Summary Managing Technological Change

Deze samenvatting over Managing Technological Change is gebaseerd op het studiejaar 2013-2014.

Chapter A: The rational philosophy

Most leaders introduce change programmes with a clear appreciation for the problem, a strong commitment to its resolution and a definitive path for intervention. Still, the majority goes wrong. All available approaches seem to contradict in some way. Managers must look at what would work for them under the available conditions.

Rational strategy assumptions

The direction that change takes is less important than the need for a coherent framework in which to manage the process. The rational philosophy (strategic change) is the most common one. There are many definitions of strategy, the most used is ‘a difference in the form, quality or state over time in an organization’s alignment with its external environment”. In applying the rational strategy, leaders should apply logic and honesty to define a current position and a desired position. The difference dictates the requirements for change. Managers should decide on the deployment of scarce resources within the boundaries of environmental circumstances in order to achieve objectives. This approach is sometimes called teleological because the final destination represents the guiding logic.

Early inspirations

Leaders do interventions aimed at manipulating organizational parts in response to environmental circumstances. The rational approach first appeared in military literature. Also the term strategy comes from the military. Taylor made the approach very popular as management approach. Weber followed. By finding the fit between vision and the environment, rational change managers optimize performance. Lewin described one of the first systematic approaches to change. He saw the change process as comprised of three steps:

1. Unfreezing
2. Moving
3. Refreezing

Kotter’s eight step model is also very popular.

Assessing the rational philosophy

The rational change method offers a definitive solution by laying a prescriptive, logical process upon a confusing, complex problem. A flaw in any change management approach is the inability to determine the need for change until forced upon the organization. Confusion may occur due to insufficient time to plan. Many organizations have a step-by-step approach to change which works to a certain extent at least. But it may be that the steps are right but wrongly implemented or that the steps are not right for the circumstances. Employees’ support for the change is also crucial. A reason why the rational philosophy is so popular is because mapping out change can be done in advance.

Levels, maps and steps

Rational philosophical approaches normally do not differentiate between levels of change. It occurs everywhere. The environment is also not really considered, it is seen as unmanageable, objectively determined and it cannot be influenced. Rationalists might fall into the trap of seeing the world as black and white. But the innumerable shades of grey make choosing strategy a far more nuanced and uncertain process than the rationalist model implies. So transforming from starting point to desired vision always goes with adapting policies and change methods along the way. Two comments on systematic frameworks on change should be made:

1. Frameworks do help in change attempts
2. Slavishly following a framework will almost certainly result in failure

A limitation of the rationalist model is a lack of interest in people. Individual contribution and personal responses to change are underestimated or even overlooked. This is bad both because it is an underutilized resource for innovation and a dangerous potential for resistance.

Leadership and rational change

Next to the vision of organizational leader, their preparedness to direct the change effort is important. Sometimes leaders (even CEOs) need to stand up as heroes to promote the change. However, there are three disadvantages to organizational leaders heading the process:

1. There is no one to who objective appeals can be made.
2. Operational work will likely suffer if the CEO becomes involved in the day-to-day change process.

3. Most important: the appearance of the CEO as leader conveys the impression that change imposes the exclusive will of the leader through autocratic dictatorship.

The rational philosophy assumes that change leaders are responsible for success. That is why a lot of literature has emerged recommending traits, characteristics and practices of great leaders. All of this literature prescribes a leader who makes a personal commitment to change. Transformational leadership methods have been positively associated with followers’ change commitment.

All change involves winners and losers and that is why time should be invested to identify who in the organization will stand to benefit and who will suffer. Then appropriate steps can be prepared. Honesty is not always there in the task. Strategic plans often evolve in an ad hoc manner, reflecting individual or sectional perspectives rather than organizational needs.

Rational connections

If the mission and vision are there, as well as objectives, tactics, and strategies, the next step is the organizational culture. The rational philosophy seeks to change culture in a linear and strategic way. The culture is often a source for resistance, or a source for obstacles. So it is easier to change for younger companies as there is less tradition/history. To change culture, the change agent needs to provide an elemental reason sufficient to inspire executives and staff to voluntarily remove themselves from their comfort zones. The rationalist method seems difficult to change culture because to identify where you are and where you want to go, a transparent analysis of culture should be possible. A problem with culture is that behavior, beliefs, and values do not necessarily match. Also, it is dangerous to decide on a future culture before undertaking the development of the new vision, goals and objectives. Strategic direction represents a powerful form of cultural change.  Every employee must be convinced that the future depends upon the plan’s successful implementation for a change to succeed.

Consolidating the rational philosophy

The rational philosophy appeals but does not offer guarantees. Before even considering what the change will look like, urgency about the need for change needs to exist, otherwise staff will not endorse the change. Also, an organization’s leadership should accept or direct the change, leaders need to be recognized as initiators and supporters. But once in place, an open process is helpful. Third, identifying winners and losers helps to anticipate what is necessary in terms of support and resistance. Fourth, honesty is key, rational change needs a true assessment of organizational direction.

Fifth, an accurate assessment of culture is necessary and one should keep in mind that the perceived culture may not be the same as the measured culture.  Future direction depends on the reason for change. At a primal level, the cause probably relates to resource utilization and its impact on the bottom line (see resource philosophy). Resources constraint choices. Stability remains a core requirement in strategic management to have a head start. Change has spatial and temporal properties and these are inseparable.

