Strategic Management

Rosa Beth Moss Kanter (1989): As early as 1989 was pointing out, in When Giants
Learn to Dance,the problems with another historic-linear approach, which she refers to
as “Excellence”. People tend to love the idea of excellence.

Benchmarking is a variant of excellence practice. It’s a strong tool in strategic

management & it can’t be endorse itself. The underlying mental model suggests that
something someone did somewhere at some point in time will work for your firm where
it is today (and tomorrow).The reality is that it might work but it might not. Therein lies
the problem with linear (simple) historic mental models.

As a result of the apparent failure of the “Self Confirming theories”, strategy theorists
have searched for alternatives.

The reality of competitive Environments:

The new competitive world has moved from a linear (or highly predictable, somewhat
simple) state to a non-linear (or highly uncertain, complex) state. That does not mean
that nothing will continue to be predictable. It means that in the future historic
relationships will most likely not be the same as they were in the past.

In 1980, Ansoff published a paper which represented another step in the development
of practical strategic management which concerned the development of practical tools
for managing adaptation of firms to turbulent environments.

Igor Ansoff introduced the concept of “Strategic Issue Management” in 1980. A strategic
issue is “…a forthcoming development, either inside or outside of the organization,
which is likely to have an important impact on the ability of the enterprise to meet its
objectives.” (Ansoff, 1980). As he adds, an issue can be an emerging opportunity in the
organization’s environment or an internal strength, as well as an external threat or an
internal weakness, respectively.
A Strategic Issue Management system is described as “…a systematic procedure for
early identification and fast response to important trends and events both inside and
outside an enterprise” (Liebl, 2003).
Liebl (2003) identifies four functions of a Strategic Issue Management system:

 Early detection of trends and issues in the environment

 Understanding the discontinuities which are imminent because of the trends and
issues
 Assessment of the resulting strategic implications
 Taking measures

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Professor: Dr. Syed M. Raza Naqvi
Prepared by: Nida Pervaiz, CMS# 29533 MS (Finance)
Riphah University Rawalpindi
While Environmental Scanning primarily deals with the identification of issues, the
concept of Strategic Issues Management puts more emphasis on monitoring issues and
reacting to them. The issue life cycle was introduced by Downs as a model for the
development of an issue throughout time (Downs, 1972). A common visualization of the
issue life cycle is shown in the figure below, which characterizes the issue from its
emergence until its disappearance.

Figure 1: Issue Life Cycle (Liebl, 2000)

It is shown that the opportunity for an organization to react upon an issue (freedom of
action) decreases throughout time in several aspects:

 time pressure for effective communication or strategic realignment increases.

 the range of possible activities for influencing the events at hand – a legislative
procedure, for instance – decreases.

At the same time, the organization’s costs of responding increases over time (Liebl,
2000) In addition a interest curve can be defined that reflects public interest in an issue.
The rapid increase of the curve is due to the fast dissemination of information and
opinion through the various media channels. The public attention than puts pressure on
policy makers to take actions such as launching legislative initiatives. However the
attention also decreases rather fast as public interest is difficult to maintain for long over
time (Liebl, 2003)
For Organizational Future Orientation:
We hypothesis that issue management inside an organization follows a similar
sequence. That could mean that corporate foresight activities would help to detect the
emergence of an issue early. But at the same time corporate foresight needs also to
interpret the impact of the issue and propose an adequate response to it while the
attention of internal stakeholders is still high. If the attention is already starting to drop
the risk is that no action will be taken.

Henry Mintzberg (July 1987) & Crafting Strategy:

Henry Mintzberg has famously coined the term “Crafting Strategy” whereby strategy is
created as deliberately, delicately and dangerously as a potter making a pot.
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Professor: Dr. Syed M. Raza Naqvi
Prepared by: Nida Pervaiz, CMS# 29533 MS (Finance)
Riphah University Rawalpindi
Imagine planning strategy. What likely springs to mind is an image of orderly thinking: a
senior manager, or a group of them, sitting in an office formulating courses of action that
everyone else will implement on schedule. The keynote is reason—rational control, the
systematic analysis of competitors and markets, of company strengths and
weaknesses, the combination of these analyses producing clear, explicit, full-blown
strategies.

