strategic management

You are here


See environment for the interpretive perspective of the organization and its strategic management implications.

Strategic management is about charting how to achieve a company's objectives, and adjusting the direction and methods to take advantage of changing circumstances (Faulkner and Campbell, 2003, 3).

""The field of strategic management deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments."" (Nag, Hambrick, and Chen, 2007, 944)

Inductive Derivation of a Consensus Definition of the Field --
Representative definitionsnew -- espoused by four sets of boundary spanning scholars base on their adjacent field (Nag, Hambrick, and Chen, 2007, 946, Table 4) --

  • Economics --
    1. The strategic management field is-positively-the scientific study of the plans that firms build and implement in order to achieve and maintain competitive advantage, and-normatively-the attempt to identify optimal plans for achieving and maintaining competitive advantages
    2. A field aimed at understanding competitive heterogeneity
    3. Strategic management is the interdisciplinary field that studies the behavior of companies and other market parties, in terms of their strategic behavior, the choices they make with regard to organizing their production, their interrelationships, and their competitive positioning. All of this is set against a thorough understanding of the broader environment in which companies have to operate
  • Sociology --
    1. The study of firms' performance from a platform of tangible and intangible resources in an evolving environment that includes their market and value network
    2. I think of the field relatively broadly. I would say that it encompasses the definition and implementation of an organizational course of action. Central to the determination of those actions is an understanding of the relationship between choices available to a manager and firm performance (which I would define far more broadly than profitability to include dimensions such as innovation and survival). Hence, most research in the field either concerns understanding the links between organizational actions (routines) and performance outcomes, or considers how one actually goes about changing these routines
    3. The study of how organizations create value, including not only 'the plan' but also the organizational configuration that it is combined with
  • Marketing --
    1. It is a field about what drives performance of certain businesses and which strategy works
    2. I view the field of strategic management as eclectic, involving all the various business functions such as finance, marketing, supply chain, economics, psychology, statistics, etc. More specifically, it involves firm boundaries, market and competitive analysis, strategic positions and dynamics, and internal organization
    3. The field looks at substantive and process issues such as strategy content, governance mechanisms, strategy choices, market driven strategy, choices of markets, advantage, value propositions, configuration, reacting to markets, and structure, Governance, CEO, leader, strategic choices
  • Management --
    1. Developing an explanation of firm performance by understanding the roles of external and internal environments, positioning and managing within these environments and relating competencies and advantages to opportunities within external environments
    2. Strategic management is the process of building capabilities that allow a firm to create value for customers, shareholders, and society while operating in competitive markets
    3. The study of decisions and actions taken by top executives/TMTs for firms to be competitive in the marketplace

Conceptual elements -- from scholar's explicit definitionsnew in order by predominance of mention (Nag, Hambrick, and Chen, 2007, 947, Table 5) --

  • Performance - performance, advantage, value, success, outcomes, sustainability, profits
  • Firms - firm, organization, business, company
  • Strategic initiatives -- actions, plans, strategy, choices, positioning
  • Environment -- competition, environment, market, external
  • Managers and owners -- CEOs, managers, top leaders, executives
  • Internal organization -- process, internal, behavior, implementation, practices, organizing, routines
  • Resources -- resources, capabilities

Strategic management has a disparate, ambiguous nature. Strategic management's apparent weakness seems to be its strength. Its amorphous boundaries and inherent pluralism act as a common ground for scholars to thrive as a community, without being constrained by a dominant theoretical or methodological straightjacket. (Nag, Hambrick, and Chen, 2007, 952)

Strategic Management as Evolution, Exploration, Exploitation, and Technology --
Strategic management brings about the evolution of the business organization (see organization evolution). It is a social technology for making the future of a business organization. This requires addressing, equally effectively, both exploration and exploitation. Effective exploitation produces value in the present with the existing business model, while exploration lays the groundwork to produce value in the future. Strategic management is a capability to continually develop competitive advantage.

The challenge of strategic management --
Develop an advantage as indicated by earning over and above the cost of capital employed in the business (Kay, 1999). Growing economic rent is the objective of strategic management.

