Corporate strategy can be described "as the totality management decisions that determine the purpose and direction of the enterprise and hence its fundamental goals, activities, and the policies it selects in order to attain its objectives." (R.Bennett, p.3) The strategy adopted will determine how the company interacts with the outside world, the range of its products, the market in which it evolved, and its ambitions for the future. Numerous definitions of strategy are around, and some confusion could be made with the vocabulary used.
In this definition Bennett makes the distinction between the purpose of the organization and the goals, activities and policies that carry out this purpose while other writers use the purpose of the organization as part of the strategy. Strategy is though the pursuit of this purpose. This strategy needs to be developed, it means to be created and implemented and this is the topic of our study.
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Strategists diverge on how strategy can be developed and they are split between 2 different approaches, the prescriptive and the emergent. In this paper we will explain on what each approach rely on, and discuss about the divergence between these approaches.
Mintzberg proposes 10 schools of thought on strategy formation. Each school focuses on a major aspect of the strategy formation:
The Design School: Strategy formation as a process of conception
The Planning School: Strategy formation as a formal process
The Positioning School: Strategy formation as an analytical process
Mintzberg groups these 3 Schools of thought as being prescriptive in nature, "More concerned with how strategies should be formulated than with how they necessarily do form." As Mintzberg (1998, p.5) explains. It means the strategy is viewed as a process of conception- the way it ought to be.
The Entrepreneurial School: Strategy formation as a visionary process
The Cognitive School: Strategy formation as a mental process
The Learning School: Strategy formation as an emergent process
The Power School: Strategy formation as a process of negotiation
The Cultural School: Strategy formation as a collective process
The Environmental School: Strategy formation as a reactive process
Mintzberg classify those 6 schools as being "descriptive" it means the way the process is seen to work in practice. On this group we will give more emphasis on the Learning School which refers particularly to the emergent approach.
Mintzberg also sees strategy through 5 different definitions, which he calls the 5p's:
Strategy as a Plan: We can say it is an intended course of action, a guideline to deal with a situation. It is the specific actions that then follow the strategies. Mintzberg calls this strategy "intended strategy" also known as Prescriptive.
Strategy as a pattern: it is a consistent pattern of past behavior. Companies evolves patterns out of their past. Mintzberg calls this strategy, "realized strategy". We can so relate strategy as a pattern with the emergent strategy.
Strategy as a position: It is a way to place the organization in an environment. In other words, it locates particular products in particular markets. If the organization positions itself it means it is intended.
Strategy as perspective: that is a vision and direction. This definition belongs to the entrepreneurial school and can be link with the prescriptive approach which Mintzberg calls "Intended Strategy".
Strategy as a ploy: it is a specific tactic intended to outperform a competitor.
Mintzberg makes a good link between plan and pattern (1998, p.10) "Organizations develop plans for their future and they also evolve patterns out of their past." Then he makes a good remark saying that the intended strategy might not always been realized in practice. If the intended strategies are totally realized Mintzberg calls it "Deliberate" strategy (Prescriptive strategy) and those that are not realized "Unrealized" strategies. He also distinguishes a third case: when a pattern has been realized without being intended clearly, we call that the Emergent strategy. For example a computer making company which only make computer can decide to make printers, next to make cell phones, then GPS and so on. This strategy of diversification has not been intended but emerged over the time by learning new skills while diversifying his core business.
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To sum up, Lynch defines a prescriptive corporate strategy as one whose objective has been defined in advance and whose main elements have been developed before the strategy commences and the Emergent corporate strategy is a strategy whose final objective is unclear and whose elements are developed during the course of its life, as the strategy proceeds (Lynch, 2004).
There are 3 core areas of corporate strategy - The strategic analysis, strategy development and strategy implementation. In both prescriptive and emergent strategy these 3 core areas are taken into account but in a different way.
The strategic analysis refers to the starting point of the strategic management process. It consists of a work made in advance in order to effectively formulate and implement the strategy. Organizations must articulate the vision, missions and objectives together in order to focus the efforts toward the common ends of the organization. They also must analyze the external and internal environment. The external environment refers to the general environment such as demographic, technological and economic factors as well as the industry environment, such as his competitors, customers and suppliers while the internal environment refers to the organization resources such as its human resource skills, the investments and the capital in every part of the organization. The corporate strategies of the organization must make the best use of these resources in order to develop "sustainable competitive advantages".
The strategy development is the point where we think about the different options that can be consider. Then it is important to find a strategic route to move to the implementation (3rd and last core area of corporate strategy).
Prescriptive and emergent strategies have a different approach on these core areas. The prescriptive approach considers the 3 core areas linked together sequentially. It means the analysis allows developing the strategy which will be then implemented. In opposition the emergent approach says that the 3 core areas are interrelated, link together. In the emergent approach the corporate strategy is implemented by a series of trials, experimentations, errors. Thus it would be wrong separating the development and the implementation.