Conclusion

Where the rational philosophy presents change as a clearly determined process, lots of case studies say that change has emergent properties. And it seems that planned programmes indeed do change as well. After events, reconstructions take place. Actually, the need for organizational change in the first place demonstrates a failure of organizational planning and strategy. Managers should try to take a holistic view, taking all variables into account to determine the direction. There will always be some resistance, maybe because some feel that the change will adversely affect them , because the requirements are misunderstood, because they do not have the capability to accept change, or because they think the plan is flawed.  The rationalist philosophy does seem to work well for substantive change across a large organization. The rational philosophy says change works in a one-dimensional way but it occurs at different levels and the external environment also is not completely manageable. Sometimes too much analysis leads to too much complexity.

The majority of change programmes follow the rational philosophy, but only a third succeeds.

Chapter B: The institutional philosophy, ‘changing conformity’

Institutional theory is the dominant approach to understanding organizations. It studies how and why organizations behave the way they do and what the consequences of that behavior are. It explains both organizational and individual change. The core premise of institutional theory is that organizations change when they need to in order to fit their environments better. They change towards the norm, so there is a link to culture. The impact of cultural influences on formal structures and decision-making forms the main difference between traditional theories and new institutional theories. Pressure from an institutional group arrives through explicit and tacit expectations which make organizations change towards conformity and legitimacy.

Old institutionalism focused on influence, competing values, and collations. New institutionalism focuses on legitimacy, the centrality of routines, scripts, and schema, and the embeddedness of organizational fields. Institutions are distinct social systems concerned with the influence of family, religion, economy, government and education. However, one definition is not sufficient as there are many faces of institutional theory. There are two fronts on which institutional theorist agree:

1. They do not like ‘atomistic accounts’ of social processes because they ignore the impact of social forces. That is wrong because organizations perform as members of social networks because they are formed by people communicating and collaborating.
2. Organizational action occurs in response to exogenous forces. The environment creates a socially constructed context which canals decision-making in organizations. It also delivers disturbances to which organizations have to adapt.

There are other points on which they do not agree:

1. Structure vs agency: is organizational behavior a product of organizational agency (strategic theorists) or of macro social forces (as biological theorists say)? Structuralists say organizations become increasingly similar, agency theorists say institutionalization stimulates deviance in the form of entrepreneurship and innovation.

2. Pro-conformance vs pro-performance: do organizations pursue conformity in order to be appropriate and acceptable or to improve performance?

Separating structure and agency is impossible as structures emerge from and influence actions.

DiMaggio and Powell defined an organizational field, which is ‘those organizations that, in the aggregate, constitute a recognized area of institutional life: key suppliers, resource and product consumers, regulatory agencies, and other organizations that produce similar services or products’. It is present when these 4 parts are there:

1. Increase in the level of interaction among organizations in the field
2. Rise of sharply defined inter-organizational structures and patterns of coalition
3. Increase in the volume of information handled within the field
4. The development of ‘mutual awareness’ among organizational field players that they share a ‘common enterprise’.

This whole process is called structuration.

There are three mechanisms that determine the spread of isomorphism:

1. Coercive: other powerful organization exert pressure for change through formal and informal means
2. Mimetic: uncertainty forces an imitation of organizations that do well
3. Normative: through the influence of professionalization

Legitimacy is an important explanation of the organization’s prospects of survival. It results from assumptions about legal mandates, rational effectiveness and collectively valued purposes, means and goals. It forms a barrier between the external pressures and the organization.

Power is important for institutionalism because if power is successfully exercised by influencing behaviors, opportunities, and beliefs of individuals, groups, organizations, and societies, then institutions survive. Culture also plays a role. Scott defined three pillars of institutions:

1. Regulative pillar: establishing rules, monitoring and sanctioning activities (formal and informal) by fear, force, and expedience tempered by rules.

2. Normative: evaluative, prescriptive, obligatory dimension, focus on prescribed norms and roles, setting standards for appropriate behavior.
3. Cultural-cognitive: focus on how organization’s shared beliefs and values construct and interpret social reality and guide behavior. Impact on culture is strong and it matters who pulls the strings.

Lawrence argued that organizational politics has three dimensions:

1. Institutional control: impact of institutions on behavior and beliefs of individual and organizational actors. Adherence to rules and norms, influence of power, use of discipline and domination to control.
2. Institutional agency: individual and group action that creates, transforms and disrupts institutions. Influence and role of organizational members.
3. Institutional resistance: organizational actors impose limits on institutional agency and control. It relates the three dimensions because power underpins institutions but that would not be possible without input from interested actors.

Institutional entrepreneurship is ‘activities of actors who have an interest in particular institutional arrangements and who leverage resources to create new institutions or to transform existing ones’. It depends on the individual’s embeddedness, their satisfaction with their position, their alignment with the status quo, and the richness of resources if they question existing norms and practices. Seo and Creed identified four contradiction within fields that may push change:

1. Efficiency contradiction: gaps between existing performance levels as a result of existing rules and opportunities in the market place
2. Non-adaptability contraction: no power to respond effectively or proactively to external changes due to entrenched patterns of behavior
3. Inter-institutional incompatibility contradiction: inconsistencies in shared values within the field
4. Misaligned interests contradiction: conflicts of interest and tension between those in favour and those operating on the margins

Institutional entrepreneurs are very important in reshaping organizational fields and creating new industries, practices, identities and structures. Another important force is inter-organizational collaboration. It initiates change and innovation and helps smaller organizations to overcome size or resource limitations and initiate change

Chapter C: The resource philosophy

The resource philosophy says that an organization’s ability to acquire and leverage valuable resources will determine its ongoing competitive success and survival. So change does not only depend on how the resources coalesce and evolve but also on the way they are reconfigure and redeployed over time.

