When an organisation has a strategy it enables them to ensure that decisions made on a day-to-day basis fit in with its long term interests. Strategies are also important as any decisions an organisation makes today can have a negative impact on its future results. A strategy will also help encourage employees, departments etc to work together to achieve common goals
There are many beliefs on the origins of strategy and many authors have written about this. In 1996, Michael Porter wrote an article that appeared in the Harvard Business Review in which he argued that competitive strategy is was about being different. He also stated, "It means deliberately choosing a different set of activities to deliver a unique mix of value" Porter (1996) Porter believed that strategy was about having a competitive advantage, distinguishing your products and services in the eyes of your customers, and about adding value through a mix of activities different from your competitors.
According to Benjamin Tregoe and John Zimmerman of Kepner-Tregoe, Inc defined strategy in their book "Top Management Strategy" as "the framework which guides those choices that determine the nature and direction of the organisation" They believed that an organisation should select products or services to offer and the market to offer them in. However, Mintzberg, Ahlstrand, and Lampel (1998) brought together elements of existing prescriptive and emergent schools of strategic thought into ten separate schools. The first three schools are grouped under the heading 'Prescriptive Schools' which consisted of the design, planning and positioning schools. These schools believed in how strategies should be formulated rather than how they necessarily do form.
The next six schools are grouped under the heading 'emergent schools'. These schools consist of the entrepreneurial, cognitive, learning, power, cultural and environmental schools. These schools concentrate less with prescribing ideal strategic behaviour, but more with describing how strategies are in fact made. Finally, the final school to be mentioned is the configuration school, which combines the methods and beliefs from all the previous schools mentioned. By describing each school in turn, we can critically evaluating each of these schools, then we can then go onto to use each of the schools as a 'lens' to analyse different organisations.
The first of the prescriptive schools is the 'Design school' and this approach regards strategy formation as a process of conception, matching the internal state of the organisation to the external state of the environment. The origins of this school can be traced back to two writers Philip Selznick who in 1957 discussed the need to bring organisations internal state with its external opportunity whilst writer Alfred Chandler in (1962) recognised the design schools idea of business strategy and its connection to structure. The philosophy of this strategy formation is that it seeks to establish a fit between internal potential and external possibilities. The managing director, Dr Surendra, founded Rasmi electronics in 1974. They have grown to become one of the world's major filter manufacturers as well as being a major supplier of low voltage lighting transformers, energy lighting etc
The strategy precedes structure in this type of organisation. Within the company they still adopt a hierarchal structure in which all decisions from marketing to production is made by the MD. They continually look for new market opportunities, which are a high priority within the company, by analysing the global market on a global basis and the strength, weaknesses, opportunities, and threats (SWOT) analysis is a common tool that is used.
However, in 2002, Rasmi Electronics designed a series of filters in which they distributed via a company called OmronYaskawa. They did not successfully analysed their market in Spain and this lead to another rival company producing a similar product. Fortnuatley due to the relationship Rasmi Electronics had with the customer this manage to keep the contract. This type of strategy formation places a great importance upon the ability to forecast the future external environment otherwise the strategy will be unsuccessful. According to Mintzberg, Ahlstrand, and Lampel (1998) the advantage of this type of school is that it forces consideration of external factors and will be more appropriate in organisation that needs re-orientation.
Around the same time as the design school, the planning school also originated. The main influence was by a writer H. Igor in his book 'Corporate Strategy' published in 1965. Mintzberg, Ahlstrand, and Lampel (1998) classified this strategy formation as a 'Formal Process'. It follows a precise set of steps from analysis of the situation to the development and exploration of various alternative scenarios. "If we examine these principles closely, we find that the classical theorists were in effect designing the organisation exactly like they were designing a machine" (Morgan 1997)
This type of strategy is normally developed by a team of specialists who specifically trained in the science of developing strategies. An example of this was seen in a company called Oldelft. Oldelft is a small high tech company whom operates in a global market. They specialise in products requiring advances knowledge of optics, electronics, electron optics etc. Their products normally have a short product life cycle and competition was both global and fierce.
In 1975, the company saw a decline in their fortune therefore the executive board at the time pointed towards a cost reduction drive as a urgent step towards retrieving some of its profit back. However, at the time Oldelft had no adequate staff available that were trained or had the knowledge to do an overhead analysis they therefore decided to recruit a policy advisory council 'Beleids Advies Radd) (BAR). This was the first of many different groups that Oldelft recruited between 1975 and 1981 all reporting to the executive board. The different groups, which were set up saw the process become more important than the product and according to Mintzberg, Ahlstrand, and Lampel (1998) this type of process can lead to no place for creativity.
