Conventional Approaches To Strategic Management
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The aim of this essay is to critically analyse and evaluate the application, validity, limitations and uncertainties of the conventional approaches of strategic management in this rapidly changing business context. It briefly outlines strategic management as it is traditionally taught, studied and practised and how organisations determine what strategies are apt within various business environments. In keeping with the goal, the essay disputes the validity and applicability of the traditional approach in today's deconstructing situation where the opportunities and challenges make any kind of logical strategic planning fail. Through the arguments stated in this paper, a combination and a right mix of prescriptive and emergent approaches is essential and needs to be incorporated in the strategic management process for continuity. Thus conventional approaches with its pros and cons, still prevail in today's economic business context.
In any business venture, strategy is a vital factor for the efficient functioning, growth, development, continuity and success of a firm. It aims to achieve a set goal and embarks a direction for the future. Organisations require collaboration, cautious planning and the mindful implementation of planning. To maximise the effectiveness of strategies and to ensure the smooth functioning and success of the business, they have to be managed skilfully. So what is strategy? What role does strategic management play in this global economic world? The word "strategy" has been implicitly used in various ways even if it has been conventionally defined in only one. It is widely accepted that there is no single or universal definition of strategy, however the various descriptions of strategy allows people to manoeuvre and manipulate through this difficult pitch. Mintzberg(1994) defines strategy in 5 different ways.
Plan - A consciously intended course of action to ensure objectives are achieved.
Ploy - Basically a subset of plan and is a trick intended to outsmart or overcome an opponent or a competitor.
Pattern - Series of action which involves consistent behaviour over time which may or may not be intended.
Position - Locating the organisation within a environment.
Perspective - It is conceptual as well as cultural and is concerned with how an organisation itself sees and perceives the business environment.
The above 5 P's may be applicable in vastly different areas and can also be interrelated.
Johnson & Scholes (2008) defines strategy as "the direction and scope of an enterprise over the long term; which achieves advantage for the firm through arrangement of resources within a demanding environment, to meet the needs of the markets and accomplish the expectations of the stakeholders".
The process of strategic management includes analysis of the internal and external environment, formation of strategy, implementation of strategy, and evaluation of strategy. The theory of strategic management is analysed within an integrated model of context, content and process. There are two approaches for organisational change: The Prescriptive Approach which works best in a stable environment and Emergent Approaches which is used in an unpredictable fashion. These approaches are the widely known strategic models and must be examined thoroughly within the context of the fast paced, highly competitive and increasingly dynamic business environment.
The prescriptive approach, also known as deliberate strategy is a traditional approach to strategic management. It is a deterministic and systematic plan of action designed to achieve a specific goal for the long term. It is usually the responsibility of the top management to establish lucid strategic directions through analysis and evaluation and then implement them through the successive layers of the organisation. Porter(1996) states that competitive strategies are about an intended course of action of being different from the rivals and differentiating yourself in the eyes of customer by doing various unique activities which add value and by positioning yourself competitively in the environment. Porter maintains that deliberate strategies are intentional and planning ahead is important and should be formulated and articulated by leaders in a predictable and controlled environment to achieve the goals and objectives. Porter also states that trade-offs and operational effectiveness are an integral part for sustainability.
Conversely, Mintzberg (1994), one of the biggest critics of prescriptive approach developed the emergent approach to strategic management. He states that in emergent strategies the final objective is unclear and it a process of evolution, adaption, alternation and continuity. Emergent strategies are more successful in this chaotic world as they are unintentional and are the result of impromptu response to unforeseen situations which emerge over time. For example, Sam Walton, the founder of Wal-Mart, decision to open his second store in a rural area rather than a big city, for convenience of logistics and management efficiency was a fantastic winning emergent strategy. Also as there was less competition and people would travel to buy products which offered value at the lowest prices, made the business successful.
An emergent strategy increases flexibility in times of turbulence and allows the firm to respond to opportunities and make the most of the threats. Mintzberg argues that the emergent strategies are the result of constant learning, adjusting and experimentation of different variables. Many of the world discoveries have happened accidently and would not have taken place if it was dictated by formal planning of strategy. On a negative note, as the emergent strategy is not a systematic and linear process, formulation and implementation occur simultaneously which would lead to slow, messy and jumbled development. Brews and Hunt points out that overdependence on emergent strategy can lead to underperformance of the organisation.
