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Strategic management according to Jones (1995) is a process of drafting, implementing and evaluating cross-functional decisions. This is ultimately enables an organization to achieve the organizations long-term objectives Jones (1995). According to Lynch (2009) strategic management is a process of specifying the firm's vision, mission, objectives, and strategies developing policies and plans. He also stated that allocation of resources in order to implement these strategies and to achieve given objectives is a paramount importance in strategic management. Finally the control methods are often used to evaluate the overall performance of the business and its progress towards long term and short term objectives.
Widely considered as the key theories for strategy development process, the traditional industrial organization economics approach to strategic management and the complexity perspective towards strategy development must be examined within the context of an increasingly dynamic, highly competitive and global business environment. It is inevitable that powerful external forces are driving organisations to reduce costs, enhance processes and identify new opportunities for growth.
To this effect this particular assignment discusses how Google could use different tools and techniques from the complexity perspective to develop strategy? Hence it is important to examine the fundamentals of both these theories.
Industrial organization economics:
Industrial organization adopted by Microsoft is all about strategic behaviour of firms, the structure of markets and their interactions with those markets. Industrial organization economics examines how an organization operates in real world environment where the firm is faces with many limitations. The limitations are in the form of information, transaction cost, government actions, and barriers to entry by new firms into a market. Furthermore this industrial economics examines competitive frame work and how they are competing against each other. It is also considered by Schmalensee (1987) as the "Economics of Imperfect Competition". According to Tirole (1988) there are many ways to understand industrial organization.
According to Vives (2001) Micro economic models are revolved around the market structure. The common market structures according to Vives (2001) are Perfect competition, Monopolistic competition, Oligopoly and Monopoly.
According to Shepherd (1997) competitive market structure focuses on lower price and lower cost in order to compete in the market. Shepherd (2009) States that industrial economics are based on five key basic principles. They are in Reaction to Public Policies Firms as Individual Entities, Within Market Structures, and Economic Behaviour of firms.
Stacey (1998) suggested that the traditional prescriptive strategic approach takes the similar approach for industrial organization approach. According to Stacey (1998) similar to prescriptive approach, techniques which feed the industrial economics include Porter's Five Forces model which analyses the immediate competitive frame work or the micro environment and for analyses of industry within which in this case the Microsoft operates, which is soft ware industry. Furthermore Lynch (2009) is of the view that Value Chain Analysis is used to highlight the existing capabilities and since it is a tool that examines the efficiency and effectiveness of the operational areas of the firm which gives a solid basis for competitive advantage. The value chain examines the inbound logistics, operation, out bound logistics, R&D, marketing and services. Microsoft utilizes this model effectively as it is evident that Microsoft dominates the market by out sourcing inbound and out bound logistics and even the operational areas to countries such as India. Prahalad et al (1994) is of the view that Industrial organization approach heavily depends on the PESTEL frame work to analyse the macro external environment thus gives the firm a way to identify potential opportunities and threat. Lynch (2009) is also of the view that in industrial organization approach to Strategic Management process, the operational process of the firm begins with a well defined Mission and Vision statements. The rest of the steps for instance setting of objectives, strategies, and the marketing mix would heavily depend on the vision and mission. It is evident that this approach is followed and accepted by present day managers irrespective of whether they are SME's or global multinational firms. According to Kotler (2002) a vision is referred to as a dream where in industrial organization concept only senior manager's dream of. The mission statement on the other hand is a broader statement of Vision, which defines "what businesses are we in and should be in".
Similar to the prescriptive approach, Lynch (2009) states that industrial organization strongly recommends building an organizational platform based on SWOT analysis.
This is referred by Kotler (2002) as a snap shot picture of the organization's present situation. Kotler (2002) stated that an effective SWOT analysis is an outcome of the rigorous objective driven analysis of the external Macro and Micro as well as internal environment.
