Sadler & Craig (2003) describe strategy as a long duration action plan, drafted for achieving defined objectives. In Greek language, strategy pertains to the act of leading an army. Different types of strategies, developed for resolving day-to-day challenges, form part of the strategic management process.
Business organizations have always been at the crossroads of options over the fundamental strategic decisions. Corporate think tanks spend major amount of their quality time in debating about the decisions on the forward outlook of the organization. Whether the organization should focus on increasing the market share or enhancing the revenue capital? Should the organization make efforts to reducing the bottom-line vis-à-vis increasing the top line? These questions have never been easy to answer and the dynamic business environment has further complicated the decision making. No amount of tactical decision making can resolve these fundamental dilemmas. Instead, appropriate strategic thinking can enable the top leadership in determining the steer they want to provide to the organization (Drucker, 2007).
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Mintzberg et al. (2009) explained ten business strategies including design and positioning schools in Strategy Safari. The following text focuses on these two schools of thoughts in the business strategies.
Basic details of each school of strategy is followed by a discussion on the roots of each of the strategies, risks, uncertainty & its management, influence of market structure and the environments. The analysis concludes with the comparison between these two schools of strategic thoughts.
Design School of Strategy
According to the design school, the strategy is described as a series of varied operations, executed to achieve the fit between the internal capabilities and external possibilities of an organization. The design school believes that the managerial values of the people leaders and the social responsibilities are two important factors in determining the strategy for any organization (Sloan, 2006). Thus, as per the design school, the preferences and the beliefs of the people leading the organization and the perceived ethics of the environment in which the organization operates are important contributors to determine the strategic intent of any organization. In the design school of strategy, after the various alternative strategies have been determined, the next step is to evaluate and make a choice on the best one. The implementation of the strategic action plan is subject to the agreement of all stakeholders on the final strategy.
Roots of Design School
Mintzberg et al, (2009) attribute the origins of the
design school 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. Selznick's
conception of "distinctive competence," brought the need of the organization's to align (implement) its internal capabilities with the external expectation.
Sloan (2006) mentions that the term design school in its noun form are used with an objective to convey a form or a structure. However, in its verb form, it means that the organization must tailor its capabilities to get a fit with the external requirements. The model of design school emphasizes the analysis of the internal and external situations, the former detailing the strength & weaknesses of the organization while the later revealing the opportunities & threats. This seems similar to the SWOT analysis.
The risk of the design school strategy is the detachment of the thinking from the acting. This separation of the two important aspects of any process execution makes it risky for any business to implement design schools of strategy. The risks can be certain as well as un-certain. Certain risks are those risks, which an organization will face in any case; hence, every necessary step needs to be taken in order to avoid this risk. However, uncertain risks are those risks, upon which an organization has no control and hence, no precautionary measures can be taken (Culp, 2001).
Indeed, risk plays very critical role in any line of business. Despite the fact that risk is innate to each and every business, its amount of impact can differ according to several factors which includes globalization, input costs, competition, weather, compliance, regulations, competition, exchange rate, and many more. These factors effect different organization in different way. For example, some line of business must have many competitors, while some have very less, hence, risks plays different role in different businesses .
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Design school of strategy identifies risks and provides solutions to it but it detaches itself from the implementation of the solutions, which can resolve such risks. Hence, identification of the certain risks would be possible by the design school of strategy but implementing the strategy to resolve it would not form part of its process (Doherty, 2000).
Uncertainty, unexpected or unforeseeable changes, cannot be proactively planned or predicted and must be dealt with 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 (Böhm, 2009). In fact, the design school assumes that decisions made to ensure best-fit strategies are known. Practically, this presumption is negated. For example, the impact of recent recession would not have been as worse as it was. If the presumptions of this strategy were true then the financial firms would have been able to forecast the recession. Moreover, the impact should have been less, as they would have prepared themselves accordingly.
Coping and managing uncertainty is easier said than done. Uncertainty, unexpected or unforeseeable changes, cannot be proactively planned or predicted and must be dealt with in a more reactive manner. However, according to Fine (2009) uncertainty can be managed. Moreover, the authors argue that companies that are proactively involved with uncertainty can reduce its uncertainty occurrence. Therefore, uncertainty can be managed by identifying environmental changes, 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 (Fine, 2009).
