Role of Strategic Management in Planning

Role of Strategic Management in Planning INTRODUCTION While some firms adopt strategic opportunism as a strategic planning method used mainly by senior managers who use it to assess their firms capacity to recognize and respond to identified windows of opportunity (or threat) that may require strategic changes as it would be pointless identifying strategic opportunities that the firm lacks in the competencies and resources to take advantage of them, others firms use human judgment in making operational decision making, this could involve situation assessment, actions taken to gather additional information, generating plausible hypotheses and other alternatives which either depicts Strategy as science or art. This paper aims at analyzing certain terms and elements in strategic management that explain business strategy as an art or science, terms like design, rational, hypothesis, culture or creativity etc. It also explains situations where organisations are presented with either luck or opportunity and how to what extent judgment is exhibited in the strategic decision making. ANALYSIS Role of Strategic Management Elements in planning and decision making According to Constable (1980) Strategic Management addresses the management processes and decisions which determine the long-term structure and activities of the organisation. This further explains that strategy incorporates planning activities on Management Processes which encompasses both the formal structured process (prescriptive approach) and the informal structured processes (emergent strategy change). This provides the Managers the ability to spot opportunities for and threats to the organisation in its future plans and the changing environment in which it operates. As information is seen as input into an organisation process which produces decisions as the output, the strategy of an organisation e.g. avoiding a threat or exploiting an opportunity determines the Management Decisions that need to be taken that is expected to be a solution of apparent problems, the feasibility and the requisite resources for implementation. Beck (1987) argued that many British companies lack strategic clarity, this comprises of mainly three reasons: Thompson (1993) explains, The difficulties of forecasting in todays business environment; the lack of managerial competence in many companies; and above all, the frequent absence of strong leadership from the top. Other reason maybe the distinction between established views incompatible with the formal and elaborate strategic planning systems present in the 1960s and 1970s, however failed to work in most cases. Strategic Planning helps organizations answer series of questions about how well the company is doing and why, where it should seek to develop in the future. Thompson (1993) further argued that, Most successful companies strategically are likely to be those that are aware of where they are and of what lies ahead, those that understand their environment and those that seek to achieve and maintain competitive advantage. Also, Thompson (1993) asserted that whatever strategy exist in an organisation, organisations ace in strategic thinking are more distinguished from their less successful competitors by a common pattern of management which are highlighted below: Key success factors inherent in the economics of the business are effectively identified than their competitors. Markets are segmented to gain critical competitive advantage. The segmentation is based on competitive analysis conducted on the markets, thus, segments are separated according to its strengths and weaknesses of different competitors Successful companies base their strategies on the measurement and analysis of competitive advantage. Good strategic thinking implies an understanding of how situations will change over time, thus companies can anticipate their competitors responses. Companies are able to give investment priorities that promise competitive advantage While one may be agreeable that business strategy initiatives depend on a mixture of luck and judgment, opportunism and design to succeed, different views need to be analyzed as business strategy itself can be a combination of the aforementioned features. This is because a good business strategy will succeed irrespective of the factor of luck but a good business strategy has to be able to take advantage of opportunities, be planned with great insight and judgment without relying on the good wind of luck to see it through. Companies with superior business strategies who dominate their various industries are there because of their unique insights and capabilities in the formation and execution of their strategy. However luck seems to plays a role in performance of a companys strategy. Three broad scholastic perspectives exist for explaining the relationship between luck and business strategy; Kovenklioglu and Greenhaus, (1978) held the view that luck plays little or no role in the performance of a strategy, this is articulated by Day and Maltby, (2003) who held the view that a belief in luck is irrational. The last perspective believes that luck plays a substantial role in