Now imagine someone crafting strategy. A wholly different image likely results, as
different from planning as craft is from mechanization. Craft evokes traditional skill,
dedication, perfection through the mastery of detail. What springs to mind is not so
much thinking and reason as involvement, a feeling of intimacy and harmony with the
materials at hand, developed through long experience and commitment. Formulation
and implementation merge into a fluid process of learning through which creative
strategies evolve.

My thesis is simple: the crafting image better captures the process by which effective
strategies come to be. The planning image, long popular in the literature, distorts these
processes and thereby misguides organizations that embrace it unreservedly.

In developing this thesis, I shall draw on the experiences of a single craftsman, a potter,
and compare them with the results of a research project that tracked the strategies of a
number of corporations across several decades. Because the two contexts are so
obviously different, my metaphor, like my assertion, may seem farfetched at first. Yet if
we think of a craftsman as an organization of one, we can see that he or she must also
resolve one of the great challenges the corporate strategist faces: knowing the
organization’s capabilities well enough to think deeply enough about its strategic
direction. By considering strategy making from the perspective of one person, free of all
the paraphernalia of what has been called the strategy industry, we can learn something
about the formation of strategy in the corporation. For much as our potter has to
manage her craft, so too managers have to craft their strategy.

At work, the potter sits before a lump of clay on the wheel. Her mind is on the clay, but
she is also aware of sitting between her past experiences and her future prospects. She
knows exactly what has and has not worked for her in the past. She has an intimate
knowledge of her work, her capabilities, and her markets. As a craftsman, she senses
rather than analyzes these things; her knowledge is “tacit.” All these things are working
in her mind as her hands are working the clay. The product that emerges on the wheel
is likely to be in the tradition of her past work, but she may break away and embark on a
new direction. Even so, the past is no less present, projecting itself into the future.

In my metaphor, managers are craftsmen and strategy is their clay. Like the potter, they
sit between a past of corporate capabilities and a future of market opportunities. And if
they are truly craftsmen, they bring to their work an equally intimate knowledge of the
materials at hand. That is the essence of crafting strategy.

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Professor: Dr. Syed M. Raza Naqvi
Prepared by: Nida Pervaiz, CMS# 29533 MS (Finance)
Riphah University Rawalpindi
In this article, we will explore this metaphor by looking at how strategies get made as
opposed to how they are supposed to get made. Throughout, I will be drawing on the
two sets of experiences I’ve mentioned. One, described in the sidebar, is a research
project on patterns in strategy formation that has been going on at McGill University
under my direction since 1971. The second is the stream of work of a successful potter,
my wife, who began her craft in 1967.

Complex Systems Strategy:

Complexity based approaches or “Complex adaptive systems” were developed in

response to the apparent failure of Equilibrium based approaches. Complexity- based
thinkers will fall into a number of different camps. The majority believe that the
environment must be understood in terms of complexity, chaos and ecological
constructs. The kind of thinking has resulted in the idea of “Self-Organizing “companies.

The Complexity group falls into two categories.

Pure Complexity based group: They believe environment is highly uncertain not
predictable so long term strategic management is not possible. According to this group
predictive modeling is rendered useless by the chaotic nature of the environment. They
would suggest that any attempt to plan future is pointless.

Hybrid: They believe in complexity, environment is chaotic unpredictable but long term
strategic management is possible. This particular group of thought is based upon the
idea that the firm may compete on the edge of chaos, that is in a state in which the
system is complex adaptive, but at the same time with a minimal level of predictability in
the system.

Management:

In the field of strategy and organization science, models of complex adaptive systems
have renewed theoretical work on a fundamental question: how organizations can adapt
effectively to their environments. There are three objectives: (1) to highlight some areas
where models of organizations as complex adaptive systems have made substantial
contributions: the search for solutions to sets of interdependent choices, the challenge
of balancing processes of exploration and exploitation, and the organization of imperfect
decision makers; (2) to point to several challenges and tradeoffs, which can limit the
explanatory power and eventual impact of the modeling enterprise; and (3) to sketch out
possible future directions of research that would do further justice to the notion of
organizations as complex adaptive systems.

Emergence:

The Emergence camp is divided into at two or three distinctive groups. Emergence
based theorists begin with the idea of complex systems and chaos theory. Some
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Professor: Dr. Syed M. Raza Naqvi
Prepared by: Nida Pervaiz, CMS# 29533 MS (Finance)
Riphah University Rawalpindi
suggest that the ability to deal with complexity systems and chaos theory. Some
suggest that the ability to deal with complexity on futuristic basis is impossible. Other
suggests that it is possible to understand some aspects of futuristic systems. A third
group impose naturalistic ecological presupposition in its theory.

