Accounting, Business, Finance, I.T., Management, Marketing, Operations Management, Project Management, Risk Management, Strategic Management
I am an experienced management accountant and researcher specialising in business, strategy and the accounting arena. I graduated with an Honours degree in Accounting and Business Information Technology at a high-profile university in London. Currently, I am working towards completing the CIMA professional qualification also known as CGMA (Chartered Global Management Accountants). I have been involved in management and technology consultancy for our SME clients to enable them to compete effectively in the marketplace. With a good foundation in management, business and strategy formulation, I intend to concentrate on developing a career in management and strategy consulting preferably working with some of the big names in the industry.
My subjects of specialisation are Financial Accounting, Management Accounting, Business Strategy Evaluation and Formulation, Finance, Project Management, Change Management, Management Control Systems, Risk and Internal Controls, Performance Evaluation, HRM, and Operations Management
The need of emergent Strategy in a Changing Environment
Change, by all means, simultaneously brings about both challenges and opportunities. The business environment has over the past years faced tremendous changes most of which are driven by rapid technological advances, globalisation, e-business and most recently the impact of emerging economies such as China which have led to a shift in the global ‘economic tectonic plates’. Due to these pressures, businesses today face a number of challenges ranging from keeping pace with the ever-advancing technology to dealing with the massive worldwide economic, political, and social shifts. In the past few decades, business leaders relied on creating and committing to a clear strategy for a given period of time i.e. 5 – 20 years. Managers placed more emphasis on following a clear strategic plan, they focused more on a formal structural design and they were more concerned about employee behaviour rather than with developing capabilities and broadening their perspectives. This approach has proved to work in the past however; it has ceased to be sustainable in the face of a changing environment. In this paper we discuss how strategic formulation and management has been affected by the rapid changes, how organisations ought to strategically think in the face of the shifting environment and an introduction to beyond strategy.
Planned (Deliberate) strategies
Strategy is generally about the higher direction of an enterprise and it is normally the concern of top management. The structure of the organisation follows its strategy and systems support the organisational structure (Kay, 2000). This makes strategic formulation and management a very crucial stage in creating and sustaining competitive advantage.
Planned strategies (the theoretical rational model), have in past few decades and, are still widely used by business leaders today. In the context of management, ‘rational model’ usually means a comprehensive and systematic system of strategic planning (Habergberg and Rieple, 2008). Through a sequence of logical steps, the model will allow the development, appraisal, choice, implementation and control of strategies that allow for both internal and external factors. It begins with strategic analysis which is concerned with understanding the strategic position of the organisation in the widest terms. This involves analysing the company’s Strengths, Weaknesses, Threats and opportunities also known as SWOT analysis. It also involves an external environment analysis of the organisation (i.e. PEST analysis), the use of other models such as Porter’s five forces and an analysis of the company’s mission and objectives (Porter, 2004 and Grant 2002).
After the analysis, a carefully evaluated and feasible strategy is selected from possible alternatives and then implemented.
However, although this approach has proved to be successful for some companies in the past, business leaders and managers deploying it today face a number of difficulties and their companies may cease to have sustainable competitive advantage over competitors.
First, the formal approach encourages a sense of omniscience and control among planners (Lynch, 2009). This is dangerous because of the inherent unpredictability of the business environment today. In practice, strategic thinking tends to be iterative and even muddled, with the various processes and stages being undertaken on an ad hoc basis.
Second, there is an associated problem of detachment (Coff, 1999). Planners tend to assume that strategy can be divorced from operations and this is inappropriate. Planners rarely have to implement the strategies they devise and feedback occurs too late or is badly filtered. Similarly, more junior managers, not directly involved in the planning process may misunderstand or resist the plans they are required to implement. This can prove to be a major obstacle to agility and adaptability towards change.
Third, the formal approach is usually couched in terms of a planning cycle (Warren, 2008). This may extend for up to five years; even a one year cycle is not responsive enough to changing circumstances such as those experienced today.
There has been much comment on the place of strategic objectives. A sociological perspective, such as that of Cyert and March (2002), view the emergence of strategic objectives as the result of a political or bargaining process involving a variety of priorities and interest groups. Today the capitalist, free market philosophy seems more strongly established than ever and most Western business organisations acknowledge the creation of shareholder value as their primary objective.
In fact, there is a view that great strategies should not really be rational at all, but should emerge from inspiration and entrepreneurial talent. Brunsson (2009), argues for the selection of reasonable course of action from among a small number of choices, while Ohmae (2009), finds that good strategy is made by practical people who ‘have an intuitive grasp of the basic elements of strategy’.
The criticisms are directed less at planning in principle, than at the assumption that planning can create strategies as opposed to supporting strategic decisions, co-ordinating them and mobilising resources.
Emergent strategic thinking
In the face of a rapidly change environment, managers and business leaders need to craft emergent strategies rather than rely on planned strategies (the rational model). According to Johnson, Scholes and Whittington (2010), emergent strategies are those that develop out of the day to day and routine activities of the organisation. Unlike the rational model, these strategies are not drawn up as a separate activity (Barney, 2001 and 1991).
