The Strategy Process: Concepts, Contexts, Cases [4 ed.] 0131227904

Citation preview

International Edition

Cardiff UNIVERSITY PRIFYSGOL

CaeRDy,§)

Aberconway Library Llyfrgell Aberconwy

PO Box 430 Cardiff CF24 ODE

Blwch Post 430 Caerdydd CF24 ODE

029 2087 4770 [email protected]

n

*

a

is

^

i I I \

Dartmouth College

Sumantra Ghoshal London Business School

PEARSON

Pearson Education International

6S'?- 4 =>!

If you purchased this book within the United States or Canada you should be aware that it has been wrongfully imported without the approval of the Publisher or the Author.

VP/Editor- in- Chief: Sr. Managing Editor (Editorial): Assistant Editor: Editorial Assistant: Media Project Manager: Sr. Marketing Manager: Marketing Assistant: Managing Editor (Production): Production Editor: Permissions Coordinator: Associate Director, Manufacturing: Production Manager: Manufacturing Buyer: Designer: Interior Design: Cover Design: Illustrator (Interior): Manager, Print Production: Composition: Full-Service Project Management:

Jeff Shelstad Jennifer Glennon Melanie Olsen Kevin Glynn Michele Faranda Shannon Moore Christine Genneken Judy Leale Theresa Festa Suzanne Grappi Vincent Scelta Arnold Vila Michelle Klein Blair Brown Karen Quigley Blair Brown UG / GGS Information Services, Inc. Christy Mahon UG / GGS Information Services, Inc. UG / GGS Information Services, Inc.

Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this text¬ book appear on appropriate page within text. Copyright © 2003,1996,1991, by Pearson Education, Inc., Upper Saddle River, New Jersey, 07458. All rights reserved. Printed in the United States of America. This publication is protected by Copyright and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. For information regarding permission(s), write to: Rights and Permissions Department. Pearson Education LTD. Pearson Education Australia PTY, Limited Pearson Education Singapore, Pte. Ltd Pearson Education North Asia Ltd Pearson Education Canada, Ltd. Pearson Educacion de Mexico, S.A. de C.V. Pearson Education — Japan Pearson Education Malaysia, Pte. Ltd Pearson Education, Upper Saddle River, New Jersey

10 98765432 1

ISBN 0-13-122790-4

Acknowledgments Introduction

viii

ix

Strategies 1.1

Five Ps for Strategy

1.2

Strategies for Change

1.3

What Is Strategy?

1.4

Reflecting on the Strategy Process

Strategists

3

2 3 10

16 22

30

2.1

The Manager’s Job

2.2

Artists, Craftsmen, and Technocrats

2.3

Good Managers Don’t Make Policy Decisions

2.4

The Leader’s New Work: Building Learning Organizations

2.5

In Praise of Middle Managers

Formulating Strategy

32 46 52 57

66

70

3.1

The Concept of Corporate Strategy

3.2

Evaluating Business Strategy

3.3

Strategic Intent

72

80

88 hi

Analyzing Strategy

92

4.1

How Competitive Forces Shape Strategy

4.2

Looking Inside for Competitive Advantage

4.3

Sustaining Superior Performance: Commitments and Capabilities

4.4

Competitive Maneuvering

4.5

Generic Strategies

4.6

A Guide to Strategic Positioning

Strategy Formation

94

112

115 127

139

5.1

Crafting Strategy

5.2

Strategy as Strategic Decision Making

5.3

The Honda Effect

5.4

Honda Mythology and the Strategy Industry

Strategic Change

102

141 149

152 160

166

6.1

Transforming Organizations

6.2

Convergence and Upheaval: Managing the Unsteady Pace of Organizational Evolution

168 176

6.3

Logical Incrementalism: Managing Strategy Formation

6.4

The Crescendo Model of Rejuvenation

Cognition

189

200

7.1

The Dangers of Objectivity

7.2

Strategy as Cognition

Organization

201

203

207

8.1

The Structuring of Organizations

209

8.2

Strategy and Organization Planning

8.3

The Design of New Organizational Forms

226 234

V

Technology

242

9.1

Customizing Customization

243

9.2

Avoiding the Pitfalls of Emerging Technologies

248

183

CHAPTER 10

CHAPTER 11

CHAPTER 12

Collaboration

256

10.1

Collaborating to Compete

10.2

Why Create Alliances

10.3

Creating Knowledge Through Collaboration

Globalization

272

261

11.1

Managing Across Borders: New Organizational Responses

11.2

Global Strategy... in a World of Nations

11.3

Seven Myths Regarding Global Strategy

Values

273

280 289

294

12.1

New Values, Morality, and Strategic Ethics

12.2

Leadership in Administration

12.3

A New Manifesto for Management

CONTEXTS 311

CHAPTER 13

Managing Start-Ups

CHAPTER 15

267

4

SECTION III

CHAPTER 14

257

295

300 303

312

13.1

The Entrepreneurial Organization

13.2

Competitive Strategy in Emerging Industries

13.3

How Entrepreneurs Craft Strategies that Work

Managing Maturity

315 323 326

334

14.1

The Machine Organization

14.2

Cost Dynamics: Scale and Experience Effects

14.3

Innovation in Bureaucracy

14.4

Challenges to Organizations and Information Technology

Managing Experts

336 350

356 361

370

15.1

The Professional Organization

372

15.2

Managing Intellect

15.3

Balancing the Professional Service Firm

15.4

Covert Leadership: Notes on Managing Professionals

383 390 398

CONTENTS

V

CHAPTER 16

CHAPTER 17

CHAPTER 18

Managing Innovation 16.1

The Innovative Organization

405

16.2

Managing in the Whitespace

419

16.3

Anticipating the Cellular Form

16.4

The Core Competencies of Project-Based Firms

Managing Diversity

426

432

The Diversified Organization

17.2

Managing Large Groups in the East and West

17.3

From Competitive Advantage to Corporate Strategy

Managing Otherwise

434

Beyond Configuration

18.2

Organizational Adaptation

18.3

Strategy Innovation and the Quest for Value

18.4

How We Went Digital Without a Strategy

18.5

Managing Quietly

Subject Index

v

487 489

445

460

18.1

Name Index

CONTENTS

423

17.1

Bibliography for Readings

VI

403

479 484

462 468 471

475

451

1

Robin Hood

3

2

Astral Records, Ltd., North America

3

MacArthur and the Philippines

4

Rudi Gassner and the Executive Committee of BMG International (A)

5

Arista Records

6

Algodonera del Plata

7

HBO

8

IMPSAT

9

Canon: Competing on Capabilities

5

27 40

53 57

62 66 75

10

MP3.com

11

WFNX-101.7FM and Boston’s Radio Wars

88

12

Beijing Mirror Corp.

13

Lufthansa 2000: Maintaining the Change Momentum

14

The London Free Press (A)—A Strategic Change

15

NBC

16

LVMH: Taking the Western Art de Vivre to the World

17

Kami Corporation

18

Strategic Planning at the New York Botanical Garden (A)

19

Napoleon Bonaparte: Victim of an Inferior Strategy?

93

109 124

146

156 160

171

20

Honda Motor Company 1994

21

The Acer Group: Building an Asian Multinational

22

AmBev: The Making of a Brazilian Giant

23

Wipro Corporation: Balancing the Future

24

TV Asahi Theatrical Productions, Inc.

176

190

200 217

229 234

254

25

Selkirk Group in Asia

26

Sportsmake: A Crisis of Succession

263

27

S.A. Chupa Chups

28

Mountbatten and India

29

Saatchi 8c Saatchi: Worldwide: Globalization and Diversification

30

McKinsey & Company: Managing Knowledge and Learning

31

Sony: Regeneration (A)

32

Reorganization at Axion Consulting (A)

348

33

Reorganization at Axion Consulting (B)

350

34

Empire Plastics

35

Kao Corporation

36

Unipart Group of Companies: Uniting Stateholders to Build a World-Class Enterprise

37

Workbrain Corporation

38

Warner Brothers

39

Intel Corporation

40

The National Bicycle Industrial Company: Implementing a Strategy of Mass-Customization

41

NovaCare, Inc.

42

Lechabile: IT as a People Business

273

276 290

319

333

352 355 370

382

390 394 411

423 435

43

Phil Chan

44

Natura: The Magic Behind Brazil’s Most Admired Company

45

Restaurant with a Difference

Case Notes

309

447 455

474

476

Name Index Subject Index

481 484

CONTENTS

Vli

This book was originally brought together by James Brian

We wish to express our warmest appreciation to a

Quinn and Henry Mintzberg, in the belief that the field of

number of people who have been helpful, especially Santa

strategy badly needed a new kind of textbook. We wanted

Balanca-Rodrigues, Chahrazed Abdallah, Pushkar Jha, and

one that looked at process as well as analysis; that was built

Daniel Ronen, and at Prentice Hall Jennifer Glennon,

around dynamic strategy concepts and contexts instead of

Theresa Festa, David Scheffer, and Geraldine Lyons.

the overworked dichotomy of formulation and implemen¬

A special thanks must also be offered to those who

tation; and that accomplished these aims in an intelligent,

worked with the book in its early stages: the many classes of

eclectic, and lively style. We sought to combine theory with

“guinea pig” McGill and Tuck M.B.A. students and our many

practice, as well as description with prescription, in new

professional and academic colleagues who made useful sug¬

ways that offered insights none could achieve alone. All of

gestions, taught from the book on an experimental basis, and

these goals remain exactly the same in this fourth edition.

thoughtfully commented on how to improve it. In particular,

This edition adds Joseph Lampel and Sumantra

we thank Bill Joyce, Rich D’Aveni, Philip Anderson, and

Ghoshal to the authorship. As Brian Quinn has retired from

Sydney Finkelstein at Tuck; John Voyer at University of

his long and impressive career at the Tuck School at

Southern Maine; Bill Davidson at the University of Southern

Dartmouth, not least with the generation of so many

California; Pierre Brunet and Bill Taylor at Concordia

impressive

City

University in Montreal; Fritz Reiger at the University of

University has taken over responsibility for the case portion

Windsor; Jan Jorgensen, Cynthia Hardy, and Tom Powell at

of the book, as well as providing help on the selection of the

McGill; Robert Burgelman at Stanford; and Franz Lohrke

readings. We have kept a number of Brian Quinn’s most

and Gary Castrogiovanni at Louisiana State University.

cases,

Joseph

Lampel

of London’s

popular cases, and we have added many new cases of an

One last word: This book is not finished. Like the sub¬

especially international variety (probably unmatched in

ject of so much of its content, our text is an ongoing

this regard by any other business textbook). Sumantra

process, not a static statement. There are all kinds of

Ghoshal of the London Business School has contributed a

opportunities for improvement. Please write to any of us

number of these cases, as well as several articles. Henry

with your suggestions on how to improve the readings, the

Mintzberg of McGill University has retained responsibility

cases, and the organization of the book at large and its pre¬

for the readings, which have undergone the greatest revi¬

sentation. Strategy making, we believe, is a learning

sion since the inception of this book. We have kept earlier

process; we are also engaged in a learning process. Thank

ones that worked in the belief that good readings do not go

you and enjoy what follows.

out of date; rather they age like good wine. But we have also found many good new readings, amounting to about half of all of those published in this edition compared with the previous one.

Henry Mintzberg Joseph Lampel James Brian Quinn Sumantra Ghoshal

In our first edition, we set out to produce a different kind

as microelectronics, digital technology, software, personal

of textbook in the field of strategy, or general management.

computers, as well as areas that have been around for a

We tried to provide the reader with a richness of the¬

while but are increasingly important, including media,

ory, a richness of practice, and a strong basis for linkage

entertainment, pharmaceuticals, and management con¬

between the two. We rejected the strictly case study

sulting. Companies such as Sony, Acer, LVMH, Kami

approach', which leaves theory out altogether, or soft-

Corporation, S.A. Chupa Chups, and National Bicycle

pedals it, and thereby denies the accumulated benefits of

Industrial Company represent some of the most exciting

many years of careful research and thought about manage¬

experiments in products and services, and management

ment processes. We also rejected an alternate approach that

itself, today. We have also set out to offer the most interna¬

forces on readers a highly rationalistic model of how the

tional set of cases available. Glance down the list of cases

strategy process should function. We collaborated on this

included in this book and you realize how widely we have

book because we believe that in this complex world of

covered the globe.

organizations a range of concepts is needed to cut through and illuminate particular aspects of that complexity.

This text, unlike most others, is therefore eclectic. Presenting published articles and portions of other books

There is no “one best way” to create strategy, nor is

in their original form, rather than filtered through our

there “one best form” of organization. Quite different

minds and pens, is one way to reinforce this variety. Each

forms work well in particular contexts. We believe that

author has his or her ideas and his or her own best way of

exploring a fuller variety systematically will create a deeper

expressing them (ourselves included!). Summarized by us,

and more useful appreciation of the strategy process. In

these readings would lose a good deal of their richness.

this revised edition, we remain loyal to these beliefs and

We do not apologize for contradictions among the

objectives, while making major changes in the readings

ideas of leading thinkers. The world is full of contradic¬

and cases. We kept some of the classic readings, but there

tions. The real danger lies in using pat solutions to a

are many new ones. A host of new cases provide rich vehicles for discussing

nuanced reality, not in opening perspectives up to differ¬

the value and limits of new management approaches and

live with contradictions, learn to appreciate their causes

the dimensions of new management issues. There is a con¬

and effects, and reconcile them sufficiently for effective

scious balance among small, medium, and large-scale com¬

action. The readings have, nonetheless, been ordered by

panies. They are entrepreneurial, innovative, rapidly grow¬

chapter to suggest some ways in which reconciliation can

ing, or slowly maturing; and they run the gamut from

be considered. Our own chapter introductions are also

consumer goods to high technology. We have made an

intended to assist in this task and to help place the read¬

effort to select cases from new areas of the economy, such

ings in perspective.

ent interpretations. The effective strategist is one who can

IX

atom does work. But what we really want to know is how

ON THEORY A word on theory is in order. We do not consider theory a dirty word, nor do we apologize for making it a major component of this book. To some people, to be theoretical is to be detached and impractical. But a bright social scien¬ tist once said, “There is nothing so practical as a good the¬ ory.” And every successful doctor, engineer, and physicist would have to agree: They would be unable to practice their modern work without theories. Theories are useful because they shortcut the need to store masses of data. It is easier to remember a simple framework about some phe¬ nomenon than it is to consider every small detail you ever observed. In a sense theories are a bit like cataloging sys¬ tems in libraries: The world would be impossibly confusing without them. They enable you to store and conveniently access your own experiences as well as those of others. One can, however, suffer not just from an absence of

the atom should work.” Why should a management stu¬ dent’s similar demand in the realm of strategy or structure be considered any more appropriate? How can people manage complex systems they do not understand? Nevertheless, we have not ignored prescriptive theory when it appears useful. A number of prescriptive tech¬ niques (industry analysis, experience curves, and so on) are discussed. But these are associated both with other read¬ ings and with cases that will help you understand the con¬ text and limitations of their usefulness. Both readings and cases offer opportunities to pursue the full complexity of strategic situations. You will find a wide range of issues and perspectives addressed. One of our main goals is to inte¬ grate a variety of views, rather than allow strategy to be fragmented into just “human issues” and “economics issues.” The text and cases provide a basis for treating the full complexity of strategic management.

theories but also from being dominated by them without realizing it. To paraphrase the words of John Maynard Keynes, most “practical men” are the slaves of some

ON SOURCES

defunct theory. Whether we realize it or not, our behavior is guided by the systems of ideas that we have internalized over the years. Much can be learned by bringing these out in the open, examining them more carefully, and compar¬ ing them with alternative ways to view the world—includ¬ ing ones based on systematic study (that is, research). One of our prime intentions in this book is to expose the limita¬ tions of conventional theories and to offer alternate expla¬ nations that can be superior guides for understanding and taking action in specific contexts.