We will know focus on 2 of the 3 core areas of corporate strategy, the strategy development and the strategy implementation.
The strategy development
The prescriptive approach
We said that during the strategic analysis the organization has to define his vision, missions and objectives. The next step is the strategy development where we think about the options that will lead to the defined objectives.
Once the options are defined, a selection is made between them. Andrews points out the importance of connecting organization's purpose with its mission and objectives. (Lynch, p.484-485) In order to start developing options, in the prescriptive approach it is good to have an overview of the company internal and external factors. It is usually realized by a SWOT Analysis which stands for Strengths and Weaknesses (Resource-based analysis according to Andrew) Opportunity and Threats (Environment-based analysis according to Andrew) (Lynch, 2004, p.485)
Both environment and resources based options are a good way to find the strategic options that can be consider.
Environment-based strategic options
Porter (Porter, 1980) says "there are potentially three generic strategic approaches to outperforming other firm in an industry: cost leadership, differentiation, and focus" open to any business. The theory says "every business needs to choose one of these in order to compete in the market place and gain sustainable competitive advantage." If the company doesn't succeed in gaining competitive advantages in at least one of the direction, Porter says the firm is "stuck in the middle". (Porter, 1980, p.41) If a company competes in more than one generic strategy, its strategy might not be as profitable as if it has competed only in one.
To conclude, we can say that these three basic strategies can be a good tool to define the options in the strategic development (Lynch, p. 493).
Another way to define the strategic options is the market option matrix which aims to identify " the product and market options available to the organization, including the possibility of withdrawal and movement into unrelated markets." (Lynch, p.496) If the market and the product in this market are well analyzed it is possible defining strategic options. According to Lynch (2004) the strategic options using the market option matrix are:
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Withdrawal, meaning stop the activity in the define market
Demerger, meaning for example 2 companies demerge. Thus the shares of the company are trade separately on the Stock Exchange, resulting in an increase of the each share taking separately.
Privatization, in order "to sell company's share into private ownership" (Lynch, 2004)
Market penetration in the existing market, in order to increase the market share of the current product in the existing market.
Product development for the existing market, in order to attract new customers as well as increase the current market share. This could be achieving by seeking new segment in the market, new geographical areas or broader use of the actual product.
Product development for the existing market, it means developing a new product that really brings something new.
Diversification: related markets, a risky strategy as it implies a new product into a new market. The risk can be minimized by moving into a related market.
Diversification: unrelated markets, same as the previous strategy but into an unrelated market, the company do not have the entire knowledge of key factor for success. Consequently the risk is high but the outcome could worth it.
The matrix option market gives a good insight of the strategic options to consider but do not help choosing the option. The given propositions give challenges to the organization that the managers need to discuss. (Lynch, 2004). The given solutions are all sort of risky, a changing environment could set up a new deal, and the strategy will fail.
In order to develop his strategy by defining strategic options the prescriptive approach can also consider the option of expansion. Lynch (Lynch, 2004) states "the expansion method matrix explores in a structured way the methods by which the market opportunities associated with strategy options might be achieved." There are various ways of expansion. An example is the case study of Cereal Partners (CP), a joint venture between Nestlé and General Mills to attack the dominant competitor Kellogg. (Lynch, 2004, p68) Mintzberg calls such expansions "Cooperative Strategy Making" and classify it in the power school. He classifies this sort of expansion in the power school because these strategies are ruled by power and politics rather than internal and external factors. Then he states (Mintzberg, 1998, p260) "the strategies that may result from such a process tend to be emergent and take form of positions and ploys more than perspectives." We said before that ploy and position (5 p's of Mindzberg) are intended and refers clearly to the prescriptive strategy. Like the Matrix Option Market this solution give a good insight of the possibilities but doesn't help to choose between them.
It is also possible to define options based on the resources of the organization.
The value chain of Michael Porter (see Porter, 1996, p. 61-78) is a tool that allows indentifying competitive advantage and to reveal where and how value can be added whiting the chain. This will suggest strategic resource options for the strategy development.
Every organization has unique key resources. They must be identified and/or developed in order to generate value added and sustainable competitive advantages.
It is also important that the organization considers the strategic options of "cutting back its current operations in order to reduce costs." (Lynch, 2004, p. 478) To reduce costs Lynch suggests various options:
Designing in cost reduction
Economies of scales and scope
The experience curve
How to choose between all strategy options
In the prescriptive approach the next step after defining the possible strategic options is to choose between all by evaluating these options. Two main questions are raised, what strategic option will be selected (content) and how the selected option will be undertaken and who develops the plan (process) (Lynch, 2004, p.523) This approach relies on developing criteria as a starting point for selection. (Lynch, 2004, p.559) There are six different criteria according to Lynch: consistency, suitability, validity, feasibility, business risk and stakeholder attractiveness. The prescriptive approach in the strategy development uses mechanisms at various points to ensure that objectives, options and strategy are consistent with each other. (Lynch, 2004, p. 560)
After the rational selection of the strategic option, the last part of strategic development is finding the strategic route forward. Now the content and the process defined it is useful to define the context in which the process and the content has been developed. (Lynch, 2004, p. 569) This implies that process, content and context are interrelated.