Honda provides a case in point: The Company is highly credited with identifying and targeting an untapped market for small bikes (mainly 50cc) in America, which enabled it to grow. By 1965 Honda had 63% of the American market.
In practise, there was no clearly thought-out strategy at all. Honda had wanted to compete with the larger European and US bikes of 250cc and over. These big bikes had a more defined market, and were sold through consecrated motor bike dealerships. Disaster struck when the company’s larger machines developed faults – they had not been designed for the hard wear and tear imposed by American motorcyclists. Honda was unable to sell the larger machines.
Honda had made little effort to sell the small 50cc motorbikes – its staff rode them on errands around Los Angeles. Sports goods shops, ordinary bicycle and department stores had expressed an interest, but the company did not want to confuse its image and reputation in the target market of men who bought the bigger bike.
The faults in Honda’s larger machines meant that reluctantly Honda had to sell the small 50cc bike. In fact, it proved very popular with people who would never have bought motor-bikes before. Eventually, the company captured the new market with enthusiasm with the catchphrase: ‘You meet the nicest people on a Honda’. Effectively, the strategy had emerged, against the conscious ‘planned’ intentions of management. However, Honda exploited the new market and crafted a strategy to deal with it.
Emergent strategies arise from ad hoc or even uncontrolled responses to circumstances (Amit and Schoemaker, 1993). If they work and have potential, the quick solutions may be developed into strategies. The task of strategic management is to control these emergent strategies in the light of a broader insight into the business’s capabilities. When Steve Jobs and Steve Wozniak formed Apple Computers in 1976, the company was strategically focussed on designing and manufacturing personal computers. This was a market that was booming during the 80s however, things were about to change. In the 1990s, due to the increasingly intense competition and falling demand, the company’s performance declined tremendously. In response, management changed the company’s strategy and corporate philosophy and in 2000, it entered into the music hardware business with the launch of the iPod. The company name was changed from Apple computers to Apple Inc to signify the company’s broadness of purpose. Years on, the company has continued to surprise its customers and competitors with the launch of market leading products such as iTunes, iPad, iPhone and most recently the iCloud. It is no wonder that Apple now tops the list of the world’s 50 most innovative companies, a position it has held for five years in a row (Businessweek, 2010).
Emergent strategies can also be created by new business. BPP began life as a training company. Lecturers had to prepare course material. This was offered for sale in a bookshop in the BPP building. Owing to the demand, BPP began offering its material to the colleges, in the UK and world-wide. BPP’s publishing and e-learning activities, which began as a small offshoot of BPP’s training activities, now lead the market for targeted study material for the examinations of several professional bodies. It is unlikely that this development was anticipated when the course material was first prepared.
Crafting the Strategy
There will come a point when even an emergent strategy will need some conscious direction, perhaps to change its course. Alternatively, senior managers, when faced with an emergent strategy, might favour some aspects of it over others. For example a company might pride itself on the high quality of its products, even though this involves expensive labour costs. If the quality strategy is favoured, management might try to develop practices which reduce the cost of this given quality.
Mintzberg, (2008), uses the phrase crafting strategy to help understand this idea. The planning approach encountered already implies rational control and systematic analysis of competitors and markets, and of company strengths and weaknesses. However, the idea of strategy as a craft evokes an idea of skill, dedication, perfection, through mastery of detail. ‘More importantly, forming a strategy and implementing it are ‘fluid processes of learning through which creative strategies evolve’ (Hamel and Prahalad, 1993).
Mintzberg uses images of a potter’s wheel. The clay is thrown, and through shaping the clay on the wheel, the potter gives shape to the clay lump through a gradual process. Mintzberg believes that this is a good analogy of how strategies are actually developed and managed.
The potter can introduce innovations through the process of shaping. The potter is both the consumer and the producer of the vase. The gap between thinking and doing is short.
A sales representative who discovers a new way of providing customer satisfactions may have to convince large numbers of people within the organisation of the idea’s merits. The gap between the insight and execution is a long one.
The trouble with the long feedback loop is that there is a separation between ‘thinking’ and ‘doing’ when it comes to strategy. This has the following results;
A purely deliberate strategy prevents learning (once the formulators have stopped formulating). For example, it is hard for deliberate strategies to learn from mistakes, or stumble by accident into strategic growth.
A purely emergent strategy on the other hand defies control. It may in fact be a bad strategy, dysfunctional for the organisation’s future health.
Deliberate strategies can introduce strategic change as a sort of quantum leap in some organisations. In this case, a firm has only a few strategic changes in a short period but these are very dramatic.
Mercedes-Benz is a case in point here: Having concentrated on large expensive cars, the company has recently changed its strategy. Its head recently stated that the company’s strategy of expecting customers to pay premium prices for ‘over engineered’ cars is no longer tenable. The company tends to produce a much wider range of cars, including small cars, than hitherto. This is a major planned, change of direction.