How were the readings selected and edited? Some text¬ books boast about how new all their readings are. We make no such claim; indeed we would like to make a different boast; many of our readings have been around quite a while, long enough to mature, like fine wine. Our criterion for inclusion was not the newness of the article so much as the quality of its insight—that is, its ability to explain some aspect of the strategy process better than any other article. Time does not age the really good articles. Quite the oppo¬ site—it distinguishes their quality. So look here for classics from the 1950s still fully relevant alongside the latest think¬

PRESCRIPTIVE THEORY VERSUS DESCRIPTIVE THEORY

ing in this new millennium.

Unlike many textbooks in this field, this one tries to explain

toward good ones. Hence, the materials in this book range

the world as it is rather than as someone thinks it is

from the classics to some published just before our final

supposed to be. Although there has sometimes been a ten¬ dency to disdain such descriptive theories, prescriptive (or

selection was made (as well as a few hitherto unpublished

normative) ones have often been the problem, rather than

mic journals, the best practitioner magazines, books, and

the solution, in the field of management. There is no one

some very obscure sources. The best can sometimes be

best way in management; no prescription works for all

found in strange places.

We are, of course, not biased toward old articles—just

pieces). You will find articles from the most serious acade¬

organizations. Even when a prescription seems effective in

We have tried to include many shorter readings rather

some context, it requires a sophisticated understanding of

than fewer longer ones, and we have tried to present as

exactly what that context is and how it functions. In other

wide a variety of good ideas as possible while maintaining

words, one cannot decide reliably what should be done in a

clarity. To do so we often had to cut within readings. We

system as complicated as a contemporary organization

have, in fact, put a great deal of effort into the cutting

without a genuine understanding of how that organization

in order to extract the key messages of each reading

really works. In engineering, no student ever questions

in as brief, concise, and clear a manner as possible.

having to learn physics, in medicine, having to learn

Unfortunately, our cutting sometimes forced us to elimi¬

anatomy. Imagine an engineering student’s hand shooting

nate interesting examples and side issues. (In the readings,

up in physics class: “Listen, prof, it’s fine to tell us how the

as well as some of the case materials from published

x

NTRODUCTION

sources, dots . . . signify portions that have been deleted

Our cases consciously contain both descriptive and

from the original, while square brackets [ ] signify our own

prescriptive aspects of strategy, and as authors of this text,

insertions of minor clarifications into the original text). We

we have different views on which to use—description only,

apologize to you, the reader, as well as to the authors, for

or description with prescription. On the one hand, the

having done this, but hope that the overall result has ren¬

cases provide the data and background for making a major

dered these changes worthwhile.

decision. Students can appraise the situation in its full con¬

We have also included a number of our own works.

text, suggest what future directions would be best for the

Perhaps we are biased, having less objective standards by

organization in question, and discuss how their solutions

which to judge what we have written. But we have messages

can realistically be implemented. On the other hand, each

to convey, too, and our own writings do examine the basic

case is also an opportunity to understand the dynamics of

themes that we feel are important in policy and strategy

an organization—the historical context of the problems it

courses today.

faces, the influence of its technology, values, relationship to other organizations, its probable reactions to varying solu¬ tions, and so on. Unlike many cases which focus on only the analytical aspects of a decision, ours constantly force

ON CASES

you to consider the messy realities of arriving at decisions

A major danger of studying the strategy process—probably

in organizations and obtaining a desired response to any

the most enticing subject in the management curriculum,

decision. In these respects, case study can involve a good

and at the pinnacle of organizational processes—is that

deal of descriptive and prescriptive analysis.

students and professors can become detached from the basics of the enterprise. The “Don’t bore me with the oper¬

LINKING CASES AND READINGS

ating details; I’m here to tackle the really big issues?” syn¬

The cases in this book are not intended to emphasize any

drome has been the death of many strategy courses (not to

particular theories, any more than the theoretical materials

mention

strategy

are included because they explain particular cases. Each

processes always come down to specifics. For this reason,

case presents a slice of some specific reality, each reading a

cases are the most convenient way to introduce practice

conceptual interpretation of some phenomenon. The read¬

into the classroom, to cap a wide variety of experiences,

ings are placed in particular groupings because they

and to involve students actively in analysis and decision

approach some common aspects or issues in theory.

managerial

practices!).

Effective

making.

We have provided some general guidelines for relating

Cases are the pedagogical approach of choice when it

particular cases to sets of readings. But do not push this too

comes to studying strategy, but it is an approach with

far: study each case for its own sake. Cases are intrinsically

potential pitfalls and blind alleys. It is easy to lose sight of

richer than readings. Each contains a wide variety of

the fact that cases are selective narratives. In this respect,

issues—many awfully messy—in no particular order. The

short and tightly focused cases can be better than long and

readings, in contrast, are usually neat and tidy, professing

highly detailed cases: They are less likely to mislead one

one or a few basic conceptual ideas, and providing some

into seeing the narrative as recreation of reality, as opposed

specific vocabulary. When the two connect—sometimes

to representation of reality, and a partial one at that.

through direct effort, more often indirectly as conceptual

Though cases are partial representation of reality, they

ideas are recalled in the situation of a particular case—

can be revealing if used wisely. Most cases pose a dilemma

some powerful learning can take place in the form of clari¬

or a problem. They irresistibly draw us toward prescrip¬

fication and, we hope, revelation.

tion. An invitation to pronounce is appealing: how many

Try to see how particular theories can help you to

can resist being the CEO of IBM or Microsoft for a day?

understand some of the issues in the cases and provide use¬

Elowever, this is false empowerment. It is not only based on

ful frameworks for drawing conclusions. Perhaps the great

incomplete information (made worse by the illusion of

military theorist, Von Clausewitz, said it best almost two

comprehensive description), it also lacks the pressure and

centuries ago:

nuance that are indispensable to decision making. Cases are positive when they are used to illustrate and stimulate. They illustrate situations and dilemmas. They stimulate thinking by focusing minds on crucial issues,

All that theory can do is give the artist or soldier points of reference, and standards of evaluation, with the ultimate purpose not of telling him how to act but of developing his judgment. (1976:15)

forcing the student to struggle with questions without the comfort of pretending that questions posed in the class¬ room can be settled in the classroom.

In relating theory to cases bear in mind that sound judgment depends on knowing the limitations of the for-

INTRODUCTION

XI

mer and the incompleteness of the latter. Theories com¬

In each case you should look for several sets of issues.

partmentalize reality. You should not take this compart-

First, you should understand what went on in that situa¬

mentalization as a given. Go beyond it when preparing

tion. Why did it happen this way? What are the strong or

each case. Use whatever concepts you find helpful both

weak features of what happened? What could have been

from chapters of the book and from your personal knowl¬

changed to advantage? How? Why? Second, there are

edge. Likewise, bear in mind that cases never tell the whole

always issues of what should be done next. What are the

story (how could they!). This is rather evident in ones that

key issues to be resolved? What are the major alternatives

deal with real people and real companies. Because they

available? What outcomes could the organization expect

leave out so much, it is worthwhile to reach out to newspa¬

from each? Which alternative should it select? Why? Third,

pers, Websites, Who’s Who, or any other reference that

there will almost always be “hard” quantitative data and

comes to mind. Some of our cases, however, present imagi¬

“soft” qualitative impressions about each situation. Both

nary situations, but should not for this reason be consid¬

deserve attention.

ered unreal. Their intent is to enhance awareness of key

But remember, no realistic strategy situation is just an

issues by avoiding the bias that comes with our accidental

organization behavior problem or just a financial or eco¬

knowledge of actual companies and events.

nomic analytical one. Both sets of information should be considered, and an integrated solution developed. Our cases are consciously constructed for this. Given their com¬

CASE DISCUSSION

plexity we have tried to keep the cases as short as possible.

Management cases provide a concrete information base for

And we have tried to capture some of the flavour of the real

students to analyze and share as they discuss management

organization. Moreover, we have sought to mix product

issues. Without this focus, discussions of theory can

and services cases, technological and “non-tech” cases,

become quite confusing. You may have in mind an image of

entrepreneurial, small company, and large enterprise situa¬

an organization or a situation that is very different from

tions. In this cross section, we have tried to capture some of

that of other discussants. As a result, what appears to be a

the most important and exciting issues, concepts, and

difference in theory will—after much argument—often

products of our times. We believe management is fun and

turn out to be simply a difference in perception of the real¬

important. The cases try to convey this. There is no “correct” answer to any case. There may be

ities surrounding these examples. In this text we try to provide three levels of learning:

several “good” answers and many poor ones. The purpose

first, a chance to share the generalized insights of leading

of a strategy course should be to help you understand the

theoreticians (in the readings); second, an opportunity to

nature of these “better” answers, what to look for, how to

test the applicability and limits of these theories in specific

analyze alternatives, and how to see through the complexi¬

(case) situations; third, the capacity to develop one’s own

ties of reaching solutions and implanting them in real

special amalgam of insights based upon empirical observa¬

organizations. A strategy course can only improve your

tions and inductive reasoning (from case analyses). All are

probability of success, not ensure it. The total number of

useful approaches; some students and professors will find

variables in a real strategy situation is typically beyond the

one mix more productive for their special level of experi¬

control of any one person or group. Hence another caveat;

ence or mindset. Another will prefer a quite different mix.

do not rely excessively on performance as a criteria for

Hence, we include a wide selection of cases and readings.

evaluating the effectiveness of a strategy. A company may

The cases are not intended as examples of either weak

have succeeded or failed not because of its specific deci¬

or exceptionally good management practices. Nor, as we

sions, but because of luck, an outstanding personality, the

noted, do they provide examples of the concepts of a par¬

bizarre action of an opponent, international actions over

ticular reading. They are discussion vehicles for probing

which it had no control, and so on. One of the products of

the benefits and limits of various approaches. And they are

a successful strategy course should be a little humility.

analytical vehicles for applying and testing concepts and tools developed in your education and experience. Cases can have marketing, operations, accounting, financial,

CASE STUDY GUIDES

human relations, planning and control, external environ¬

In our last edition we posed a few questions at the end of

mental, ethical, political, and quantitative dimensions.

each case. In this edition we decided to drop the questions.

Each dimension should be addressed in preparations and

A crucial part of reflection and analysis in the classroom, as

classroom

will

in the real world, is coming up with the question that really

inevitably emerge as more important in one situation than

matters. Asking the right question in strategy is analogous

another.

to an explorer’s finding his or her bearing before starting

XII

discussions,

although

INTRODUCTION

some

aspects

the journey. There is no standard methodology for coming

to represent the first two sections of the book. Contexts

up with questions: intuition and experience play far too

draw all these concepts together, in a variety of situa¬

important a role in the process.

tions—covered in the third section—which we consider

The cases provide a rich soil for investigating strategic

the key ones in the field of strategy today (though hardly

realities. Their complexities always extend well below the

the only ones). The outline of the text, chapter by chapter,

surface. Each layer peeled back can reveal new insights and

proceeds as follows:

rewards. Like any good mystery story, a case provides many clues, never all, but, surprisingly, sometimes more than

Section I: Strategy

managers might have had time to absorb in the real situa¬

The first section is called Strategy; it comprises six chapters,

tion.

two introductory in nature and four on the processes by Believing that no “canned approach” is viable for all

which strategy making takes place. Chapter 1 introduces

strategic situations, we have selected cases that cut across a

strategies themselves and probes the meaning of this

variety of issues and theoretical constructs. Almost any of

important word to broaden your view of it. Here the pat¬

these cases contains sufficient richness and complexity that

tern is set of challenging you to question conventional

it can be positioned at a number of different spots in a

views, especially when these act to narrow perspectives.

good strategy course. We leave the final case selection to the

The themes introduced in this chapter carry throughout

style and wisdom of the professor and his or her students.

the book and are worth care in understanding. Chapter 2 introduces a very important set of actors in this book, the strategists—all those people who play key roles in the strategy process. In examining the work of the

THIS BOOK'S STRUCTURE

general manager and other strategists, we shall perhaps upset a number of widely accepted notions. We do this to

NOT FORMULATION, THEN IMPLEMENTATION The first edition of this text offered a chapter format that was new to the strategy field. Unlike most others, it had no specific chapter or section devoted to “implementation” per se. The assumption in other texts is that strategy is for¬ mulated and then implemented, with organizational struc¬ tures, control systems, and the like following obediently behind strategy. In this text, as in reality, formulation and implementation are intertwined as complex interactive processes in which politics, values, organizational culture, and management styles determine or constrain particular strategic decisions. And strategy, structure, and systems mix together in complicated ways to influence outcomes. While strategy formulation and implementation may be separated in some situations—perhaps in crises, in some totally new ventures, as well as in organizations facing pre¬ dictable futures—these events are far from typical. We cer¬ tainly do not believe in building a whole book (let alone a whole field) around this conceptual distinction.

help you understand the very real complexities and diffi¬ culties of making strategy and managing in contemporary organizations. Chapters 3 to 5 take up a theme that is treated exten¬ sively in the text—to the point of being reflected in its title: the development of an understanding of the processes by which strategies are made. Chapter 3 looks at formulating strategy, specifically at some widely accepted prescriptive models for how organizations should go about developing their strategies. Chapter 4 extends these ideas to more for¬ mal ways of analyzing strategy and considering what, if any, “generic” forms a strategy can take. While readings in later chapters will challenge some of these precepts, what will not be questioned is the importance of having to under¬ stand them. They are fundamental to appreciating the strategy process today. Chapter 5 switches from a prescriptive to a descriptive approach. Concerned with understanding strategy forma¬ tion, it considers how strategies actually do form in organi¬ zations (not necessarily by being formulated) and why dif¬

BUT CONCEPTS, THEN CONTEXTS

ferent processes may be effective in specific circumstances.

The readings are divided roughly into two different parts.

