strategy formation

You are here


Strategy formation creates strategy, designing new businesses and organizations to carry out those businesses. Formation involves exploration, the search for new advantages and business possibilities. Strategy formation creates a theory of business and its accompanying hypotheses. Strategy formation, or creation, is an aspect of strategic management. The BAi strategic management construct labels this aspect create art.

Evolving view of strategy --
One of the most influential people in the arena of strategy is Michael Porter. His very popular Five Forces Model in 1980 focused strategy formulation on 'coping with competition' (Porter, 1991, 11). This has been an unduly limiting view of strategy formulation, which to a great extent has limited the effectiveness of the field of strategic management. A more illuminating definition of strategy formulation, which appears to be a synthesis of many decades of strategist's works, is 'the essence of strategy involves selecting and developing technologies and business models that build competitive advantage through assembling and orchestrating difficult-to-replicate assets, thereby shaping competition itself (Teece, 2007, 1325).

Systemic to responsive processes, rational to emergent --
Approaches to strategy creation are very diverse, varying on multiple dimensions. Each approach has its basis in assumed views of the future, organization, causality, and so forth. Some approaches seek to deliberately create a strategy. Other views see strategy emerging from the daily workings of the organization, not as an explicit or formal approach. See systemic for a systems view of strategy creation and responsive processes for a significantly different view.

Creating strategy --
Formulating strategy is certainly the least understood and most controversial aspect of strategic management. Hamel's two poignant observations highlight the difficulty of nailing down strategy creation, or creating strategy on demand.

  • First, there is not a process to produce the seminal idea that makes the strategy unique and valuable.
  • Second, revolutionary strategies have always been the product of lucky foresight.

But there is hope. There are techniques to generate, nurture, and capture ideas. The field of people who have the opportunity for lucky foresight can be greatly expanded and utilized to produce innovative strategy. The management systems can be put in place to stimulate, reward, and adapt to entrepreneurial behavior. If it is true that inspiration is 99% perspiration as Edison said, management must make the investment in order to have the opportunity to harvest the 1% which is of inestimable value.

The create art aspect of strategic management depends on complimentary divergent and convergent thinking. Strategy is deliberate and emergent. Strategic insights can come from just about anywhere. The create art activities are the most dynamic, with the tension of the simultaneous need for freedom to explore and create coupled with the need to produce a coherent strategy, or approach to competitive advantage, to be acted upon. The more business leaders know about the formulation of strategy, business design, and causality, the more they can incorporate the types of thinking and activities which produce innovation into the architecture of the business.

Formulating strategy is hardly a formula. Strategy comes about from many mental frameworks and thought patterns. Strategic thinking is a combination of types of thinking and ways of viewing the world. Development is necessary to build uniquely competitive competencies. Idealized design takes the mind into the realm of creativity and innovation. The recognition of constraints and their management is woven into the design process. There are pitfalls to be avoided. Businesses all have an architecture, and a design, whether understood or not, to be considered in designing a business organization.

Mintzberg's perspective --
""Strategy formation is judgmental designing, intuitive visioning, and emergent learning; it is about transformation as 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. Just try and leave any of this out and see what happens!"" (Mintzberg, 1998, pp 372-373).

Schools of Strategy Formation
Henry Mintzberg has built a strategy formation framework which classifies approaches to strategy based on thinking types and the strategy formulator's view of the world. He calls these schools of strategy.

  • Prescriptive schools (Stacey classifies as Strategic Choice)
    • design -- strategy is a deliberate process of conscious thought where responsibility rests with top management. The strategy seeks to match the internal capabilities of a firm with the opportunities proved by its external environment.
    • planning -- where specialist strategic planners adopt formal, step-by-step techniques to do much the same s the design school
    • positioning -- this school is built on the design and planning schools but focuses on strategy content, such as Porter or Treacy & Wiersema's models of advantage.
  • Descriptive schools (Stacey classifies as Organizational Learning) --
    • entrepreneurial -- strategy is seen as a visionary process carried out by leaders
    • cognitive -- focuses on the mental and interpretive processes of strategizers
    • learning -- strategies emerge as people learn over time, emergent as distinct from deliberate strategy
    • power -- sees strategy as a political process
    • cultural -- which is concerned with the influence of culture on strategic stability
  • Descriptive (Stacey classifies as Evolutionary)
    • environmental -- sees the environment as the active cause of strategy while the organization is passive.
  • Synthesis
    • configuration -- integrates the views of all the other schools in terms of configurations or in terms of transformations

Five perspectives of Mintzberg's schools --
Rather than covering all ten schools here, five groups of schools, or camps, with similar attributes are discussed.