Komatsu’s strategic intent in the 1960s-80s provides a further great example of a change in direction. In 1964, the company’s president formed an objective that it would pursue for the next 20 years. The president announced that Komatsu’s strategic intent was to “catch up with and outperform Caterpilar”. Caterpilar became Komatsu’s competitive target and provided a performance benchmark for the company year on year. The strategy worked well, and by 1982 the company had grown into Caterpilla’s most serious global challenger in the construction equipment market. However, the market was about change. By 1989, the competition in the industry was up, worldwide demand for construction equipment was down and the company’s profits were in a steady decline.
When a new president joined, he committed to changing the company’s focus from concentrating on ‘catching up with Caterpillar’ to leveraging the firm’s resources and expertise in plastics, electronics and robotics. The president adopted the three G’s catchphrase i.e. “Groupwide, Growth and Global”, which encouraged innovation, attracted talent and helped model the company’s culture and structure to success again.
Moving beyond Strategy
As companies grow larger and more complex, strategy formulation and organisation structure becomes more complex. The rational model of strategy formulation becomes less effective in sustaining competitive advantage and emergent strategic thinking becomes the most favourable option. However, although emergent strategy plays a great role as seen in the case of Apple, Honda and Komatsu, it is paramount that managers today recognise the importance of corporate purpose too. This involves a vital mix of three major aspects of an organisation; embedding the corporate ambition within the organisation, instilling corporate values and giving meaning to employees’ work.
Companies need employees that believe in their objectives, employees that care and have a strong emotional link with the organisation (Boxhall and Purcell, 2011). Managers now have a challenge of defining clearly the company’s objectives to capture the employee’s attention and interest, build and sustain commitment to corporate objectives and getting the organisation involved in refining, interpreting and making the corporate ambition operational.
In Komatsu for example, the company’s corporate ambition was made clear under a new banner of the “Three G’s” (i.e. “Groupwide, Growth and Global”). The president also encouraged managers at all levels to find growth opportunities through leveraging the company’s core competencies and exploiting new geographical territories. This captured the attention and interest of employees through arousing creativity and personal fulfilment.
In addition to corporate ambition, managers need to emphasise and instil organisational values within the organisation (Ellis, 2003). Most organisations tend to focus entirely on financial results alone, for instance a strategic objective to become best company justified through a 16% increase in sales year on year or a return on investment of 25%. Although these financial objectives and targets are important for the survival of the company, they will rarely startle the organisation into action especially in times when the company needs a change in direction. In today’s environment, it is true that that an organisation’s culture and values influence the decisions and choices that its managers make. It is what makes organisations flexible and adaptable to the changing and challenging environment. It is therefore important for organisations to emphasise and build on their core values. Companies that embrace and boldly affirm what they stand for tend to attract and retain employees that share the same values and become committed to the organisation and its strategic objectives. Body Shop is a great example. The UK-based beauty products retailer is widely known for its social and environmental values which employees and customers identify with.
Google has, over the years, built a culture that encourages innovation and creativity. One of its priorities is to attract the best new recruits and it does this by partly selling its culture and ethos as a fun place to work. It also promotes a meritocratic culture and values. To attract the most innovative and motivated staff it encourages every Google employee to spend 20% of their time developing a new project. This, in the past, has contributed to new products like Froogle and Google News at a time when the company needed such services to expand its presence in such markets.
It is said that the best results are derived from those employees that identify with the company’s purpose and objectives. Employees seek personal fulfilment and a sense of belonging to an organisation rather than just work for a company (Boxall and Purcell, 2011). It is this sense of belonging and fulfilment that can elicit the best performance from an individual both in turbulent times and during an economic boom. Managers need to create this sense of fulfilment as they strengthen the company’s corporate purpose. They can do this by fostering individual initiative, recognising individual accomplishments and by committing to employee development. The later goes beyond employee training for job skills; it involves developing an individual’s capacity for personal growth. Body Shop, for example, established an education centre offering courses not only on skin care, customer services and company products but sessions on topics like urban survival, aging and sociology.
The above mentioned aspects are inter-dependant and all work to support the organisation’s mission especially in times of rapid economic change. For companies to make the best use of their most valuable resources and knowledge, it is important for managers to link strategic objectives to broader human aspirations.
The rapid changes in the business environment have increased unpredictability in the markets and complexity. Managers need to recognise and assess the speed of the change and adopt more flexible approaches to strategic development and management. A move from pure deliberate strategies to emergent strategic thinking is encouraged in order to increase flexibility, adaptability and agility of organisations. Emergent strategies are those which develop out of patterns of behaviour, which is not thought out consciously, but which eventually has a long-term and profound, ‘strategic’ effect. To craft these, strategists need to know when to change, be able to reconcile change and continuity, be in the position to manage patterns and they must have a clear understanding of the business’ operations. However, changing the strategic development approach in isolation will not guarantee sustainable competitive advantage. Business leaders today need to place more emphasis on building an engaging corporate purpose, focus more on effective management processes, and develop employee capabilities while broadening their perspectives. By doing so, they will have moved beyond the doctrines of strategy and structure to a framework built on people, processes and purpose. This is important for corporations to thrive and not just surviving in a changing environment.
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