Design And Positioning Schools Of Strategy - Essay Example

? DESIGN AND POSITIONING SCHOOLS OF STRATEGY Joseph Appiah OM8012 Strategy Email: jappiah@capella edu Dr. Betty Martin-Lewis Table of Contents 1- Introduction. 2- Theoretical analysis of schools of strategy. 3- Schools of Strategy and risk and resource allocation. 4- Schools of Strategy and market structure. 5- Schools of Strategy and dynamic environment 6- Conclusion 7- References 1.0 Introduction This theoretical paper presents a theoretical analysis, contrasts and synthesis of two schools of strategy. The design school of strategy is a strategy that argues in favor of consciously controlled thought, and positioning schools of strategy which argues on view of strategy as an analytical process. The analysis and evaluation of the two schools of strategy will be based on: How risk un-certainty will be carried out, effective resource allocation, market structure and dynamic changes in business environment. 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 the most influential factors 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. 2.0 Theoretical analysis of Schools of Strategy Ten schools of strategy have different perspectives on the subject of strategy. These represent different schools of thought 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, cultural school, environmental school, and the configuration school. The design school of strategy defines strategy formation as a process of conception (Mintzberg, et al, 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.( Mintzberg, et al, 2002). Also this school makes the chief executive officer as the main formulator of the strategy. The planning school of strategy identifies strategy making as a formal process which 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. Finally, 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, et al 2002). The first group is prescriptive in nature and consists of design, planning, and positioning schools. This group tells how a strategy should ideally be made. The second group tells how strategy is made and comprises 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. 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 an 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 and design schools view strategy making as coming from a centralized source. Both the schools also talk about taking the economic environment into account when it comes to designing of strategies. The external environment is given importance in both the design school and the positioning school. Both schools stress that external environment plays an important role in determining or selecting an appropriate strategy for the firm. The difference exists in the assumptions about the environment. The design school assumes that the environment is stable and predictable, and there is no uncertainty, while the positioning school accepts that the market place might change due to competitors and change in demand. Both the schools ;however, 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 discusses about external markets. Positioning school also 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 of strategic options for a firm. Positioning school also offers a 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. 2.1 Design and positional 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 from a singular point so that it is consciously controlled. This school argues for controlled strategy making but at the same time sees strategy formulation as informal and simple. It does not see strategy making as a formal process but would rather give levy to the chief executive to act according to his or her understanding. This school of thought calls for a full formulation of strategy before it is implemented. 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. He 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. 3.0 Schools of Strategy and risk and resource allocation. Design school assumes that all information is available to the leader of the firm; therefore, risk of the environment is not taken into account. It is also assumed that the 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 the design school of strategy. The model also does not talk much about resource allocation. Design school of strategy also calls for a consistent strategy because it believes that a good strategy risk management does not need to be changed constantly (Rumlet, 1980). This model of decision making cannot allow constant changes in strategy because internal competences risks cannot change or are assumed to remain unchanged in the short term. Another important assumption of the design school is that the environment remains stable and can be predicted accurately (Minztberg, 2006). In addition, risk 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. Strategic options are also not believed to change because the 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. 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 future changes taken into account. Positioning school of strategy does not assume that the 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 customer demand. 4.0 Schools of Strategy and market structure. Market structures are features of a market that may affect the behavior and performance of the firms in the market. The design school of strategy uses the intensive growth strategy which is used to exploit opportunities present in products and markets. While positioning strategy uses the integrative growth strategy which uses all types of strategies to achieve the necessary growth. 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 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 that he is seen as the perfect person to create a fit between the two. 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. Positioning school calls for a selection of a strategy that is based upon the position of the firm within the industry. Mintzberg thinks “context describes structure as well as time and situation” (2006). The model of design school calls for a 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. 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 a simple process. It has given a strict model of strategy making where little is left at the discretion of the managers. 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 the model is incompatible with the real environment because it calls for a flexible strategy and controlled decision making. Bureaucratic leaders tend to be stringent in nature; therefore, they usually do not formulate flexible strategies (Minztberg, 2006). 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 but 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 makers should understand the industry alongside the firm, and then the position of the firm in the industry. After that, one of the generic strategies are picked and implemented. This is what positioning school of strategy sees as 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 but rather, a specialist who can assess the external environment effectively is required. 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. 5.0 Schools of Strategy and dynamic environment The forecasting of the changing environmental variables is therefore an essential part of strategic management. The purpose is to come with the vision and long term objective of the organization for future environmental objectives. According to Selznick, it is the leader’s 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 leaders should step in and play a pivotal role. Selznick is saying the same thing in his publication. The works of Chandler, Moore, Tilles and Ansoff also played a major role in development of this school of strategy formulation (Mintzberg, 2006). 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. It is also important to scan the competitors in the industry so that the firm can attain good positioning within an industry. 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 (Porter, 1985). 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. 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. The school of strategy proposed by Porter focuses on environment in which the firm operates and in which the firm can build 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. 6.0 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 the firm positions itself in the industry and then chooses a strategy relative to its position. References Ahlstrand, Lampel, &Mintzberg. (1998). 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(1981).Corporate acquisitions and divestments: The Strategic Decision-Making Process. International Studies of Management Organization, 11(2): 24-47  Martinez, R. J & Gustafson, L. (2003).Teaching Strategic Management from A Christian Perspective. 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. NewYork: McGraw Hill Selznick, P. (1984). Leadership in Administration: A Sociological Interpretation. California: University of California Press Appendix A: Design school srategy Figure 1 Source: Mintzberg (2006) Appendix B:Positioning School of Strategy Figure 2 Source: Kipley & Lewis (2009) Read More