Once again, the design school uses SWOT analysis to look 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. Threats to firms can be identified as either major or minor threats. The major threats need immediate attention. The design school proposes the matching of organizations' strength with the major threat facing it. The organization may need to adapt its strategy to overcome the major threat facing its existence (Böhm, 2009).
Positioning School of Strategy
The positioning school of strategy follows a narrow approach in terms of identifying the best strategy for an organization. It is calculative, quantifiable, and relies on the analysts to determine the strategic action plan. The positioning school approach is generic in nature involving few strategies, which can be potentially applied across the industry segments and any verticals. Once, the strategic goal is identified, the next step in this strategic process is to apply few generic strategies. For example, if the strategic goal is to attain a certain position in a particular market segment in any given industry, the strategy would be to defend the interest of the organization in that particular segment against any current or future competitors. The positioning school of thought consider the strategies being generic in nature, and having positions, which are identifiable in the market place. The positioning school strategies are based on the result of calculations done by the analysts, who are monitoring the market vis-à-vis the goal of the organization. The strategies, as a result of this process are deliberate positional strategies, which effectively drive the organisational structure triggered by market structure (Murray, Poole, & Jones, 2006).
Roots of positioning school
As per Mintzberg et al (2009), The Positioning School is largely derived from the two books from Michael Porter (2008), Competitive Strategy and Competitive Advantage. It believes that Strategy is the process of selecting from the generic strategy and implementing it as a follow through mechanism of the business logic of the generic strategy.
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Any novice would think that there could be plethora of positional strategies, given that there are so many market forces. However, positional strategy thinkers like Michael Porter have different thoughts. According to Porter's 5 forces model, there are only two types of basic competitive strategies in which an organization operates - differentiation or low cost. Porter combined the scope of a particular business to crystallise the three generic strategies (Hill, & Jones, 2009) -
Leadership in cost - producing and selling low cost goods
Differentiation - Innovation in producing unique goods
Focus - To operate in the limited market segment
Moeller (2007) considers direct and indirect risks are two major categories of the risk. Direct risks are has usually those type of risks over which an organization have control or they can affect. These risks frequently affect the business's supply chain, labor force, operations as well as competitive position. On the other hand, indirect or external risks are those risks, which include such factors, which are beyond the control of the company. Interest rates, currency exchange rates, energy costs and weather are some of the examples of indirect risks.
One more factor, which affects risk, is efficiency and competency. Organizations, regardless of size or industry, regularly deal with various types of risks whether by a formal or an informal way. Business leaders, usually attempt to manage risk or permit risk to handle them. Although, the amount of risk as well as other related activities contrasts widely with different line of business, the basis for creating effectual strategies for risk management includes analysis as well as planning.
Positioning school of strategy is highly adept at handling the risks in the marketplace. However, the depth of analysis is dependent upon the variables considered by the analysts. This process of risk management, attenuate the focus of the company and needlessly amplify the cost by defining the operational plans each time (Moeller, 2007).
Given adequate capacity as well as flexibility, few businesses can achieve agreeable results with the help of immediate risk management. Positioning school strategy matches the most useful strategy with the conditions prevalent at the time of decision-making. Using fairly standard and stable analytical decision models, these generic methods synergies the decision making to handle all types of risks.
Another approach for managing risk factor in positioning school is to lessen the risk itself, in addition to its potential effect on the business or school. Despite the fact that reducing risk will reduce uncertainty, it, in general, need better and larger resources comparing to the reactive method.
Positioning school also suggests the reduction of the impact of risk. Generic strategies of cost leadership, differentiation and focus can be followed to achieve the reduction in the impact of risk.
The uncertainty or the unexpected risks in the business environment need to be handled pro-actively to 'keep the show in the road'. The success of any business depends on how the frequently the uncertain situations are faced. The challenging situations, decision making with a short-term horizon can result in the uncertain business results. Moreover, the business environment is never certain. The new competitors are always there to enter into the business sector, in which the firm is operating. The bargaining power of the customers and suppliers is ever changing and the business firm needs to respond appropriately to the uncertainty around it.
The management of the uncertainty in positioning school of strategy is dependent upon the porter's generic strategy. The Porter's 5 forces model provides the required framework to resolve the uncertain challenges being faced by the business firm.
As per Michael E Porter (2008), the 5 forces to determine the uncertainty in the business environment are as follows -
Threats from the new Entrants
The supplier bargaining power
Customer's bargaining power
Extent of rivalry amongst the competitive firm
The analysis of the above five forces is conducted for the organizations in context of the current economic conditions to determine the level of uncertainty and appropriate strategy is drawn upon.
