Strategic development and implementation has always been an imperfect process. Companies fail to differentiate between strategy formulation and implementation, which makes it complex for one to analyse if it was the strategy formulated or the evolved/emergent strategies which lead to the success or failure. Most companies spend a lot of time and resource to develop or formulate a strategy and fail to implement the strategy. My personal experience was Carrefour's entry into India. It's been about five years since the company has been prolonging to enter the Indian market, but still are lagging behind. The company had a planned strategy to open stores (Cash and Carry Format, for which the FDI is 100%) in India by late 2008 and had the resource to do so, but failed to implement the strategy or capitalise on opportunities. Strategy then became direction or simply a Mission. This major lapse in implementation of strategy could have been due to the factors like legal impacts, political issues or the poor execution of the plan by the top management. Top management/strategist develops the strategies, implements them and should monitor them. Operation manager, who make the day-to-day decisions tend to get carried away from the strategy because of the complexities in the market and the need for immediate solutions for certain issues. If these are not monitored by the top management, there could be a vast difference between the intended strategy and the realized strategy.
Figure : Strategic Drift (adapted from The Strategy Pocketbook, 2008: p33)
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As Mintzberg explained in his book (Strategy Safari, 1998, p5), "there are ten different schools on Strategy". Below in my essay, I will be elaborating and critiquing on a classical theory in context to positioning school. And critically evaluate why strategy development process and implementation is an imperfect process.
4.1 CLASSICAL THEORY - AS AN IMPERFECT PROCESS
According to the classical theorist, "The main objective of the firm is earning Rent and rational planning as to tool to achieve it (R. Whittington, What is Strategy and does it matter handout)". These are deliberate strategies created to achieve Rents. The Classicist view humans as being rational economic man and the top executives being capable of analysing the internal and external environment, and make rational long term decision based on his own experience. According this school, strategy formulation should be separate from strategy implementation. As discussed by Chandler, "strategy is the determination of the basic long-term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out those goals". Also Structure is, "the design of organisation through which an enterprise is administered" and it included the communication through which the policies and strategies were to be communicated. Chandler (1997, P. 48) concluded by saying that "structure follows strategy because it is the long term decisions regarding an organisation's activities and scope that determines how the organisation will be structured". The role of top management is therefore to make strategy, determine the structure and monitor the implementation. Failing to do so, will results in unrealized strategies or the strategies getting lost in transition.
4.2 POSITIONING SCHOOL - THE PORTERIAN WAY
According to Porter (1980, p.xvi) "attaining a competitive strategy is a combination of ends/goals and means/policies". "The strategy development involves positioning the firm in an attractive industry and configuring the firm's activities to generate and sustain competitive advantage". As described by Mintzberg (1998, p.85), "according to the Positioning School,
Strategies should be generic, common & identifiable position in the market. Example, Apple iPod's differentiation strategy, Tesco's Cost leadership strategy, Rolls Royce & Rolex - Focused differentiation
Assumption needs to be taken like; market place is economic and competitive.
Strategy should be formed of generic selection of position based on analytical calculation. It should be product market position and not just market positioning.
Manager control the strategic choice and analysts play vital role in feeding information.
Strategies are first formulated and then implemented; with the key statement that organisational structure should follow the strategy.
No classical theorist have actually described how strategy have been actually formulated but the assumed that, carefully analysing the market structure and positioning the company for gaining competitive advantage that lead to sustainable rent earning position as Strategy.
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The classical approach in the Competitive Strategy development process involves the following steps,
Figure : Development Process (adapted from The Strategy Pocketbook, 2008: 47)
According to Porter, analysing the market structure is the first step in development of the strategy. In analysing the Market/Industry, Porter used his five force model (1979 :138-142), Bargaining power of suppliers, Threat of new entrants, Rivalry among competitors, Bargaining power of buyers, and threat of substitutes in identifying the structural features of the industry and identifying the gaps. This involves extensive collection of hard data and analysis of the same. The analysis could produce rather a large number of possible strategies to choose from and it the Top Management, who finally decides the strategy based on his experience and the results of financial analysis.
