Schools of Strategy - Essay Example

?Running Head: Schools of Strategy Schools of Strategy Inserts His/her Table of Contents Introduction 3 2- Ten Schools of Strategy 3 3- Design School of Strategy 5 4- Positioning School of Strategy 9 5- Comparison between the Two Schools of Strategy 13 6- Conclusion 14 7- References 16 Introduction Management scholars have long sought to determine best strategies or styles of thinking that can help a business succeed in the long run. In this attempt they have come up with many theories and models, each telling different ways to achieve success. Strategy is an important part of business today because it can make or break the company. It is one of most influential factor in a business therefore researchers have always been interested in ‘strategy’. In a similar attempt Mintzberg, Ahlstrand, & Lampel (2002) came up with 10 schools of strategy in their book Strategy Safari. They have given 10 different perspectives on strategy and each argues a different approach in strategy formulation and selection of strategic position in the economic market. In this paper we will discuss the design school of strategy and the position school of strategy in detail. We will explain briefly about ten schools of strategy in the paper too. Comparisons will also be made between the design school of strategy and position school of strategy. Ten Schools of Strategy Ten schools of strategy are different perspective on the subject of strategy. These represent different school of thoughts on strategic planning and formulation. The ten schools of strategy are design school, planning school, positioning school, entrepreneurial school, cognitive school, learning school, power school, power school, cultural school, environmental school, and the configuration school. The design school of strategy calls strategy formation as a process of conception (Mintzberg, Ahlstrand, & Lampel, 2002). Design school of strategy proposes a strategy that matches external opportunities with internal capabilities. The position school of strategy defines strategy as positions in the economic marketplace which are generic and common. Strategy should also be designed keeping in mind existing and future competitors. The entrepreneurial school of strategy sees strategy making as a visionary process (2002). Also this school makes chief executive officer as the main formulator of the strategy. The planning school of strategy identifies strategy making as a formal process. It calls for a mechanical and systematic process of strategy formulation with no or little creativity. The cognitive school sees strategy making as a mental process and takes input from different concepts of psychology. This school is largely conceptual in nature. The learning school stresses on learning from past experience and therefore sees strategy making as an emergent process. The power school of strategy argues that negotiating between different power holders within the organization is an important part of strategy formulation. The environmental school sees strategy making as a reactive process that is dependent on the external environment. The cultural school of strategy calls for group work in formulation of strategy. The configuration school of strategy sees strategy making as a process of transformation. The different schools of strategy can be grouped into three larger groups (Mintzberg, Ahlstrand, & Lampel, 2002). First group is prescriptive in nature and consist of design, planning, and positioning school. This group tells how a strategy should ideally be made. Second group tells how the strategy is made and compromises of entrepreneurial, cognitive, learning, power, cultural, and environmental schools. The last group consists of the configuration school that is both prescriptive and descriptive in nature. Design School of Strategy The design school of strategy argues in favor of consciously controlled thought when it comes to strategy making in order to establish a fit between external opportunities and internal competence (Mintzberg, 2006). This model of strategy making also suggests that strategy should be formulated by from a singular point so that it is consciously controlled. This school although argues for controlled strategy making but at the same time it sees strategy formulation as informal and simple. It does not see strategy making as formal process rather it gives levy to the chief executive to act according to his or her understanding. Also this school of thought calls for full formulation of strategy before it is implemented. It is not possible to name a single individual as a founder of design school of strategy. This school represents the early literature on strategy making and this is why it regards strategy making as a simple and conscious process. But the basic concepts underlying the design school of strategy came from sociologist Phillip Selznick in later part of 1950s (Mintzberg, 2006). In 1950s different stream of thoughts started to appear in management literature as the focus of the world shifted from the horrors of the World Wars. Design school also finds its roots in this period. According to Selznick it is the leaders job to take into account the opportunities available in the environment and to make one’s organization withstand the external environment (1957). This is the corner stone on which the foundations of design school of strategy are developed. This model seeks to establish a fit between internal and external environment and proposes that leader should step in and play a pivotal role. Selznick is saying the same thing in his publication. Also work of Chandler, Moore, Tilles, Ansoff etc also played a major role in development of this school of strategy formulation (Mintzberg, 2006). Figure 1 Source: Mintzberg (2006) Design school of strategy aims at achieving success by creation of a match between external opportunities and internal strengths of the organization. The idea behind this string of thought is to find out what a particular firm is good at and then finding what the world wants or needs and then matching the two things together so as to create a ‘fit’ (Lindgren & Spanberg, 1981). This is how design school sees strategy formulation, not as a process but as a conception. This has also led to some criticism against the school of thought that this school assumes that there can be a single best strategy which is not correct. Another important focus of design school of strategy is on leadership. The school sees strategy formulation as a job of top management instead of a collective process (Andrews, 1980). Information is assumed to flow upward and then leader or the chief executive has to a pivotal role to play in strategy making. The leader is assumed to have all the information regarding strengths and weakness of the firm and about the external opportunities so the he is seen as the perfect person to