On the other hand, deliberate strategies are planned and put into action, however due to the unrealised and unpredictable changes in the business environment; most of the planned strategies are not implemented.
SWOT gives an insight on the internal and external factors which are helpful and harmful for achievement of a specific objective of an organisation.
PESTLE is an analysis of the macro environment in which the firm operates.
VALUE CHAIN ANALYSIS points out the primary activities which are directly related to production of products (eg logistics, sales) and the secondary activities (eg Human Resource, technology) which are not directly involved in production, but are essential for the efficiency and effectiveness of the process. It defines the core competencies of the firm and its helps to figure out the competitive advantage over cost and its competitors by adding value to the various activities.
PORTER'S 5 FORCE framework is an simple but powerful tool to understand the context in which the firm operates and analyse the attractiveness and economic performance of an industry which would lead to more sustainable financial returns to the stakeholders. According to Porter's bestselling book Competitive Advantage, the forces that influence the profitability of an industry in a business environment are the entry of new competitors, the bargaining power of suppliers, the threat of substitutes, the bargaining power of buyers and the rivalry amongst existing competitors.
The above four are important tools in the strategic management process.
Porter states that strategic management is all about plotting a way through the mesh of threats and opportunities mounted by external competitive forces.
The uncertainty, chaos and instability that characterise global market contest any kind of predictibilty, which is a requisite base of many a traditional process of strategic management (Pitts, 2000). Brown & Eisenhardt (1998) states that "traditional approaches to strategy often collapse in the face of rapidly and unpredictability changing industries". The technological advances have accelerated the process of communication and globalisation has expanded significantly. The shift and restructuring in government policies and the recent terrorist attacks have impacted companies. The challenges of formulation and implementation of strategies within a framework where global catastrophic events have an undulating effect on local market conditions, has been underestimated by management, according to researchers. Trends in the biophysical ecosystem has changed and threatened humans and other species in various geographic areas. Events such as the terrorist attack on the twin tower building in New York on September 11, 2001, or the Tsunami in Japan has an undermining effect on the global financial markets.
The rational approach to strategic management which is a top down approach helps to resolve the complexities of a firm in its stable environment. It is considered as a logical and continuous process which involves defining the mission and setting long term objectives, systematic and exhaustive analysis of the competitive environment, creating and evaluating alternative strategies, implementing the various strategies and finally monitoring the performance. Ansoff(1965) states that it helps to organise complex activities and employ a greater control over various business units which leads to domination of marketplace. This approach is founded on the idea that firms are adapted to cope with changes in their environment by taking rational and comprehensive decisions (Chaffee, 1985).
Due to incapacity of predicting the future, this approach is very linear and unrealistic and is based on the thinking and assumptions of the upper level management. In a complex and unstable environment the values and the role of mainstream strategies are still unclear and may lead to more complications rather than solutions. It may weaken the flexibility of the firm to cope with prospective changes taking place in its environment (Wally & Baum, 1994). In Mintzberg(1994) opinion, rational methods of strategic management leads to inflexibility, encourages excess bureaucracy and confines creativity and spontaneity.
On the contrary, Ansoff(1991)argues the fact that conventional strategies are much more effective than a trial and error process when it comes to collecting and analysing relevant data and aligning the firm with its internal and external environments. Porter(1996)maintains that mainstream strategies can cleverly play a vital role in determining a suitable strategic direction for the firm. It can significantly help companies to avoid expensive errors and survive and sustain in a highly competitive environment (Aram & Cowan, 1990). Adopting the conventional strategic approach, would help in ensuring a systematic assessment of numerous plausible options, encouraging creative thinking and ideas, enhancing internal interactions and communications, increasing motivation and commitment of staff, identifying pertinent opportunities, ensuring coordination of organisational activities and anticipating potential change.
The size of a firm is a factor of high importance when it comes to adopting strategies. Often, strategic planning and management is considered a major tool for large enterprises. Due to its complexity, a comprehensive strategy is needed, as compared to, small and medium sized firms. In (Mintzberg, 1994)opinion, smaller firms operates in less complex environments and their internal operations and procedures are manageable by a smaller hierarchy, hence they abandon the formal strategy process. Smaller businesses would do well if they adopt emergent strategies especially in turbulent periods.