This text takes an unconventional stand by viewing plan¬

The first deals with concepts, the second with contexts. We

ning and other formal approaches as not the only—and

introduce concepts early in the text as equal partners in the

often indeed not even the most desirable—ways to make

complex web of ideas that make up what we call the strat¬

strategy. You will find our emphasis on the descriptive

egy process.” In the second half of the text we weave these

process—as an equal partner with the more traditional

concepts together in a number of distinct situations, which

concerns for technical and analytical issues—to be one of

we call contexts. Our theme diagram illustrates this. Concepts, shown

the unifying themes of this book. Chapter 6 then turns

on top, are divided into two groups—strategy and forces

come about.

attention to the nature of strategic change, and how this can

NTRODUCTION

XIII

STRATEGY PROCESS THEME DIAGRAM FORCES

STRATEGY

h-

Q.

v W }■ O

2 O

O

Section il: Forces

certainly not least, is consideration of the values that drive us

In Section I, the readings introduced strategy, the strategist,

all. Together, these six forces must be understood if modern

and various ways in which strategy might be formulated

day processes of strategy making are to be appreciated.

and does in fact form. In Section II, entitled Forces, we introduce six additional concepts that constitute part of the strategy process.

Section III: Contents Section III is called Contexts. We consider how all of the

In Chapter 7, the influence of cognition is discussed.

elements introduced so far—strategies, the processes by

Strategy is fundamentally a concept in people’s minds, and

which they are formulated and get formed, the strategists,

so how we think about it—our cognitive process—must be

cognition, organization, technology, collaboration, global¬

understood. Chapter 8 looks at organization, how we put

ization and values—combine to suit particular contexts,

together and design those institutions for which strategies

five in all.

are created. Chapter 9 takes up another key force in the

Chapter 13 deals with managing start-up, where often

process, namely technology. We turn in Chapter 10 to the

rather simple organizations come under the close control

nature of collaboration as it influences the strategy process,

of strong leaders, or “entrepreneurs,” frequently people

from collaboration among individuals to alliances among

with vision. Chapter 14 examines managing maturity, a

corporations. Chapter 11 looks at globalization, that very

context common to many large business and government

popular yet over-hyped notion about which most of us need

organizations involved in the mass production and/or dis¬

much more careful understanding. Last in this section, but

tribution of goods and services.

Xiv

INTRODUCTION

Chapters 14 and 15 consider managing experts and

strategies that tend to be pursued, the processes by which

managing innovation, two contexts involving organizations

these strategies tend to be formed and might be formu¬

of high expertise. In the first, experts work relatively inde¬

lated, and the social issues associated with the context.

pendently in rather stable conditions, while in the innova¬ tion context, they combine in project teams under more dynamic conditions. What these two contexts have in com¬ mon, however, is that they act in ways that upset many of the widely accepted notions about how organizations should be structured and make strategy. Chapter 17 considers managing diversity, and deals with organizations that have diversified their product or service line and usually divisionalized their structures to deal with the greater varieties of environments they face. Finally, Chapter 18, called Managing Otherwise, closes the book by considering some rather unconventional views of the strategy process and of organizations that work despite being so different—and upsetting cherished beliefs. You

Instructors' Supplements The fourth edition of The Strategy Process is accompanied by a comprehensive Companion Website. The Website includes detailed summaries of all readings and discussion questions for each chapter, as well as Teaching Notes for the cases in each section in an electronic format. Well, there you have it. We worked hard on this book, in both the original and revised editions, to get it right. We have tried to think things through from the basics, with a resulting text that in style, format, and content is unusual for the field of strategy. Our product may not be perfect, but we believe it is good. Now it’s your turn to find out if you agree. Enjoy yourself along the way.

don’t have to be unusual to succeed, but you do have to be tolerant of the unusual to be a successful manager. In considering each of these widely different contexts we seek to discuss the situation in which each is most likely to be found, the structures most suited to it, the kinds of

Henry Mintzberg Joseph Lampel James Brian Quinn Sumantra Ghoshal

INTRODUCTION

XV

thor of The Strategy Safari with Henry Mintzberg and

HENRY MINTZBERG Henry Mintzberg is Cleghorn Professor of Management Studies at McGill University in Montreal, Canada. His

Bruce Ahalstrand. He has published extensively on strategy in management journals, and his articles have also appeared in the Financial Times and Fortune Magazine.

research has dealt with issues of general management and organizations, focusing on the nature of managerial work, forms of organizing, and the strategy formation process.

JAMES BRIAN QUINN

Currently, he is completing a book about Developing Managers, not MBAs, and a pamphlet entitled Getting Past

Professor Quinn is a recognized authority in the fields of

Smith and Marx . . . Towards a Balanced Society. He is also

strategic planning, management of technological change,

promoting the development of a family of masters pro¬

entrepreneurial innovation, and management of intellect

grams for practicing managers. His own teaching activities

and technology in the services sector. He has received both

focus on ad hoc seminars for managers and work with doc¬

the Academy of Management’s prestigious Outstanding

toral students.

Educator Award and its Book of the Year award (for

He received his doctorate and master of science degrees

In telligent En terprise).

from the M.I.T. Sloan School of Management and his mechanical engineering degree from McGill, working in between in operational research for the Canadian National Railways. He has recently been named an Officer of the

SUMANTRA GHOSHAL

Order of Canada and of l’Ordre Nationale du Quebec and

Sumantra Ghoshal is Professor of Strategic and International

holds honorary degrees from thirteen universities. He also

Management at the London Business School. He also serves

served as President of the Strategic Management Society

as the Founding Dean of the Indian School of Business in

from 1988 to 1991, and is an elected Fellow of the Royal

Hyderabad, of which LBS is a partner, and as a member of

Society of Canada (the first from a management faculty),

The Committee of Overseers of the Harvard Business School.

the Academy of Management, and the International

Managing Across Borders: The Transnational Solution, a book

Academy of Management. He was named Distinguished

he coauthored with Christopher Bartlett, has been listed in

Scholar for the year 2000 by the Academy of Management.

the Financial Times as one of the 50 most influential manage¬ ment books and has been translated into nine languages. The Differentiated

JOSEPH LAMPEL

Network:

Organizing

the

Multinational

Corporation for Value Creation, a book he coauthored with Nitin Nohria, won the George Terry Book Award in 1997. The

Joseph Lampel is Professor of Strategy at City University

Individualized Corporation, coauthored with Christopher

Business School, London. He received his doctorate in

Bartlett, won the Igor Ansoff Award in 1997, and has been

Strategic Management from McGill University in 1990,

translated into seven languages. His last book, Managing

and was awarded Best Dissertation Award from the

Radical Change, won the Management Book of the Year

Administrative Science Association of Canada. Following

award in India. With doctoral degrees from both the MIT

his graduate studies Professor Lampel taught for seven

School of Management and the Harvard Business School,

years at the Stern School of Business, New York University.

Sumantra serves on the editorial boards of several academic

He subsequently moved to the United Kingdom where he

journals and has been nominated to the Fellowships at the

held positions at University of St. Andrews and the

Academy of Management, the Academy of International

University of Nottingham. Professor Lampel is the coau¬

Business, and the World Economic Forum.

We open this text on its focal point: strategy. The first section is called "Strategy," the first chapter, "Strategies." Later chapters in this section describe the role of strategists and consider the processes by which strategies develop from three perspectives: deliber¬ ate formulation, systematic analysis, and emergent formation. A last chapter looks at strategic change. But in this opening chapter, we consider the central concept—strategies themselves. What is strategy? There is no single, universally accepted definition. Various authors and managers use the term differently; for example, some include goals and objectives as part of strategy whereas others make firm distinctions between them. Our intention in including the following readings is not to promote any one view of strategy but rather to suggest a number of views that seem useful. As will be evident throughout this text, our wish is not to narrow perspectives but to broaden them by trying to clarify issues. In pur¬ suing these readings, it will be helpful to think about the meaning of strategy, to try to understand how different people have used the term, and later to see if certain definitions hold up better in particular contexts. The first reading, by coauthor Henry Mintzberg of McGill University in Montreal, serves to open up the concept of strategy to a variety of views, some very different from traditional writings. Mintzberg focuses on various distinct definitions of strategy as plan (as well as ploy), pattern, position, and perspective. He uses the first two of these definitions to take us beyond deliberate strategy—beyond the traditional view of the term—to the notion of emergent strategy. This introduces the idea that strategies can form in an organization with¬ out being consciously intended, that is, without being formulated. This may seem to run

counter to the whole thrust of the strategy literature, but Mintzberg argues that many peo¬ ple implicitly use the term this way even though they would not so define it. The reading that follows, an award-winning article by Michael Porter of the Harvard Business School, takes us to a different place. Here Porter, probably the best-known writer in the field of strategy, focuses on strategy as a tightly integrated, clearly cohesive, and highly deliberate concept that positions a firm for competitive advantage. Porter suggests that excessive concern with operational effectiveness has displaced attention to strategy. Competitive strategy is about being different from one's rivals. This consists of tailoring a set of activities to support a strategic position. Defending this position, however, depends on crafting trade-offs that competitors will find very hard to imitate. Our third reading in this chapter, by coauthors Mintzberg and Joseph Lampel of London's City University, "reflects" on the strategy process, specifically by introducing ten perspectives, or schools of thought, that describe the field today. Strategy is an elephant, they argue, and we are all the proverbial blind men grabbing at its different parts and pre¬ tending to understand the whole. These schools—and, more importantly, their interrela¬ tionships—reappear continually throughout this book so that, in a sense, this reading helps to introduce the book, too. Upon completion of these readings, we hope that you will be less sure of the use of the word strategy but more ready to tackle the study of the strategy process with a broadened perspective and an open mind. There are no universally right answers in this field (any more than there are in most other fields), but there are interesting and constructive perspectives.

USING THE CASE STUDIES Explicit and intuitive understanding is essential for understanding strategy. Sometimes, however, the issue of what strategy is to begin with is very much at the forefront of such understanding. The Robin Hood case strongly illustrates the multiple facets of strategy. One can argue with Porter in the reading "What Is Strategy?" that Robin Hood begins to have a strategy only when he starts to ask serious questions about what he is doing and where he is going. Or one can take Mintzberg's view in "Five Ps for Strategy" and argue that Robin Hood's actions, at different times, conform to different definitions of strategy. Porter's insistence on a single definition of strategy works best in cases such as Apple Computer 1999, Selkirk, Acer, Inc., Sony, and Warner Brothers, where managers are asking hard questions about the future direction of the company. However, when one looks at cases such as Honda Motor Company, LVMH, and AmBev, which take the long view, it is possible to argue with Mintzberg and Lampel in "Reflecting on the Strategy Process" that there is no single school of strategy but rather different schools depending on assump¬ tions and perspectives.

BY HENRY MINTZBERG

■ Human nature insists on a definition for every concept. But the word strategy has long been used implicitly in different ways even if it has traditionally been defined in only one. Explicit recognition of multiple definitions can help people to maneuver through this difficult field. Accordingly, five definitions of strategy are presented here—as plan, ploy, pattern, position, and perspective—and some of their interrelationships are then considered.

^Originally published in the California Management Review (Fall 1987), © 1987 by the Regents of the University of California. Reprinted with deletions by permission of the California Management Review.

CHAPTER

1

STRATEGIES

3

STRATEGY AS PLAN

To almost anyone you care to ask, strategy is a plan—some sort of consciously intended course of action, a guideline (or set of guidelines) to deal with a situation. A kid has a “strategy” to get over a fence, a corporation has one to capture a market. By this definition, strategies have two essential char¬ acteristics: they are made in advance of the actions to which they apply, and they are developed con¬ sciously and purposefully. A host of definitions in a variety of fields reinforce this view. For example: ■ in the military: Strategy is concerned with “draft[ing] the plan of war ... shaping] the indi¬ vidual campaigns and within these, deciding] on the individual engagements” (Von Clausewitz, 1976:177). ■ in game theory: Strategy is “a complete plan: a plan which specifies what choices [the player] will make in every possible situation” (von Newman and Morgenstern, 1944:79). ■ in management: “Strategy is a unified, comprehensive, and integrated plan . . . designed to ensure that the basic objectives of the enterprise are achieved” (Glueck, 1980:9). As plans, strategies may be general or they can be specific. There is one use of the word in the specific sense that should be identified here. As plan, a strategy can be a ploy, too, really just a spe¬ cific “maneuver” intended to outwit an opponent or competitor. The kid may use the fence as a ploy to draw a bully into his yard, where his Doberman pinscher awaits intruders. Likewise, a cor¬ poration may threaten to expand plant capacity to discourage a competitor from building a new plant. Here the real strategy (as plan, that is, the real intention) is the threat, not the expansion itself, and as such is a ploy. In fact, there is a growing literature in the field of strategic management, as well as on the gen¬ eral process of bargaining, that views strategy in this way and so focuses attention on its most dynamic and competitive aspects. For example, in his popular book, Competitive Strategy, Porter (1980) devotes one chapter to “Market Signals” (including discussion of the effects of announcing moves, the use of “the fighting brancf",” and the use of threats of private antitrust suits) and another to “Competitive Moves” (including actions to preempt competitive response). And Schelling (1980) devotes much of his famous book, The Strategy of Conflict, to the topic of ploys to outwit rivals in a competitive or bargaining situation.

STRATEGY AS PATTERN

But if strategies can be intended (whether as. general plans or specific plovsh surely they can also be realized. In other words, defining strategy as a plan is not sufficient; we also need a def¬ inition that encompasses the resulting behavior. Thus, a third definition is proposed: strategy

is a pattern—specifically, a pattern in a .stream of actions (Mintzberg and Waters, 1985). By this definition, when Picasso painted blue for a time, that was a strategy, just as was the behav¬ ior of the Ford Motor Company when Henry Ford offered his Model T only in black. In other words, by this definition, strategy is consistency in behavior, whether or not intended. This may sound like a strange definition for a word that has been so bound up with free will (“strategos” in Greek, the art of the army general [Evered 1983]). But the fact of the mat¬ ter is that while hardly anyone defines strategy in this way, many people seem at one time or another to so use it. Consider this quotation from a business executive: “Gradually the suc¬ cessful approaches merge into^. pattern of action that becomes our strategy. We certainly don’t have an overall strategy on this” (quoted in Quinn, 1980:35). This comment is inconsistent only if we restrict ourselves to one definition of strategy: .what this man seems to be saying is that his firm has strategy as pattern, but not as plan. Or consider this comment in Business Week on a joint venture between General Motors and Toyota: The tentative Toyota deal may be most significant because it is another example of how GM’s strat¬ egy boils down to doing a little bit of everything until the marketdecides where it is going. (Business Week, October 31,1983)

A journalist has inferred a pattern in the behavior of a corporation and labeled it strategy.