create a fit between the two. Mintzberg thinks “context describes structure as well as time and situation” (2006). The model of design school calls for simple structure that is also flexible in nature and that is dependent on a single chief executive officer (Minztberg, 1979). The design school makes everything simple and the strategy non-elaborate. By doing this it calls for formulation of strategy through matching ‘inside’ with the outside. This model also argues that timing of strategy implementation should always be after the whole strategy is planned perfectly. This means that everyone should know what they are doing before they act. Design school of strategy also calls for a consistent strategy because it believes that a good strategy does not need to be changed constantly (Rumlet, 1980). This model of decision making cannot allow constant changes in strategy because internal competences cannot change or are assumed to remain unchanged in the short term. Another important assumption of the design school is that environment remains stable and can be predicted accurately (Minztberg, 2006). Also strategy is coming from the top therefore it is difficult for top managers to change their view quickly as they tend to stick to what they think is right. It is often criticized that the model does not represent the real situation of the organizations. In organizations where leaders are responsible for every decision, a flexible strategy is difficult to devise. This is why model is incompatible to the real environment because it calls for flexible strategy and controlled decision making which cannot go hand in hand. Bureaucratic leaders tend to be stringent in nature therefore they usually do not formulate flexible strategies (Minztberg, 2006). Design school assumes that all information is available to the leader of the firm therefore risk of the environment is not taken into account. Also it is assumed that environment is stable and there are no rapid changes in the external environment. This is why risk and uncertainty are not taken into account by design school of strategy. The model also does not talk much about resource allocation. Strategic options are also not believed to change because environment is considered more or less the same. This is why strategy is defined one time and it is continued throughout. Strategy is formulated after analyzing the economic market therefore market structure is taken into account by the design school of strategy. Design school of strategy approaches environment under the assumption that they are static and predictable. This is why fast moving markets are not specifically covered by this school of strategy. It should be kept in mind that this string of literature was developed in the late 1950s and at that time markets were not as fast as they are today. Communication was also not as fast as it is today therefore markets were static. This is why design school assumes that external environment is known and predictable. Positioning School of Strategy Positioning school of strategy sees strategy making as an analytical process (Mintzberg, Ahlstrand, & Lampel, 2002). This school of strategy formulation also limits the option or strategies that are at the disposal of the organization. The model suggests a few generic strategies that can be used by firms in different situations. The focus of positioning school of strategy is also on industry in which the company is operating and strategy is formulated within the context of the industry. This school also sees strategy formulation as a process that is based on analytical calculations. The Positioning school of strategy was founded by the work of Michael Porter (Haugstad, 1999). Porter wrote two books in Competitive Strategy and Competitive Advantage in 1980 and 1985 respectively. Porter came up with a mind set in management that was previously absent. He characterized strategy making as an analytical process that is generic and not unique (Porter, 1980). Previously strategy formulation was not limited and unique strategies were accepted but Porter argued that there is no need for unique strategies as choices of strategies are constrained. Positioning school of strategy thinks that strategy can be formulated vis-a-vis the industry the firm is operating at a particular time. The focus of this school of thought is on the industry structure and the firm strategy so that a ‘position’ can be identified in the market place. This means that strategy formulation is dependent upon industry structure and the position of the firm in that particular industry. Porter has suggested tools that can be used in finding out the position of the firm within a particular industry (Porter, 1980). Porter’s five forces is an important model that can help a firm understand its position in the market. Then positioning school calls for a selection of a strategy that is based upon the position of the firm within the industry. Figure 2 Source: Source: Kipley & Lewis (2009) The presence of competitors is also an important part of positioning school of strategy. According to this school every strategy should take into account current and upcoming competition in the market so that best strategy can be selected by the firm. Also it is important to scan the competitors in the industry so that the firm can attain good positioning within an industry (Porter, 1985). This school of strategy also ignores all kinds of creativity as it argues in favor of a few generic strategies. Positioning school suggests that there is no need to be creative when it comes to strategy making rather only a few constrained choices are available for strategy makers. Actually positioning school of strategy views strategy as deductive and deliberate (Porter, 1985). The focus of this string of thought is on industry structure and firm competitiveness. Strategy maker should understand the industry alongside with the firm, and then the position of the firm in the industry. After one of the generic strategies are picked and implemented. This is who positioning school of strategy sees strategy formulation. Positioning school of strategy is also sometimes considered as ‘consultant driven’ (Pelling, 2004) because it promotes the use of experts in the process of strategy making. This school thinks that development of strategy is not necessarily the job of the leader rather a specialist is required who can assess the external environment effectively. This is why this school is considered sometimes to be programmatic in nature too. Because the school gives no value to knowledge it is considered to facilitate consultants and experts. The school of strategy proposed by Porter focuses on environment in which the firm operates and in which the firm can built a competitive advantage (Nonaka & Toyama, 2003). Competitive advantage is the way through which this model aims to achieve success and in order to do