Resource perspective

At its most simplistic, resource theory begins with the assumption that knowledge about resources, their abundance, scarcity and ownership contributes to effective strategic decision-making and allows an organization to build a solid, sustainable base. Assessing resources has a long history but used to focus on labor, capital and land. Eisenhardt and Martin described three key types of resources:

1. Physical: specialized equipment, geographic location etc

2. Human: expertise

3. Organizational: leadership, culture, superior customer services

Rumelt came up with the idea of ‘resource conversion activities’, firms are characterized by bundles of linked and idiosyncratic resources. Creating values requires more than just possessing critical resources, resources should be accumulated, combined and exploited. Then, competitive advantage can be created. The employment of unique resources can be more easily copied than their original acquisition unless they receive protection from an isolating mechanism. These influence business strategy because they defend and stabilize competitive positions. The most used resource-based theories are the political economy model, the power dependence model, and the resource dependence theory. All say that organizations depend upon the external environment for their resources, so they have and inside-out open systems perspective. Later, the resource-based view (RBV) and the dynamic capabilities approach emerged (focus on the internal organization). During the 80s, Porter’s competitive forces model was the dominant paradigm for strategic decision-making. The competitive forces include:

• New rivals
• Substitute products
• Power of suppliers
• Power of buyers

It has a defensive viewpoint, organizations should be protected from the competitive forces that affect them.

The strategic conflict model was also popular during the 80s. It says that competitive advantage can be achieved by keeping competitors guessing through novel tactics. It reflects economic theory. However, the problem with economic theory is that it says that resources should be used where they give the greatest return. We can combine the resource-based view with the economic view by saying that an organization should seek firm-level efficiency advantages rather than industry-level. Organizational Economics (OE) is becoming more popular so the firm-level efficiency search is debated. OE says that a firm’s primary concern is to structure its activities to maximize performance. OE seeks to structure an organization’s activities efficiently to ensure optimum performance at minimal cost and the resource-based view aims to extend an organization’s unique bundle of resources and capabilities. They can be complementary to provide greater insight into change decision-making. Both internal and external competencies should be redeployed. We can also separate strategic management into:

• Governance-based theories (transaction-cost economic, agency theory, property-rights theory). These explain the existence and boundaries of economic institutions and relationships.
• Competence-based theories (evolutionary economic and dynamic capabilities, resource-based view). These explain the emergence and sustainability of economic rents.

But the best organizations combine these.

Resource-based view

This term was first introduced by Wernerfelt.

Resources: “those assets that are tied semi-permanently to the firm”.

Barney provided further details and formal definition. Resources that will y8ield a sustained competitive advantage must meet four criteria:

1. Economically valuable
2. Rare (so difficult to access or obtain)
3. Inimitable (or at least difficult to imitate)
4. Non-substitutable

If resources possess these characteristics, they are heterogeneous, sticky, and immobile (costly to move between firms). This argues for an internal view because resources that are external are the same to every firm. Intangible or invisible assets are not limited to actual ownership, but also include factors that come back outside the organization (reputation, good relationships with stakeholders). As discussed, RBV originated from economic theory. Economics say that resources and capabilities are elastic in supply but the RBV says that enduring competitive advantage depends on exploiting rare and valuable resources that are inelastic. Elastic means that an increase in demand will trigger a price increase without affecting the availability of the resource. Elements from biology are the impact of three processes (variation, selection, and retention) and the life-cycle perspective (existence, growth, maturity, decline).

Firm heterogeneity reflects the variety of business routines within a single organization, and a firm’s resources and capabilities lead to superior routines which can be deployed to gain competitive advantage. The conventional image of routines implies predictability and stasis, the evolutionary perspective focuses on routines as process, restructuring and reforming. Routines link the RBV to the rational philosophy through strategy, to the biological philosophy through evolutionary thinking, and to the systems philosophy. Also, it links to the institutional theory, they both say that change managers’ actions will be constrained by numerous external environmental pressures. Success and survival depend on responses to these. But they differ in how to respond:

• Institutional perspective: conformity to accepted institutional norms and beliefs is key, which leads to institutional isomorphism.
• Resource-based theory: opportunistic, rule-breaking approach, inviting non-compliance.

Resources and dynamic capabilities

The RBV has been criticized as being vague and empirically deficient. Multiple external contingencies exist which can only be successfully countered with a dynamic capabilities approach. That focuses on the ability to align and stretch resources and competencies not only to cope with, but also to take advantage of conditions. Dynamic capabilities extend the relevance of RBV for generating competitive advantage while operating in difficult and unpredictable environments. Distinction between resources and capabilities:

• Resources: observable, not necessarily tangible, assets that can be valued and traded (brands, patents, real estate, licenses). These can be bought.
• Capabilities: cannot be observed, firm-specific, non-transferrable resource embedded in organizational processes. These must be built.