4

CHAPTER

1

STRATEGIES

The point is that every time a journalist imputes a strategy to a corporation or to a gov¬ ernment, and every time a manager dogs the same thing to a competitor or even to the senior management of his own firm, they are implicitly defining strategy as pattern in action—that is, inferring consistently in hphavior-ajid lahoUagJt strategy. They may, of course, go further and impute intention to that consistency—that is, assume there is a plan behind the pattern. But that is an assumption, which may prove false. Thus, the definitions of strategy as plan and pattern can be quite independent of each other: plans may go unrealized, while patterns may appear without preconception. To para¬ phrase Hume, strategies may result from human actions but not human designs (see Majone, 1976-77). If we label the first definition intended strategy and the second realized strategy, as shown in Figure 1, then we can distinguish deliberate strategies, where intentions that existed previously were realized, from emergent strategies, where patterns developed in the absence of intentions, or despite them (which went unrealized). For a strategy to be truly deliberate—that is, for a pattern to have been intended exactly as realized—would seem to be a tall order. Precise intentions would have had to be stated in advance by the leadership of the organization; these would have had to be accepted as is by everyone else, and then realized with no interference by market, technological, or political forces and so on. Likewise, a truly emergent strategy is again a tall order, requiring consistency in action without any hint of intention. (No consistency means no strategy, or at least unreal¬ ized strategy.) Yet some strategies do come close enough to either form, while others—proba¬ bly most—sit on the continuum that exists between the two, reflecting deliberate as well as emergent aspects. Table 1 lists various kinds of strategies along this continuum.

STRATEGIES ABOUT WHAT? Labeling strategies as plans or patterns still begs one basic question: strategies about what? Many writers respond by discussing the deployment of resources, but the question remains: which resources and for what purposes? An army may plan to reduce the number of nails in its shoes, or a corporation may realize a pattern of marketing only products painted black, but these hardly meet the lofty label “strategy.” Or do they? As the word has been handed down from the military, “strategy” refers to the important things, “tactics” to the details (more formally, “tactics teaches the use of armed forces in the engagement, strategy the use of engagements for the object of the war” [von Clausewitz, 1976:128]). Nails in shoes, colors of cars; these are certainly details. The problem is that in ret¬ rospect details can sometimes prove “strategic.” Even in the military: “For want of a Nail, the Shoe was lost; for want of a Shoe the Horse was lost...” and so on through the rider and general to the battle, “all for want of Care about a Horseshoe Nail” (Franklin, 1977: 280).

FIGURE 1 DELIBERATE AND EMERGENT STRATEGIES

CHAPTER

1

STRATEGIES

5

TABLE 1 VARIOUS KINDS OF STRATEGIES, FROM RATHER DELIBERATE TO MOSTLY EMERGENT*

Planned Strategy: Precise intentions are formulated and articulated by a central leadership, and backed up by formal controls to ensure their surprise-free implementation in an environment that is benign, controllable, or predictable (to ensure no distortion of intentions); these strategies are highly deliberate. Entrepreneurial Strategy: Intentions exist as the personal, unarticulated vision of a single leader, and so are adaptable to new opportunities; the organization is under the personal control of the leader and located in a protected niche in its environment; these strategies are relatively deliberate but can emerge too. Ideological Strategy: Intentions exist as the collective vision of all the members of the organization, controlled through strong shared norms; the organization is often proactive vis-a-vis its environment; these strategies are rather deliberate. Umbrella Strategy: A leadership in partial control of organizational actions defines strategic targets or boundaries within which others must act (for example, that all new products be high priced and at the technological cutting edge, although what these actual products are to be is left to emerge); as a result, strategies are partly deliberate (the boundaries) and partly emergent (the patterns within them); this strategy can also be called deliberately emergent, in that the leadership purposefully allows others the flexibility to maneuver and form patterns within the boundaries. Process Strategy: The leadership controls the process aspects of strategy (who gets hired and so gets a chance to influence strategy, what structures they work within, etc.), leaving the actual content of strategy to others; strategies are again partly deliberate (concerning process) and partly emergent (concerning content), and deliberately emergent. Disconnected Strategy: Members or subunits loosely coupled to the rest of the organization produce patterns in the streams of their own actions in the absence of, or in direct contradiction to the central or common intentions of the organization at large; the strategies can be deliberate for those who make them. Consensus Strategy: Through mutual adjustment, various members converge on patterns that pervade the organization in the absence of central or common intentions; these strategies are rather emergent in nature. Imposed Strategy: The external environment dictates patterns in actions, either through direct imposition (say, by an outside owner or by a strong customer) or through implicitly preempting or bounding organizational choice (as in a large airline that must fly jumbo jets to remain viable); these strategies are organizationally emergent, although they may be internalized and made deliberate. * Adapted from Mintzberg and Waters (1985:270).

Indeed one of the reasons Henry Ford lost his war with General Motors was that he refused to paint his cars anything but black. Rumelt (1980) notes that “one person’s strategies are another’s tactics—that what is strategic depends on where you sit.” It also depends on when you sit; what seems tactical today may prove strategic tomorrow. The point is that labels should not be used to imply that some issues are inevitably more important than others. There are times when it pays to manage the details and let the strategies emerge for themselves. Thus, there is good reason to refer to issues as more or less “strategic,” in other words, more or less “important” in some context, whether as intended before acting or as realized after it. Accordingly, the answer to the question, strat¬ egy about what, is: potentially about anything. About products and processes, customers and citizens, social responsibilities and self-interests, control and color. Two aspects of the content of strategies must, however, be singled out because they are of particular importance.

STRATEGY AS POSITION

The fourth definition is that strategy is a position—specifically, a means of locating an orga¬ nization in what organization theorists like to call an “environment.” By this definition, strat¬ egy becomes the mediating force—or “match,” according to Hofer and Schendel (1978:4)— between organization and environment, that is, between the internal and the external context. In ecological terms, strategy becomes a “niche”; in economic terms, a place that generates

6

CHAPTER

1

STRATEGIES

“rent” (that is, “returns to [being] in a ‘unique’ place” [Bowman, 1974:47]); in management terms, formally, a product-market “domain” (Thompson, 1967), the place in the environment where resources are concentrated. Note that this definition of strategy can be compatible with either (or all) of the preced¬ ing ones; a position can be preselected and aspired to through a plan (or ploy) and/or it can be reached, perhaps even found, through a pattern of behavior. In military and game theory views of strategy, it is generally used in the context of what is called a “two-person game,” better known in business as head-on competition (where ploys are especially common). The definition of strategy as position, however, implicitly allows us to open up the concept, to so-called n-person games (that is, many players), and beyond. In other words, while position can always be defined with respect to a single competitor (literally so in the military, where position becomes the site of battle), it can also be considered in the context of a number of competitors or simply with respect to markets or an environment at large. But strategy as position can extend beyond competition too, economic and otherwise. Indeed, what is the meaning of the word “niche” but a position that is occupied to avoid competition. Thus, we can move from the definition employed by General Ulysses Grant in the 1860s, “Strategy [is] the deployment of one’s resources in a manner which is most likely to defeat the enemy,” to that of Professor Richard Rumelt in the 1980s, “Strategy is creating situations for economic rents and finding ways to sustain them” (Rumelt, 1982), that is, any viable position, whether or not directly competitive. Astley and Fombrun (1983), in fact, take the next logical step by introducing the notion of “collective” strategy, that is, strategy pursued to promote cooperation between organizations, even would-be competitors (equivalent in biology to animals herding together for protec¬ tion). Such strategies can range “from informal arrangements and discussions to formal devices such as interlocking directorates, joint ventures, and mergers.” In fact, considered from a slightly different angle, these can sometimes be described as political strategies, that is, strate¬ gies to subvert the legitimate forces of competition.

STRATEGY AS PERSPECTIVE

While the fourth definition of strategy looks out, seeking to locate the organization in the external environment, and down to concrete positions, the fifth looks inside the organization, indeed inside the heads of the collective strategist, but up to a broader view. Here, strategy is a perspective, its content consisting not just of a chosen position, but of an ingrained way of perceiving the world. There are organizations that favor marketing and build a whole ideology around that (an IBM); Hewlett-Packard has developed the “H-P way,” based on its engineer¬ ing culture, while McDonald’s has become famous for its emphasis on quality, service, and cleanliness. Strategy in this respect is to the organization what personality is to the individual. Indeed, one of the earliest and most influential writers on strategy (at least as his ideas have been reflected in more popular writings) was Philip Selznick (1957:47), who wrote about the “char¬ acter” of an organization—distinct and integrated “commitments to ways of acting and responding” that are built right into it. A variety of concepts from other fields also capture this notion; anthropologists refer to the “culture” of a society and sociologists to its “ideology”; military theorists write of the “grand strategy” of armies; while management theorists have used terms such as the “theory of the business” and its “driving force” (Drucker, 1974; Tregoe and Zimmerman, 1980); and Germans perhaps capture it best with their word “Weltanschauung,” literally “world view,” meaning collective intuition about how the world works. This fifth definition suggests above all that strategy is a concept. This has one important implication, namely, that all strategies are abstractions which exist only in the minds of

CHAPTER

1

STRATEGIES

7

interested parties. It is important to remember that no one has ever seen a strategy or touched one; every strategy is an invention, a figment of someone’s imagination, whether conceived of as intentions to regulate behavior before it takes place or inferred as patterns to describe behavior that has already occurred. What is of key importance about this fifth definition, however, is that the perspective is

shared. As implied in the words Weltanschauung, culture, and ideology (with respect to a soci¬ ety), but not the word personality, strategy is a perspective shared by the members of an orga¬ nization, through their intentions and/or by their actions. In effect, when we are talking of strategy in this context, we are entering the realm of the collective mind—individuals united by common thinking and/or behavior. A major issue in the study of strategy formation becomes, therefore, how to read that collective mind—to understand how intentions diffuse through the system called organization to become shared and how actions come to be exercised on a collective yet consistent basis.

INTERRELATING THE Ps

As suggested above, strategy as both position and perspective can be compatible with strategy as plan and/or pattern. But, in fact, the relationships between these different definitions can be more involved than that. For example, while some consider perspective to he a plan (Lapierre, 1980, writes of strategies as “dreams in search of reality”), others describe it as giving rise to plans (for example, as positions and/or patterns in some kind of implicit hierarchy). But the concept of emergent strategy is that a pattern can emerge and be recognized so that it gives rise to a formal plan, perhaps within an overall perspective. We may ask how perspective arises in the first place. Probably through earlier experiences: the organization tried various things in its formative years and gradually consolidated a per¬ spective around what worked. In other words, organizations would appear to develop “charac¬ ter” much as people develop personality—by interacting with the world as they find it through the use of their innate skills and natural propensities. Thus pattern can give rise to perspective too. And so can position. Witness Perrow’s (1970:161) discussion of the “wool men” and “silk men” of the textile trade, people who developed an almost religious dedication to the fibers they produced. No matter how they appear, however, there is reason to believe that while plans and posi¬ tions may be dispensable, perspectives are immutable (Brunsson, 1982). In other words, once they are established, perspectives become difficult to change. Indeed, a perspective may become so deeply ingrained in the behavior of an organization that the associated beliefs can become subconscious in the minds of its members. When that happens, perspective can come to look more like pattern than like plan—in other words, it can be found more in the consis¬ tency of behaviors than in the articulation of intentions. Of course, if perspective is immutable, then change in plan and position within perspec¬ tive is easy compared to change of perspective. In this regard, it is interesting to take up the case of Egg McMuffin. Was this product when new—the American breakfast in a bun—a strategic change for the McDonald’s fast-food chain? Posed in MBA classes, this earth-shatter¬ ing (or at least stomach-shattering) question inevitably evokes heated debate. Proponents (usually people sympathetic to fast food) argue that of course it was: it brought McDonald’s into a new market, the breakfast one, extending the use of existing facilities. Opponents retort that this is nonsense; nothing changed but a few ingredients: this was the same old pap in a new package. Both sides are, of course, right—and wrong. It simply depends on how you define strategy. Position changed; perspective remained the same. Indeed—and this is the point—the position could be changed easily because it was compatible with the existing per¬ spective. Egg McMuffin is pure McDonald’s, not only in product and package, but also in pro¬ duction and propagation. But imagine a change of position at McDonald’s that would require

8

CHAPTER

1

STRATEGIES

a change of perspective—say, to introduce candlelight dining with personal service (your McDuckling a l’Orange cooked to order) to capture the late evening market. We needn’t say more, except perhaps to label this the “Egg McMuffin syndrome.”

THE NEED FOR ECLECTICISM IN DEFINITION

While various relationships exist among the different definitions, no one relationship, nor any single definition for that matter, takes precedence over the others. In some ways, these definitions compete (in that they can substitute for each other), but in perhaps more impor¬ tant ways, they complement. Not all plans become patterns nor are all patterns that develop planned; some ploys are less than positions, while other strategies are more than positions yet less than perspectives. Each definition adds important elements to our understanding of strategy, indeed encourages us to address fundamental questions about organizations in general. As plan, strategy deals with how leaders try to establish direction for organizations, to set them on predetermined courses of action. Strategy as plan also raises the fundamental issue of cognition—how intentions are conceived in the human brain in the first place, indeed, what intentions really mean. The road to hell in this field can be paved with those who take all stated intentions at face value. In studying strategy as plan, we must somehow get into the mind of the strategist, to find out what is really intended. As ploy, strategy takes us into the realm of direct competition, where threats and feints and various other maneuvers are employed to gain advantage. This places the process of strat¬ egy formation in its most dynamic setting, with moves provoking countermoves and so on. Yet ironically, strategy itself is a concept rooted not in change but in stability—in set plans and established patterns. How then to reconcile the dynamic notions of strategy as ploy with the static ones of strategy as pattern and other forms of plan? As pattern, strategy focuses on action, reminding us that the concept is an empty one if it does not take behavior into account. Strategy as pattern also introduces the notion of conver¬ gence, the achievement of consistency in an organization’s behavior. How does this consis¬ tency form, where does it come from? Realized strategy, when considered alongside intended strategy, encourages us to consider the notion that strategies can emerge as well as be deliber¬ ately imposed. As position, strategy encourages us to look at organizations in their competitive environ¬ ments—how they find their positions and protect them in order to meet competition, avoid it, or subvert it. This enables us to think of organizations in ecological terms, as organisms in niches that struggle for survival in a world of hostility and uncertainty as well as symbiosis. And finally as perspective, strategy raises intriguing questions about intention and behav¬ ior in a collective context. If we define organization as collective action in the pursuit of com¬ mon mission (a fancy way of saying that a group of people under a common label—whether a General Motors or a Luigi’s Body Shop—somehow finds the means to cooperate in the pro¬ duction of specific goods and services), then strategy as perspective raises the issue of how intentions diffuse through a group of people to become shared as norms and values, and how patterns of behavior become deeply ingrained in the group. Thus, strategy is not just a notion of how to deal with an enemy or a set of competitors or a market, as it is treated in so much of the literature and its popular usage. It also draws us into some of the most fundamental issues about organizations as instruments for collective per¬ ception and action. To conclude, a good deal of the confusion in this field stems from contradictory and illdefined uses of the term strategy. By explicating and using various definitions, we may be able to avoid some of this confusion, and thereby enrich our ability to understand and manage the processes by which strategies form.