A strategic organization is deliberate in defining its direction. It develops ways to

measure progress; it is sharp when identifying benchmarks. But that is only one side of
the coin – the planning side. Stowe Boyd just reminded me of Mintzberg’s excellent
work defining the other side of the coin, the action side, the adaptability side, the side
that grapples with reality – the side of emergence:

An emergent strategy is a pattern of action that develops over time in an organization in

the absence of a specific mission and goals, or despite a mission and goals.

Emergent strategy is sometimes called realized strategy. An emergent strategy or

realized strategy differs from an intended strategy.

Mintzberg argues that strategy emerges over time as intentions collide with and
accommodate a changing reality.

Emergent strategy is a set of actions, or behavior, consistent over time, “a realized

pattern [that] was not expressly intended” in the original planning of strategy. When a
deliberate strategy is realized, the result matches the intended course of action. An
emergent strategy develops when an organization takes a series of actions that with
time turn into a consistent pattern of behavior, regardless of specific intentions.
“Deliberate strategies provide the organization with a sense of purposeful direction.”
Emergent strategy implies that an organization is learning what works in practice.
Mixing the deliberate and the emergent strategies in some way will help the
organization to control its course while encouraging the learning process.
“Organizations …[may] pursue … umbrella strategies: the broad outlines are deliberate
while the details are allowed to emerge within them”

Ralph Stacey and Henry Mintzberg tend to the view that it is simply not possible to
consider future complex environments. As a result they suggest that the strategist must
wait for events to occur, or emerge, the develop strategy. This approach of
“incrementalism” involves the “after the fact” development of strategy for discontinuous
events. Mintzberg suggest that, as discontinuous events occur, the firm should
dynamically craft strategy. Stacey generally agree with Mintzberg, but in his book
Managing The Unknownable, he additionally suggests that it is possible to create
organizations that are designed to deal with ambiguity and complexity.

Chaos and Complexity:

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Professor: Dr. Syed M. Raza Naqvi
Prepared by: Nida Pervaiz, CMS# 29533 MS (Finance)
Riphah University Rawalpindi
Around the mid-1950s there had been a certain amount of investigation into the idea of
cybernetics or the study of processes .Chaos and Complexity theory were introduced
.Chaos theory suggests that management should place more emphasis on adaptability,
initiative and entrepreneurial creativity to cope with a future that is inherently
unknowable. A number of business theorists moved on from the metaphor of chaos
theory in business of complexity theory. Chaos theory had dealt with the unpredictable
processes that were observable in science. Those who moved on to complexity theory
added an interesting twist to the basic idea of complexity. Complex systems thinking
has to do with the fact that the global system and environment is made up of a limitless
number of other systems. Theorists hypothesized that complex systems may behave in
much the same way as the molecules in a glass of water, which interact randomly.

Systems Thinking:

Another approach for dealing with complex environments is called systems thinking.
System thinking is a method of critical thinking by which you analyze the relationships
between the system's parts in order to understand a situation for better decision-
making. Proponents of systems thinking believe that it is possible to consider complex
issues and to make “reasonable inferences” about the outcome of such complex
systems. Systems thinking has been widely discussed in corporate cases, but few
companies actually utilize approach, especially at the senior executive level - where it
could be most beneficial. Those few leaders who have the intuitive ability to think in
terms of complex sytems, are and will continue to be, highly successful.

According to system thinking, if we examine the interactions of the parts in a system, we

will see larger patterns emerge. By seeing the patterns, we can begin to understand
how the system works. If the pattern is good for the organization, we can make
decisions that reinforce it; but if the pattern is bad for the organization, we can make
decisions that change the pattern.

Importance:

The world of business today is complex and growing more complex every day.
Managers must contend with technological innovation along with an ever-growing global
economy in which events on one end of the globe will affect your company. Making
effective decisions is much more difficult in this brave new world, and systems
thinking provides a model of decision-making that helps organizations effectively deal
with change and adapt. It is a component of a learning organization, which is an
organization that facilitates learning throughout the organization to transform itself and
adapt.

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Professor: Dr. Syed M. Raza Naqvi
Prepared by: Nida Pervaiz, CMS# 29533 MS (Finance)
Riphah University Rawalpindi