Influences of Market Structure
Positioning school is believed to be highly dependent on the market structure to determine the strategy. The analysis conducted by the consultants for the current market structure determines the organization structure. The positional school strategies are deliberate, which are dependent on the analyst's view.
The role of the business owner/CEO is marginalized in determining the appropriate strategies to be undertaken in the positioning school of strategy. The role of the analysts or consultants is very important in determining the appropriate strategy for any organization. The process followed by the analysts is that he evaluates the market place, domain, and sector. After the evaluation, he formulates the business strategy by drawing heavily from the Porter's generic strategies. These strategies are matched against the organization's objectives. The final strategy is presented to management for implementing in the organization to re-align its structure (Mintzberg et al, 2009).
Thus, the market structure has heavy influence in the formulation of strategy in case of positioning school.
The business environment is ever changing with the players entering and exiting out of the domain. As discussed, Porter's 5 forces model provides the analysis of the business environment with the formulation of the appropriate strategies for resolving the challenge.
Porter (2008) further suggests the use of 3 generic strategies to define the business operations of any firm. These 3 generic strategies are - Differentiation, cost leadership and focus. The differentiation strategy focuses on the innovation in the products being manufactured by the firm. For example, the Apple's ipod was an innovation, followed up by the Apple iPhone. No one ever imagined that any product in the modern time can affect the customer so much. The queue of the customers outside Apple stores is a living testimony of the success of the differentiation strategy in responding to the challenges posed by business environment. Cost leadership strategy is derived from the economies of scale. The firm chooses to reduce the cost of its product to the lowest level amongst all its competitions, though maintaining the same quality level. The success of IP (Internet Protocol) telephony can be an example here. Focus is another strategy, which is used in positioning school. Bose Speakers can be the example of such a strategy. The Focus of this organization in developing the best sound system of the world has finally been recognized and the product of this organization are considered as a benchmark in the quality of sound.
Comparison between the design and positioning school
After discussing the various aspects of the two schools of thought on the strategy, following discussion contrasts the difference between each of these schools -
Design school does not put any limitations on the possible strategies for handling any challenge, while the positioning school considers that only few key strategies, also known as generic strategies, can be followed to handle any situation.
Design school strategies are concerned about the formulation of the strategy, leaving out the implementation part. On the other hand, positioning school of strategy includes both formulation and implementation of it.
Design school strategies are specific to a particular situation & industry segment, but the positioning school strategies are generic in nature and can be applied across the industry.
Design school strategies defined for a particular situation may not work in all situations, while the positioning school strategies can be applied in most of the situations, owing to its generic nature. Thus, the positioning strategy is portable in nature (Sinofsky & Iansiti, 2009).
The management and the ethical approach of the organization are the primary factors for a design school strategy. Positioning school strategy relies heavily on the analysts. The people leaders in the positioning school strategy hardly have a choice except to implement the suggestions from the analysts (Doherty, 2009).
Design school of strategy considers the entire organization as one while defining the future strategy of any organization. The positioning school on the other hand disaggregates the operation of a firm into two parts as primary and support activities. This framework was called as value chain by Porter (Porter, 2008).
The focus of the design school of strategy is broad in nature, while it is narrow in case of positioning school of thought. Design school of thought believes that the best strategy results from the individualised design process.
The design school provides specific solutions to a challenging business issue, irrespective of the size of the business. The positioning schools tend to be biased towards the big business.
Almost entire set of environmental situations are considered in devising strategies through the design school thought while the positioning school only considers the limited number of conditions.
Design school is based upon the right interpretation of the subjective analysis of the current situation by the top leadership. If the interpretation is wrong or the distortion of the data happens while getting transferred, the resulting strategy would not be appropriate. In the positioning school of strategy, the strategy is the result of objective market analysis, which is difficult to get distorted.
This paper discussed the design school and the positioning school of strategies. 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 positioning school strategy, the porter's generic strategies are used by analysts to the management for aligning the organization into certain direction. Porter's 5 forces analysis is used to determine the market forces, determine the bargaining power of the stakeholders like customer and suppliers and the threat from the competitors and the substitutes.
Each school of strategy has its own advantages and disadvantages determined by the size of the organization, market forces, and the objectives of the organization.