CHAPTER

1

STRATEGIES

9

STRATEGIES FOR CHANGE

BY JAMES BRIAN QUINN

SOME USEFUL DEFINITIONS

Because the words strategy, objectives, goals, policy, and programs have different meanings to individual readers or to various organizational cultures, I [try] to use certain definitions con¬ sistently. . .. For clarity—not pedantry—these are set forth as follows: A strategy is the pattern or plan that integrates an organizations major goals, policies, and action sequences into a cohesive whole. A well-formulated strategy helps to marshal and allocate an organization’s resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment, and contin¬ gent moves by intelligent opponents.

Goals (or objectives) state what is to be achieved and when results are to be accom¬ plished, but they do not state how the results are to be achieved. All organizations have mul¬ tiple goals existing in a complex hierarchy (Simon, 1964): from value objectives, which express the broad value premises toward which the company is to strive; through overall organizational objectives, which establish the intended nature of the enterprise and the directions in which it should move; to a series of less permanent goals that define targets for each organizational unit, its subunits, and finally all major program activities within each subunit. Major goals—those that affect the entity’s overall direction and viability—are called strategic goals.

Policies are rules or guidelines that express the limits within which action should occur. These rules often take the form of contingent decisions for resolving conflicts among specific objectives. For example: “Don’t exceed three months’ inventory in any item without corporate approval.” Like the objectives they support, policies exist in a hierarchy throughout the orga¬ nization. Major policies—those that guide the entity’s overall direction and posture or deter¬ mine its viability—are called strategic policies.

Programs specify the step-by-step sequence of actions necessary to achieve major objec¬ tives. They express how objectives will be achieved within the limits set by policy. They ensure that resources are committed to achieve goals, and they provide the dynamic track against which progress can be measured. Those major programs that determine the entity’s overall thrust and viability are called strategic programs.

Strategic decisions are those that determine the overall direction of an enterprise and its ultimate viability in light of the predictable, the unpredictable, and the unknowable changes that may occur in its most important surrounding environments. They intimately shape the true goals of the enterprise. They help delineate the broad limits within which the enterprise operates. They dictate both the resources the enterprise will have accessible for its tasks and the principal patterns in which these resources will be allocated. And they determine the effec¬ tiveness of the enterprise—whether its major thrusts are in the right directions given its resource potentials—rather than whether individual tasks are performed efficiently. Management for efficiency, along with the myriad decisions necessary to maintain the daily life and services of the enterprise, is the domain of operations.

* Excerpted from James Brian Quinn, Strategies for Change: Logical Incrementalism (copyright © Richard D. Irwin, Inc. 1980), Chaps. 1 and 5; reprinted by permission of the publisher.

10

CHAPTER

1

STRATEGIES

STRATEGIES VERSUS TACTICS Strategies normally exist at many different levels in any large organization. For example, in government there are world trade, national economic, treasury department, military spend¬ ing, investment, fiscal, monetary supply, banking, regional development, and local reemploy¬ ment strategies—all related to each other somewhat hierarchically yet each having imperatives of its own. Similarly, businesses have numerous strategies from corporate levels to department levels within divisions. Yet if strategies exist at all these levels, how do strategies and tactics dif¬ fer? Often the primary difference lies in the scale of action or the perspective of the leader. What appears to be a “tactic” to the chief executive officer (or general) may be a “strategy” to the marketing head (or lieutenant) if it determines the ultimate success and viability of his or her organization. In a more precise sense, tactics can occur at either level. They are the shortduration, adaptive, action-interaction realignments that opposing forces use to accomplish limited goals after their initial contact. Strategy defines a continuing basis for ordering these adaptations toward more broadly conceived purposes. A genuine strategy is always needed when the potential actions or responses of intelligent opponents can seriously affect the endeavor’s desired outcome—regardless of that endeavor’s organizational level in the total enterprise. This condition almost always pertains to the impor¬ tant actions taken at the top level of competitive organizations. However, game theorists quickly point out that some important top-level actions—for example, sending a peacetime fleet across the Atlantic—merely require elaborate coordinative plans and programs (Von Neumann and Morgenstern, 1944; Shubik, 1975; McDonald, 1950). A whole new set of concepts, a true strategy, is needed if some people or nations decide to oppose the fleet’s purposes. And it is these concepts that in large part distinguish strategic formulation from simpler programmatic planning. Strategies may be looked at as either a priori statements to guide action or a posteriori results of actual decision behavior. In most complex organizations . . . one would be hard pressed to find a complete a priori statement of a total strategy that actually is followed. Yet '

often the existence of a strategy (or strategy change) may be clear to an objective observer, although it is not yet apparent to the executives making critical decisions. One, therefore, must look at the actual emerging pattern of the enterprise’s operant goals, policies, and major pro¬ grams to see what its true strategy is (Mintzberg, 1972). Whether it is consciously set forth in advance or is simply a widely held understanding resulting from a stream of decisions, this pat¬ tern becomes the real strategy of the enterprise. And it is changes in this pattern—regardless of what any formal strategic documents may say—that either analysts or strategic decision makers must address if they wish to comprehend or alter the concern’s strategic posture.. . .

THE CLASSICAL APPROACH TO STRATEGY

Military-diplomatic strategies have existed since prehistoric times. In fact, one function of the earliest historians and poets was to collect the accumulated lore of these successful and unsuc¬ cessful life-and-death strategies and convert them into wisdom and guidance for the future. As societies grew larger and conflicts more complex, generals, statesmen, and captains studied, codified, and tested essential strategic concepts until a coherent body of principles seemed to emerge. In various forms these were ultimately distilled into the maxims of Sun Tzu (1963), Machiavelli (1950), Napoleon (1940), Von Clausewitz (1976), Foch (1970), Lenin (1927), Hart (1954), Montgomery (1958), or Mao Tse-Tung (1967). Yet with a few exceptions—largely introduced by modern technology—the most basic principles of strategy were in place and recorded long before the Christian era. More modern institutions primarily adapted and modified these to their own special environments. Although one could choose any number of classical military-diplomatic strategies as examples, Philip and Alexander’s actions at Chaeronea (in 338 B.c.) contain many currently relevant concepts (Varner and Alger, 1978; Green, 1970)... .

CHAPTER

1

STRATEGIES

11

A Classical Strategy A Grand Strategy Philip and his young son, Alexander, had very clear goals. They sought to rid Macedonia of influence by the Greek city-states and to establish dominance over what was then essentially northern Greece. They also wanted Athens to join a coalition with them against Persia on their eastern flank. Assessing their resources, they decided to avoid the overwhelming superiority of the Athenian fleet and chose to forego attack on the powerful walled cities of Athens and Thebes where their superbly trained pha¬ lanxes and cavalry would not have distinct advantages. Philip and Alexander used an indirect approach when an invitation by the Amphictyonic Council brought their army south to punish Amphissa. In a planned sequence of actions and deceptive maneuvers, they cut away from a direct line of march to Amphissa, bypassed the enemy, and fortified a key base, Elatea. They then took steps to weaken their opponents politically and morally by pressing restoration of the Phoenician communities earlier dispersed by the Thebans and by having Philip declared a cham¬ pion of the Delphic gods. Then using misleading messages to make the enemy believe they had moved north to Thrace and also using developed intelligence sources, the Macedonians in a surprise attack anni¬ hilated the Greeks’ positions near Amphissa. This lured their opponents away from their defensive posi¬ tions in the nearby mountain passes to consolidate their forces near the town of Chaeronea. There, assessing the relative strengths of their opponents, the Macedonians first attempted to negotiate to achieve their goals. When this was unsuccessful they had a well-developed contingency plan on how to attack and overwhelm the Greeks. Prior to this time, of course, the Macedonians had organized their troops into the famed phalanxes, and had developed the full logistics needed for their field support including a longer spear, which helped the Macedonian phalanxes penetrate the solid shield wall of the heavily massed Greek formations. Using the natural advantages of their terrain, the Macedonians had developed cavalry support for their phalanxes’ movements far beyond the Greek capability. Finally, using a relative advantage—the command structure their hierarchical social system allowed—against the more democratic Greeks, the Macedonian nobles had trained their personnel into one of the most disciplined and highly motivated forces in the world. The Battle Strategy Supporting this was the battle strategy at Chaeronea, which emerged as follows. Philip and Alexander first analyzed their specific strengths and weaknesses and their opponents’ current alignments and probable moves. The Macedonian strength lay in their new spear technology, the mobility of their superbly disci¬ plined phalanxes, and the powerful cavalry units led by Alexander. Their weaknesses were that they were badly outnumbered and faced—in the Athenians and the Theban Band—some of the finest foot troops in the world. However, their opponents had two weak points. One was the Greek left flank with lightly armed local troops placed near the Chaeronean Acropolis and next to some more heavily armed—but hastily assembled—hoplites bridging to the strong center held by the Athenians. The famed Theban Band anchored the Greek right wing near a swamp on the Cephissus River. [See Figure 1.] Philip and Alexander organized their leadership to command key positions, Philip took over the right wing and Alexander the cavalry. They aligned their forces into a unique posture which used their strengths and offset their weaknesses. They decided on those spots at which they would concentrate their forces, what positions to concede, and what key points they must take and hold. Starting with their units angled back from the Greek lines (see map), they developed a focused major thrust against the Greek left wing and attacked their opponents’ weaknesses—the troops near Chaeronea— with the most disciplined of the Macedonian units, the guards’ brigade. After building up pressure and stretching the Greek line to its left, the guards’ brigade abruptly began a planned withdrawal. This feint caused the Greek left to break ranks and rush forward, believing the Macedonians to be in full retreat. This stretched the opponents’ resources as the Greek center moved left to maintain contact with its flank and to attack the “fleeing” Macedonians. Then with predetermined timing, Alexander’s cavalry attacked the exposure of the stretched line at the same moment Philip’s phalanxes re-formed as planned on the high ground at the edge of the Heamon River. Alexander broke through and formed a bridgehead behind the Greeks. He refocused his forces against a segment of the opponents’ line; his cavalry surrounded and destroyed the Theban Band as the overwhelming power of the phalanxes poured through the gap he had created. From its secured position, the Macedonian left flank then turned and attacked the flank of the Athenians. With the help of Philip’s planned counterattack, the Macedonians expanded their dominance and over¬ whelmed the critical target, i.e., the Greek center.. . .

12

CHAPTER

1

STRATEGIES

FIGURE 1 THE BATTLE OF CHAERONEA Source: Modified with permis¬ sion from P. Green, Alexander

the Great, Praeger Publishers, New York (1970).

MODERN ANALOGIES Similar concepts have continued to dominate the modern era of formal strategic thought. As this period begins, Scharnhorst still points to the need to analyze social forces and structures as a basis for understanding effective command styles and motivational stimuli (Von Clausewitz, 1976:8). Frederick the Great proved this point in the field. Presumably based on such analyses, he adopted training, discipline, and fast maneuvers as the central concepts for a tightly disci¬ plined German culture that had to be constantly ready to fight on two fronts (Phillips, 1940). Von Biilow (1806) continued to emphasize the dominant strategic roles of geographical posi¬ tioning and logistical support systems in strategy. Both Jomini (1971) and Von Biilow (1806) stressed the concepts of concentration, points of domination, and rapidity of movement as cen¬ tral strategic themes and even tried to develop them into mathematically precise principles for their time. Still later Von Clausewitz expounded on the paramountcy of clear major objectives in war and on developing war strategies as a component of the nations broader goals with time hori¬ zons extending beyond the war itself. Within this context he postulated that an effective strat¬ egy should be focused around a relatively few central principles which can create, guide, and maintain dominance despite the enormous frictions that occur as one tries to position or maneuver large forces in war. Among these he included many of the concepts operant in Macedonian times: spirit or morale, surprise, cunning, concentration in space, dominance of selected positions, use of strategic reserves, unification over time, tension and release, and so on. He showed how these broad principles applied to a number of specific attack, defense, flank¬ ing, and retreat situations; but he always stressed the intangible of leadership. His basic posi¬ tioning and organizational principles were to be mixed with boldness, perseverance, and

CHAPTER

1

STRATEGIES

13

genius. He constantly emphasized—as did Napoleon—the need for planned flexibility once the battle was joined. Later strategic analysts adapted these classic themes for larger-scale conflicts. Von Schlieffen linked together the huge numerical and production strengths of Germany and the vast maneuvering capabilities of Flanders fields to pull the nation’s might together conceptu¬ ally behind a unique alignment of forces (“a giant hayrake”), which would “outflank” his French opponents, attack weaknesses (their supply lines and rear), capture and hold key political cen¬ ters of France, and dominate or destroy its weakened army in the field (Tuchman, 1962). On the other side, Foch and Grandmaison saw morale (“elan”), nerve (“cran”), and continuous concentrated attack (“attaque a outrance”) as matching the values of a volatile, recently defeated, and vengeful French nation, which had decided (for both moral and coalition rea¬ sons) to set important limits on its own actions in World War I—that is, not to attack first or through Belgium. As these two strategies lost shape and became the head-on slaughter of trench warfare, Hart (1954) revitalized the indirect approach, and this became a central theme of British strate¬ gic thinking between the wars. Later in the United States, Matloff and Snell (1953) began to stress planning for large-scale coalitions as the giant forces of World War II developed. The Enigma group moved secretly to develop the intelligence network that was so crucial in the war’s outcome (Stevenson, 1976). But once engaged in war, George Marshall still saw the only hope for Allied victory in concentrating overwhelming forces against one enemy (Germany) first, then after conceding early losses in the Pacific, refocusing Allied forces in a gigantic sequential coordi¬ nated movement against Japan. In the eastern theater, MacArthur first fell back, consolidated a base for operations, built up his logistics, avoided his opponent’s strengths, bypassed Japan’s estab¬ lished defensive positions, and in a gigantic flanking maneuver was ready to invade Japan after softening its political and psychological will through saturation bombing (James, 1970). All these modern thinkers and practitioners utilized classical principles of strategy dating back to the Greek era, but perhaps the most startling analogies of World War II lay in Patton’s and Rommel’s battle strategies, which were almost carbon copies of the Macedonians’ con¬ cepts of planned concentration, rapid breakthrough, encirclement, and attack on the enemy’s rear (Essame, 1974; Farago, 1964; Irving, 1977; Young, 1974). Similar concepts still pervade well-conceived strategies—whether they are government, diplomatic, military, sports, or business strategies. What could be more direct than the paral¬ lel between Chaeronea and a well-developed business strategy that first probes and withdraws to determine opponents’ strengths, forces opponents to stretch their commitments, then con¬ centrates resources, attacks a clear exposure, overwhelms a selected market segment, builds a bridgehead in that market, and then regroups and expands from that base to dominate a wider field? Many companies have followed just such strategies with great success. . . .