The emergent approach
In the emergent strategy the route forward is largely based on what Mintzberg calls the Learning. Lynch (Lynch, 2004, p.589) says "The learning-based strategic route forward emphasis on learning and crafting as aspect of the development of successful corporate strategy. It places particular importance on trials and feedback mechanisms." In the emergent approach the strategy development and implementation are really closed, it is the association of thinking and acting. (Mindzberg, 1998, p. 177) The process of adopting a flexible, emergent strategy that monitors events, reacts to them and develops opportunities is at the heart of learning-based strategies. Mindzberg (Mindzberg, 1998, p.178) argues that "strategies could be traced back to a variety of little actions and decisions made by all sorts of different people." Mindzberg criticizes the prescriptive strategy saying that the rational analysis of the environment and resources of the organization "was unlikely to produce effective strategy." (Lynch, 2004, p.589) But he backs up the flexibility of the emergent approach from learning to shape and reshape strategy as it begins to be implemented. (Lynch, 2004, p. 590)
"Taken together over time, these small changes often produced major shifts in direction." (Mindzberg, 1998, p. 178)
We will give more emphasis on the emergent approach within the implementation process, because in an emergent strategy development and implementation are closely related.
The implementation process
The strategy implementation is how the selected strategy is put into practice. Even a well crafted strategy as little impact on and organization's performance until it is implemented.
Henry Mintzberg suggests that the traditional way of thinking about strategy implementation focuses only on deliberate strategies. If the strategy implementation precedes the strategy formulation (missions, goals and objectives), we are in an emergent approach
According to Lynch (Lynch, 2004, p. 648) to implement the general strategies there are for basic elements:
Identification of general strategic objectives
Formulation of specific plans
Resource allocation and budgeting
Monitoring and control procedures
In the emergent approach "the full strategy will not be known in advance but will emerge out of the implementation." (Lynch, 2004, p. 656)
For the best of the implementation, in both emergent and prescriptive strategy the communication and co-ordination are vital. A key element of implementation is also monitoring and control in order to know where resources should be allocated, tracking the evolution of the implementation process, provide a feedback mechanism and adjust the emergent strategy implementation and finally to be aware of significant changes on the environment. Control systems monitor the main element of the strategy and its objectives. It is crucial having the information in time, especially in emergent strategies in order to adjust the implementation for the best outcomes. (Lynch, 2004, p672-673)
Most organizations make use of both deliberate and emergent strategies.
The X steps to develop the strategy
Analysis of the environment
The environment describes everything and everyone outside the organization; it means his customers, competitors, suppliers, distributors, government and social institutions. Because the environment surrounding the organization evolved over the time, it is important that the organization analyze it in order to adjust his corporate strategy. The prescriptive approach will predict changes on the environment in order to find the strategy that will suit the best to this predicted environment, while the emergent strategy will have a general understanding of the environment. The prescriptive strategists assume that the future environment can often been predicted while emergent writers say that the environment is too turbulent and chaotic to be predictable, thus these predictions will be usually wrong and won't help to adjust the strategy.
In order to start analyzing the market Lynch uses 3 factors to characterize the basics of the environment: the market definition and size, the market growth and the market share. Those factors help the company knowing his position into the market and its opportunities to grow.
Then Lynch recommends analyzing the degree of turbulence of this environment. The more turbulent this environment is, the less the forecast will be accurate and vice-versa. The turbulence can me assess by the changeability and the predictability. For instance computer market is subject to high changes while it is "easily" predictable.
The PESTEL analysis is a powerful tool for analyzing the macro environmental factors such as Political, Economic, Socio-cultural, Technological, Environment and Legal aspects of the environment. Even if the PESTEL analysis relies on past or present events, the prescriptive strategists will forecast the future while the emergent strategists will take precautions using this tool, as they said that the environment is too turbulent to forecast with accuracy. (Lynch, 118 to 122)
We said before that companies must make the best use of their resources to develop competitive sustainable advantages. Porter makes a competitive analysis using 5 forces "in an organization's environment that influence competition." (Mintzberg, p.100) It means it is a tool to "investigate how the organization needs to form its strategy in order to develop opportunities in its environment and protect itself against competition and other threats." (Lynch, p.129). Those forces are the following:
Threats of new entrants
The bargaining power of buyers
The bargaining power of suppliers
Threats of substitute products/services
Intensity if rivalry among competing firms
Analysis of resources
(Mintzberg, 1998) p.103 generic strategies