The conventional strategies are based on a sole quantitative purpose and are very cold and give little or practically no consideration to human factor (Muchinsky, 2000). It fails to utilise people as the competitive advantage of the firm. Due to the traditional approaches to strategy, many organisations fail to realise the potential of their people, inspite of the rhetoric claim that people are the firm's real strategic asset (Gratton,2000). Truss(1999) argues that a healthy organisation can be formed by incorporating humanistic principles and by aligning strategic human resource management with the rational conceptualisation of strategies, thereby evoking behaviours necessary to individual growth and effectiveness of the organisation. Along with the Human Resource of a firm, leaders too play a central role in achieving people based competitive advantage in modern organisations. The conventional approaches to leadership either is transactional - reward the employee in exchange of desirable results or contingent - identify leaders based on the circumstances of the firm and execution of specific strategies(Landrum, Howell & Paris, 2000). Eisenbach, Watson & Pillai(2000) states that these approaches are insufficient and advocates transformational leadership as the apt approach. Guest & Schepers,( 1997, p 37) considers a transformational leader as a person who brings about change by formulation of a vision for the future and means of realising this mission by communication and necessary action. A leader's vision should also consider the essential interests of the key stakeholders of the organisation along with the employees needs such as growth and motivation (Ford & Ford,1994). Beugre(2006) states that a transformational leader should exhibit individualised attention, positivity, encourage logical thinking and inspire the followers for team unity. Steve Jobs of Apple and Bill Gates of Microsoft are classic examples of transformational leaders who have achieved momentous success with a articulate vision which have persuaded their followers (Giladi, 2000).
Participation of share holders in formulation of strategies is crucial. Freeman (1984) defines stakeholders as "any individual or group who can affect or is affected by the achievement of an organisation's objective". It is intended to explain and guide the structure and operation of the established organisation. Many traditional strategy tools have ignored some shareholders, sidelined others and constantly traded off the interests of others against preferred shareholder group. This approach may be suitable in stable environments. However, in a dynamic, volatile and fast changing business world, the limitation of this approach becomes increasingly evident. Integration of shareholder interests into the very rationale of the firm and exploring, managing and balancing relationship with shareholders must be managed in a lucid and strategic fashion to ensure long term success of the firm. Incorporating value based management system, understanding morality and ethics play a significant role in the enhanced performance and profitability of the firm in the long run. Ansoff(1965) contrasts that stakeholders might be a barrier on the objective and actions of the enterprise and might constraint the development of the firm.
With the advent of the 21st century and the emergence of digitisation, globalisation and new technology traditional strategic tools like value chain analysis, Porters 5 forces, have become less useful. In today's varied business world, there is a need for strategists to develop more comprehensive and reasonable measures for better performance and must consider a wider array of industry organisations, bases of competitive advantage and higher level of complexity and uncertainty. As the industry conditions progresses or changes, strategies should also evolve.
Scenario Analysis differs from the traditional approach and is a contemporary approach to strategic management which analyses the possible future events by taking into consideration alternative plausible outcomes that the future may unfold. It is not about predicting or projecting the future but a means of learning and improving our understanding of the long term global effects of the current trends and their interrelation considering the uncertainties and volatilities in the business context; which helps a company to make flexible long term plans. The traditional approaches rely on the notion that the future will be very similar to the past and present and works in a relatively stable environment, however scenarios help managers to prepare for the future and improve their decision making ability by stimulating "out of the box" thinking. The well known example of this methodology would be of Royal Dutch Shell, who by implementation of scenario planning was the only energy company to survive and sustain the oil price crisis in the 1970s. Scenario techniques if combined with other approaches can
In summary, the traditional approaches to strategic management provide a structured and orderly approach to decision making in the strategic making process. These approaches still constitute a basic indispensable and feasible framework; however it is not sufficient alone for the profitability of a firm. Contemporary strategic approaches should be incorporated in the base model to make it more entrepreneurial and adaptable. Though the dynamic approaches can prevent control over action and may jeopardise a lack of direction, it considers the uncertainty of the future and emphasises on the flexibility of reaction to enhance the functionality of the organisation in this fast growing, turbulent and uncertain world. In essence there is no "one size fits all" or best approach to strategy. The organisations should adapt and align the conventional strategies such as internal and external analysis with the real time techniques to ensure continuity and facilitate organisational and individual learning. The management should seek the best way of combination, customisation and balance of elements from both the approaches for survival and sustainability in this tumultuous world. Rather than using the approaches individually and in isolation, they should complement each other in order to handle the intricacies of the business and still succeed over the changing conditions.