DIMENSIONS OF STRATEGY

Analysis of military-diplomatic strategies and similar analogies in other fields provides some essential insights into the basic dimensions, nature, and design of formal strategies. First, effective formal strategies contain three essential elements: (1) the most important goals (or objectives) to be achieved, (2) the most significant policies guiding or limiting action, and (3) the major action sequences (or programs) that are to accomplish the defined goals within the limits set. Since strategy determines the overall direction and action focus of the organiza¬ tion, its formulation cannot be regarded as the mere generation and alignment of programs to meet predetermined goals. Goal development is an integral part of strategy formulation.... Second, effective strategies develop around a few key concepts and thrusts, which give them cohesion, balance, and focus. Some thrusts are temporary; others are carried through to the end of the strategy. Some cost more per unit gain than others. Yet resources must be allocated in patterns that provide sufficient resources for each thrust to succeed regardless of its relative

14

CHAPTER

1

STRATEGIES

cost/gain ratio. And organizational units must be coordinated and actions controlled to sup¬ port the intended thrust pattern or else the total strategy will... . Third, strategy deals not just with the unpredictable but also with the unknowable. For major enterprise strategies, no analyst could predict the precise ways in which all impinging forces could interact with each other, be distorted by nature or human emotions, or be modi¬ fied by the imaginations and purposeful counteractions of intelligent opponents (Braybrooke and Lindblom, 1963). Many have noted how large-scale systems can respond quite counterin¬ tuitively (Forrester, 1971) to apparently rational actions or how a seemingly bizarre series of events can conspire to prevent or assist success (White, 1978; Lindblom, 1959).. .. Consequently, the essence of strategy—whether military, diplomatic, business, sports, (or) political ...—is to build a posture that is so strong (and potentially flexible) in selective ways that the organization can achieve its goals despite the unforeseeable ways external forces may actually interact when the time comes. Fourth, just as military organizations have multiple echelons of grand, theater, area, battle, infantry, and artillery strategies, so should other complex organizations have a number of hierarchically related and mutually supporting strategies (Vancil and Lorange, 1975; Vancil, 1976). Each such strategy must be more or less complete in itself, congruent with the level of decentralization intended. Yet each must be shaped as a cohesive element of higher-level strategies. Although, for reasons cited, achieving total cohesion among all of a major organiza¬ tion’s strategies would be a superhuman task for any chief executive officer, it is important that there be a systematic means for testing each component strategy and seeing that it fulfills the major tenets of a well-formed strategy. The criteria derived from military-diplomatic strategies provide an excellent framework for this, yet too often one sees purported formal strategies at all organizational levels that are not strategies at all. Because they ignore or violate even the most basic strategic principles, they are little more than aggregates of philosophies or agglomerations of programs. They lack the cohe¬ siveness, flexibility, thrust, sense of positioning against intelligent opposition, and other criteria that historical analysis suggests effective strategies must contain. Whether formally or incremen¬ tally derived, strategies should be at least intellectually tested against the proper criteria.

CRITERIA FOR EFFECTIVE STRATEGY In devising a strategy to deal with the unknowable, what factors should one consider? Although each strategic situation is unique, are there some common criteria that tend to define a good strategy? The fact that a strategy worked in retrospect is not a sufficient criterion for judging any strategy. Was Grant really a greater strategist than Lee? Was Foch’s strategy bet¬ ter than Von Schlieffen’s? Was Xerxes’s strategy superior to that of Leonidas? Was it the Russians’ strategy that allowed them to roll over the Czechoslovaks in 1968? Clearly other fac¬ tors than strategy—including luck, overwhelming resources, superb or stupid implementa¬ tion, and enemy errors—help determine ultimate results. Besides, at the time one formulates a strategy, one cannot use the criterion of ultimate success because the outcome is still in doubt. Yet one clearly needs some guidelines to define an effective strategic structure. A few studies have suggested some initial criteria for evaluating a strategy (Tilles, 1963; Christensen et al., 1978). These include its clarity, motivational impact, internal consistency, compatibility with the environment, appropriateness in light of resources, degree of risk, match to the personal values of key figures, time horizon, and workability. ... In addition, historical examples—from both business and military-diplomatic settings—suggest that effective strate¬ gies should at a minimum encompass certain other critical factors and structural elements.... ■ Clear, decisive objectives: Are all efforts directed toward clearly understood, decisive, and attainable overall goals? Specific goals of subordinate units may change in the heat of cam¬ paigns or competition, but the overriding goals of the strategy for all units must remain clear enough to provide continuity and cohesion for tactical choices during the time hori¬ zon of the strategy. All goals need not be written down or numerically precise, but they

CHAPTER

1

STRATEGIES

15

must be understood and be decisive—that is, if they are achieved they should ensure the continued viability and vitality of the entity vis-a-vis its opponents. ■ Maintaining the initiative: Does the strategy preserve freedom of action and enhance com¬ mitment? Does it set the pace and determine the course of events rather than reacting to them? A prolonged reactive posture breeds unrest, lowers morale, and surrenders the advantage of timing and intangibles to opponents. Ultimately such a posture increases costs, decreases the number of options available, and lowers the probability of achieving sufficient success to ensure independence and continuity. ■ Concentration: Does the strategy concentrate superior power at the place and time likely to be decisive? Has the strategy defined precisely what will make the enterprise superior in power—that is, “best” in critical dimensions—in relation to its opponents. A distinctive competency yields greater success with fewer resources and is the essential basis for higher gains (or profits) than competitors.. . . ■ Flexibility: Has the strategy purposely built in resource buffers and dimensions for flexibil¬ ity and maneuver? Reserved capabilities, planned maneuverability, and repositioning allow one to use minimum resources while keeping opponents at a relative disadvantage. As corollaries of concentration and concession, they permit the strategist to reuse the same forces to overwhelm selected positions at different times. They also force less flexible oppo¬ nents to use more resources to hold predetermined positions, while simultaneously requir¬ ing minimum fixed commitment of one’s own resources for defensive purposes. ■ Coordinated and committed leadership: Does the strategy provide responsible, committed leadership for each of its major goals?. . . [Leaders] must be so chosen and motivated that their own interests and values match the needs of their roles. Successful strategies require commitment, not just acceptance. ■ Surprise: Has the strategy made use of speed, secrecy, and intelligence to attack exposed or unprepared opponents at unexpected times? With surprise and correct timing, success can be achieved out of all proportion to the energy exerted and can decisively change strategic positions.. . . ■ Security: Does the strategy secure resource bases and all vital operating points for the enter¬ prise? Does it develop an effective intelligence system sufficient to prevent surprises by opponents? Does it develop the full logistics to support each of its major thrusts? Does it use coalitions effectively to extend the resource base and zones of friendly acceptance for the enterprise?. . . These are critical elements of strategy, whether in business, government, or warfare.

BY MICHAEL E. PORTER

I. OPERATIONAL EFFECTIVENESS IS NOT STRATEGY

For almost two decades, managers have been learning to play by a new set of rules. Companies must be flexible to respond rapidly to competitive and market changes. They must benchmark continuously to achieve best practice. They must outsource aggressively to gain efficiencies. And they must nurture a few core competencies in the race to stay ahead of rivals.

* Excerpted from “What Is Strategy?” Michael E. Porter, Harvard Business Review (November-December 1996).

16

CHAPTER

1

STRATEGIES

Positioning—once the heart of strategy—is rejected as too static for today’s dynamic markets and changing technologies. According to the new dogma, rivals can quickly copy any market position, and competitive advantage is, at best, temporary. But those beliefs are dangerous half-truths, and they are leading more and more compa¬ nies down the path of mutually destructive competition. True, some barriers to competition are falling as regulation eases and markets become global. True, companies have properly invested energy in becoming leaner and more nimble. In many industries, however, what some call hypercompetition is a self-inflicted wound, not the inevitable outcome of a changing para¬ digm of competition. The root of the problem is the failure to distinguish between operational effectiveness and strategy. The quest for productivity, quality, and speed has spawned a remarkable number of management tools and techniques: total quality management, benchmarking, time-based competition, outsourcing, partnering, reengineering, change management. Although the resulting operational improvements have often been dramatic, many companies have been frustrated by their inability to translate those gains into sustainable profitability. And bit by bit, almost imperceptibly, management tools have taken the place of strategy. As managers push to improve on all fronts, they move farther away from viable competitive positions.

OPERATIONAL EFFECTIVENESS: NECESSARY BUT NOT SUFFICIENT Operational effectiveness and strategy are both essential to superior performance, which, after all, is the primary goal of any enterprise. But they work in very different ways. A company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at a lower cost, or do both. The arithmetic of superior profitability then follows: delivering greater value allows a company to charge higher average unit prices; greater efficiency results in lower average unit costs. Ultimately, all differences between companies in cost or price derive from the hundreds of activities required to create, produce, sell, and deliver their products or services, such as calling on customers, assembling final products, and training employees. Cost is generated by per¬ forming activities, and cost advantage arises from performing particular activities more effi¬ ciently than competitors. Similarly, differentiation arises from both the choice of activities and how they are performed. Activities, then, are the basic units of competitive advantage. Overall advantage or disadvantage results from all a company’s activities, not only a few. Operational effectiveness (OE) means performing similar activities better than rivals per¬ form them. Operational effectiveness includes but is not limited to efficiency. It refers to any number of practices that allow a company to better utilize its inputs by, for example, reducing defects in products or developing better products faster. In contrast, strategic positioning means performing different activities from rivals or performing similar activities in different ways.

Differences in operational effectiveness among companies are pervasive. Some companies are able to get more out of their inputs than others because they eliminate wasted effort, employ more advanced technology, motivate employees better, or have greater insight into managing particular activities or sets of activities. Such differences in operational effectiveness are an important source of differences in profitability among competitors because they directly affect relative cost positions and levels of differentiation.. . . Imagine for a moment a productivity frontier that constitutes the sum of all existing best practices at any given time. Think of it as the maximum value that a company delivering a par¬ ticular product or service can create at a given cost, using the best available technologies, skills, management techniques, and purchased inputs. The productivity frontier can apply to indi¬ vidual activities, to groups of linked activities such as order processing and manufacturing, and to an entire company’s activities. When a company improves its operational effectiveness, CHAPTER

1

STRATEGIES

17

it moves toward the frontier. Doing so may require capital investment, different personnel, or simply new ways of managing. The productivity frontier is constantly shifting outward as new technologies and manage¬ ment approaches are developed and as new inputs become available.. .. OE competition shifts the productivity frontier outward, effectively raising the bar for everyone. But although such competition produces absolute improvement in operational effectiveness, it leads to relative improvement for no one. Consider the $5 billion-plus U.S. commercial-printing industry. The major players—R.R. Donnelley & Sons Company, Quebecor, World Color Press, and Big Flower Press—are competing head to head, serving all types of customers, offering the same array of printing technologies (gravure and web offset), investing heavily in the same new equipment, running their presses faster, and reducing crew sizes. But the resulting major productivity gains are being captured by customers and equip¬ ment suppliers, not retained in superior profitability.. . . The second reason that improved operational effectiveness is insufficient—competitive convergence—is more subtle and insidious. The more benchmarking companies do, the more they look alike. The more that rivals outsource activities to efficient third parties, often the same ones, the more generic those activities become. As rivals imitate one another’s improve¬ ments in quality, cycle times, or supplier partnerships, strategies converge and competition becomes a series of races down identical paths that no one can win. Competition based on operational effectiveness alone is mutually destructive, leading to wars of attrition that can be arrested only by limiting competition. The recent wave of industry consolidation through mergers makes sense in the context of OE competition. Driven by performance pressures but lacking strategic vision, company after company has had no better idea than to buy up its rivals. The competitors left standing are often those that outlasted others, not companies with real advantage.

II. STRATEGY RESTS ON UNIQUE ACTIVITIES

Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value. Southwest Airlines Company, for example, offers short-haul, low-cost, point-to-point ser¬ vice between midsize cities and secondary airports in large cities. Southwest avoids large air¬ ports and does not fly great distances.. . . IKEA, the global furniture retailer based in Sweden, also has a clear strategic positioning. IKEA targets young furniture buyers who want style at low cost. What turns this marketing concept into a strategic positioning is the tailored set of activities that make it work. Like Southwest, IKEA has chosen to perform activities differently from its rivals.. . . THE ORIGINS OF STRATEGIC POSITIONS Strategic positions emerge from three distinct sources, which are not mutually exclusive and often overlap. First, positioning can be based on producing a subset of an industry’s products or services. I call this variety-based positioning because it is based on the choice of product or service varieties rather than customer segments. Variety-based positioning makes economic sense when a company can best produce particular products or services using distinctive sets of activities. Jiffy Lube International, for instance, specializes in automotive lubricants and does not offer other car repair or maintenance services. Its value chain produces faster service at a lower cost than broader line repair shops, a combination so attractive that many customers subdi¬ vide their purchases, buying oil changes from the focused competitor, Jiffy Lube, and going to rivals for other services.. . . A second basis for positioning is that of serving most or all the needs of a particular group of customers. I call this needs-based positioning, which comes closer to traditional thinking

18

CHAPTER

1

STRATEGIES

about targeting a segment of customers. It arises when there are groups of customers with dif¬ fering needs, and when a tailored set of activities can serve those needs best. Some groups of customers are more price sensitive than others, demand different product features, and need varying amounts of information, support, and services. IKEA’s customers are a good example of such a group. IKEA seeks to meet all the home furnishing needs of its target customers, not just a subset of them.... It is intuitive for most managers to conceive of their business in terms of the customers’ needs they are meeting. But a critical element of needs-based positioning is not at all intuitive and is often overlooked. Differences in needs will not translate into meaningful positions unless the best set of activities to satisfy them also differs. If that were not the case, every com¬ petitor could meet those same needs, and there would be nothing unique or valuable about the positioning.... The third basis for positioning is that of segmenting customers who are accessible in dif¬ ferent ways. Although their needs are similar to those of other customers, the best configura¬ tion of activities reach them is different. I call this access-based positioning. Access can be a function of customer geography or customer scale—or of anything that requires a different set of activities to reach customers in the best way... . Rural versus urban-based customers are one example of access driving differences in activities. Serving small rather than large customers or densely rather than sparsely situated customers are other examples in which the best way to configure marketing, order processing, logistics, and after-sale service activities to meet the similar needs of distinct groups will often differ... . Having defined positioning, we can now begin to answer the question, “What is strategy?” Strategy is the creation of a unique and valuable position, involving a different set of activities. If there were only one ideal position, there would be no need for strategy. Companies would face a simple imperative—win the race to discover and preempt it. The essence of strategic positioning is to choose activities that are different from rivals’. If the same set of activities were best to produce all varieties, meet all needs, and access all customers, companies could easily shift among them and operational effectiveness would determine performance.