After the market/industry analysis, positioning of the firm which involves a choice of business scope including products, location, segments, level of vertical integration and diversification is the next step. According to Porter (1980: 35), "there are three positions in a market which a company can choose from, to have a competitive advantage
Differentiation provides a better cover against rivals because of the customer loyalty and thus a low sensitivity to price change. "A firm could offer high quality, better performance or unique features, any of which could justify the high price (Mintzberg, 1998, p103). Apple's range of iPod, which has better features and high quality makes it a unique product and tough for the competitors to imitate due to extensive R & D involved.
This strategy aims to make firms the low cost producer in the industry. This requires the company to make large investments in integration (Vertical or backward), economies of scale and monitoring of operation cost". Carrefour, Tesco, Asda, and Wal-Mart are few firms with this strategy and are competitors themselves.
"This strategy gives the firms to focus on a particular customer group or product line or the geographic market". Firms can either focus on being differentiated like Southwest Airlines or cost based focus like Rolex, Rolls Royce, and Tata - Nano."
Once choosing where the firm wants it to be and the analysis of the industry structure, the firm then decides on the vision or the goals and strategic action plans. It is important for the companies to clearly state clearly these statements. Examples of Vision are Wedgwood's vision that ordinary people should be able to buy good crockery at low prices and Microsoft's PC on every desk. Examples of Strategies are Return on Assets of 3%, Cost/income ratios of 45% etc,. These provide the direction in which the firm is moving towards. All the strategic options are then put for a financial test and the one with the best result is choose as the strategy for the firm. The last and the final step is the implementation of the strategy, where the company focus on get the organisational fit. It is necessary for a firm to define what actions need to be taken at what stage, by whom and the allocation of the resources necessary for the same.
4.3 CRITICAL EVALUATION
Although Porter's model seems to be an ideal one, it failed to identify certain important aspects. It seemed to have worked in many big companies of the Anglo-Saxon countries during the 1960's but for other geographic locations, aspects like culture, politics and power are most important factors to be considered for the successful planning and implementation of strategy. Strategies are considered as a mere statement to show the shareholders that the company is moving is the right direction. According to the classicist, analysing the financial statement /conditions reflects the success of the strategic implemented. But in reality, there is no direct link between strategy and the financial success of the firm.
Strategies often fail in organisations because of the management's inability to convert strategy into actions that can be understood by its employees. The reason why the companies fail is that during the development process, it was never talked about what were internal capabilities of the company. A drastic change in the structure could be opposed by the employees and can result in unfulfilled objectives. As the processuals say, it is important to consider that both the markets and organisation are volatile. Any major changes in any of these could result in a failure of the plan.
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The long term rational planning relies on extensive hard dates, which are either limited in scope or unreliable. The positioning school assumes that the markets are always competitive and economic. In today's world, markets are very dynamic for one to predict in a long term. Although the model provides a direction and structure, it forgets to focus on the internal capabilities of the firm and eludes some of the important factors like culture, power, and environmental changes (technological changes). There is always a deviation between what was intended and realized strategy. Some part of the planned strategy doesn't work because of internal resistance (office culture) or local government policy in the particular geographic location, which leads to unrealized strategies. As said earlier, companies fail to differentiate formulation from implementation, strategies from objective and actors from thinkers. Also believing on rational economic man is an idealistic perception, in real world men are bound rationally. This kind of strategic models seem to be working for large companies but in reality it is very difficult for one to conclude that the development of strategy and implementing is a perfect process.