the long run by creating short-term success which then positively positions a company for superior performance in the long run or that luck may create a lasting success via a combination of lucky efforts. This is synonymous with Mintzbergs positioning school of thought which places a company within the context of its industry and tries to devise ways to improve its strategic position within that industry. A typical case study is the position of Microsoft in the software industry; which came about when by a stroke of luck, Paul Allen, saw a magazine in a grocery store with a picture of the new microcomputer , the Altair made by a company called MITS and decided to write a BASIC interpreter for it. This led to the formation of Microsoft which grew to become the biggest software company in the world. This position has enabled them to implement successfully their business strategy of copying the products of their competitors and making it better using the vast resources available to them, then bundling it with windows to force it down the throat of consumers in order to kill off the competition. Another illustration is the browser wars between Microsoft and Netscape in 1997, when incumbent king of browser, Netscape Navigator faced an unprecedented challenge from software king, Microsoft. Netscape navigator had the dominant market share (about 80%) which Microsoft wanted; it devised a business strategy which involved licensing Mosaic an existing browser as the platform for its internet explorer. Then it decided to give away internet explorer by bundling it with the Windows 95 plus. This was effective in stealing Netscapes market share because Netscape charged for its browser. It would have been impossible for Microsoft to keep its rigorous monopoly in the software industry if it werent for its strategic position which it had already attained through windows at a time when microcomputers was just been born. It has been said that the reason Microsoft became the biggest software company was bill gates being at the right place at the right time. Legend has it that it was Digital Researchs Gary kildall that was first contacted to supply the software for the new IBM PC but as matter of luck he turned it down preferring to fly in his airplane. This made IBM to contact bill gates who went on to supply PC DOS which was developed into windows. The table below represents the attributes of Strategy as design and Strategy Judgment, each of which exhibits the characteristics of Strategy as Science and Strategy as art respectively. STRATEGY AS ART OR SCIENCE..The concept of Strategic Thinking The term Problem Solving is most often scientific related which is an activity of finding the solution to a problem; this could also be defined with respect to strategic problems where the problem solving activity is finding a solution. Hitt explained, the concept of strategic thinking where Mintzberg also argued that Strategic Planning is an analytical process aimed at programming already identified strategies which exhibits strategy as a science, however, strategic thinking is believed to be a synthesizing process, utilizing intuition and creativity, whose outcome is an integrated perspective of the enterprise, this sees strategy as an art. Strategic Thinking denotes all thinking about strategy with specific characteristics. According to Nasi (1999) Strategic Thinking extends both to the formulation and execution of strategies by business leaders and to the strategic performance of the total enterprise and for Mintzberg (1994) who is one of the foremost advocates of strategic thinking, argued that, the term is not merely alternative nomenclature for everything falling under the umbrella of strategic management; rather it is a particular way of thinking with specific characteristics. On both two issues discussed on whether strategy is seen as a Science or an Art, a whole spectrum of views exists most of which are highlighted in the table below on the aforementioned two schools of thought on strategy. Business strategies are usually developed from a companys mission statement which is basically a statement of a companys dream and aspiration for its future based on its plans. The success of any strategy however depends on its implementation this is because strategy is more an art than a science. Science test for facts using established laws of physics whereas art deals with expressions of concepts, thoughts and ideas. In this way it mostly mimics the use of business strategies not as a way to test for the success or failure of a companys goals but rather a way to express the desire of its management for the future of the company. However, there are aspects of science in the way strategies are formed, planned and executed. The entrepreneurial school of thought sees strategy as a visionary process, it stresses the use of a cocktail of insight, judgment and intuition in the formation of strategies and this articulates the importance of judgment in business strategy For example in the decisive battle of the ball-point pen between Bic, Parker, Sheaffer and Waterman, Bics strategy that eventually won the battle was based on a very important judgment of the