History of strategic management (Faulkner and Campbell, 2003, 3-4) --

  • Business Policy, 1950s and 1960s -- Strategic management is about charting how to achieve a company's objectives, and adjusting the direction and methods to take advantage of changing circumstances. It was taught in the 1950s and 1960s under the title of Business Policy. The teaching was often in the form of case studies by ex-senior executives familiar with them. This teaching attempted to draw out lessons with more than idiosyncratic relevance. This is learning by anecdote.
  • Long-Range Planning movement, 1970s -- Out of business policy developed long-range planning, which became a fashionable process, but often involved little more than extrapolation of recent events, or in negative situations the development of the optimistic 'hockey stick' approach to future performance. Most long range plans were either not used or failed to meet their declared targets.
  • Portfolio management of business units, 1970s -- Portfolio matrices from the likes of BCG, McKinsey, and Arthur D. Little became fashionable, but it soon became apparent that the use of such tools was very mechanistic and a somewhat unsubtle approach to attempting to develop a corporation. Given the shortcomings of the case study anecdotes, long-range planning, and portfolio matrices, the stage was set for more substantive intellectual frameworks.
  • Strategic Management, late 1970s -- Michael Porter's arrival on the scene in 1979 began to turn what had by now come to be renamed Strategic Management into a subject with some claims to being an academic discipline with a degree of required academic rigor.
  • Positional view, 1980s -- Michael Porter's 1980.

Scope and Essential Elements --
Strategic management encompasses a broad scope and has specific essential elements --

Elements of Strategic Management --

  • strategy -- Strategic management is about managing strategy -- see strategy to set the stage for strategic management.
  • organizational dynamics -- Strategy and strategic management are not separable from organizational dynamics.
  • organization evolution -- the organization must evolve to a favorable advantage over other organizations
  • novelty -- The evolution of the organization brought on by strategic management requires novelty.
  • exploration and exploitation -- finding the new sources of advantage while exploiting the current sources
  • continuity and transformation -- continuity of identity with the potential to change that identity

Scope of strategic management -- Organizations are made up of people, people's behavior makes up organizational behavior, managers are people, strategies address the organization, and strategies require operational execution. For the purpose of understanding how to strategically manage an organization, these are not separable disciplines which can be addressed separately. They are interwoven into one discipline - herein titled strategic management. Ultimately there is nothing associated with a business organization outside the purvey of strategic management, as such, it is one perspective of the overall collective management of the organization.

Paradox of exploration and exploitation -- Effective strategic management deals with the paradox of exploration vs. exploitation. These two opposing movements do not need to be reconciled per se, as in resolving a conflict, but must be integrated in a manner that the essence of each one is not overshadowed by the other. Exploration must account for novelty as the seed for innovation. Exploitation must bring ever increasing value from the existing business model. The integration of the two results in the creative destruction of what is being exploited, with innovations, bringing increasing competitive advantages, replacing or upgrading the existing business model before it loses its competitive advantage. Effective strategic management evolves the business organization to an advantageous position in the population of business organizations.

Paradox of continuity and transformation -- Effective strategic management produces both continuity of identity, while having the potential for transforming that identity.

Strategic management prescriptions --

Traditional management prescriptions, systemic perspective --
In the mainstream management approach, one based on the systemic view of the organization and the primacy of the individual, who is both the creator and keeper of knowledge, all put management in the role of some sort of designer, or owner, of the strategy. The prime tasks of management include designing organization structures, being inspired, designing systems, defining behaviors, and driving behavioral change. Given that knowledge creation, or novelty, is essential to competitive advantage, one key objective is to overcome the selfish tendencies of individuals to hold knowledge and to spread knowledge around the organization.

Responsive processes perspective --
At the heart of this perspective are the interactions of the members of the organization as the engine of strategy, the processes from which strategy emerges. This brings the focus of attention away from the individual, especially the individual inspired leader, and onto the participative interaction of the organization members. The knowledge create, the novelty required for advantage, arises from these processes of interaction. The ""prescription"" from this perspective is not in the realm of design of the organization, but in the effectiveness of the interactive processes already in the organization. Movement into the future is driven by members expressing identity and differences of individuals and collectives at the same time. Agents interact with each other to express their identities and in doing so delineate their differences.

Ethics becomes of primary, or prerequisite, concern (Stacey, 2001, 230 - ). In order to have effective communicative interaction, standards of accountability and responsibility must be high, where processes are the 'doing in the living present' rather than the 'imagining about the future.'