Mintzberg, Ahlstrand, and Lampel (1998) advised that it was important that an organisation had a formal strategic planning department within the organisation. In 1981, Oldelft saw its first successful strategic planning school come into operation and is was lead by a man called Ab Baas. Ab Bass made it compulsive for managers to contribute towards the planning cycle and by contributing information about the business segments within the organisation and the external factors. In this school of thought, the method in which strategy development occurs is by thorough strategic planning methodologies and scenario analysis.
The company compiled a completed situation analysis, which was made up with an analysis of the industry maturity and the weighing up of the business segments competitive positions. Eventually this lead to Oldelft to recover its former profitability and even saw an increase in R&D expenditure. The final school of the prescriptive is the positioning school in which Mintzberg, Ahlstrand and Lampel state it is the strategy formation as an analytical process. This approach is very much influenced by Michael Porter. His works looks at placing organisations within the context of the industry in which they are. It also looks at how the organisation improves competitively within that industry.
In 1995 Easyjet airlines a low fair airline introduced low cost flights within the European market. Haji Ioannou the owner of Easyjet believed that by reducing prices will lead to more people flying. He also believed that positioning is company was concerned with establishing the company in the mind of the customer, in a position relative to other airlines in the market The formation of this strategy is a mixture of defensive and offensive moves. Easyjet regularly uses the 'Guerrilla promotional approach' to advertising by using distinguishing attacks on the airline establishment and in a serious of PR stunts. The principle is that the structure of industry drives strategic positions, which then drives the structure of an organisation.
In the summer, 2002 Easyjet faced its first problem in the fact it was growing to fast within its market. This meant there was a difficulty in recruiting and training pilots and flights crew, which influenced the consumers, has believed this would affect the safety on the flights etc. Easyjet admitted that they should have looked at the various elements that depend on each other and how they change over time. By doing a SWOT analysis, would have given an insight of the internal resources and the main features of the competitive landscape in which it operates. Some of the tools and methods used within this company are Michael Porter's Generic Strategies and the 'Profit Impact of Market Strategies' (PIMS). In addition, according to Mintzberg, Ahlstrand and Lampel (1998) is that the advantage of this school is that it emphasis on the analysis and calculation of the previous mentioned tools can be very strong support to the process of developing the strategy however; it should not become the process.
The fourth school Mintzberg, Ahlstrand, and Lampel go onto to discuss is the 'Entrepreneurial School' in which is the first of the group under the 'Emergent Schools'. This approach regards strategy formation as a visionary process, taking place within the mind of the charismatic founder or leader of an organisation. An organisation that forms strategy as a visionary process, is the company called 'Fortnum and Mason'. Fortnum and mason is an established food hall for over 300 years and is family owned. The chairperson is currently 'Jana Khayat' whom took over after her father who stepped down in 2000.
"To choose direction, a leader must first have developed a mental image of a possible and desirable future state of the organization" (De Wit, 1998) The company is now in the process of going international and are intending to open their first shop in Tokyo later on this year. However, going international has cost the company a drop in profits of 40% due to their reshuffling of their distribution channels to make going international possible.
Mintzberg, Ashland and Lampel (1998) advise that this school of thought does not really use any tools or methods for strategy development as it is normally in the mind of the visionary. Even though going international is a big risk for the company, they do feel however, the vision, which has been imposed from many generations of the 'Khayat' family, is what will get them through this. Jana Khayat feels strongly about her vision and brand, which she has printed in her new book.
She stated in a recent interview with the Sunday Times. "It's a mission of intent: where we should be. It is very easy for a store like Fortnum and Mason to become a pastiche of itself" (Khayat, 2004) The advantage of this school of thought is that it does acknowledge the tremendous input that a visionary genius can make to the organisation. However, problems can occur, as other employees of the organisation will not have an understanding on how the vision is created as this is normally done in the mind of the leader. There is also no real ability for the organisation to carry on after the visionary has left the company. The next of the emergent schools is the 'Cognitive School' which strategy formation is seen as a mental process. The viewpoint of this school of thought is that strategy development is an act of cognition. It is about understanding how the mind works and processes information is the key to understanding strategy development.
Cambridge broadband started in 2000 as a group of experienced individuals with a collective aim to deliver the worlds leading broadband fixed wireless access system. The group consists of the best engineers, academics, and commercial management in the industry. Cambridge broadband attracts these people, as they believe that it is an ideal environment to explore their diverse and highly developed talents. The collegiate atmosphere brings an informality that encourages creativity, According to Mintzberg, Ahlstrand, and Lampel (1998) this strategy formation is a cognitive process that takes place in the mind of the strategist.