The capability life-cycle:

1. Founding
2. Development
3. Maturity

Then there are the six Rs of capability transformation: retirement, retrenchment, renewal, replication, redeployment and recombination. That is the dynamic form of RBV. Eisenhardt and Martin defined best practice skills and processes across high performing firms. They concluded that dynamic capabilities have greater equifinality, homogeneity, and substitutability than can be inferred from conventional RBV thinking. Dynamic capabilities are necessary but not sufficient for the achievement of competitive advantage.

The environment is also a determinant: in stable environments, dynamic capabilities were routines and in complex environments dynamic capabilities were simple, experiential unstable processes. Dynamic markets act as boundary condition for the RBV because competitive advantage becomes uncertain and unpredictable and the dynamic capabilities are threatened. If the argument is valid that environmental awareness and understanding are essential for managing resources, it makes sense that contingency theory should be integrated into our understanding of the RBV. It assumes that organizational performance reflects the fit between two or more factors. The fit between different factors is difficult to predict. The search for best fit is limited by the impossibility of modeling all the contingent variables and the difficulty of predicting their connections and causal relations.

Resource dependence

Dependence on resources increases uncertainty. So it is useful when analyzing environmental threats and opportunities. Responsiveness to external demands shows the importance of contingency models. Choice will be constrained by internal and external pressures. The institutional environment gives pressure as well. Power and influence is therefore important. Quality resources that are valuable, rare, inimitable and non-substitutable reduces the dependency on external contingencies. Resource dependency focuses on innovation and change, finding new opportunities to ensure ownership of valuable and scarce resources.

Adaptive capacity is the unique mix of skills, capabilities, and technologies residing in the organization. It must evolve as organizational environments evolve.

Critics on RBV:

• Being able to measure a resource makes it less likely to be a source of sustained competitive advantage
• Paradoxical and circular reasoning: competitive advantages create value but emanate from resources possessing value
• Too little prescriptive advice

Conclusion

A major contribution is the firm-level focus. Also, it explains enduring differences in firm performance that cannot be explained by differences in the external industry environment. The resource philosophy has elements from the systems and biological philosophies by presenting the firm as a system of resources and capabilities which coalesce, evolve and reconfigure. Managers should understand both the effect of environments on organizations and the effect of organizations on the environment.  Possession of unique resources alone does not guarantee competitive advantage, it lies in how resources are managed and manipulated.  Synergies or value creation come from synchronizing the individual components. Environmental constraints are not predestined and irreversible. The change manager can act as an advocator, an active manipulator.

Chapter D: The systems philosophy

The theories in this philosophy have in common the assumption that change cannot be segregated or compartmentalized. If something change, there are always corresponding implications for others. So the entire organization should be understood. So reduction is no option.

The systems philosophy emerged in the middle of the 20^th century. Scholars from social and physical sciences thought of implications of inter-disciplinary connections. They saw general laws describing behavior. To find these laws, the whole system must be observed.

System: a set of two or more elements where the behavior of any individual element affects the entire system as well as other elements. Systems always gravitate towards balance and stability.

General systems theory

Systems theories connect to other philosophies. Systems theory gathered momentum when the early management theorists combined their thinking with biological models. Next, Lewin took elements of behavioral psychology which paved the way for, among others, Schein. Organizations are considered as open systems. The elements are interrelated and can be influenced from the outside. Most systems theories go to some trouble to specify both the differentiation and integration of organizational parts. Usually, change initiatives typically strive to rectify poor integration. But systems theorist say that fixing problems in a certain area constitutes only part of the problem. General systems theory was slow to gain acceptance because it was interpreted as a theory of everything. Boulding made a hierarchy of systems based on the level of complexity. He said systems can be classified means that hose within the same class can be expected to possess common properties. Systems theory expects that all organizations can be managed the same way because they all possess common features. Critics on that:

• Impossible for all organizations to be usefully classified together into one generic category.

• Counterargument: without common properties to fall back on, general management solutions to problems cannot be devised (which is actually what many theories suggest)

An issue is the connection of organizational systems to biological descriptions of natural systems. Open biological systems tend towards equilibrium but social systems do not operate as natural systems. However, the systems philosophy does assume that organizations move towards stability and equilibrium. Also, systems theory struggles to separate organizations and their environments which is sometimes necessary. Next, the assumptions that organizations are open systems might not be right. It is more accurate to say that they are partially open and partially closed.

Complexity as systems theory

The key in complexity and chaos thinking is the interaction of elements in a systems, so it offers an explanation of how a system can generate output greater than the sum of its parts. That would not be possible in a closed system, so an organization must be an open system. The complexity perspective says that organizations (as systems) can exhibit normal and predictable behaviors but they can also behave strangely. The analogy of a butterfly causing a weather catastrophe is appropriate here.

Systems can be in two states:

• Stable: it remains at equilibrium
• Unstable: organizational change cascades into a range of unpredictable and divergent behaviors

Complexity interprets systems as acausal and non-linear. There are three characteristics:

1. Non-additive behavior emerges from interactive networks: the whole is greater than the sum of the parts
2. The emergent behavior exhibited in a complex system unpredictably relates to underpinning causes
3. Complex behavior occurs in the nebulous region between predictability and unpredictability (edge of chaos)

So creating the conditions under which emergence might appear leads to surfing the edge of chaos. Identifying that edge would be a great advantage to the change manager.

The benefit of complexity theory is that it describes how complex systems can generate simple outcomes while looking at the whole system. However, many managers do not like the fact that unpredictable, emergent change should be pursued.