The rest of the prescriptions follow (Stacey, 2000, pp 123 - 125) --

  • Turn the focus of transformation away from predicting the future -- Emergent creative developments can be articulated and understood only as they emerge and cannot be predicted in advance.
  • Embrace uncertainty and act into the future. --
    • Creativity and uncertainty are thus inextricably linked, and if organizations are to change in novel ways then managers have no alternative but to act continually into the unknown.
    • The invitation is for managers to reflect seriously upon how they do this. Such a perspective departs from the dominant paradigm in which the role of managers is thought to be the reduction of uncertainty rather than the capacity to live creatively in it.
  • Focus on relationships, cooperation with diversity, not on focusing authority and stamping out diverse views. --
    • This puts cooperative interaction, or relationship, and the conflicting constraints that relationship imposes, right at the center of the creative process of organizational development.
    • Novel organizational developments are caused by the political, social and psychological nature of human relationships.
    • If novel organizational developments emerge in power relations between people, and if they are largely unpredictable, then the notion that individuals, or small groups of them, can choose creative futures for their organization falls away.
    • The outcomes of organizational interaction - indeed, the very dynamics of that interaction - are not within the power of any single organization to choose.
    • Both the outcomes and dynamics producing those outcomes emerge from the interaction between organizations, with no one being able individually to choose them.
  • Bring power, politics, and conflict to the forefront, not to be eliminated, or hidden, but identified as a source of inspiration, motivation, insight... --
    • ...since power is constraint, this perspective places power, politics and conflict at the center of the cooperative social process through which joint action is taken.
  • Insure redundancy as a source of stability and resiliency. --
    • Stability emerges in relationships because relationships are conflicting constraints, that is, power.
    • Furthermore, stability is sustained by redundancy, that is, by the inefficient repetition of tasks and modes of relating.
    • Finally, stability is sustained by the property of the edge of chaos that limits the spread of destruction through a system, namely the power law.
    • At the edge of chaos, destruction, which is an inevitable companion of the emergent new, is controlled because extinction events are mainly small in size.
  • Recognize the inability of the individual to control. --
    • Individuals cannot do just what they please, precisely because they cannot survive outside of relationships and relationships constrain.
    • In other words, organizational life is controlled because of the dynamics of relating at the edge of chaos, although no individual or group of individuals can be ""in control"" of the whole system.
    • This departs from the dominant discourse in which the only alternative to an individual being ""in control"" is thought to be anarchy.
  • Encourage diversity to bring about novelty. --
    • Complex systems evolve when there is micro diversity, or fluctuations.
    • In human terms this means that there can be no novel organizational developments without differences between the people who comprise it.
    • It follows that deviance, the difficult search for understanding in misunderstanding, is a prerequisite for novel change.
  • Think other than ""optimization"". --
    • Complex systems have the internal capacity to change spontaneously in unpredictable ways that cannot be described as optimizing anything.
  • Think other than managed creativity. --
    • Creative development cannot be designed, planned or controlled.
  • Embrace the risk of novelty. --
    • This means that organizations have the potential to succeed in that they possess the capacity for novel change only when they combine stability and instability.
    • This is a potential, not a guarantee, because of the destructive as well as the creative nature of evolution.
    • This differs from the dominant discourse in which success is equated with stability alone, so ignoring the inevitability of conflict and destruction.
  • Encourage individual identity, respect diversity. --
    • This means, in relation to organizations, that the movement of stability and change in human organizations arises in the human need to express identity, both individually and collectively at the same time.
    • Goals to do with competitive survival and profit are then seen to be subservient to this overriding need.
    • This departs from dominant management views understanding performance as an all-important motivating force.

Strategic management process --

BAi strategic management process -- BAi's strategic management process is based on first principles, in order to offer a process, a prescription, that is based on the realities of what organizations, people, and the economy, and validated by experiences of organizations that have demonstrated ongoing strategic success through multiple cycles of strategy and reinvention. It draws upon a broad base of knowledge from the sciences, philosophy, research on strategic success, and management experience. The BAi strategic management process is part of an overall strategic management framework that includes the capable people who make the process work, the strategic management process, and the business design construct, or business model, which is the representation of the business organization, the object of strategy. See strategic management activities. These activities are made up of create art, apply science, wage war, and generate wisdom.

Other strategic management processes --

  • good-to-great -- Jim Collins defines a complete strategic management process based on comprehensive research of organizations that where good that became great, vs. similar organizations that were good at the same time at the start of the comparison. By diligently defining the key areas of difference between the companies that became great vs. those that did not, Collins was able to define the factors that differentiated the ""great"" and the ""good."" The good-to-great process addresses exploration and exploitation. One key feature of this method is the BHAG, the big hairy audacious goal, an extremely challenging goal that stimulates the creativity to achieve the goal. See good-to-great.