market need in devising a cheaper and better version of the biro pen. Bic realized that the cost of a Parker Pen which dominated the market at the time was exorbitant and it devised a strategy to reengineer its design to produce cheaper pens which could be sold for a few cents and this meant they were disposable and as such were widely adopted. Burnes (2004) wrote, Mintzberg views approach to strategy as a virtue, he compared art of strategic making to pottery and managers to potters who mould the clay with the shape of the object evolving in the hands, this can be reflected in Emergent Strategy, strategy that evolves according to need which is constantly adjusted and adapted and Crafting Strategy, developing strategy according to the needs of the organisation and environment, thus seeing strategy as an art. 205. Contrarily, Burnes further argued through the works of Hoskin (1990) who claimed Pennsylvannia Railwayss executives, Herman Haupt should be given credit for initiating a business strategy which made use of full interactive play of grammatocentrism and calculability, thus implying strategy to be a quantitatively-oriented discipline which focuses on numerical analysis for market forecast , thus portraying strategy as a science Mintzberg et al, (1998) developed in the early 1960s two schools of thought for strategy; Planning school and Design school. The Planning school was pioneered by Igor Ansoff (1965) which was based on formal procedures, formal training, formal analysis and quantification this was based more on abstract thinking. The Design school, pioneered by Chandler (1962) placed more emphasis on appraisal of organisations opportunities and threat. Mintzberg also laid out the five main interrelated definitions of strategy The Strategy as a perspective mentioned above sees strategy as an abstract concept, mainly existing in peoples mind, which characterizes strategy as an art. In addition, Mintzberg et al, Johnson (1987) further argued strategy as a social science through three views of business strategy JOHNSONS VIEWS OF STRATEGY Rationalistic view: sees strategy as an outcome of series of preplanned actions designed to achieve goals. Emphasizes strategy as a science i.e. systematic and rational attributes Adaptive or incremental view: sees strategy evolving through an accumulation of relatively small changes over time. Emphasizes strategy as art i.e. dynamic and creativity Interpretive view: sees strategy as product of individual and collective attempts to make sense of. Emphasizes strategy as a science i.e. interpreting, evidence, past events etc. Burnes (2004) continued the argument between strategy being an analytical stream (formulating strategy rather than prescribing) or prescriptive (controlled, prescriptive process on strategy based on rational model of decision making) through Mintzberg et al, Johnson work on whether strategy is a process or an a rational phenomenon but the classifications of various approach to strategy was absent which Whittongton emphasized in his four generic approaches to strategy. WHITTINGTONS GENERIC APPROACH TO LONDON Classical Approach: portrays strategy as a rational process based on analysis and quantification (strategy as science) Evolutionary approaches: uses analogy of biological evolution to describe strategy development through prediction. (Strategy as a science) Processual Approach: concentrates on nature of organisational and market processes (Strategy as art) Systemic Approach: sees strategy as a link to dominant features of the local systems, involving deliberate process, planning and predictability. (Strategy as science) An effective business strategy may include both strategic thinking and the essential elements of a strategic planning process, thus, strategic planning can drive out strategic thinking. Harrison (2003) mentioned that, Henry Mintzberg, a famous strategist defined strategic planning as an analytical process aimed at carrying out strategies that have already been identified and strategic thinking involves intuition and creativity, i.e. it is so rigid that it tend to drive-out the creative-thinking processes which accentuates strategy as an art, its way of synthesizing stimuli from the internal and external environments in creating and integrated perspective of an organisation, this displays the scientific base of strategy. Strategic thinking is seen as crafting strategic architecture thus characterized by essential elements highlighted in the below by Harrison (2003), Intent Focused: Built on managerial vision of where the firm is going and what it is trying to become. This is called strategic intent Comprehensive: A system perspective which envisions the firm as a part of a larger system of value creation. It, understands the linkages between the firm and the other parts of the system. Opportunistic: Seizes unanticipated opportunities presented to the firm Long-Term Oriented: Goes beyond the here and now. Looks several years into the future at what the firm will become, based on its strategic intent. Built on Past and Present: It doesnt ignore the past or present but instead, learns from the past and further builds on a foundation of realities of