Strategic management a term widely used by organizations, however there are too many definitions, hence confusion, that trying to identify what strategic management is about is quite difficult. It is no surprise that many authors point out that trying to determine terminology when it comes to this field can be extremely contentious (Markides, 2000). Others point out that the concept of strategic theory, practice and management has become quite fragmented and complex, with some definitions being absolutely conflicting (French, 2009). On the other hand, some authors became so irritated with this multiplicity that they suggest that organizations should no longer practice any kind of strategy (Pfeffer & Sutton, 2006).
This paper will, first of all, define strategy in its most basic form while referring to literature and the different schools of thought. Subsequently, the paper will discuss strategic management as a particular category of strategy and attempt to analyze in more detail how the concept of strategic management is broken down in more conspicuous elements that make up strategic process.
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It is worth mentioning that there is little literature about strategic management pertaining to the construction industry, however, we will try to reconcile the findings to this particular industry. The structure followed in the paper is top-down flow where the subject moves from the general to the particular.
2. Defining Strategy
Defining "strategy" is complex. Strategy is one of those flexible, hybrid terms that carry multiple definitions and meanings. Ruocco and Proctor (1994, p. 24) point out that there is no single accepted definition for the word strategy; rather, businesses use the definition in different ways, to suit their own field/needs.
The analysis of the concept of strategy should start with presenting its simplest/basic definitions. According to the Merriam-Webster dictionary, strategy is ": the science and art of employing the political, economic, psychological, and military forces of a nation or group of nations to afford the maximum support to adopted policies in peace or war" , as well as ": the art of devising or employing plans or stratagems toward a goal". Both definitions were mentioned as they emphasize two important aspects of the concept of strategy; (a) using all resources available towards achieving a goal and (b) employing all stratagems and devices towards reaching that objective. As such, a strategy comprises of two fundamental components; the objectives and the means to reach them.
Similarly, the definition of the term "management" can vary considerably depending the school or philosophy advocated (French, 2005). Unsurprisingly, the indistinct definitions of "strategy" and "management" tend to create a lot of confusion pertaining to the meaning and concept of "Strategic Management". Nevertheless, there are too many attempts to define strategy and strategic management.
3. Literature Review
Strategic management as a discipline originated in 1950s and 1960s. While there are plenty of contributors to the literature, Alfred Chandler, Philip Selznick and Igor Ansoff were of the ones most influential in history.
Chandler recognized the importance of coordinating the various aspects of management under one comprehensive strategy. His acknowledgment came at a time where various functions of management were segregated and interactions between functions/departments were handled by designated managers who relayed information back and forth. Additionally, in his work Strategy and Structure (1962), he stressed on the criticality for an organization to have a long-term coordinated strategy which will in turn give it structure, direction, and focus.
Subsequently, Ansoff built on Chandler's work. He developed a strategy grid that compared different types of strategies including market penetration, product development, market development, horizontal and vertical integration, and diversification strategies. He felt that management could use these strategies to systematically prepare for future opportunities and challenges. In 1965, he developed the so called "gap reducing actions", one of the most common tools used till date. For example, a construction developer may suffer from his main product of developing luxury villas while there is a good opportunity in the local market to develop low cost villas. If the developer in terms of marketing is strong, he can obviously go for the choice of developing the low cost villas.
In 1957, Selznick introduced the idea of balancing the organization's internal factors with external environmental circumstances. This idea shaped into SWOT analysis where strengths and weaknesses of the firm are assessed in light of the opportunities and threats from the business environment. SWOT analysis may be considered as a future forecast technique which aims to find a match between organisation capabilities and opportunities in the competitive environment.
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One of the profoundest work in literature is that of Miltzberg, et al. (1998) where strategy was defined as a: plan; a future roadmap/guide, pattern; evolution of trends from the past or consistency, position; unique and value added product/market, perspective or a vision, and finally ploy; certain actions taken to trick competition.
Mintzberg & Lampel (1999) point out that the corporate strategy literature contains at least 10 different schools of thought. The difference between these schools of thoughts depends on the perceptions towards two main variables: the external world and the internal process. The three broad schools of thought for strategy formulation are: the deliberate, emergent and adaptive schools of thought; each identified different paths for strategy formulation.