    Comprehensible world and analytical methods --
    In the first camp are the people who believe the world is comprehensible and controllable and that rational analytical thinking is the way to develop strategy. People in this camp believe strategy is made, whether designed, chosen, or planned and is to be deliberately pursued. Designing is a matter of conceiving of strategy through a rational thought process looking for congruence, fit, distinctive competence, SWOT, and competitive advantage. Choosing a strategy is choosing a position in the industry. This view was popularized by Michael Porter with his positional advantages of cost, differentiation, and focus. Another popular twist on the position view is from Treacy and Wiersema with their three generic strategies of product leadership, operational excellence, and customer intimacy. Planning strategy is the programmatic prediction and preparation, scenario development, financial assessment, checklists and formal techniques, and implementation with detail to objectives, budgets, initiatives and operating plans. The objective alignment techniques developed by Kaplan and Norton with their strategy mapping and balanced scorecards have been very popular in this arena. The strength of this camp's approaches is that pragmatic deployment plans are developed.
    Comprehensible world and an organic synthesis of ideas --
    The second camp believes the world is comprehensive and controllable like the first camp, but strategy comes from organic synthesis of ideas. After that the process is less clear. This is the realm of intuition and entrepreneurism. The intuitor is typically the CEO who makes the dramatic leaps forward. Experience, learning, and inquiry build the basis for intuition. Strategy is not made so much as envisioned. The vision is deliberate and guides the strategic decisions of the business. The strength of this camp's approach is that the deliberate pursuit of the vision makes it clear where the business organization is to head.
    Unpredictable world and analytical methods --
    In the third camp, people see the world as an unpredictable and confusing and take a rational analytical thinking approach. Strategy is therefore reactionary. The strategy evolves, or emerges, from the reactions to the deployment of the strategy. The understanding and intuition gained from the deployment are incorporated in the next strategic move. This is learning by doing. The strength of this camp's approach is that the environmental changes are assessed and acted upon.
    Unpredictable world and an organic synthesis of ideas --
    The fourth camp sees the world as unpredictable and confusing like the third camp, but strategy is formulated from the organic synthesis of ideas. Strategy is thus emergent, it happens. Creative thinking and learning is the source of strategic ideas. The design stage fosters creative thinking, learning, and formation of experiments to be planned. The strength of this approach is the ongoing innovation produced.
    Political and cultural creation of strategy --
    There is one other set of views that is a hybrid of deliberate and emergent approaches but natural or organic in their thinking. These are the views of strategy as power, politics, and culture. The strategy pursued is determined by power positions, political maneuvering, and culture. In the case of culture, culture is leveraged. The strength of these approaches is that they leverage the current power structures of the organization.

Creating the Future (Hamel, 2000) --
Creating the future is not about knowing what's next, it is about imagining what's next. There is no one future waiting to happen. You can't be a revolutionary without a revolutionary point of view. You can't buy your point of view from some consulting company. Nor can you borrow it from some rent-a-guru. You have to become your own seer, your own guru, and your own futurist.

Creative destruction calls for the new business model to replace an existing business model. If business leaders don't have good enough reasons to cannibalize their existing business model, it won't happen. Without a widespread and deep capacity to imagine and design radical new business concepts, a company will be unable to escape its current strategies, which are decaying as time passes.

The essence of strategy is variety. But there's no variety in strategy without variety and how individuals view the world. You might want to test your management team for how much variety they really have. For example --

  • Do they see the world differently from one another?
  • Do they have of viewpoint that is at odds with industry norms?
  • Are they able to unlock their imagination?
  • Is unlocking one's imagination and imagining a different future excepted in your company?
  • Is there an acceptance of dreamers and smart-asses when seeking to create imaginative and solutions?

Burgelman's Strategic Behaviors (Burgelman, 1983) --
Burgelman presents a framework for strategy creation in large, complex firms. This model is consistent with the variation-selection-retention, i.e. evolutionary, model explaining organizational survival, growth, and development. These firms are relatively independent of the tight control of external environment selection, such as large enough firms or sufficiently resource-rich, can engage in ""strategic choice"" (Child, 1972). Their strategic choice process involves substantive inputs from managers from different levels of the organization. Internally generated variation, resulting from the ""enactment"" (Weick, 1979) fo the environment, is at the minimum, a very important source of variation in such firms (Penrose, 1968). Strategic behavior, in Burgelman's model, refers to such enactments.

This model integrates the business and corporate levels of analysis.

The strategic behaviors in this model include the generic categories of induced and autonomous. Induced strategic behavior uses the categories provide by the current concepts of strategy to identify opportunities in the ""enactable environment"" (Weick, 1979). This behavior is shaped by the current structural context of the firm. The autonomous behavior comes from the reservoir of entrepreneurial potential that exists at the operational levels of these firms. Autonomous strategic behavior introduces new categories for the definition of opportunities -- concepts of new business opportunities. Unlike induced strategic behavior, which follows corporate strategy, autonomous behavior precedes corporate strategy.

See induced strategy process and autonomous strategy process.

Approaches to creating strategy --
Davis's (1987) basic steps to achieve strategy --

  1. Envision - See the future state.
  2. Interpolate - Plan the changes needed to get to the future state.
  3. Act - Implement the future state

Crafting strategy, Mintzberg (1987) --

  • Crafting a strategy requires a synthesis of the future, past, and present.
  • Strategy creation is essentially a process of synthesis.
  • Trying to create strategies through formal planning does not support synthesis and most often leads to extrapolating existing strategies or copying those of competitors.

Strategy emergence --
Other approaches to strategy are less about a strategy creation process and more about a strategy creation competence. With this competence there exists a spontaneous recognition of opportunities and creative responses to problems, rather than creation and creativity being locked into some sort of a strategic planning cycle. This approach reflects the responsive processes view of the organization as opposed to the systemic process view. See strategy and process for further information.