the present. Hypothesis Driven: A sequential process in which creative ideas are then critically evaluated. Is willing to take a risk STRATEGIC LUCK While some firms hope to yield above expected normal returns from implementing business strategies, they must however be consistently conversant with the future value of those strategies than other firms playing in the same market. Other firms gain advantage in strategy implementation which is either a manifestation of these special insights into the future value of strategies, or a manifestation of a firms good fortune and luck, as sometimes, the price of the strategic resource acquired may be based on expectations on the return potential of that strategy However, unexpected greater organisational profits can simply be unexpected, a surprise, and a manifestation of a firms good luck and possibly not its ability to accurately anticipate the future value of a strategy. Even well-informed firms can be lucky in this manner. Some organizations actual returns on strategies could be greater than the expected returns; this resulting difference is often regarded to be manifestation of a firms unexpected good fortune. Although most of the success of the company has been deliberate and designed, luck has also been part of it. Luck can also play a role in the formation of business strategy as was the case of the battle of the ball-point pen, when Chicago businessman Milton Reynolds, stumbled upon a new product on a business trip to Argentina, he then bought a few samples knowing that another company Eversharp had bought the patents for a million dollars and widely publicised it, devised a strategy to be first to market in order to take opportunity of the publicity already gained in the US. Reynolds then sold the Pens for hefty prices to anxiously waiting customers thereby making millions of profit. Strategic luck can be demonstrated in the success of the POST-IT Notes originally developed the firm 3M. The idea of Post -it notes came from Dr Spencer in 1968 but didnt emerge until 6 years later when it appears to be a solution for a problem of Art Fry (a colleague of Dr Spencer at 3M) in finding songs quickly in his Hymnal book. Even though Dr Spencer was talking to colleagues and anyone ready to listen about his discovery, no one really knew how to use it until Art Fry came up with the idea of using the post it note to retrieve quickly what he needed from his hymnal book. As a result post it notes became really popular and was used in almost every office. Had it not been the problem Art Fry that require a solution post it notes may not have known the success they had and still have. (Big success) The more accurate an organisations expectations about a potential strategys return are, the less luck plays in generating above normal returns but when the organisation has less than perfect expectations, luck can play a role in determining an organisations returns to implementing its strategies. Consequently, strategies yielding above normal returns may be as a result of a firms ability to uniquely implement a strategy which either reflects the competence of the firm to make accurate expectations, underestimating the true value of the strategy or it had no special expectations but the strategy still yielded above normal returns, these are real reflections of a firms good fortune and luck. Exxon recorded its fourth-straight year profits, enduring wild swings in oil prices and a worldwide drop in demand in 2008. Falling oil prices in the latter half of 2008 hurt its oil production arm (CNN Money.com, 2009). Thus, Barney (1985) explained, because luck is, by definition, out of a firms control, an important question for managers becomes, How can firms become consistently better informed about the value of strategies they are implementing than any other firms? Firms that are successful at doing this can, over time, expect to obtain higher returns from implementing strategies than less well-informed firms, although, as always, firms can be lucky. Another perspective of luck is that it only affects performance of strategy in a few instances but which when averaged out over a lengthy period of time appears to be insignificant. These two views are consistent with scientific inquirys assumption of causality. This perspective is most evident in sports, whereby a team like Manchester united may perform poorly in a few games due to some bad luck but will generally do better than the other teams over the course of the season due to their superior football strategy. STRATEGY AS DESIGN Johnson, Scholes, Whittington (2005) introduced the idea of strategic lenses[1] which design lens is part of, they explained the design lens as a strategy idea formulated through objective and careful analysis and planning which is implemented down throughout the organisation by the top management. Johnson et al stated, Strategy as design views strategy development as the deliberate positioning of the organisation through a rational, analytic, structured and direct process. Johnson et al (2008), argues that strategic design basically builds on two main principles; Managers are, or should be, rational decision makers. Managers should