The CEO, Peter Wharton believes that Cambridge Broadband will become a world leader in their industry by using the knowledge and expertise of its team to provide up-to-date technology and to increase its customer base. Many of the ideas they have come up with have been from using tools such as cognition maps, frames, and Schemata, which are terms used about the mental representation of events and situations. They are data structures for representing both generic and specific concepts about the outside world.
The advantage of this school is that is shows great promise even though the school of thought is that it is still relatively underdeveloped. However, the focus to date has been upon strategy formulation as an individual rather than a collective process, which can be more difficult to understand and manage.
The learning school is the sixth school Mintzberg, Ahlstrand and Lampel go on to discuss. This school of thought regards strategy formation as an emergent process, where the management of the organisation pays close attention to what works and doesn't work over a period of time, and includes these 'lessons learned' into their overall plan of action "...most organisations seem to have severe learning disabilities; most "die" before the age of forty" (Morgan, 1997).
The Kao Corporation is a company, which has a strong learning culture. Dr. Yoshio Maruta president of Kao Corporation believed that an organisation is not only learned but also learned how to learn. He stated "An educational institution in which everyone is a potential teacher' (Dr Maruta, 1990). He believed that the success to his company at the end of the eighties what the ability to integrate and enhance their effective marketing and information systems through learning. This resulted in them producing new products ahead of their Japanese and foreign companies becoming the largest branded and packaged group in Japan by 1990.
Mintzberg, Ahlstrand, and Lampel (1998) argued that the paradigm is that strategy in an organisation emerges because of trial and error from learning within the organisation. This was evident when Kao operation decided to become international. They were potentially a significant competitor therefore, decided that product division developed its own strategy for international expansion. However, the company's business portfolio and strategic infrastructure varied from market to market
It is important that the organisation is familiar in that the strategy must be consonant with the patterns of behaviour and responses that are inbuilt within the organisation. In addition, it is important to be aware that strategy changes and evolves over time. There is however a danger that a lack of urgency or a lack of discipline may predominate and nothing significantly changes within the organisation. Hence, the decision to become international was not successful. Kao operation blamed this on the lack of international experience, fewer human resources assets, especially in top management and had far less accumulated international knowledge than their western competitors had. The have since invested into 10 day training schemes which all managers need to attend to develop a broader and international outlook and advised they did not have enough talented people especially at management level .
The next school to be discussed is the Power School which this school of thought regards strategy formation as a process of negotiation. The development of this strategy is the process of negotiation between the power holders of an organisation or sometimes it can be between the organisation and the stakeholders. An example of this strategy formation can be seen within the University of Durham, in which negotiations take place within the micro power elements such as the individuals and groups within the organisation and negotiation is often done by political analysis and collective bargaining. This commonly seen within the University when negotiations about pay rise, policies etc are done with the trade union representatives.
The interdependence the University of Durham has with its external environment is called 'Macro power', which is when negotiations take place with the stakeholders etc. The university as part of their mission and strategy is to serve the international, national, and regional communities by understanding and engaging with the needs of its stakeholders. Power is clearly a building block in the development of strategy within this school of thought. This type of strategy would benefit large or mature organisations where power structures are well established. However, there is a tendency for organisation who adopts this type of strategy to have a narrow view in that all strategies are about power struggle or as a power exchange.
The eighth school to be discussed by Mintzberg, Ahlstrand, and Lampel, is the Cultural School this approach look at strategy formation as a collective process, which involves different groups and departments within an organisation. The reflection of the strategy, which is developed, is of the corporate culture of the organisation. The origin of culture was discovered by management in the 1980's, coming over from Japan. "...is the collective programming of the mind which distinguishes one group or category of people from another" (De Wit, 1998)
A company with a strong culture is Argos, which is one of the UK's largest non-food retail chains, with annual sales exceeding. After the takeover, Terry Duddy became Managing Director with the challenge of improving the firm's performance. He has done this by strengthening the brand, the quality of customer service, and the corporate culture The development of this strategy is the process of social relations, which take place within the beliefs and understandings shared by the employees of an organisation. He stated that it was challenging yet essential that the organisation reflected its strategy and focus on the customer. A key element of the new approach has been the corporate culture at Argos and the building of an environment, which is normative and cohesive.