The deliberate school's main focus is on planning and analyzing. Through this perspective, the main objective of the strategy is to analyze the market, the current and future conditions that determine the framework, and identify those areas where the organization can become more competitive. Following the analysis and identification stages, the organization plans ahead in order to maximize benefits from the areas identified.
On the other hand, the gist of the emergent school is based on previous experience and is somewhat more spontaneous than the deliberate school. According to this school, strategy tends to be created as the action progresses and through the experience that the organization, country or individual has accumulated over time.
Finally, the adaptive school of thought goes a step further and perceives the environment as constantly changing where strategic decisions need to be adjusted/adapted accordingly. According to this school, the deliberate or emergent approaches are no longer that useful; the analysis and planning no longer reflect the existing realities, and the experience cannot fully encompass the entirety of required skills to adapt to the new conditions.
Strategic management takes all these notions and applies them to an organization. One of the simplest definitions of strategic management is that it is a process that includes "drafting, implementing and evaluating cross-functional decisions that will enable an organization to achieve its long-term objectives". The definition of strategic management is in line with a part of the definition on strategy, referring to the use of plans and stratagems to reach a certain decision. Here, the plans and stratagems are assimilated to the decision making process, which is a much more encompassing perspective and incorporates planning as well.
Given the different schools of thought and views of strategic management, as well as some schools' preference to certain concepts (e.g.: plan in the planning school, perspective in the entrepreneurial school, pattern in the learning school), one can comprehend why it's hard to select just one definition in terms of what exactly strategic management is.
Nevertheless, there is some consistency in these definitions. Most of them call for some kind of internal/external analysis, and maintenance of competitive advantage. Further, prior to the strategic management process, the strategist should ensure that the firm already has a well defined mission and vision statements. Both Mintzberg (1994) and Ohmae (1982) point that the focus of any strategy needs to involve organization mission and vision, indicating where these will take the organization in the present and future. Cochran, et al. (2008) also point out that the mission statement is an essential part in most strategic management models/processes. The mission statement is considered to be an "enduring document of purpose that distinguishes one business from the other firms of its type" (Cochran, et al., 2008, p. 27). But developing a mission statement can, at times, be as difficult as trying to move into strategic planning.
Instead of searching for a single and widely acceptable definition of the strategy, as Foster (1990) righteously mentioned, understanding the theory of strategy allows us to grasp the logic of strategy and then work within its complexity and underlying assumptions. No matter which definition of strategy one uses, the decisions called for are the same. These decisions pertain to choices between and among products/services, customers/markets, distribution channels, technologies, pricing and geographic operations, to name a few. What is required is a structured and disciplined way of realizing these decisions.
4. Discussion - The Strategy Process
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Why the strategy process cannot simply become a recipe for various organizations to use?. Mintzberg (1998) best explains the reason through the paradigm of the elephant, where two blind men are trying to measure an elephant, only for it to appear differently to each of them. As such, "we are all like the blind men and the strategy process is our elephant". This basically means that the difference in results comes from the different interpretation of facts, market variables, evaluations and choices. Strategic management comprises of three main stages: formulation, implementation and evaluation.
Firstly, strategy formulation, or what is known as strategic choice, should aim to determine where the organization is now, where it wants to go, and how to get there. These three questions are the essence of strategic planning.
Once the strategic formulation is made, implementation is performed within the outlined action plans. Action plans are set to draw up detailed plans and budgets, assigning responsibility of tasks to individuals/groups, monitoring results, comparing to benchmarks and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary. Due to its wide scope, there are many problems associated with strategy implementation. To name a few, employee-communication/commitment, and timing of marketing without signaling to the competitors.
Finally, Strategy evaluation, or feedback and control, that involves a continuous monitoring of the strategies and action plans. Its purpose is to give the organisation the opportunity periodically to both control the progress and to review the whole strategic direction that has been selected. Corrective actions are made in case the performance doesn't meet the set objectives. The strategy process loop is activated to either adjust the performance to meet the strategies or form new strategies for implementation. Generally, Strategists prefer to focus on revising an existing strategy in an innovative way rather than generating a new one from scratch. As Lamb pointed out, "strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved". The feedback and control mechanism is essential in the strategic management process in order to ensure that the errors are identified and corrected in the mechanism.