be taking decisions about how to optimise economic performance of their organisations. Although most strategies are by design or deliberate, some of them are however emergent. Porter (1990) was one of the proponents of deliberate strategy which argue for the creation of detailed plans on which a business can exert its full influence because market conditions will be relatively stable for the strategic planning period. Mintzberg, a Proponent of the emergent school of thought argued for the creation of objectives or goals for the future of the company but leaving the implementation to the flexibility of market forces. In order words Mintzberg advocates leaving the strategy open to changes in market conditions. These schools of thought make it inappropriate for me to agree with the statement that strategy is a mixture of design as this is not always the case. The success of Amazon can be attributed to the design of its strategy. Following the effervescence of online shopping, Amazon has successfully designed its strategy to meet customers requirements and needs in a way. It has allowed customers to shop from their homes, offices or any other locations without having to physically go in the shop. Amazon also appears to offer a wide range of products and services, and gives the chance to post any comments, rate the products their bought and offer review for products as well which helps buyers in their choice. Amazon has grown from strength to strength over the years as a result of this well design strategy. (Bokardo) Rational choice is being based on the consideration of the decision making consequences and thus be the anticipations of the future effects of possible actions. Invariably by implication, considerations would be given to the diverse benefits and limitations of different strategic options on the basis of evidence that informs on the likely outcomes of decisions made. As Johnson et al (2008) stated, the assumptions typically underpinning a design view of strategy are in two forms which are as follows: In terms of how strategic decisions are made: Systematic Analysis Strategic positioning, an analysis that provides basis for the comparing organisational strengths and resources with changes in its environment in order to be able to take full advantage of opportunities and circumvent threats. Analytic thinking precedes and governs action Objectives are clear and explicit and basis upon which options are evaluated. Making assumptions about the form and nature of organisations Organizations are hierarchies. Organisations are rational systems Organizations are mechanisms by which strategy can be put into effect. STRATEGIC OPPORTUNISM Just as in science field, strategic planning demonstrates the importance of the use of rigorous flexible methods, results and theories in order to take advantage of strategic opportunities with an impact by improving the direction of the knowledge thats been produced. The above expresses the term strategic opportunism an ability to remain focused on long-term objectives while staying flexible enough to solve day-to-day problems and recognize new opportunities. A managers most important role is to plan a long-term, strategic course for the company, keeping the company geared towards that direction. Given that goals are often static contrary to the business environment, success in this role could however elude managers as each day brings an incessant stream of surprises, new information and opportunities. It can be said that the difference between successful and failing companies is in their ability to sense and respond to opportunism in their business environments. Mintzberg Environmental school of thought sees strategy formation as a reactive process, in effect a response to the external environment. The importance of opportunism to the overall strategy of a company cannot be over emphasized be it technological or financial opportunism. Bernand stated, the challenge for managers, then, is to maintain both flexibility and direction. While no magic formula exists for balancing todays plan against a five-year plan, strategic opportunism can be an effective way to respond to immediate concerns while setting and pursuing long-term goals. This can be illustrated in the case of the Snapple Beverage Corporation, a drink company that was founded in 1972. Having known a good success in the 1990s in the cold channel dominated by small independent drinks distributors, Snapple was bought in 1992 for $143 million by a private firm (Thomas H. Lee) that sold it a year a later after taking in public for the $1.7 billion to a successful firm, Quaker Oats. However under the ownership of Quaker, Snapple was deficient, thus it was later sold in 1997 for the modest sum of $300 million to the Triarc Company. Triarc took this opportunity (of getting a company for a small price) and put back Snapple on track, using the niche market they were previously in, instead of following the mistakes of other firms that wanted Snapple to compete with big brand names. Triarc used the failure Quaker oats as an opportunity and made it as they sold Snapple in 2000 for the staggering sum of $1.4 billion to Cadbury Schweppes. Strategic