Reliance Industries Limited (RIL), one of the largest private sector companies in India, faced difficulties with one of their retailing format. In contrast to the monopoly that reliance has in manufacturing polyester fibre, Reliance had difficulties in launching Reliance Fresh, a neighbourhood store retail format. On Porter's competitive strategies, the company focused to position its new format on cost leadership strategy and did backward integration focussing on economies of scale. This format was not a complete success as the company came under lot of resistance from local trade. The top management failed to identify the political influence and power of the trade unions which forced them to negotiate terms with the trade unions and government and even had to shut down few of their stores. Although strategy was developed towards deliberate realized strategy, the company had to respond to the unfolding pattern of action to keep strategy in sight.
Furthermore, strategies developed in a single perspective do no succeed. Structure and direction are important for the firm and so are the social obligation, culture and flexibility to changes in the market/environment. In my opinion, strategy should be a step by step process in attaining the ultimate goal of achieving sustainable rent. But it also need to take into account the social and cultural factors of the market/country in which it will be implemented, internal capabilities and the influence of power and politics in strategy formation and implementation. It could be seen that there is no positions that a firm can take in the Whittington's matrix but that's is the reality of today dynamic world where the firms need a bit from all the four theories to attain a rent earning position.
5. LONG RANGE PLANNING - walking blindfolded
I agree to the statement that "long range planning is a waste of time and resource". As we can see from the proceedings', rational planning has not been a successful process. In today's scenario, the markets are too turbulent to predict ahead, planning too far ahead could leave companies in darkness. The markets are dynamic and "a range of possible futures confronting business is great. Companies that nurture flexibility, awareness, and resiliency are more likely to survive the crisis and even to prosper". Classicist and Systemic view long range planning as an arsenal for the strategy formulation. Classicist believe that markets are always competitive and product customer positioning is the key for success, whereas, the Systemic thinks that firms can plan forward but success depends on how they adapt to the sociological and cultural context of market in which they are operating. The systemic approach agrees on the classicist view on formal long range planning but also include that culture and environmental changes are important and needs to be given the due respect.
Evolutionary approach on the other hand (1993: 18-22) does not believe in "the ability of management or rational man to predict the environment (based on single individual view) and plan ahead". The Evolutionists argue that "its markets and not managers that evolve strategies. They view business as a natural selection where the best performers will survive and the losers are squeezed out". As discussed by Whittington, "The most appropriate strategies within a given market emerge as competitive processes allowing relatively better performers to survive and flourish, while the weak performers are irresistibly squeezed out of the ecological niche". The Evolutionists argue that because of unpredictable and uncontrollable markets, long-range planning is neither possible nor important. Therefore, firms should aim at efficiency for survival and experiment with short term flexible strategies.
Processualist view strategy as emergent and taking necessary actions accordingly in way to create pattern rather than profit maximisation. Processualists argue that long range strategic planning is difficult. According to the processualists the management cannot be rational because of 'bounded rationality' factor, which according to Whittington means that "managers are unable to consider more than a handful of factors at any given point; are reluctant to go ahead on unlimited searches for relevant information; the interpretation of data is based on their past experience". Rational decision making as described by Pettigrew (2002, p187) "is the basis of the thinking about strategy process". Rational decision making involves extensive analysis and finding all the options possible for a particular problem. But in real world analysing all the possible options and selecting the best option is an unrealistic process for a single isolated individual to reach any high degree of rationality. As said by Herbert Simon, "in real world humans are boundedly-rational and do not engage in extensive search for the optimal solution but satisfy for a realistic one".
The Processualists also add that the people factor is important to be considered in strategy formulation. As explained by Lynch (2002: 60), "organisations consist of coalitions of people who form power blocks. Decisions and debate rely on negotiations and compromise between these power blocks and it is termed as political bargaining and organisational routines".
Therefore, the processualists hold that within "the conditions of bounded rationality and organisational micro-politics, 'strategic conservatism' develops, where rapid change is resisted by staff and strategy tends to be embedded in organisational guidelines, daily routines and operating procedures" (1993: 23-24). Therefore organisational strategy is derived from repeated trials and experimentation of small steps as organisations adapts to environment changes which is also described as Muddling through.
