innovation. Unlike Buffett’s rigid and controlling influence of Berkshire Hathaway, Google has a far more flexible strategic approach that, given the continuation of its established company culture, will continue to thrive no matter who is at the helm.
The paradox of generative reasoning and creative thinking
Strategic Planning at United Parcel Services
A case study has been used for this analysis from the course book De Wit & Meyer (2010). Strategy: Process, Content, Context (Vol. 4th).
Strategic Planning at United Parcel Services – By David A. Garvin and Lynne C. Levesque (pp 702 to 718).
United Parcel Services (UPS) has grown from its beginnings in 1907 to a 37 billion USD global corporation with a workforce of over 384,000, over 3,500 retail locations in the US alone and servicing more than 200 countries. In addition it has its own airline (UPS Airlines) which is ranked the 10 largest in the world (figures as of 2005).
The company’s founder, Jim Casey, developed a reputation for running the company ‘like a military operation’. With an emphasis on efficiency and discipline UPS developed a culture of continuous improvement, which Casey called ‘constructive dissatisfaction’. UPS’s workforce was known for its longevity; all the company’s CEOs were time-served and had risen through the company from the lowest ranks.
Until the early 1990s it is started that UPS had no actual formal strategic planning process, although in the mid-1970s a decision had been made to expand the company globally and over the following ten years resulted in the forming of a Strategic Technology Group charged with developing technological solutions. In the early 1990s it was recognised that the ‘company’s execution mentality was hindering management’s ability to see significant changes in the environment’. This led to the setting up of a Strategic Advisory Group in 1996 to consider and debate strategic issues. In addition another group, CSG, was setup to develop strategic processes for planning for the future.
From these activities the company began developing its own strategic process using scenario planning, strategic planning and support for strategic decision-making and strategy implementation.
Although using multiple tools and methodologies the approach was made to work, this was helped by the continued support of the CEO who was himself regarded as the ‘chief strategist’.
A major aspect of UPS’s strategy from 1997 was to adoption of scenario planning. This is a management tool designed to explore what could happen given certain situations. Creating different scenarios allows managing to have a better understanding of possible events and help in the decision making process. The aim of scenarios is “to develop a resilient strategy within the frameworks of alternative futures provided by the scenarios” (Wilson, 2010). The use of scenario planning had been popularised after an article by Peter Wack in 1985, describing a scenario building exercise at Royal Dutch Shell (Mintzberg et at., 1990)
The use of these scenarios had a fundamental impact on the company. They defined the company’s new corporate charter, a change in the company’s mission statement, identification of key themes and insights, the creation of a platform for management and discussions and, according to the authors of this case study, a mind-set shift for at least some managers.
In 2002 the company developed their Centennial Plan, a long term strategic plan to take the company not just into their 100th year but also into the new millennium. The plan developed four key strategic imperatives:
To support this ‘Strategic Road Map’ was formulated which formed teams to work on specific strategic areas. Each team broke down its imperative to 24 discrete projects (‘critical initiatives’), themselves supported by more than one hundred specific projects.
Because of the complexity of the plan John McDevitt was brought in (from being Vice President of Air Operations) to be in charge of ‘strategic integration’. In 2002 the company developed their use of scenarios further to extend its focus into the new millennium. While understanding the limitations of scenario planning it allowed for creative thinking within a planning environment.
This would seem to be a situation where formal planning, a deliberate strategy, works with the help of an instrumentalist, emergent approach. While scenario planning, in name and nature is very much part of the planning school of thought the creativity of thought applied and the adaption of scenarios to develop further scenarios is very much an incrementalist approach. UPS, while using a planned approach to strategy, are also encourage the use of innovation within their strategic thinking.
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