The commitment of Argos employees to these values seems extremely high in its 2003 'Speak Out' employee survey; the company found that among its employees 82% believe the company wants to beat its competitors whilst 74% believe strong teamwork is a major contributor to the Argos performance. The concepts for this strategy development come from the values, beliefs, and corporate culture etc within the organisation.
The organisation needs to be aware that the corporate culture however vague and ill-defined, is a very significant variable that can affect the culture of the organisation. However, this school of thought does tend to favour the consistency and continuation of the existing culture within the organisation and this may discourage necessary change. Argos also continues to work at building what it calls its 'employer brand' - a clear set of values representing the attitudes and beliefs of its employees. In 2003, after consultations with staff, these values were stated as change makes us better and more successful
The Environmental School is the ninth school and here strategy formation is seen to be a reactive process. The organisation needs to respond to the forces of its environment otherwise it may be become extinct. A company who are well known in responding to their environment are the company 'Rolls-Royce', which was first, established in 1984 and is now operating within four global markets. The success of the company is due to the rapid and substantial gains in the market share. They believe they have built a strong business by growing organically and through successful acquisitions.
In the beginning of 2003, the aero engine division of Rolls-Royce introduced 'Grid computing' to help reduce airline flight delays and achieve cuts in the cost of engine Maintaince. Due to a successful university research project on 'Grid Computing,' it has now became a major part of Rolls Royce's future I.T. Strategy. According to Mintzberg, Ahlstrand and Lampel (19998) traditionally the contingency theory was used within this school of thought however more recently organisations have ended up in clusters within distinct ecological-type niches, in which they tend to remain until they die out. Similar to the positioning school the environment school is aware of the importance of environment as context, although it does recognise that the death of the business entities or indeed the entire industry is a natural or even expected fact.
Rolls-Royce believes that the knowledge they will learn from the research into 'Grid Computing' will enable then to understand utility-based computing systems and how they can make money from it. However, the definition of the environment is often so complex that companies like Rolls-Royce will find it difficult to usefully analysis. In addition, it accords too much control to the environment, therefore; two different organisations that are competing within the same industry can have vastly different strategies.
The final school Mintzberg, Ahlstrand, and Lampel discuss is the configuration school, which is often seen as the school, which unites all of the previously mentioned schools together. This strategy formation is seen as a process of transforming the organization from one state of decision-making structure into another. Mintzberg, Ahlstrand and Lampel (1998) stated the key to this strategy if for the organisation to recognise the need for the transformation, however to be able to do this without damaging the organisation.
In 1992, Serge Kampf executive chairperson of Cap Gemini Sogeti (CGS) decided for the company to continue to compete successfully it was important that CGS and a large number of acquired firms should be moulded into a coherent transnational company. Some of the problems CGS would face were the creation of a new organisational structure into a dual organisation, improving service to clients and reduce reporting levels. Serge Kampf believed that all parts of the company needed to work the same way to function as a transnational organisation. This would inevitable force major changes within the organisation.
Between 1992 and 1993 even though changes were being made CGS saw there worse year in 1992 when competition mauled the company and they had to lay off 600 employees for the first time in 25 years. This is when 81 managers throughout the organisation made a decision to launch a full-scale transformation of the entire company. The team of 81 managers was responsible for transforming working habits and implement new tools such as the sales funnel throughout the organisation. They also launched a 7-axis development plan to help restore CGS profitability. These changes were not appreciated by the competitors and shareholders as the process of transformation of an organisation with 20,000 employees would not be done short term.
However, CGS did succeed it the transformational of their company, as they have succeeded in remaining profitable in 2003 in what was an extremely difficult market, implementing restructuring measures, which significantly reduced operating costs and prepared it to enter 2004 in the best possible condition. Since 1965, the amount of publication and attention within strategic management has varied within the different schools mentioned above. Mintzberg, Ahlstrand, and Lampel (1998) illustrated how the schools take their place around and within the formation of strategy. In each of the schools of thought that have mentioned, the process of strategy formulation is regarded as something of a 'Black Box'. However, the cognitive school did come close.
None clearly describes how an individual or an organisation is able to leap from the collection and analysis of information to the conceptualisation of alternative courses of action. However, overall by looking at the schools together, you can see why an organisation may favor one school from another. Overall, each of the schools offers some useful concepts, and some strong points to aid understanding, but has its disadvantages as well. "Strategy formation is judgemental designing, intuitive visioning, and emergent learning; it is about transformation well as perpetuation; it must involve individual cognition and social interaction, cooperation as well as conflict; it has to include analyzing before and programming after as well as negotiating during; and all of this must be in response to what can be a demanding environment" (Mintzberg, Ahlstrand and Lampel, 1998)