Planning complexity

The classical view depends upon causal, reductionist interpretations of the world. But complexity theory emphasizes acausal, holistic interpretations. So sufficient chaos exists to ensure loss of regularity and predictability but enough order for consistent patterns to endure. Pursuing both stability and innovation does not work well in turbulent environments. Complexity theory is almost the reverse of the punctuated equilibrium model: disequilibrium is normal, punctuated by odd periods of relative stability. Stability signals obsolescence and death. Brown and Eisenhardt revealed that successful firms balance structure and chaos and rely on a range of low-cost experimental initiatives.

The new perspective of complexity theory is that it discourages managers from making predictions about the future. Innovation should emerge from bottom-up. So it does not say anything about incremental/radical change, the change will reveal itself spontaneously.

Changing with adaptive complex systems

A complexity theory interpretation suggests that sometimes chaos springs from underlying patterns encouraging the emergence of unpredictable organizational behaviors. If the circumstances are right, these emergent behaviors can produce powerful but unpredictable innovation. So what are the implications for organizational leaders seeking to initiate change?

• Strategic, linear change planning is impossible
• The rate of change is faster than ever before
• According to organizational evidence, change is the exception rather than the rule and change often fails
• Complexity theory might best be viewed as a metaphor. Because change is very difficult, and bringing an organization to the edge of chaos requires a change in itself

The gap that complexity attempts to fill is to deal with change and environmental turbulence. Uncertainty, complexity and ambiguity should not stimulate combative rational interventions, they should be accepted and even encouraged.

The two most important lessons for leaders and change managers:

1. Management adjustments to activity and change programmes become critical because responsiveness must replace preparation
2. Change managers should encourage the phase transition, where the edge of chaos can provide a platform for the emergence of innovative ways of looking at organizational problems.

Criticisms:

• Lessons may not be as novel as presented
• Prescriptions for new action are vague
• Recommendations against analysis and futures thinking is questionable

The lessons and legacies of adaptive complex systems

It has been recorded for a long time that organizations may respond differently to change than expected. Also, it is generally accepted that innovations may arise bottom-up. What is different from a complexity perspective is the assumption that emergent behavior occurs from acausal processes and cannot be anticipated due to that. There is not much evidence for that.

Organizations as complex adaptive systems can best be used as a metaphor to observe activity in organization as it does not really provide guidelines on how to deal with change. It is also difficult to place analytical and rational techniques like strategic planning in complexity.

We can assume for sure that the world operates as non-linear and dynamically. So encouragement of emergence might be an advantage. But achieving that without any rationality seems impossible.

A reason for the growing movement of complexity might be the fact that the environment is quite uncertain and turbulent at the moment. Still, planning seeks to diminish the uncertainty that the future presents. And abandoning strategy at all and assume that it will materialize in an emergent way is nonsense anyway. Also it is weird that the expectation that specific planned interventions will fail exists, as there is enough evidence to counteract that.

So in conclusion, complexity helps in understanding that some events are unpredictable and may occur in an acausal, random matter. However, it is best used as a metaphor rather than a rule.

Conclusion

Complexity thinkers work as biologists, hoping to find new ways of understanding the intricacies of organizational systems. Systems thinking through complexity has best been used to help explain how some organizations can manage chaos and order to stimulate innovation. Complexity thinking implies that the causes of events cannot be know, but that may be due to absence of reliable information rather than impossibility of the task. Conceptualizing the unit of analysis may be an important step in noting relationship between variables.

Implementation seems difficult, change leaders should focus on managing the boundaries that govern equilibrium with a view to encouraging an environment where innovative change will emerge unprompted. The mediation between chaos and stability could require a manger to incite chaos, which few probably want. So we should best see complexity theory as a reminder that non-linear and dynamic systems can exhibit chaotic properties from the interaction of simple laws, and that patterns may emerge from the ostensible randomness of complex interactions. We could say that change within the complexity paradigm is non-linear and ambiguous but change to the complexity paradigm is linear and rational.

Chapter E: Streams to strategy

No matter if decision makers operate rationally or are influenced by personal considerations or organizational culture: to succeed there must be consistency and coherence to the decisions taken, there must be a strategy.

There is modern business strategy since the industrial revolution. Strategic management became a quantitatively oriented discipline: focus on use of numerical analysis to forecast market trends in order to plan for the future .

Main influence is the Harvard Business School’s approach to business policy teaching: they focused on management away from internal organizational issues toward external orientation. This led to the development of two concepts:

• Marketing
• System theory
• Interconnectedness internal and external forces

To cope with new technological, economic and organizational developments after the WWII, organizations began to adopt long range planning techniques with the focus of reducing the gap between expected demand and actual demand.

But this failed for different reasons:

• Planning systems involved mainly past sales trends
• Little attention for external economic, social and technological trends
• Unforeseen opportunity and threats occur

Late 1960s: slower growth and increased competition: rise of multinational conglomerates operating in wide range of industries and markets. Managers now have a portfolio of businesses. And the concept of strategic management began to emerge.

Strategic management focus on environmental assumptions that underlie market trends and based in possibility that change in trends can and do take place: ultimate focus on winning market share of competitors.

Rational process whereby managers gather quantitative data and come to rational decision based on this info.

