Approaches and Schools of Business Strategies - Assignment Example

Business Strategy Question No: 1 Discuss the main differences between a prescriptive and an emergent approach to strategy. Under what kind of environmental conditions would you expect a prescriptive approach to strategy to be most appropriate? Given these conditions, what organisational characteristics would you expect to find in firms which adopt prescriptive approaches to strategy? Use examples from theory and practice to support your answer. Answer: Prescriptive approach and emergent approach are two main forms for organisational change. Organisational change is the tendency in an organisation to follow a trend for development on a continuous basis. For managing changes from time to time, these approaches are followed by the companies. Prescriptive and Emergent Approach to Strategy Prescriptive approach performs best when the movement from one state to another is planned by the organisation and emergent approach is the best choice when the situation is random and unintended by the organisation. Prescriptive approaches are followed by organisations when they are averse to uncertain changes that may arise due to certain accidents or which are forced into the organisations. Emergent approach is followed by organisations which are adaptive and accommodative to the external changes and are supportive to alterations. Prescriptive approach produces best results when the focus is on attitudes or behaviours of an individual or a group. On the other hand, emergent approach works best when the focus is on the organisational culture (Liu, 2009). It is also true that one specific approach cannot be the most suitable for certain specific firms. The reasons for this type of variation are the changing regulations of the governments and all the uncertain conditions within the economy. Environmental Condition where Prescriptive Approach is the Most Appropriate In following prescriptive approach to strategy in an organisation, an organisational analysis is essential along with the environmental analysis. When the environment is fast paced with lots of competition, a systematic approach to strategic formulation is needed. In that situation, prescriptive approach is the most appropriate choice. For example, in the year 1995, incredible prudence was used by EasyJet for introducing low cost flight. This strategy of the firm helped it to take a competitive edge over other firms in a European cost-conscious market. The most appropriate approach to strategy formulation is the prescriptive approach when the business environment is complex. For example, the systematic planned strategy taken up by Tesco has helped it to form long term goals and produce clear boundaries for its UK retail service, core unit, non-food and international sectors. Due to its following of the prescriptive approach, it has been able to sustain growth and revenue earning in the areas over the years. Finally, business environments that demands a lot of organisational capability strengths to deal with the competition are the most suitable one for prescriptive approach to come into play. In this type of environmental condition, it is necessary for the firm to define it and optimise its situation. For example, Motorola has successfully coped up with the changing demands of the consumers by utilising its technological strengths and organised its business right from offering electronic components to telecommunications (Huitt, 1992). Organisational Characteristics in firms which adopts Prescriptive Approach to Strategy Prescriptive approach is one that demands strong organisational characteristics of the firms that adopts them. From the above discussion, it is clear that the firms operating with prescriptive approach to strategy should have the following characteristics: Continuous development of technological facet to cope up with the changing demands in the market Communication should be increased and improved to meet the global requirements of competition A higher interaction to the global events to stand as stronger competitor than their competitors in the industry A better understanding of the market opportunities along with the global market An understanding should be there in the organisation that competitors are present everywhere and at any time can enter the market Firms should have the ability to understand clearly the ways by which they can enhance their strengths by utilising the prevalent characteristics of their units Question No: 2 Compare and contrast prescriptive and emergent approaches to strategy. What are the main characteristics you would expect to see of organisations which adopt emergent approaches to strategy making? How would these characteristics be different to organisations which adopt prescriptive approaches? Illustrate your answer with relevant examples. Though, the prescriptive approaches to strategy provide bases for effectively competing within the industry, there are instances when the implemented strategy and the planned strategy differ in action. Comparing and contrasting prescriptive and Emergent Approach to Strategy Prescriptive approach to strategy is generally concerned with systematic formulation of strategies on the basis of strengths and weaknesses evaluation and objective and environmental analysis. But the emergent approach is against this rational approach of strategy formulation. For example, in the year 2002, Hakansson and Ford went on distinguishing emergent approach from prescriptive approach by mentioning that in complex networks, strategy formulation is not possible by internal and external environmental analysis because it will lead to isolation of one firm from others in the industry. Porter viewed strategy as a way in which a firm creates a unique and valuable position in the market which is clearly in contrast to other firms. This is a prescriptive approach to strategy but in emergent approach, it is believed that positioning means network position and not market position. Positioning is a significant concept in terms of dependency and power rather than in terms of conflict between other firms. Contrasting the resource based view of Jay Barney, which states that a company can carry out its own analysis of environment and accordingly develop and implement strategies, the emergent approach states from the perspective of relationships and network. According to emergent approach, companies should possess a restrictive view of the surrounding network and limit the freedom of acting independently (Baraldi & Et. Al., 2010). Characteristics of Organisations that Adopts Emergent Approach to Strategy Making Contrary to the prescriptive approach, Johnson mentioned that the model assumes certain things that are impractical in the modern business world. In addition to this, Mintzberg concluded that the real strategies are only 10 to 30 percent similar to the planned strategies. Considering the views of supporters of emergent approach, the following characteristics can be assumed of the firms that adopt emergent strategies: The firms should frame strategies that can be developed from time to time according to the business changes The firms should focus on the process of experimentation and learning for implementing strategies The managers should play a key role in implementing strategies practical to the present situation The strategy formulator should be creative and responsive enough to the changing environmental conditions The firm should have a strong change management department within the organisation so that required employee support can be enjoyed at the time of necessities The firms should be very watchful so that not a single opportunity is missed out in the market (Bruton, 2007) For example, companies like Microsoft and Apple Macintosh prefer to deal with emergent strategies rather than confining themselves within certain predetermined