According to Stacey (1998) carrying out an environmental audit helps the firm to identify "where the organization is right now" or popularly known as where are we now. The two dimensional environment analysis on external macro and micro environment analysis and internal environment analysis lays the foundation to identify where they are right now. Lynch (2009) suggests that as with prescriptive approach, industrial organization approach sticks with PEST frame work to examine the external macro environment and micro environment should be analysed using Porters 5 forces theory. Kotler (2002) on the other hand recons that internal environment could be analysed using BCG Portfolio matrix, Mackenzie's 7S frame work and Porters Value chain. It is the analysis of these two environments that brings the strengths, weakness as well as opportunities and threat. According to Kotler (2002), Analysis of the present situation leads the senior managers to SMART objectives or popularly called as "where do we want to go". An industrial organization approach strictly believes the importance of control, and proper analysis for planning itself acts as an effective control mechanism (Lynch, 2009). On the other hand Lynch (2009) suggests that a prescriptive strategy is one whose is objective has been defined in advance and whose main elements have been developed before the strategy commences.
The industrial organization approach takes the view that the three core areas being strategy analysis, strategic development and strategy implementation are linked together sequentially. Hence it is possible to use the analysis to develop a strategy which is then implemented. The strategy is prescribed in advance.
As with the case of Micro Soft, it is important to give more emphasis on Monopoly within the market structure. Monopoly is a key area within the market structure which has direct influence on economic competition, and sets the foundations for industrial organization. To simply define monopoly, according to Ross (1990) it is a market structure in which a single supplier produces and sells the product. As with Microsoft, it enjoyed a pure monopoly and still enjoys a significant pure monopoly, where pure monopoly refers to a single seller in a particular industry and when there are no close substitutes for the goods being produced.
According to Shepherd (2009) large and giant firms such as Microsoft are the company which has the greater influencing power on the market activity and these monopoly market activity enforces and automatic barriers to entry. Hence it is inevitable that they have the power to prevent potential competitor's entering in to the market or weakens the ability to compete in the market.
According to Shepherd (2009) there are three major types of barriers to entry. They are economic, legal and deliberate. Economic barriers refer to ability to generate economies of scale, capital requirements, cost advantages and technological superiority over the other rivals due to large quantity of manufacturing. Shepherd (2009) is also of the view that a firm that has a monopoly power has the ability to control of natural resources which is critical to the production of a final good. He also stated that monopoly firms have the ability to impose legal barriers to protect its position from the competition. Shepherd (2009) also stated that a firm wanting to monopolise a market may engage in various types of deliberate action to exclude competitors or eliminate competition. These include actions such as collusion, lobbying governmental authorities, and force.
Complexity perspective in strategic management :
Complexity theory like emergent approach according to Kauffman (1993), to strategic management is used by dynamic organizations or firms to adapt to their environments faster. Hence Eisenhardt (2007) is of the view that small and SME as well as creative organizations with flatter structure tend to follow the complexity theory towards the strategy development. McKelvey (1999) states, that the theory considers organizations as collections of strategies and structures. He states that in highly volatile and ever changing environment organizations who shares the properties of other complex adaptive systems, thus resulting in smaller and simple structures that are integrated with each other, helps to keep abreast with the changing environment and has the ability to adapt to their environment and, thus, survive. This approach is referred to as emergent approach by Simon (1996).
It is inevitable in the present day context that many businesses are compelled to make dramatic improvements not only to compete and prosper but also simply to survive. Hence it is important to examine how complexity approach would have an impact on Google to meet the needs of today's business when formulating strategy.
Implication for Google in strategy development :
The Complexity Approach
According to Levinthal (1997) the complexity or learning approach is an alternative to the strategic planning movement which is based upon the view that businesses are complex social organisations that operate in a modern dynamic and hypercompetitive business environment.