Late 1970s: the rational perspective came under attack:

• Hard data were no longer reliable
• Organizations and managers are no rational entities: no rational decision making
• Organizational strategy emerge from unplanned actions and unintended consequences as well as process of planning and implementation

There are many concepts of strategy: none is universally accepted.

In the early 60’s, there were 2 schools of thoughts:

• Planning school: formal procedures, training, analysis and large dose of quantification: strategy can work in the same way as a machine. There were strategic planning departments with the focus to match products to markets (just external focus).
• Design school: need to fit between internal capabilities and external possibilities (SWOT).
  • Organizational structure should flow from strategy instead of one best way
  • Visible hand of management more important than hand of market
  • Large organizations should decentralize to remain competitive focus: on totality of organizational domain, internal and external focus.

According to Mintzberg, there are 5 definitions of strategy:

• Plan: strategy is intended course of action, created ahead of events
• Ploy: a manoeuvre to outwit an opponent
• Pattern: consciously or not, organizations exhibits a consistent pattern of behaviour
• Position: positioning the organization in order to achieve a sustainable competitive advantage: achieve position where competitors cannot challenge them
• Perspective: abstract concept in people’s mind: common view of purpose and direction that informs and guides decision making and action

Johnson has 3 basic views of strategy:

• Rationalistic view: strategy as outcome of pre-planned action designed to achieve goals.
• Adaptive/incremental view: strategy evolves through small changes over time
• Interpretative view: strategy as product of individual and collective attempts to interpret events.

Morgan has 8 metaphors for strategy:

• Postmodernist: Bit like postmodernist viewpoint: different definitions as competing realities which managers attempt to impose the organization.
• Realists acknowledge that there are different perspectives influences organizational strategy but there is one real world out there which has to be addressed to successfully realize strategy
• Complexity theorists similar to realists

Therefore, there were also very different definitions of strategy. But in general, the characteristics of strategy are:

• Concerns full scope of organizational activities
• Process of matching organization activities to environment
• Process matching organization activities to resource capabilities
• Have major resource implications
• Affecting organizational decisions
• Affected by organizational values and beliefs
• Affecting long term direction of the organization

2 questions:

• Is strategy a process or the outcome of a process?
• Is strategy an economic/rational phenomenon or organizational/social phenomenon?

2 competing streams:

• Prescriptive stream: strategy as controlled, intentional and prescriptive process based on rationality which produce complete deliberate strategies
• Analytical stream: interested in how organizations formulate strategy: outcome of complex social and political process involved in decision making.

Prescriptive stream (planning and design):

The prescriptive stream grew out of long term planning activities of the 1940s and 1950s. This stream dominated in the 1960 and 1970s. It was thought that the strategy was only useful in relation to market share and profit maximization. 

Critics: it is not delivering competitiveness

Then, a new variant emerged: positioning school: only a few key strategies are desirable in any given industry à the ones that defend against the competitors (instead of design school who says that strategy have to be unique). Positioning school created set of tools to matching right strategy to the conditions.

3 reasons for its success in the 60 and 70s:

• Provide industries with blueprint for strategy formulation and implementation
• Close with leading consultants who promote work
• They were able to promote and develop their strategy

Analytical stream (1970s):

Strategy as outcome of a process: focus on organizational and social aspects of strategy formation. Capabilities of organization restrict the strategic options that the organization can pursue.

(example is Japanese management: Japanese success not based on well thought strategy but on strategic intent: commitment of Japanese management to create a vision of desired future: vision is used to bind the organization together).

The key part is the identification and development of the core competences and capabilities that are necessary for achievement of the organizational vision. Competitiveness depends on uniqueness/strengths of capabilities instead of on the strategic plan.

• Like emergent strategies: difference with Japanese management is that in emergent strategies there is a lack of vision and intention.
• Mintzberg: some organization pursue an umbrella strategy: broad outline is deliberate while details emerge
• Kay: similar to Mintzberg: development of capabilities is/can be a planned process
• Complexity theorists: do not have a common view on organization strategy
• Population ecologists: both planned as unplanned process: fit between the organization and environment most important. Organizational survival depends on planned/unplanned actions, activities of other organizations in the field and luck
• Williamson/Weick: unrealistic and impossible to make detailed plan in ambiguous world
• Child: equifinality: goes against idea of correspondence. The quasi ideal match
• Pettigrew: organizations have to be understood in context of constraints and possibilities offered by the environment in relation with self interest of individuals/groups that comprise them.

Organization as political systems where groups/individuals mobilize support for strategies/actions that promote their self interest

• Child and Smith: more realist perspective: stronger link between firm and sector and less on political behaviour. The sector determines the path a firm must take. Child and Smith are analytical stream but more focus on rational progression than for example Pettigrew.

There is a clear distinction between those who adhere the prescriptive and analytical approach. But it is not clear how there is a degree of a common understanding under the analytical umbrella.

Is there one best way for a strategy?

Equifinality: different sorts of internal arrangements are perfectly compatible with identical contextual or environmental states à different approaches to strategy may be compatible with positive outcomes. Especially if you think of an organization that are constrained by circumstances. But managers also have the ability to manipulate/influence these circumstances to their own benefits. So there is managerial choice, but how much?