Johnson and Scholes (2006) present a model in which strategic options are evaluated against three key success criteria: Suitability (would it work?), Feasibility (can it be made to work?), and Acceptability (will they work it?). Mintzberg (1994) points out that there is little evidence of strategic management implementation and effectiveness. The reasons may be referred to poor management awareness, lack of clarity about decision making, and/or inadequate communication and collaboration. Strategic plans failure in many cases is attributed to the fact that strategies used are exported instead of being generated from within the firm's culture and dynamic environment, or on other words, following the herd.
It is critical for a strategist to have a clear view of what is possible to accomplish within the constraints of a given set of circumstances while taking the organization's vision and mission into account. As the situation changes, some opportunities will disappear and others evolve, and some implementation approaches will become impossible, while others, previously excluded, will become feasible.
5. Construction Industry
There is a little literature tackling the strategy approaches and thoughts in construction. This may be referred to the industry's unique blend of characteristics; low growth, low technology, large range of sub-sectors and variability in demand.
To gauge, to the extent possible, the importance of strategic management and its role in this industry, one should consider the current housing bubble and the way that several organizations interpret the existing variables and how their strategic management plans dealt with the existing situation.
Some companies acknowledged but minimized the risks on the market. From this perspective, they focused on benefiting from the expanding market and profiting from their clients' strong purchasing power. Accordingly, they acquired debt to expand their business and invested the funds into large construction projects. However, as the economic crisis started, the clients' purchasing power decreased and the investments could no longer be capitalized on. Subsequently, the debts obligations could no longer be met, which led to many of the real estate/construction companies go bankrupt.
On the other hand, with the same variables but a different interpretation, some companies adapted a sustainable business model; (a) a moderate rhythm of expansion compared to that of the market at that particular point, and (b) equal reliance on bank debts and on equity. While the profits were lower, the business was more sustainable and managed to survive in the current economic conditions.
As illustrated in these examples, mistaken interpretation of the market situation and variables can lead to failure of a strategic management process. Failure could also be due to a correct interpretation, but an internal process that minimizes the risk and proposes an approach that is not in line with the organization's resources and/or future capacities.
For a contemporary built environment organization within the current climate, it is important to continuously consider the internal and external dimensions in its strategy and the strategy process. From this perspective, part of the deliberate school of thought needs to be applied here. Some of the planning will be based on the external factors including reducing purchasing power hence low demand in the contemporary built environment, limited access to credit lines needed to finance new projects, and a dire unpredictable economic situation with zero clarity on how it will change or when it will end. Once the strategy is drafted, the internal strategy process, that will involve the resources needed to achieve such an external strategy, can be defined. This will include capitalizing on the organization's strong points compared to its competitors, research and development, as well as considering potential cross-functional alliances and collaborations within and outside the organization. The internal resources are now mostly directed towards survival rather than towards continuous expansion on the market.
The strategic process, part of the strategic management and of the overall strategy of an organization, is complex process. A process where there are several factors to be taken into consideration and one where the appropriate interpretation of the external factors and the subsequent internal planning to match that analysis are essential both for survival and for the development of the organization.
Strategic management can't really be put in a book, or pinned down in a definition. It is difficult to adhere to a strict school of strategy. It is tempting to think that the three components of strategic management process can be approached sequentially. It would be convenient, in other words, if one could specify the ends, and then address the question of means. But in reality, the three components are interdependent. Means are as likely to determine ends as ends are to determine means. Formulation and implementation of strategy must thus move concurrently rather than sequentially, because strategies are built on assumptions which, in the absence of full knowledge, will never be totally correct. While assumptions can and should be tested in advance, the ultimate test is implementation.
The current business environment encourages a combination of the three schools of thoughts. Indeed, the current economic situation encourages a deliberate strategy, where actions of the organization on the market are preceded by a proper analysis of the condition and variables that are likely to influence the results. On the other hand, the market conditions are still flexible and constantly changing, so some of the elements that the adaptive school proposes are also more than necessary. Organizations need to remain flexible to identify/address any threats and/or potential opportunities that may arise.