A classical definition of strategy as a ‘planned’ process is as follows:
... 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 those goals. (Chandler, 1962, p. 13)
With reference to academic literature on the development of the field of strategy, illustrated with brief organisational examples, critically evaluate the extent to which this definition remains appropriate today.
Strategy is a relatively new discipline of management, having emerged in the 1950s and 1960s, and therefore is much harder to define than other schools, with major figures each proposing their own take on strategy in business as an effective tool in successful short-term and long-term goals for an organisation. The aim of this literature review is to summarise key developments in the field of strategy since its outset, and determine whether Chandler’s quote is still relevant as a business strategist today. This article will loosely follow the structure of management laid out by Whittington (2001) in his four generic approaches model of strategy.
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At the turn of the 20th century, many large multidivisional businesses were emerging due to mass production and new mass markets in industrialising nations, what Chandler (1962) refers to as M-form organisations. These large organisations created a demand for a method of strategic planning that allowed an organisation to focus their aim on longer term prospects and goals for the company, attempting to assess the future possibilities for success. Chandler was one of the first influential contributors to the field of strategy, recognising that an organisation could potentially be more successful if driven by an overall set of goals to be achieved, with a long term perspective on company direction and focus (Chandler, 1962). Ansoff (1965) built upon this with his book ‘Corporate Strategy’ in 1965, creating a clear and coherent perspective on strategy, or what is now known as ‘Classical’ or ‘Planned’ strategy.
Based on the concept of forward planning with the goal of profit maximisation, strategy in this manner is calculated and rational with a strong hierarchical control from the top management of the organisational structure. (Chandler, 1962) (Ansoff I. , 1965). Segal-Horn (2004) likens this to notions of militaristic planning and leadership transferred to the workplace, with a company aiming to position themselves as unique and dominant. Much research was conducted into large corporations in the 1960s, for example General Motors, where a top-down formulaic approach to strategy was applied, where long term strategies such as planned obsolescence, were implemented for the first time (Sloan, 1964)
The Boeing Company is a good modern day example of an organisation that still utilises elements of this Classical strategy. Boeing’s current market outlook is forecasted 20 years in advance due to the predictable sales of aircraft in emerging markets (Boeing Company, 2014). Strategic forecasts are re-evaluated once a year using statistical analysis and macroeconomics to determine future strategy.
This focus on planning however does not effectively address the complexity of the strategic problem, as business environments are in no way static, and Ansoff and Hayes (1976) suggested that this is why there was a shift from the classical model to a more flexible structure of strategy where the company could adapt quicker to market changes and make products that were in demand instead of producing a product at a high efficiency and assuming it would be profitable years later. Segal-Horn (2004) suggests that the popularity of using quantitative analysis techniques and long-term planning to base company strategies upon dwindled in the 1970s where competing companies were using similar or identical analytical techniques in an attempt to gain a competitive advantage over one another, whist competition internationally was increasing. A new style of strategy emerged which had a high focus on adapting to a current market in search of performance and profitability (Segal-Horn, 2004).
Whittington (2001) in his four generic approaches to strategy establishes this model as the Evolutionary model, although it had earlier been categorised by Chaffee (1985) as the Adaptive model. The evolutionary model of strategy is similar to the classical model in that they share a mutual focus on profit maximisation. However, the evolutionary model proposes that the external market is a complex assortment of fashions, competitors and stake holders who must be adapted to by the company, which contrasts to the classical approach that the market is something much more rigid and long term (Chaffee, 1985) (Shirley, 1982). It acknowledges that the environment can be extremely dynamic, and that successful strategies are formed in adaption to an ever changing field (Segal-Horn, 2004). For example, if you look at the Ford Motor Company product line in the early 20th century, one product was produced at one cost to be sold at a low price with little variety, using techniques of product orientation and mass production. Contrast Ford then to modern day Ford, and you can easily see how their strategy has changed from a very rigid method to a flexible, consumer-oriented and customisable market driven experience, with new models and trims almost every year to adapt to rapidly changing tastes and markets.
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Rumelt (1979) suggests that evolutionary strategy can be thought of as similar to an organism, in that there are many different organs and limbs, each with a specific role, but that overall there is a coordinated system (or strategy) designed to function as a whole existing within a specific environment. Competition within the evolutionary model is described as a beneficial factor as opposed to the obstacle that it is viewed as in the classical model. Research conducted by Barnett and Hansen (1996) within several Illinois banks suggests that organisations faced with increased competition were more likely to succeed and therefore become larger competition for another firm to succeed over, which supports the notion that strategy in inherently competitive, and that organisations must deliver a unique set of values to gain a competitive advantage (Porter, 1996).