4 generic approaches to strategy:

• Classical approach: strategy as rational process to achieve maximal profits
  • Planning, design and positioning
• Evolutionary approach: successful strategies cannot be planned but emerge from decisions managers take to align the organization to changing environments
  • Complexity, population ecologist, Mintzberg
• Processual approach: strategy is pragmatic process of trial and error aimed at achieving compromise between needs of the market and objective of the organization: learning and adapting
  • Mintzberg, Pettigrew, postmodernist
• Systematic approach: strategy can be a deliberate process and planning is possible but only if the conditions in the host society are favourable: depends on the social context.
  • Realist, Japanese approach

Differences on several aspects:

• Outcomes:
  • Evolutionary and classical: maximize profits
  • Processual and systematic: also for example stability, environmental responsibility
• Process:
  • Process, classical, evolutionary and processual: one best way
  • Systematic: contingency perspective
• Rationality:
  • Classical and systematic: strategy is rational/intentional in development and objectives
  • Processualists: not rational in development and objectives
  • Evolutionist: not rational in process but rational in outcome: profit maximization as only outcome that guarantee  survival
• Managerial choice and judgement
  • Classical: neither
  • Evolutionist: manager percipient in making decisions to threats and opportunities, but at end of the day: lucky manager may be more desirable than an able one
  • Processualist: managers percipient in key decision making
  • Systematic: choice and judgement important, but constrained by limits and objectives of the society.

But choice is limited:

• National objectives, practices and cultures
• Industry and sector practices and norms
• Business environment: stability and predictability influences the ability to plan and predict. Manipulating the environment can reduce the uncertainty.

Organizational characteristics:

• Structure: mechanic/ organic
• Culture
• Politics: self interest of organizational objectives
• Managerial style:
  • Transactional style: optimising performance of the organization within existing policy (classical and maybe systematic)
  • Transformational style: create new visions (processual/evolutionary)

The type of strategic approach is managerial choice, but this choice is constrained by a variety of factors, as are the outcomes. Organizations and managers may be able to influence or change the constraints.

Both choice and manipulation should be seen in relativity:

• Classical approach is still dominated
• Managers tendency to satisfice: accept first satisfactory solution
• Decisions often not taken but happen
• Though potential for choice exist: in reality many managers do not use it: stick to routine, tried and tested approaches regardless of their suitability.

Summary:

There are 3 approaches:

• Rational, mathematical: quantitative
• Human creativity: qualitative
• Choice and preference

Chapter F: Models and tools for applying strategy

In chapter F: the main perspectives on strategy are discussed: the 2 streams of thoughts.

The analytical stream won the academic arguments during the last 20 years, but the prescriptive stream had more impact on the practice of strategy.

There are three basic types of strategies that organizations adopt in practice:

• Competitive forces model: stems from positioning school: since then dominant (1980s)

Need to align the organization with its environment: industry structure influence the strategy

Closely to Porter’s 5 forces model: these 5 factors have organizations take into account when developing a strategy.

Strategy to maximize value of capabilities that distinguish it from competitors

• Cost leadership
• Product differentiation
• Specialization

This approach also has a link with the contingency model and Child and Smith firm in sector perspective.

            Criticism:

• Too narrow and inflexible
• Ignores political nature of the organization
• Ignores learning and creativity
• Just focused on big businesses, where market power is great
• Lack of socio-political factors
• Lack of longitudinal focus
• Underestimate the importance of core competences

• Resource based model: profitability comes from effective deployment of superior resources that allow firms to have lower costs or better products. Firms are heterogeneous: there are no two firms with the same combination of resources.

Organisations should discard activities that are not part of the core business and not build on their core competences.

Criticism:

• Lack of empirical support
• Complex and ambiguous definitions of resources
• Rehash of SWOT
• Resources cannot easily be developed: firms stuck with ones they have
  • Therefore, beneficial match between organizational competences and environment more accidental then foresightful actions of managers

• Strategic conflict model: attention to dynamic nature of strategy and need to respond to competitors who does not always behave as anticipated.

Firms can increase profit by influencing actions and behaviour of rivals and thus manipulate market environment. For example, by investment in capacity, R&D or advertisement.

Actions are dependent on what a firm think that the other firm will do in a specific situation (prisoners dilemma).

Strategic manoeuvring fits with positioning school but more based on quick wittedness, gut instinct and emotional elements of decision making (analytical stream).

Strategic conflict model is the most useful when there is even balance between rivals instead of substantial competitive advantage of 1 firm over its rivals (then better resource model)

Criticism:

• Ignores wide range of internal and external factors that also contribute to organizational competitiveness.

Conflict model: short term focus

Competitive forces model: medium term focus

Resource mode: long term focus

There are 3 levels of strategic decision making in organizations. Each level has its own concerns, strategic tools, techniques and approaches. The levels interact in a iterative fashion. So higher level emerge from lower levels and lower levels driven by higher levels.

• Corporate level: concern the direction, composition and coordination of various businesses and activities that comprise a large organization.

There are 6 different strategies at the corporate level:

• Stability: keep organization stable
• Growth
• Portfolio: growth through merger, acquisition instead of internal growth
• Retrenchment: downsizing
• Harvesting: reducing investment in a business/area/activity to reduce costs or improve cash flow
• Combination: above strategies can be linked in whatever combinations

Competitive forces model applicable to all strategies. Conflict and resources more to situations were growth is pursued.

Now more negative view of corporate strategy: increased responsibility for strategy to business level

• Business level: operation and direction of each of the individual businesses within a group of companies. Different ways on individual business can compete in its chosen markets.