  • strategic intent -- Gary Hamel and C.K. Prahalad defined strategic intent, which defines a future state ten to twenty years or even more into the future that both presents the opportunity and challenge to management. Daily decisions are made on the basis of moving incrementally towards achieving the intent. In this regard it is similar to Collin's good-to-great Hedgehog Concept and the related BHAG's. Strategic intent addresses creating the catalyst for exploration much like the BHAG's. It is not a comprehensive strategic management process, but does address the essence of competitive advantage, ""The strategist's goal is not to find a niche within the existing industry space but to create new space that is uniquely suited to the company's own strengths-space that is off the map."" (Hamel, 1989). See strategic intent.

Strategic planning -- Strategic planning is a subset of strategic management. Strategic planning is most effective at planning activities and resource allocation. Typically, it does not address exploration, at least not to any significant degree. In its application, it tends to be problem focused more than opportunity focused. See strategic planning.

Pulling the organization forward -- Strategic planning stifles creativity while attempting to push the organization forward in specific directions established by management elite. Hamel and Prahalad's critique of strategic planning still holds true today,

    ""Almost every strategic management theory and nearly every corporate planning system is premised on a strategy hierarchy in which corporate goals guide business unit strategies and business unit strategies guide functional tactics.5 In this hierarchy, senior management makes strategy and lower levels execute it. The dichotomy between formulation and implementation is familiar and widely accepted. But the strategy hierarchy undermines competitiveness by fostering an elitist view of management that tends to disenfranchise most of the organization. Employees fail to identify with corporate goals or involve themselves deeply in the work of becoming more competitive."" (Hamel, 1989).

A guiding light -- Both the Hamel & Prahalad and Collins approach to strategic management recognize the need for a guiding light for the activities of the organization. In the former case, this guiding light is called strategic intent, in the later it is the Hedgehog Concept. Another analogous concept is Peter Drucker's theory of business. Also, an inspiring purpose serves as a guiding light.

See strategic management competency for an overview of the make-up of strategic management.

Strategic Planning vs. ongoing Strategizing -
Sender-receiver vs. gesture-response model (Stacey, 2007, pp 274) --
Mead's mode of communication is thus profoundly different from the sender-receiver one. The sender-receiver model encourages us to believe that good communication will enable us to 'get it right'. So if I translate my thought clearly into language, if there is no 'noise' in transmission caused, for example, by distorting emotions, and if you translate my clear words clearly into thought, then our communication will be good. Or if the communication does not succeed at first then 'feedback' from the receiver will enable the sender to provide a more precise communication. On this view, a leader or manager who is a good communicator will be able to send a message to all the members of an organization and they will immediately understand it. However, people in organizations frequently complain that communication is not good enough and the response is to blame the sender or the receiver. This leads to a call for improvement in communication skills, involving the development of language and presentational skills and the development of detached attitudes to objective communication. This, it is believed, will lead to improved communication in an organization. In terms of strategy it then becomes important to formulate clear plans and communicate them clearly so that people will implement them. Implementation problems are frequently blamed on poor communication.

However, in Mead's model of communication, when I make a gesture to a number of people, I can rely on its calling forth many different responses from others, all of whom have different life histories. Since the meaning does not lie in my words alone but emerges in the words and the responses they evoke in others taken together, it follows that I can only know the meaning of what I say in your responses to them. There is no point in blaming you, or your blaming me, because we are having to carry on exploring just what it is we mean - this is the very nature of communication. Sending me for training in communication skills can, therefore, have only a very limited effect in terms of improving the communication between us because you are implicated too. From this alternative perspective on communication it is no use for a leader, or manager, to imagine that they have sent a clear message and leave it at that. Communication ceases to be a one-off event that someone can get right and becomes instead an ongoing conversational process in which meaning is being clarified and, in the course of such clarification, is actually evolving in potentially novel ways. From this perspective, one can no longer think of the strategic plan as a one of communication which must be got right. Instead, one comes to see the activities of strategizing as ongoing conversational processes, essentially involving emotion and fantasy, as well as reason and all the other aspects of conversation.

I think leaders, managers and others will act differently with regard to commun-ication and communication skills training if they take this different perspective on communication.