In terms of the quote originally written in the title of this paper, the evolutionary model of strategy does not seem to fit quite right with Chandler’s (1962) original definition and view of strategy. On the one hand, the fundamental idea is almost identical, to give an organisation a strong unified direction and identity to advance towards success, capitalising on resources necessary to achieve this. On the other hand though is an inherent difference of methodology, where Chandler is defining a mostly internal practice of direction decision, originating from a vision of what the organisation want to produce and assuming product orientation and predictable futures, whereas evolutionary strategy looks for a niche in the current and near future market before the organisation itself.
There is a third branch of strategy outlined by Whittington (2001) in his four generic approaches, Processual strategy, which has stemmed from the foundations of evolutionary strategy in that it is emergent and much more reactive to market changes than classical strategy. However, so far we have only evaluated and critiqued strategies that are targeted at profit maximisation, whereas Processual strategy is focused on a much more pluralistic set of goals.
Processual strategy bases its goals on socio-economic and cultural systems in the environment, where the strategy of the organisation must align with local cultures and values as opposed to pure profit maximisation (Whittington, 2001). This applies particularly for individualistic cultures, such as Chinese, Indian and other Asian organisations that focus more on the benefit to the group and society instead of individualistic financial gain.
Although much of strategy literature is based on profit maximisation, this is a very western individualistic perspective, and may not be applicable to as great a degree to a large number of organisations across the globe. Hampden-Turner and Trompenaars (1993) researched strategy and managerial styles across many countries in their book, and found that whilst 40% of executives in the USA stated that their organisation was profit focused, only 8% of executives in Japan stated the same (Hampden-Turner & Trompenaars, 1993). Therefore models based on profit maximisation, such as the classical approach outlined by Chandler (1962), fail to satisfy this need for alternative goals and are extensively limited in this aspect and may not be as relevant to organisations in these regions.
The final piece of the four generic approaches is the Systemic approach to strategy (Whittington, 2001). This model is similar to Processual in that it is focused on pluralistic values instead of profit maximisation; however it follows deliberate, long-term strategies and presumptions on market situation similar to Classical strategy. Organisations such as charities may fall into this category, with no inherent need to rapidly adapt to markets whist developing a long term brand image and presence within the market to benefit pluralistic values within society. There is a very strong similarity between this approach and the ‘Cultural School’ approach suggested by Mintzburg and Lampel (1999), to the point where they are almost identical.
There is much debate within the realm of strategy as to which, if any, of these strategies or others is capable of fulfilling the needs of the organisations that they aim to aid. The quote at the beginning of this article from Chandler is iconic of the much more traditional Classical approach to strategy, and as markets globally have become more volatile and international, strategy as a field has had to develop quite extensively from this original definition. Chaffee (1985) defends this original statement as still relevant in today’s environment, affirming that although there are many differing views on strategy, the key concepts established by Chandler and Ansoff still remain at the heart of all strategic approaches, but admitting that beyond this point all agreement breaks down. Chaffee also creates a fantastic perspective on the overall view of strategy, imagining it as a canyon, where the four approaches, an artist, geologist, meteorologist and biologist all see different systems that create a whole (Chaffee, 1985). These differing fields of strategy can offer options which individually would not be possible. Although Chandler’s quote may seem slightly outdated in a rapidly changing modern market, the core concept of setting goals for future benefit still exist in all fields of strategy, whether profit orientated or pluralistic.
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In a real setting, it may be the case that the most effective strategy is to combine pieces of each to fit the organisation and the environment around it. No one approach will work seamlessly for an organisation, as they all clearly have strengths and weaknesses against each other. Perhaps trying to position ones organisation somewhere in the centre of Whittington’s model (Whittington, 2001), a middle ground between profit maximisation and pluralism, and using both analytics short and long term, may be a good basic framework from which to specialise individual organisational strategy.
To conclude on whether the definition is appropriate today, it has become obvious that there is no single definition of strategy that stands over the others, with Chaffee (1985) stating that ‘virtually everyone writing on strategy agrees that no consensus on its definition exists’ (p. 89). However, if you needed to select a definition for strategy today, Chandler’s quotation can still definitely apply to a modern organisational strategy just as well as any other.
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