3 strategies for above average performance (Porter)

• Cost leadership: lower cost at same quality
• Product differentiation: different and superior products
• Specialisation by focus: select on certain market or product. By focusing feasible to dominate in this area.

The strategies cannot be mixed, otherwise you will stick in the middle, according to Porter. But other arguments are against this.

• Functional level: concerns individual business functions and processes as finance, marketing, etc.

Functional level most neglected by western firms: should just adjust to priorities set by higher levels. But Japanese strong integrated corporate, business and functional level strategies.

The appropriateness of any strategy depends on the nature of societal, sector, environmental and organization constraints of the organization. Success requires a fit between internal structures and external environment. Internal structures should also change if environment change: therefore functional level also important.

Miles and Snow do not classify types or levels of strategy that organizations can adopt, but classify organizations themselves strategic types, based on rate at which an organization changes it products or markets.

4 strategic types:

• Defenders: seek internal stability and efficiency by producing limited set of products in narrow but stable segment of markets which they defend aggressively: bureaucratic, hierarchical and control
• Prospectors: opposite of defenders: intern flexibility to develop new products for dynamic environment: loose structure, flat organization
• Analysers: best of both above: minimize risk and maximize profit. Move into new markets after viability is proven by prospectors: moderate centralized, tight control over current activities but looser over new activities.
• Reactors: residual strategy: inconsistent patterns, pursuing all 3 strategies erratically. Perform poorly in general.

Similarities Porter and Miles and Snow: successful firms pursue 1 of 2 strategies: innovative or stability

Covin: selection of strategy reflect its basic nature (=culture); selection is driven by organization culture and leadership style.

Waldersee & Sheaters: managerial style follows strategy type instead of the other way round.

There are several tools to select and construct organizational strategies. All these tools have a quantitative or qualitative bias. Now there is an increasing focus on qualitative tools, because of the failure of quantitative approaches and because of growing interest in conflict and resource approaches.

The 3 most used tools:

• Profit impact on marketing strategy (PIMS, 1972): identify characteristics of business and its market that determine profitability. Understanding these will aid a company to become more profitable. 3 factors that determine business unit performance:
  • Strategy
  • Competitive position
  • Market/industry characteristics

2 key assumptions of the model:

• All business situations are basically alike and obey same laws of the marketplace
• Future will resemble the past

PIMS collects info from member companies (market share, profitability etc) and the result is an answer on questions as normal profit rate, what strategic changes are likely to improve in performance

Criticism:

• Uses historic data no consideration for future changes: only useful in stable environment
• Highly analytical: tendency for managers not to question outcomes
• Most factors that governs forecasts of model are out of control of the company
• Finding a correlation instead of assuming a causation
• Based on premise that business problems are orderly and structured and everything is well specified.
• Focused on corporate and business strategies and biased to large organizations that have significant presence in the markets. But little relevance for new, small or innovative businesses seeking to enter new markets.

• Growth share matrix: arose from experience curve and sustainable growth formula
  • Experience curve: as cumulative production doubles, costs of production decrease by constant percentage. If costs fall in relation to production volume, then costs must be a function of market share. Organizations with highest market share have highest competitive advantage and highest profit margins.
  • Sustainable growth formula: companies with highest rate of return on investment can grow the fastest.

                        Each business or portfolio can be classified in 4 categories:

• Stars: use and generate large amount of cash. Make necessary investments to maintain/improve position
• Cash cows: market leader in market where growth is declining: lower costs and higher profits than competitors. These businesses are cash rich, use this to develop the rest
• Dog: poor profit and less change to improve because low growth potential. Cash required often exceeds cash generated: best to sell off
• Problem child: require high cash to keep on course but less profitable because of low share. Invest to turn into star or sell off because of uncertainty.

This makes it possible to predict how the organization will develop as the market change: can be an aid for strategic planning, investment decisions.

Criticism:

• Simplistic, undermines uniqueness of organization
• Difficulty in defining and measuring variables
• Growth and share are not the only predictors
• Especially useful for large organizations that have already a significant presence in the market

• Scenario/vision building approach (1970s): based on the assumption that in a changing and  uncertain world, you cannot predict the future, but by considering a range of possible futures perhaps the right future can be identified.

There are 2 main scenario building approached:

• Delphi method: panel of experts thinking about nr of future issues within their area of expertise
• Cross impact method: panel of experts assign subjective probability and time priorities to a list of potential future events supplied by the organization
• Vision building: organization exists in multiple realities and organizations have the ability to create their own reality. Vision building is a process that assists organizations to select the reality that most suits their needs.

Criticism:

• Prone to subjectivity and bias
• Experience is not always best teacher
• Participants can be strongly influenced by personal interest in preference of scenario
• Process is time consuming
• How much scenarios and how to use them
• Vision require strong visionary leaders, which are in short supply

Benefit:

• It can be applied in wide range of situation, no restrictions or biases as 2 tools before

In West: approaches, tools and techniques of the prescriptive stream are preferred. Also because large pressure of consultants, business schools and large companies. But resource and conflict approach growing last 15 years: more emergent process.

Both analytical and prescriptive stream are useful, depends also on the circumstances and constraints. Organizations have a choice.

Choosing is one thing, implementing a second thing: the prescriptive and analytical  streams have almost an opposite perspective on the implementation.

• Prescriptive: implementation flows from organization strategic plan
• Analytical: strategy emerge from actions and decisions; adapt themselves to the circumstances