so it is vital to select an industry that suits the firm. Selection of industry is important so that the firm can be positioned in the industry and then an appropriate strategy is chosen. Porter also suggests some generic strategies from which the firm can pick the strategy that complements the given position of the firm in the industry. These strategies are segmentation strategy, differentiation strategy, and cost leadership strategy (Porter, 1980). A firm, according to the position school, has to choose between the three strategies keeping in mind the position of the firm in the industry. By doing this positioning school of strategy has made strategy formulation as a simple process. It has given a strict model of strategy making where little is left at the discretion of the managers. Figure 3 Source: Kipley & Lewis (2009) The model of positioning takes into account the risk and uncertainty that is present in the economic environment. When choosing an industry, risk is assessed and also future changes are taken into account. Positioning school of strategy does not assume that market place will remain the same therefore at the time of deciding the positing of the firm in the market present and future competitors are taken into account alongside with customer demand. Industry structure plays a great role in positioning school of strategy making too because choosing the right industry is considered vital. Experts have to choose industry in which the firm can have sustainable competitive advantage over rivals. This is how industry structure is taken into account. The frameworks of positioning school of strategy have given academics a chance to empirically test models which is a big advantage of this school of thought (Harfield, 1998). By providing simple strategy options for firms positioning school of strategy revolutionized strategy formulation and paved the way for future empirical research on the subject of strategy making. Comparison between the Two Schools of Strategy The two schools of thought on strategy formulation are similar in some aspects and different in others. In this section we will discuss the similarities are differences between the two schools of strategy. Both schools of strategy take a very centralized approach in strategy formulation. The design school of strategy explicitly makes strategy making the job of the chief executive officer. The position school also puts the job of strategy formulation in the hands of expert. Both the schools do not talk about team work and sharing of information when it comes to development of strategy. Centralized approach in strategy making was the mindset for a long time in management. Knowledge sharing was not considered vital until modern modes of communication were developed. This is why both the positioning school and design school view strategy making coming from a centralized source. Both the schools also talk about taking economic environment into account when it comes to designing of strategies. External environment is given importance in both the design school and the positioning school. Both schools stress that external environment plays an important role determining or selecting appropriate strategy for the firm. The difference exists in the assumptions about the environment. Design school assumes that environment is stable and predictable, and there is no uncertainty while the positioning school accepts that market place might change due to competitors and change in demand. But both the schools focus on the economic environment. There are also some differences between the two schools of thought of strategy making. Positioning school calls for finding the right industry where a firm can find competitive advantage while design school focuses on identifying opportunities in the market that can be linked to the competence of the firm and focus is not too much on choosing a particular industry. Porter focuses on identifying profitable industries and gives a mechanism to do so (Martinez & Gustafson, 2003) while design school broadly discuss about external markets. Also positioning school views strategy in a simplified way while design school appreciates creativity and uniqueness when it comes to strategy formulation. Design school of strategy does not place any limits on choosing a strategy while position school provides only a handful strategic options for a firm. Positioning school also offers chance for managers to make use of numbers in order to select the best strategy (Kipely & Lewis, 2009). Design school does not give this help during strategy formulation but provides broad guidelines for the chief executive officer and offers freedom to choose creatively a strategy that is best suiting the market and the firm. This is another difference between the two schools of strategy. Conclusion Mintzberg in his book Strategy Safari proposed many schools of strategy formulation. The design school and the positioning school are two of the schools of strategy presented in the book. The design school became popular in later part of 1950s and focuses on creative strategy formulation by the leader with the aim of creating a fit between the outside environment and the competence of the firm. The positioning school was founded by Michael Porter and it focuses on strategy formulation as an analytical process. This school argues that finding the right industry for the firm is essential and offer model for choosing an industry. Then this school suggests that firm positions itself in the industry and then chooses a strategy relative to the position of the firm. References Ahlstrand, Lampel, & Mintzberg. (1998). Strategy Safari: A Guided Tour through the Wilds of Strategic Management. Chicago: Free Press Andrews, K. R. (1980). Directors' responsibility for corporate strategy. Harvard Business Review, 58: 30-42 Dr, Kipley, K & Dr. Lewis, A. (2009). 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Journal of Biblical Integration in Business, 69-98 Mintzberg, H. (1990). The design school: Reconsidering the basic premises of strategic management. Strategic Management Journal, 11(3): 171–195 Mintzberg, H. (2009). The Structuring of Organizations: A Synthesis of the Research. University of Illinois Nonka, I. & Toyama, R. (2003). The knowledge-creating theory revisited: knowledge creation as a synthesizing process. Knowledge Management Research & Practice, 1: 2-10 Pelling, N. (2004). Mintzberg’s Ten Schools. Kingston University Business School, Surrey, UK Porter, M.E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press Porter, M.E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press Rumlet, R P. (1980).The evaluation of business strategy. In W. F. Glueck (ed.) Business policy and strategic management. New York: McGraw Hill Selznick, P. (1984). Leadership in Administration: A Sociological Interpretation. California: University of California Press Read More