opportunism focuses mainly on identifying and exploiting the immediate market opportunities at hand with a view to leverage the companys existing strategic assets and competencies and avoids commitment.Harrison (2003) argued that, although strategic thinking is based on strategic intent, it does exhibit a certain level of intelligent opportunism, which he defined as the ability of managers to take advantage of unanticipated opportunities to further intended strategy or redirect a strategy. Therefore, it can be concluded that Strategic Opportunism is characterized by the following according to Aaker (2004): Driven by a focus on the present. Premise that environment is so dynamic and uncertain that it is not feasible to aim at a future target. Strategic flexibility and willingness to respond to opportunities is necessary. Change is the norm. Minimizes risk of missing emerging opportunities. Reduces risk of strategic stubbornness. Requires decentralized structure. Needs entrepreneurial personnel. STRATEGIC JUDGMENT Judgement is usually what the decision makers add to uncertainties or ambiguities in any business strategy. Arguably, its believed that managers gain judgment through past experience and its the experience of specific situations and activities that gives specific types of judgment. Pettigrew (1973) argue that experience is the most important source of what managers call their personal development. Mumford (1980) and Stuart (1986) stated that, the process of acquiring the experience which shapes managerial judgment can also be facilitated by working with those who have already demonstrated ownership of the desired qualities of judgment. Conclusively, since strategic judgment has been attributed to experience acquired, thus, can be related to Strategy as experience which is one of the strategy lenses. According Johnson et al (2005), The Strategy experience lens views strategy development as the outcome of individual and collective experience of individuals and their taken-for-granted assumptions most often represented by cultural influences. Thus, an apparently coherent strategy of an organisation may develop on the basis of a series of strategic moves of which make sense in terms of previous moves. Its being discussed that strategic judgment most often influenced by experience, which can be further broken down into various forms. Managerial judgment in strategy planning or formulation could be as a result of certain circumstances, development and experience. Furthermore, Johnson et al (2005) discussed the elements that act as influence on judgment: Individual Experience and Bias Individual experience could be in terms of the mental (cognitive) models people build over time to help make sense of their situation. It exhibits certain characteristics; Cognitive bias is inevitable The future is dependent and related to in terms of the past experience Bargaining and negotiation between high-ranking individuals in terms of how issues are being understood Collective experience and organisational culture Johnson et al (2005) defined Organisational culture as, the basic assumptions and beliefs that are shared by members of an organisation, that operate unconsciously and define in a basic taken-for-granted fashion an organisations view of itself and its environment. Its also depicted in these characteristics; Managers understanding of the strategic position of their organisation Likelihood of strategic drift[2] Innovation requiring the questioning and challenge of basic assumptions The taken-for-grantedness of a firm may include its strengths which may provide bases for competitive advantage. CONCLUSION In summary, Strategy as design describes the strategic management process which is really the steps and sub-processes of an organisations strategy needed to maintain or improve the organisations performance. Its also been argued that business strategy requires judgment. Though, judgment is most often a personal evaluation and analysis which each individual is committed to, firms and managers captured by their past have higher resistance to change and low in innovation. Conclusively, some innovative business strategies are determined by culture of managers and organisations with their personal judgment, expectations and adequate design methodologies planning, others are simply a variation of luck owning to the fact that some firms just happened to be in the right place at the right time, by taking full advantage of some opportunities that may arise in the global market place, thus, realising it and then developing it into a successful strategy. REFERENCES Aaker, D (2004) Strategic Market Management (7th Edition) England: John Wiley Sons, Inc Burnes, B (2004), Managing Change (4th Edition) England: Pearson Education De Wit, B Meyer, R (1998) STRATEGY: Process, Content, Context (2nd Edition) London: Thompson Learning Fifield P. (1998), Marketing Strategy, 2nd Edition Butterworth: Heinemann. Harrison, J (2003), Strategic Management of Resources and Relationships: Concepts and Cases USA: John Wiley Sons Hitt, M.A; Freeman, R.E and Harrison, J.S (2001), The Blackwell Handbook of Strategic Management, Oxford: Blackwell Publishers