III. A SUSTAINABLE STRATEGIC POSITION REQUIRES TRADE-OFFS

Choosing a unique position, however, is not enough to guarantee a sustainable advantage. A valuable position will attract imitation by incumbents, who are likely to copy it in one of two ways. First, a competitor can reposition itself to match the superior performer.... A second and far more common type of imitation is straddling. The straddler seeks to match the benefits of a successful position while maintaining its existing position. It grafts new features, services, or technologies onto the activities it already performs. For those who argue that competitors can copy any market position, the airline industry is a perfect test case. It would seem that nearly any competitor could imitate any other airline’s activities. Any airline can buy the same planes, lease the gates, and match the menus and tick¬ eting and baggage handling services offered by other airlines. Continental Airlines saw how well Southwest was doing and decided to straddle. While maintaining its position as a full-service airline, Continental also set out to match Southwest on a number of point-to-point routes. The airline dubbed the new service Continental Lite. It eliminated meals and first-class service, increased departure frequency, lowered fares, and shortened turnaround time at the gate. Because Continental remained a full-service airline on other routes, it continued to use travel agents and its mixed fleet of planes and to provide bag¬ gage checking and seat assignments. But a strategic position is not sustainable unless there are trade-offs with other positions. Trade-offs occur when activities are incompatible. Simply put, a trade-off means that more of CHAPTER

1

STRATEGIES

19

one thing necessitates less of another. An airline can choose to serve meals—adding cost and slowing turnaround time at the gate—or it can choose not to, but it cannot do both without bearing major inefficiencies.. . . Trade-offs arise for three reasons. The first is inconsistencies in image or reputation. A company known for delivering one kind of value may lack credibility and confuse cus¬ tomers—or even undermine its reputation—if it delivers another kind of value or attempts to deliver two inconsistent things at the same time.. .. Second, and more important, trade-offs arise from activities themselves. Different posi¬ tions (with their tailored activities) require different product configurations, different equip¬ ment, different employee behavior, different skills, and different management systems. Many trade-offs reflect inflexibilities in machinery, people, or systems. The more IKEA has config¬ ured its activities to lower costs by having its customers do their own assembly and delivery, the less able it is to satisfy customers who require higher levels of service.. . . Finally, trade-offs arise from limits on internal coordination and control. By clearly choosing to compete in one way and not another, senior management makes organizational priorities clear. Companies that try to be all things to all customers, in contrast, risk confusion in the trenches as employees attempt to make day-to-day operating decisions without a clear framework. Positioning trade-offs are pervasive in competition and essential to strategy. They create the need for choice and purposefully limit what a company offers. They deter straddling or repositioning, because competitors that engage in those approaches undermine their strate¬ gies and degrade the value of their existing activities. Trade-offs ultimately grounded Continental Lite. The airline lost hundreds of millions of dollars, and the CEO lost his job. Its planes were delayed leaving congested hub cities or slowed at the gate by baggage transfers.. . . Continental tried to compete in two ways at once. In trying to be low cost on some routes and full service on others, Continental paid an enormous straddling penalty.. . . For the past decade, as managers have improved operational effectiveness greatly, they have internalized the idea that eliminating trade-offs is a good thing. But if there are not trade¬ offs companies will never achieve a sustainable advantage. They will have to run faster and faster just to stay in place. As we return to the question, What is strategy?, we see that trade-offs add a new dimen¬ sion to the answer. Strategy is making trade-offs in competing. The essence of strategy is choosing what not to do. Without trade-offs, there would be no need for choice and thus no need for strategy. Any good idea could and would be quickly imitated. Again, performance would once again depend wholly on operational effectiveness.

IV. FIT DRIVES BOTH COMPETITIVE ADVANTAGE AND SUSTAINABILITY

20

CHAPTER

1

Positioning choices determine not only which activities a company will perform and how it will configure individual activities but also how activities relate to one another. While opera¬ tional effectiveness is about achieving excellence in individual activities, or functions, strategy is about combining activities.. . . What is Southwest’s core competence? Its key success factors? The correct answer is that everything matters. Southwest’s strategy involves a whole system of activities, not a collection of parts. Its competitive advantage comes from the way its activities fit and reinforce one another. Fit locks out imitators by creating a chain that is as strong as its strongest link. As in most companies with good strategies, Southwest’s activities complement one another in ways that create real economic value. One activity’s cost, for example, is lowered because of the way other activities are performed. Similarly, one activity’s value to customers can be enhanced by

STRATEGIES

a company’s other activities. That is the way strategic fit creates competitive advantage and superior profitability. TYPES OF FIT The importance of fit among functional policies is one of the oldest ideas in strategy. Gradually, however, it has been supplanted on the management agenda. Rather than seeing the company as a whole, managers have turned to “core” competencies, “critical” resources, and “key” success factors. In fact, fit is a far more central component of competitive advantage than most realize... . There are three types of fit, although they are not mutually exclusive. First-order fit is simple consistency between each activity (function) and the overall strategy... . Consistency ensures that the competitive advantages of activities cumulate and do not erode or cancel themselves out. It makes the strategy easier to communicate to customers, employees, and shareholders, and improves implementation through single-mindedness in the corporation. Second-order fit occurs when activities are reinforcing. . .. Bic Corporation sells a narrow line of standard, low-priced pens to virtually all major customer markets (retail, commercial, promotional, and giveaway) through virtually all available channels. As with any variety-based positioning serving a broad group of customers, Bic emphasizes a common need (low price for an acceptable pen) and uses marketing approaches with a broad reach (a large sales force and heavy television advertising).. . . Third-order fit goes beyond activity reinforcement to what I call optimization of effort. The Gap, a retailer of casual clothes, considers product availability in its stores a critical ele¬ ment of its strategy. The Gap could keep products either by holding store inventory or by restocking from warehouses. The Gap has optimized its effort across these activities by restocking its selection of basic clothing almost daily out of three warehouses, thereby mini¬ mizing the need to carry large in-store inventories. The emphasis is on restocking because the Gap’s merchandising strategy sticks to basic items in relatively few colors.. . . In all three types of fit, the whole matters more than any individual part. Competitive advantage grows out of the entire system of activities. The fit among activities substantially reduces cost or increases differentiation. Beyond that, the competitive value of individual activities—or the associated skills, competencies, or resources—cannot be decoupled from the system or the strategy. Thus, in competitive companies it can be misleading to explain success by specifying individual strengths, core competencies, or critical resources. The list of strengths cuts across many functions, and one strength blends into others. It is more useful to think in terms of themes that pervade many activities, such as low cost, a particular notion of customer service, or a particular conception of the value delivered. These themes are embod¬ ied in nests of tightly linked activities. FIT AND SUSTAINABILITY Strategic fit among many activities is fundamental not only to competitive advantage but also to the sustainability of that advantage. It is harder for a rival to match an array of interlocked activities than it is merely to imitate a particular sales-force approach, match a process tech¬ nology, or replicate a set of product features. Positions built on systems of activities are far more sustainable than those built on individual activities.. . . The more a company’s positioning rests on activity systems with second- and third-order fit, the more sustainable its advantage will be. Such systems, by their very nature, are usually difficult to untangle from outside the company and therefore hard to imitate. And even if rivals can identify the relevant interconnections, they will have difficulty replicating them. Achieving fit is difficult because it requires the integration of decisions and actions across many independent subunits.. . .

CHAPTER

1

STRATEGIES

21

The most viable positions are those whose activity systems are incompatible because of trade-offs. Strategic positioning sets the trade-off rules that define how individual activities will be configured and integrated. Seeing strategy in terms of activity systems only makes it clearer why organizational structure, systems, and processes need to be strategy-specific. Tailoring organization to strategy, in turn, makes complementarities more achievable and contributes to sustainability. One implication is that strategic positions should have a horizon of a decade or more, not of a single planning cycle. Frequent shifts in positioning are costly. Not only must a company reconfigure individual activities, but it must also realign entire systems. Some activities may never catch up to the vacillating strategy. The inevitable result of frequent shifts in strategy, or of failure to choose a distinct position in the first place, is “me-too” or hedged activity config¬ urations, inconsistencies across functions, and organizational dissonance. What is strategy? We can now complete the answer to this question. Strategy is creating fit among a company’s activities. The success of a strategy depends on doing many things well— not just a few—and integrating among them. If there is no fit among activities, there is no dis¬ tinctive strategy and little sustainability. Management reverts to the simpler task of overseeing independent functions, and operational effectiveness determines an organization’s relative performance.

■ We are the blind people and strategy formation is our elephant. Each of us, in trying to cope with the mysteries of the beast, grabs hold of some part or other, and, in the words of John Godfrey Saxe’s poem of the last century:

BY HENRY MINTZBERG AND JOSEPH LAMPEL

Rail on in utter ignorance of what each other mean, And prate about an Elephant, Not one of [us] has seen!

Consultants have been like big game hunters embarking on their safaris for tusks and tro¬ phies, while academics have preferred photo safaris—keeping a safe distance from the animals they pretend to observe. Managers are encouraged to take one narrow perspective or another—the glories of plan¬ ning or the wonders of learning, the demands of external competitive analyses or the impera¬ tives of an internal “resource-based” view. Much of this writing and advising has been decid¬ edly dysfunctional, simply because managers have no choice but to cope with the entire beast. In the first part of this article, we review briefly the evolution of the field in terms of ten “schools” (based on Mintzberg, Ahlstrand, and Lampel, Strategy Safari, 1998). We ask whether these perspectives represent fundamentally different processes of strategy making or different parts of the same process. In both cases, our answer is yes. We seek to show how some recent work tends to cut across these historical perspectives—in a sense, how cross-fertilization has occurred. Our historical survey of strategy literature suggests that it had been characterized by ten major schools since its inception in the 1960s— three prescriptive (or “ought”) and seven descriptive (or “is”).

^Reprinted with deletions from “Reflecting on the Strategy Process,” Henry Mintzberg and Joseph Lampel, Sloan

Management Review, Vol. 40 (3), 1999,21-30.

22

CHAPTER

1

STRATEGIES

DESIGN SCHOOL: A PROCESS OF CONCEPTION The original perspective—dating back to Selznick (1957) followed by Chandler (1962) and given sharper definition by Andrews (in Learned et ah, 1965)—sees strategy formation as achieving the essential fit between internal strengths and weaknesses and external threats and opportunities. Senior management formulates clear, simple, and unique strategies in a delib¬ erate process of conscious thought—which is neither formally analytical nor informally intu¬ itive—so that everyone can implement the strategies. This was the dominant view of the strat¬ egy process, at least into the 1970s, and, some might argue, to the present day, given its implicit influence on most teaching and practice. The design school did not develop, however, in the sense of giving rise to variants within its own context. Rather, it combined with other views in rather different contexts. PLANNING SCHOOL: A FORMAL PROCESS The planning school grew in parallel with the design school—indeed H. Igor Ansoff’s book appeared in 1965, as did the initial Andrews text. But, in sheer volume of publication, the plan¬ ning school predominated by the mid-1970s, faltered in the 1980s, yet continues to be an important branch of the literature today. Ansoff’s book reflects most of the design school’s assumptions except a rather significant one: that the process is not just cerebral but formal, decomposable into distinct steps, delineated by checklists, and supported by techniques (espe¬ cially with regard to objectives, budgets, programs, and operating plans). This means that staff planners replaced senior managers, de facto, as the key players in the process. POSITIONING SCHOOL: AN ANALYTICAL PROCESS The third of the prescriptive schools, commonly labeled positioning, was the dominant view of strategy formation in the 1980s. It was given impetus especially by Michael Porter in 1980, following earlier work on strategic positioning in academe (notably by Hatten and Schendel) and in consulting by the Boston Consulting Group and the PIMS project—all preceded by a long literature on military strategy, dating back to Sun Tzu in 400 B.C. (See Sun Tzu, 1971.) In this view, strategy reduces to generic positions selected through formalized analyses of indus¬ try situations. Hence, the planners become analysts. This proved especially lucrative to consul¬ tants and academics alike, who could sink their teeth into hard data and promote their “scien¬ tific truths” to journals and companies. This literature grew in all directions to include strategic groups, value chains, game theories, and other ideas—but always with this analytical bent. ENTREPRENEURIAL SCHOOL: A VISIONARY PROCESS Meanwhile, on other fronts, mostly in trickles and streams rather than waves, wholly different approaches to strategy formation arose. Much like the design school, the entrepreneurial school centered the process on the chief executive; but unlike the design school and opposite from the planning school, it rooted that process in the mysteries of intuition. That shifted strategies from precise designs, plans, or positions to vague visions or broad perspectives, to be seen, in a sense, often through metaphor. This focused the process on particular contexts— start-up, niche, or private ownership, as well as “turnaround” by the forceful leader—although the case was certainly put forth that every organization needs the vision of a creative leader. In this view, however, the leader maintains such close control over implementing his or her formulated vision that the distinction central to the three prescriptive schools begins to break down. COGNITIVE SCHOOL: A MENTAL PROCESS On the academic front, the origin of strategies generated considerable interest. If strategies developed in people’s minds as frames, models, maps, concepts, or schemas, what could be CHAPTER

1

STRATEGIES

23

TABLE 1

DIMENSIONS OF THE TEN SCHOOLS, PART A

DESIGN

PLANNING

POSITIONING

ENTREPRENEURIAL

COGNITIVE

Sources

P. Selznick (and perhaps earlier work, for example, by W.H. Newman), then K.R. Andrews.3

H.l. Ansoft.b

Purdue University work (D.E. Schendel, K.J. Hatten), then notably M.E. Porter.3

J.A. Schumpeter, A.H. Cole, and others in economics.d

H.A. Simon and J.G. March®

Base Discipline

None (architecture as metaphor).

Some links to urban planning, systems theory, and cybernetics.

Economics (industrial organization) and military history.

None (although early writings come from economists).

Psychology (cognitive).

Champions

Case study teachers (especially at or from Harvard University), leadership aficionados— especially in the United States.

As in planning "Professional" school, particularly managers, MBAs, staff experts analytical staff types, consulting (especially in "boutiques," and finance), consultants, military writers— and government controllers— especially in the United States. especially in France and the United States.

Popular business press, individualists, small business people everywhere, but most decidedly in Latin America and among overseas Chinese.

Those with a psychological bent—pessimists in one wing, optimists in the other.

Intended Message

Fit.

Formalize.

Analyze.

Envision.

Cope or create.

Realized Message

Think (strategy making as case study).

Program (rather than formulate).

Calculate (rather than create or commit).

Centralize (then hope).

Worry (being unable to cope in either case).

