In any aspect of management theory the enthusiastic practitioner is both a source of strength and a cause of weakness. Strength, because no concept of management can grow and develop unless it has the backing of keen supporters weakness, because enthusiasm too often leads to an overselling of its benefits.
Although operational planning and strategic planning are intertwined, it is the latter which should be the driver. The short-term plans and systems should be driven by the longer-term perspective. Because of this more emphasis should be placed on strategy, and the title 'strategic planning' began to take over from 'corporate planning', but the latter persisted as a description, although many might have applied the more strategic orientation. The change was largely a shift of emphasis, not necessarily initially of the overall approach to the process of planning which still tended to focus on formal plans achieved through a corporate-wide process.
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Strategic management is about managing strategically as well as planning, so although the planning part may still be important, it is only a component.
The earliest concepts of planning were predicated on the assumption that the principles and concept were right for all businesses, although there might be some need for minor adaptation to fit the style and circumstances of particular organisations. Thus it was not expected that every planning system would be applied in precisely the same way, but the concept would be recognisable, and any differences would be in detail rather than the main ideas. This in fact was never true, partly because the fit of the universal concept to particular circumstances was never that precise, partly because new slants to the old concepts were being promoted all the time, and partly because many companies neglected to include many of the key elements when they applied the concepts. This idea of the 'right' way to do things persists in much of the literature to the present day, although there is probably more understanding of the reasons why changes have to be made to fit company circumstances, and in any case many of the modern ideas are intended to bring out the differences between organisations.
COMPONENTS OF STRATEGIC MANAGEMENT
Strategy does not exist in a vacuum, and has both an influence on and is influenced by the culture of the organisation, its structure and the people it employs. How we want people to act is driven by strategy: the actual act depends on reward systems, control mechanisms, and the climate of the organisation. Strategy management has to get all these things in harmony, and ensure that the strategy the organisation is following is appropriate.
Leavitt drew attention in 1964 to the interlinking of task, structure, people and technology (tools) and showed how changes to one factor would cause changes to the others. Leavitt's 'diamond' was worked on by others, particularly Mckinsey and Company with their 7s model (Peters and Waterman 1982)
A strategy leads to a need for certain things to be done by people. A change in strategy may change those tasks. For example, a strategy to be more customer responsive may require some tasks to be undertaken differently, and new ones to be added.
This means the nature, knowledge and skills of the various individuals already in the organisation, or who need to be recruited to the organisation to implement the strategy. The people required are influenced by the tasks, but also can influence the way the organisation looks at those tasks in the first place.
2.3 Reward systems
How people are rewarded will affect whether they perform the tasks in the way the strategy required. Frequently reward structures are out of step with the strategy. For example, the company may have an intention to sell the most profitable mix of products, but if the reward system pays sales bonuses in the total value of sales, the sales force are more likely to go for volume than for profit.
2.4 Control systems
How people are controlled will also affect what they actually do. Control mechanisms that emphasise individual effort, particularly if linked to reward, will affect behaviour far more than a management exhortation for teamwork. If teamwork is the important thing, then controls need to be designed accordingly. The nature of a control system can also influence, and is related to, the culture of the organisation. Delegated decision making, for example, will only happen if the control mechanisms allow it. In many organisations the exhortation is to take a long-term view, while the controls emphasise the short term. Action tends to relate to the control, and not the exhortation.
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2.5 Information systems
Organisations are also affected by the way information is collected and disseminated. Empowerment of lower levels of management can only take place if they also receive the information needed to do the job. Information should also be related to the structure of the organisation. In many organisations it lags behind structural changes, making it harder for managers to manage. Strategy can become impossible to implement because of the failure of information systems to meet the needs of organisations. For example, there are still insurance companies that can only provide information by policy and not by customer.
They cannot find out easily all the types of insurance held with them by a particular client. It is not hard to see how this could frustrate an excellent strategy for selling additional services to existing clients.
2.6 Decision-making systems
Where and how decisions are made, and who is allowed to make them will affect all parts of the model. The airline, SAS, caused a revolution in thinking in its organisation when it empowered the person in contact with the customer to make all reasonable decisions about matters that affected the customer.
The culture of an organisation is increasingly seen as one of the most important components to manage. Culture depends on all the other boxes in the model, and is also influenced by the nature of the company's business, its history, and where it operates. If culture does not fit with strategy, something will have to give, and it will probably be the strategy. Take a worldwide organisation, that operates individual businesses with full local autonomy, in various parts of the world. For good strategic reasons the company decides to integrate its businesses globally, standardising products, and rationalising many of its activities on a world basis. The existing culture will get in the way of the changes, so action would also be needed to bring about changes to this culture.
Finally there is the way the tasks are grouped into jobs, and jobs are grouped into organisational units. Structure like the other components of the model has a two directional link with every other component, and can help a strategy to be implemented, or can make it totally impossible. The circle outside the components of organisation represents the competitive arena in which the organisation operates.
Successful implementation of strategy depends on getting all six stages right.
Envisioning- This is the process of developing a coherent view of the future in order to form an overarching objective for the organisation. It blends the leader's view of external opportunities with the way internal competencies and resources relate to these opportunities.
Activating- Activating is the task of ensuring that others in the organisation understand, support, and eventually share the vision.