A rapidly changing environment means that organizations must fast adapt to the change and should lead to strategy which is based on the organizational learning. As Google is currently adapting a fast phase strategy developing new applications and new innovation, the most appropriate strategy would be to follow the complexity approach in other words the emergent approach.
Complexity strategy uses the information technology to a greater effect and tends to capitalize the opportunity that comes through it. As Google is an organization who is constantly looking to grow with new ventures and even joining hands with Apple, the complexity approach is advantageous as it increases and encourages organisational learning thereby providing an internal culture in which managers can think and act creatively. Nevertheless Google has be aware of the danger in this approach which may result in a lack of purpose in strategy thus making it difficult evaluate performance. This is simply due to organisation with no proper objectives would be difficult to measure the performance. Hence it is not advisable to completely avoid industrial organization approach. Quinn (1991) was of the opinion that the role of planning in the context of emergent strategy or the complexity strategy is "purposeful instrumentalism" as it plays a strong emphasis on organisational learning. A complexity approach leads to more creative and responsive strategy development which is in line with the hyper-competitive and unpredictable environments of today and specially for Google who is considered as firm who is in four-front of innovation.
Mintzberg (1989) put the idea forward that strategies can be unplanned, developing incrementally over time as a business's actions adapt to a changing reality. Instead of meeting a premeditated plan, he argued that strategy evolves through a process of learning, adjustment and experimentation.
Formulation of strategy runs parallel to implementation and managers at multiple organisational levels have a key input into the actual strategies pursued by the organisation. This model's emphasis on learning underlies more recent theories which focus on the value of knowledge as a core organisational competence for gaining competitive advantage.
There are several techniques and benefit when adapting complexity approach. According to Fortune1 management journal, some of the techniques and benefits examined in following ways. Opportunitizm is of the technique which is referred to as an organization must retain the mental freedom to grab unpredictable opportunities as they emerge.
Unlike industrial organization approach, there is a great deal of flexibility not only for top management but also for all the staff of all level in this approach. According to Bowman (1993) when the flexibility prevails, there are more opportunity for individuals to come out with new ideas and most importantly to implement those ideas. Another important aspect is the flexibility. It is important that Organizations keep their options open by not committing to early actions and investment. It is said even by David (1989) that by Learning and letting strategy emerge provides the environment to learn. Lynch (2009) is of the view that sometimes best strategy may not necessarily emerge from the pre-planned theories, rather from the practical learning itself. This has been the concept that is been followed by some of the leading multi-nationals such as 3M. Another technique of complexity perspective is entrepreneurship. According to Lynch (2009) letting people try is the best way to have a learning culture. This leads to bring in an innovation culture, which complexity approach does not permit to do so. Great innovative firms such as 3M do encourage their employees to build in entrepreneurial skills. This is made possible due to complexity strategic approach.
To summarise the two approaches, a rational approach is more influenced by "today's problems than tomorrow's opportunities". An Industrial Organizational approach is an intended strategy, one which is planned ahead. Industrial organizational concept deals with market structure and strategies in a more traditional way. There are advantages as well as disadvantages in this strategy: firstly it allows for targets to be set and performance measured, therefore a maximization of resources. A greater emphasis is on pre-planning with environmental analysis is a focal point in this strategy. It is considered that industrial organization approach is suited for large organization where hierarchical structure and authority persists on top management.
On the other hand complexity approach is considered a practical approach considering the unstable market conditions and other present changing trends. Another advantage is that a dynamic approach responds quickly to a changing scenario than a rational and industrial organization approach. Here the strategies can be altered accordingly. It is considered that complexity approach allows for flexibility; while industrial organization concept gives direction as it has a vision and mission and objectives set. Emergence or the complexity approach allows for opportunism; while industrial organization concept facilitates fixed programming, emergence allows for ongoing learning.
With two conflicting demands placed on the strategy formation process at the same time, managers need to choose one at the expense of the other, trying to strike the best possible balance between industrial organization approach and emergence (Lancaster, 2002).