School Category

Prescriptive.

Prescriptive.

Prescriptive.

Descriptive (some prescriptive).

Descriptive.

Associated Homily

"Look before you leap."

"A stitch in time saves nine."

"Nothin' but the facts, ma'am."

"Take us to your leader."

"I'll see it when I believe it."

understood about those mental processes? Particularly in the 1980s and continuing today, research has grown steadily on cognitive biases in strategy making and on cognition as infor¬ mation processing, knowledge structure mapping, and concept attainment—the latter impor¬ tant for strategy formation, yet on which progress has been minimal. Meanwhile, another, newer branch of this school adopted a more subjective interpretative or constructivist view of the strategy process: that cognition is used to construct strategies as creative interpretations, rather than simply to map reality in some more or less objective way, however distorted.

LEARNING SCHOOL: AN EMERGENT PROCESS Of all the descriptive schools, the learning school grew into a veritable wave and challenged the always dominant prescriptive schools. Dating back to Lindblom’s early work on disjointed incrementalism (Braybrooke and Lindblom, 1963) and running through Quinn’s (1980) logical incrementalism, Bower’s (1970) and Burgelman’s notions of venturing, Mintzberg et al.’s ideas about emergent strategy, and Weick’s (1979) notion of retrospective sense making, a model of strategy making as learning developed that differed from the earlier schools. In this view, strate¬ gies are emergent, strategists can be found throughout the organization, and so-called formula¬ tion and implementation intertwine. 24

C H A P T E R

1

STRATEGIES

TABLE 1

DIMENSIONS OF THE TEN SCHOOLS, PART B

LEARNING

POWER

CULTURAL

ENVIRONMENTAL

CONFIGURATION

Sources

C.E Lindblom, R.M. Cyert and J.G. March, K.E. Weick, J.B. Quinn, and C.K. Prahalad and G. Hamel.f

G.T. Allison (micro), J. Pfeffer and G.R. Salancik, and W.G. Astley (macro).9

E. Rhenman and R. Normann in Sweden. No obvious source elsewhere.11

M.T. Hannan and J. Freeman. Contingency theorists (e.g., D.S. Pugh et al.).1

A.D. Chandler, McGill University group (H. Mintzberg, D. Miller, and others), R.E. Miles and C.C. Snow. I

Base Discipline

None (perhaps some peripheral links to learning theory in psychology and education). Chaos theory in mathematics.

Political science.

Anthropology.

Biology.

History.

Champions

People inclined to experimentation, ambiguity, adaptability— especially in Japan and Scandinavia.

People who like power, politics, and conspiracy— especially in France.

People who like the social, the spiritual, the collective— especially in Scandinavia and Japan.

Population ecologists, some organization theorists, splitters, and positivists in general—especially in the Anglo-Saxon countries.

Lumpers and integrators in general, as well as change agents. Configuration perhaps most popular in the Netherlands. Transformation most popular in the United States.

Intended Message

Learn.

Promote.

Coalesce.

React.

Integrate, transform.

Realized Message

Play (rather than pursue).

Hoard (rather than share).

Perpetuate (rather than change).

Capitulate (rather than confront).

Lump (rather than split, adapt).

School Category

Descriptive.

Descriptive.

Descriptive.

Descriptive.

Descriptive and prescriptive.

Associated Homily

"If at first you don't succeed, try, try again."

"Look out for number one."

"An apple never falls far from the tree."

"It all depends."

"To everything there is a season...

POWER SCHOOL: A PROCESS OF NEGOTIATION A thin, but quite different stream in the literature has focused on strategy making rooted in power. Two separate orientations seem to exist. Micro power sees the development of strate¬ gies within the organization as essentially political—a process involving bargaining, persua¬ sion, and confrontation among actors who divide the power. Macro power views the organiza¬ tion as an entity that uses its power over others and among its partners in alliances, joint ventures, and other network relationships to negotiate “collective” strategies in its interest.

CULTURAL SCHOOL: A SOCIAL PROCESS Hold power up to a mirror and its reverse image is culture. Whereas the former focuses on self-interest and fragmentation, the latter focuses on common interest and intergration— strategy formation as a social process rooted in culture. Again, we find a thin stream of litera¬ ture, focused particularly on the influence of culture in discouraging significant strategic CHAPTER

1

STRATEGIES

25

change. Culture became a big issue in the U.S. literature after the impact of Japanese manage¬ ment was fully realized in the 1980s; later, some attention to the implications for strategy for¬ mation followed. However, interesting research developed in Sweden in the 1970s with culture as a central, although hardly exclusive, theme, stimulated by the early work of Rhenman and Normann, and carried out by people such as Hedberg and Jonsson, and others.

ENVIRONMENTAL SCHOOL: A REACTIVE PROCESS Perhaps not strictly strategic management, if one defines the term as being concerned with how organizations use degrees of freedom to maneuver through their environments, the envi¬ ronmental school nevertheless deserves some attention for illuminating the demands of envi¬ ronment. In this category, we include so-called “contingency theory” that considers which responses are expected of organizations facing particular environmental conditions and “pop¬ ulation ecology” writings that claim severe limits to strategic choice. “Institutional theory,” which is concerned with the institutional pressures faced by organizations, is perhaps a hybrid of the power and cognitive schools.

CONFIGURATION SCHOOL: A PROCESS OF TRANSFORMATION Finally, we come to a more extensive and integrative literature and practice. One side of this school, more academic and descriptive, sees organization as configuration—coherent clusters of characteristics and behaviors—and integrates the claims of the other schools—each configura¬ tion, in effect, in its own place. Planning, for example, prevails in machine-type organizations under conditions of relative stability, while entrepreneurship can be found under more dynamic configurations of start-up and turnaround. But if organizations can be described by such states, change must be described as rather dramatic transformation—the leap from one state to another. And so, a literature and practice of transformation—more prescriptive and practitioner oriented (and consultant promoted)—developed. These two different literatures and practices neverthe¬ less complement one another and so, in our opinion, belong to the same school.

PRATING ABOUT STRATEGIC MANAGEMENT

During the nineteenth century, numerous explorers went in search of the source of the Nile. In time, it became increasingly evident that the source was not definitive. This was not something the expedition backers or the public wanted to hear. After some debate, the explorers announced their discovery: the source of the Nile was Lake Victoria! This is a verdict generally rejected by contemporary geographers, who may come up with other answers in the future. The source of a river, after all, is a matter of interpretation, not a fact waiting to be discovered. Strategic management has suffered from the problem that bedeviled the Victorian explor¬ ers. We, too, are a community of explorers, competing for discoveries, with backers eager for results and a public that demands answers. Some explorers searching for the source of strategy have found “first principles” that explain the nature of the process. These have usually been rooted in basic disciplines, such as economics, sociology, or biology. Others have invoked a central concept, such as organization culture, to explain why some strategies succeed and others do not. The consequence has been to grasp one part of the strategic management elephant and prate about it as though none other exists. Of course, in the affairs of writing and consulting, to succeed and to sell, champi¬ ons must defend their positions, erecting borders around their views while dismissing or denying others. Or, to return to our metaphor, like butchers (we include ourselves in this group), they chop up reality for their own convenience, just as poachers grab the tusks of the elephant and leave the carcass to rot. To repeat a key issue, such behavior ultimately does not serve the practicing manager. These people, as noted, have to deal with the entire beast of strategy formation, not only to keep it alive but to help sustain some real life energy. True, they can use it in various ways—

26

CHAPTER

1

STRATEGIES

TABLE 2 BLENDING OF THE STRATEGY FORMATION SCHOOLS Dynamic capabilities Resource-based theory Soft techniques (e.g., scenario analysis and stakeholder analysis) Constructionism Chaos and evolutionary theory Institutional theory Intrapreneurship (venturing) Revolutionary change Negotiated strategy Strategic maneuvering

Design, Learning Cultural, Learning Planning, Learning or Power Cognitive, Cultural Learning, Environmental Environmental, Power or Cognitive Environmental, Entrepreneurial Configuration, Entrepreneurial Power, Positioning Positioning, Power

just as an elephant can be a beast of burden or a symbol of ceremony—but only if it remains intact as a living being. The greatest failings of strategic management have occurred when managers took one point of view too seriously. This field had its obsession with planning, then generic positions based on careful calculations, and now learning. Hence, we take pleasure in noting that some of the more recent approaches to strategy formation cut across these ten schools in eclectic and interesting ways. This suggests a broad¬ ening of the literature. (See Table 2 for a list of these across-school approaches.) For example, research on stakeholder analysis links the planning and positioning schools, whereas the work of Porter and others on what can be called strategic maneuvering (first-mover advantage, use of feints, etc.) connect the positioning to the power school. And chaos theory, as applied to strategic management, might be seen as a hybrid of the learning and environmental schools. Perhaps best known is the “dynamic capabilities” approach of Prahalad and Hamel. We see their notions of core competence, strategic intent, and stretch—reminiscent of Itami’s earlier work—as a hybrid of the learning and design schools: strong leadership to encourage contin¬ uous strategic learning.

ONE PROCESS OR DIFFERENT APPROACHES

Do these schools represent different processes of strategy formation, or different parts of the same process? We find either answer too constraining. Some of the schools clearly are stages or aspects of the strategy formation process (see Figure 1): ■ The cognitive school resides in the mind of the strategist located at the center. ■ The positioning school looks behind at established data that is analyzed and fed into the black box of strategy making. ■ The planning school looks slightly ahead, to program the strategies created in other ways. ■ The design school looks farther ahead to a strategic perspective. ■ The entrepreneurial school looks beyond to a unique vision of the future. ■ The learning and power schools look below, enmeshed in details. Learning looks into the grass roots, whereas power looks under the rocks—to places that organizations may not want to expose. ■ The cultural school looks down, enshrouded in clouds of beliefs. ■ Above the cultural school, the environmental school looks on, so to speak. ■ The configuration school looks at the process, or, we might say, all around it, in contrast to the cognitive school that tries to look inside the process.

CHAPTER

1

STRATEGIES

27

FIGURE 1

STRATEGY FORMATION AS A SINGLE PROCESS

Environmental School

Dealing with all this complexity in one process may seem overwhelming. But that is the nature of the beast. Strategy formation is judgmental designing, intuitive visioning, and emer¬ gent learning; it is about transformation as well as perpetuation; it must involve individual cognition and social interaction, cooperative as well as conflictive; it has to include analyzing before and programming after as well as negotiating during; and all this must be in response to what may be a demanding environment. Try to omit any of this, and watch what happens! Yet, just as clearly, the process can tilt toward the attributes of one school or another: toward the entrepreneurial school during start-up or when there is the need for a dramatic turnaround, toward the learning school under dynamic conditions when prediction is well nigh impossible, and so on. Sometimes the process has to be more individually cognitive than socially interactive (in small business, for example). Some strategies seem to be more ratio¬ nally deliberate (especially in mature mass-production industries and government), whereas others tend to be more adaptively emergent (as in dynamic, high-technology industries). The environment can sometimes be highly demanding (during social upheaval), yet at other times (or even at the same times) entrepreneurial leaders are able to maneuver through it with ease. There are, after all, identifiable stages and periods in strategy making, not in any absolute sense but as recognizable tendencies. Figure 2 plots the schools as different processes along two dimensions: states of the inter¬ nal process and states of the external world. In this view, practitioners can pick and choose

FIGURE 2 STRATEGY FORMATION AS MANY PROCESSES w



micro change

macro change

J®

Refraining (mind-set)

Q

(visioning, etc.) Revitalizing (culture) (cultural revolution, etc.)

Venturing (championing, NPD, etc.)

o a TS >

o f§

Strategic Learning

So ©

Political Challenge • . (skunkworks, enclaving, coup d'etat, etc.)

v

*Micro change tends to focus on the concrete level of the change cube, but it need not. One can change the vision of work design in a factory. Likewise macro change, while it often starts at the conceptual level, need not. The orga¬ nization can shift all its physical facilities without any overarching vision',' Jfflftough that would hardly seem to be logical (which does not mean it never happens!).

170

CHAPTER

6

STRATEGIC

CHANGE

and strategic planning (more macro). Consider, for example, this classic statement of organi¬ zation development: Organizational development is an effort (1) planned, (2) organization-wide, and (3) managed from the top, to (4) increase organization effectiveness and health through (5) planned interventions in the organization’s “processes” using behavioral science knowledge. (Beckhard, 1969: 9; italics in original)

Driven change is guided: a single individual or small group, usually in an influential posi¬ tion of authority, oversees the change and ensures that it happens. Here we find all the cur¬ rently popular (mostly) “re” words, ranging from rationalization through restructuring to revitalizing. Doz and Thanheiser (1996) have referred to various among these as changing the strategic context, the organizational context, and the emotional context (culture). The sequence of these driven changes shown in the diagram, reading diagonally from more micro and closer to planned to more macro and closer to evolved, include changing operating costs, organizational structure, strategic positions, managerial mindset, and overall culture.. . . Finally, evolved change is organic: it kind of happens, or at least is guided by people out¬ side positions of significant authority, often in obscure places in the organization. Unlike the first two approaches, which are driven, or “managed” in some sense, whether more formally by procedures or less formally by managers, this third approach to change is neither managed nor even under the firm control of managers. More to the micro side, we show political challenge (which can, of course, be rather macro too, as in the coup d’etat discussed in the power school), in the middle we see venturing, and on the more macro side, we find strategic learn¬ ing (the last two discussed in the learning school).. . .

PROGRAMS OF COMPREHENSIVE CHANGE

A manager can simply pick something and try to change it: enhance the training of the sales force, for example, or reorganize the research laboratory. Most change is of this piecemeal type; it goes on all the time, here and there. Indeed Tom Peters has long been a fan of such change, which he has called “chunking.” Don’t get bogged down, he suggests, just grab something and change it. The change cube suggests, however, that this probabtavwarks better at the more concrete (and micro) level than the conceptual (and macro) end. You can retrain a group of workers or reorganize one department, perhaps, but you cannot reposition strategy or change culture without making a lot of other-associated changes. Indeed, “changing culture” alone is just a lot of empty words: as noted earlier, culture is not changed at all when nothing else changes. So there has arisen a great deal of literature and consulting practice on massive programs of comprehensive change, rvsvcv^bfMunsfozmatiou- These propose how to combine the various methods of change into logical sequences to “turn around” or “renew” an organization. (Turnaround implies quick, dramatic revolution; renewal, a slower building up of compre¬ hensive change.) But this is a confusing body of work: just about every writer and consulting firm has his, her, or its own formula for success. There is no consensus at all as to what works best, although there are certainly periodic fads—galore. But all this seems to reveal mainly what doesn’t work—namely last year’s fad. Here, then, as everywhere else, there are no magic formulas. Just as chunking can be suboptimal, siiUtO’M.can renewing be excessive. Despite all the current hype about change, not all mga nizaiiaaMiS£^a