Long range, deliberately designed strategies is always and inefficient way of planning. Both the classical theorist and the systemic theory believe in long range structured planning as a strategic tool for success. Deliberate strategies, when executed with perfection can lead to the intended strategy, but in most often cases, strategies get lost during the transition/implementation and the operations manager tend to neglected the strategic goal. As described earlier in the essay (refer to Figure1: p), there is a deviation between what was intended and realized. As Mintzberg and Waters described (1985: 259), "Openness to emergent strategy enables management to act before everything is analysed and to respond to an evolving reality rather than having to focus on a stable fantasy. Emergent strategy itself implies on learning what works and taking one action at a time in a search for creation of a viable pattern or consistency." The implication therefore is that, strategy is allowed to emerge, and the markets will tolerate firms that are not at profit maximisation level. An example is the development of Honda in the US market (Mintzberg : ). Honda saw the US as the market for the guys in leather jacket and launched their bigger models. Failure to attract interest in it, Honda's sales team recognised the emergence of a strategy, in potential of their low end model (50 cc supercub) in US. Another example is the development of Microsoft as a company. They did not have a strategy in place. The company was able to handle any flexibility and whenever there was a need, it was able to come up with something new, either by acquisition or invention.
The Garbage can model is used for immediate solutions where the firms are short in time and believe that everyone needs to be a part of the decision making process. According to this, the problem, solution and actors are all in a box and a randomly selected solution, if agreed by everyone, becomes the solution for the problem. An example to describe this is the recent crisis in the defence line of Manchester United football club. The club had a problem with eight of their defenders injured and only left with one frontline defender and a couple of young teenagers (reserves team) left available for play. The boss, Sir Alex, did not look for external solution for the crisis but turned to his midfielder Carrick, who he thought had the ability to control the play as a possible choice, which was accepted by captain and the team. He did not waste time by analysing the options available in the reserves/academy team but rather choose to satisfy with a frontline player in a defensive role.
As Lowell and Diana described, "senior executives in today's environment should be flexible to any change and the so called "just in time" approach to strategy, risk taking and resource allocation." Companies must take a more flexible approach to planning: each of them should develop several coherent, multipronged strategic-action plans, not just one. Every plan should embrace all of the functions, business units, and geographies of a company and show how it can make the most of a specific economic environment.
Strategic long range planning is important for organisations to succeed but is not enough. All the above factors make long range planning a difficult process. Also to make a successful long range planning, i.e. for a long range planning to pay off, firm need to consider various missing aspects. The management needs to ensure the strategy is well understood by their employees and measured in a manner which is relevant to them to keep track of the progress. One of the way in which the employee's can be made aware of their contribution towards the strategy is by building a balanced scorecard. They need to
The discussion has indicated that the view as to whether strategy development and implementation is at best imperfect and long-range planning is a waste of time and resource. According to the classicist, strategic planning and implementation is feasible and deliberate through rational systematic and detached activities. Systemic approach supports it with a caution to consider social systems. The evolutionary maintain that strategy development will not be perfect and rational in view of environmental changes and markets vulnerability while the processualists attribute its difficulty in predicting the market, bounded rationality and people factors therefore strategies will emerge from a pattern of actions and incremental step of learning rather than quantum leap. But neither of these approaches can itself be seen as a successful one. The classicists are stubborn, evolutionists are too much dependent on markets to choose, processualists are modest and the systemic are sociologist.
In my view is that no single approach that is ideal for every situation. In order to make strategy process and long term rational planning a successful process, one can neither be too stubborn nor too relaxed. In effect, the classical approach forms the basis of strategy development with its rational analysis, defining a long term goal and providing the structure to the organisation. It should be used as a tool to set the boundaries for the organisation. And then the other aspects like culture and people factor, market dynamics and taking a step by step approach to reach the goal rather than a quantum leap. Organisations should be flexible and managers at different levels should be given the power to take strategic decision on the day-to-day basis within the boundaries.