Supporting: Supporting is about motivating and inspiring people to achieve more than they otherwise might have believed possible, by providing the necessary moral and practical help to enable this to happen.
Installing: This is the process of developing detailed plans to enable the strategy to be implemented and controlled. There is nothing unique or special about the instruments such as plans, budgets, critical path analysis, Gantt charts or other tools which have to be developed to ensure that nothing is overlooked, and everything is coordinated. These are all the regular instruments of management.
Ensuring: Plans, structures for implementation, and policies may be formulated, and on paper the organisation may have covered everything. But this is not enough, and consideration must be given to the monitoring and controlling processes that will ensure that actions are correctly undertaken and results are as expected.
Recognising: This is giving recognition to those involved in the process. Recognition may be positive or negative, and should be used to reinforce the change, and to ensure that obstacles to progress are removed.
LEVELS OF STRAGETY
Level State of Strategic aggressiveness
1 Repetitive Stable, based on precedents
2 Expanding Reactive, incremental based on experience
3 Changing Anticipatory, incremental, based on extrapolation
4 Discontinuous Entrepreneurial, based on expected futures
5 Surpriseful Creative, based on creativity
The approach to strategic decision making is different under each level, as th above description suggests. It follows that the optimum approach to strategi management should also vary with the turbulence level. Ansoff suggests that for level 1 the appropriate system is management by procedures, since nothing is changing, and the best guide to the future is the past. However, it is doubtful whether this level of turbulence is currently experienced by many commercial organisations. For level 2, the right approach is what he terms financial control, where the emphasis is on control through budgets, rather than seeking new strategies. At level 3 the approach is extrapolative, and termed long-range planning: the emphasis is on sticking to the historical strategies of success, since the future is a logical extrapolation of the past. At level 4 it is no longer safe to assume that tomorrow will be a continuation of the trends of yesterday, and the appropriate process is strategic planning.
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Ansoff argues that even before level 5 is reached forward-looking strategic planning is not adequate to ensure a speedy response to future events. This is particularly true when future changes are both violent and difficult to foresee. He suggests two 'real time' system responses: issue management, which can begin to supplement strategic planning from level 4, and surprise management. Issue management attempts to anticipate and respond to threats and opportunities.
There is a link here with the scenario planning approaches which are used by some organisations. By level 5 an increasing number of issues confront the organisation without prior warning. To cope with these the firm needs to add a further management system to deal with surprises. He suggests an emergency communication network, with a top-level strategic task force to cross organisational boundaries to deal with the issue. The key to success is to plan the surprise management organisation, and to train people in operating it. In other words, while issue management is a form of contingency planning for a predicted possibility, surprise management is a planned framework to deal with contingencies that cannot be foreseen.
The appropriate approach may vary in different parts of the same organisation. Thus it is quite possible for an organisation to have one strategic business unit operating under level 3 and another under level 5. The approach to strategic management should be varied by strategic business unit to take account of this.
For every manager the strategy-making process starts with a fundamental strategic choice: which theoretical picture of human activity and environment fits most closely with his or her own view of the world, his or her personal 'theory of action'.
A strategic management process should aim to unleash for the company the benefits which have already been discussed in some detail - better results through better decisions, the identification of more opportunities, the consideration of more factors, improved coordination and communication, strong motivation, and the provision for the company of a means of coping with the pressures of change.
Any total planning process is concerned with plans of differing durations. It will incorporate plans for both the long and the short term. Immediately the words 'long term' are used they cause a flurry of concern among those who are newly come to planning. How long is a long-range plan? is a question which is frequently asked at introductory conferences, and it is a question which does not have a simple answer. Many planners believe that although the principles which guide the answer are important, the answer itself is nowhere near as vital as the questioners believe.
SWATCH - A SUCCESSFUL STRATEGY
Swatch is a name that will be familiar to all readers, yet it has, in industrial terms, had a short history. It came about through the drive and innovative approach of Dr Ernst Thomke, head of an organisation called ETA, which was a company within the SMH Group, Switzerland's largest watch producer. ETA made components and movements. Switzerland had lost its dominance in the world watch industry to Japan and South-east Asia, and ETA faced a declining demand for the integrated circuits it made for quartz watches. Its first strategy to work with its customers to standardise parts in order to increase volume and reduce costs was not a success.
Thomke therefore decided that ETA would produce an electronic watch to beat the Japanese at the low-cost end of the market. At that time ETA's production cost of a quartz movement was Sfr20, and this did not include the strap and case. Thomke wanted to design a watch which could be produced at a total cost of Sfr10.
The strategy was much more innovative than this implies, as in effect the opportunity he saw was to create a new segment at the lower end of the market, with the watch becoming a fun and fashion item, cheap enough to enable a consumer to own more than one, and for it to be replaced if it went wrong. The target market was the young and stylish, which was very different from the profile sought by other cheap watches. This creative thinking was also applied to a different design, made mainly of plastic, and using only part of the conventional quartz watch. To achieve this meant that ETA has to develop its own specialised machinery and computerised control and monitoring equipment.
Swatch has been a continuing success, and provided an example to the Swiss watch industry in demonstrating that decline could be reversed.
The key lessons from Swatch are:
Good strategies are often very innovative
The innovative thinking grew out of, and was supported by, analytical insight
Marketing, development and manufacturing strategies were totally integrated
The strategy was driven by a clear vision of what could be done.