plans of action. Differences of Characteristics of Firms that Adopts Prescriptive Approach and those which Adopts Emergent Approach The characteristics of the firms adopting prescriptive strategies would have been different in the following ways: The prescriptive strategic process is capable of getting into the real insight of the problems faced by an organisation. Thus, the characteristics of the firms are such that they assume that complexity can be presumed by the managers and thus appropriate strategies can be formulated in advance. For example the BCG Matrix predicts options on the basis of market data and thus aims to maximise profit. This is a prescriptive approach which the modern advanced firms like the Microsoft does not follow. The prescriptive approach seems to forego the short term benefits for the long term ones but in emergent approach, the short run benefits are also considered (Webster, 2010). Question No: 3 Using relevant examples from theory and practice, explain what you understand by the term “positioning approach to strategy”. What are the main strengths and weaknesses of this approach to strategy making in firms? Under what kind of environmental conditions would you expect this approach to strategy to be prevalent? Positioning Approach to Strategy Positioning approach to strategy or strategic positioning refers to creation of a long term competitive advantage in the market against all other firms. This competitive advantage can be achieved by performing two activities by a firm: cost leadership and differentiation. Cost leadership means the activities of a firm at lower costs than its competitors in the market and differentiation means the firm’s activities that lead to the creation of an image completely different from competitors. The essence of this term can be best explained by reference to the Porter’s Five Force Model where it is mentioned that a firm achieves competitive position by either doing things differently from other firms or doing different things from the competitors (Baraldi & Et. Al., 2010). Example Defining Positioning Approach to Strategy With Reference To the Porter’s Five Force Model (Mind Tools, n.d.). A person who wants to open up a firm and do business of his own will consider the following factors of worries: There will be high threat of new entry. If he earns a huge profit and is able to sustain it, new competitors can enter the industry Competitive rivalry will be extremely high because if he sets a high price considering initial stages in the field, other competitors will eat up shares in the market The buying power of customers will be strong and this may lead to setting lower prices There will be certain threat of substitution also as there are huge substitute products present in the market Thus, on doing this industry analysis for setting up a firm and presuming the future, the person will decide to operate. This analysis will help him to set up a competitive position in the industry (Mind Tools, n.d.). Strengths and Weaknesses of Positioning Approach to Strategy Making to Firms Strengths The positioning approach to strategy helps in defining an organisation’s structure in a simple and easy manner. Since this approach helps to gain an insight into profitability, it can be effectively used in choosing whether to enter, stay or leave an industry. It provides an overview as to how to compete with competitors. For example, competitive advantage may be lost due to technology changes or the entry of new competitors. Thus, a leading vacuum tube manufacturer that is secured from potential entrants will start earning low incomes if it competes with semi-conductor or silicon chip. Thus, using the positioning approach to strategy, the position of firms within an industry can be identified. Weaknesses The major limitation of positioning approach to strategy is that it considers the market structure to be static, and in the present modern world the market is hardly static in nature. The approach fits to the economic conditions of the eighties which was exactly different from present conditions. The present market is dynamic and changes are rapid. The approach provides bases for analysis but does not consider implementing issues with respect to changes for repositioning in order to gain strategic advantage. Environmental Condition where positioning approach to strategy would be prevalent The approach can be applied to certain companies or industries where step-wise market analysis and competitive situation can be made. For implementing this approach, it is necessary to determine the scope of the market. The forces have to be identified. It is not always necessary to study all the forces in-depth but the key forces will have to be identified. Thus, the approach should be applied to those situations where key forces are prevalent and can be identified during analysis. In the modern world companies implement balance scorecard approach instead of positioning approach. Examples of companies that follow this approach are Apple, the NatWest Bank, Intel and BP Chemicals. Question No: 4 Using relevant examples from theory and practice, explain what you understand by the “Resource Based View” of strategy. Critically review the main organisational characteristics of firms which adopt this approach to strategy. What do you consider to be the main advantages and disadvantages of this approach to strategy? Resource Based View The resource based view is an approach to competitive advantage which assumes that firms are assorted in nature with respect to their control over strategic resources. The strategic resources are not mobile among firms. According to this approach resources are conceived by firms that are utilised and implemented for gaining competitive position. Jay Barney (1991) based on this resource based view approach to strategy, defined sustained competitive advantage as follows, “A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these others firms are unable to duplicate the benefits of this strategy”. It must be considered from the definition that in spite of the current competitors, the potential competitors are also considered. Barney has clearly pointed out that a sustained competitive advantage will keep the firm unthreatened from other firms and this cannot be nullified by the attempt of other firms to imitate it. The sustained competitive advantage will continue to exist in the market until some structural changes force the resources to get unimportant. A resource can only be a potential source of sustainable competitive advantage if it is rare, non-substitutable and inimitable. A firm may have many attributes but an attribute to be a valuable resource must possess the capability of gaining that sustainable competitive advantage. Thus, the resource based view states that a firm can only build that position if it can control effectively the human, physical and organisational assets (Baraldi & Et. Al., 2010). In the table below, the four key attributes of a resource based view will be mentioned and shown how this attributes have resulted in providing a sustainable competitive advantage to the most successful SMEs: an example RBV criteria for sustainable competitive advantage Evidence from the most successful SMEs-e.g. Mould Manufacturer 1. Valuable Integrated design and manufacture and customer trading activities 2. Rare Integration and communication of a range of IS/IT products and CEO vision to persuade customers to trade online 3. Inimitable Personal relationship with key suppliers, provision of technical education and training to the whole industry to ensure ‘competing image’ 4. Non-substitutability Continuous, incremental partnership with IT suppliers to enhance the product/service offered (Caldeira & Ward, 2001). For example, Toyota, Honda and Nissan have sustained competitive advantages though low-cost and high quality manufacturing capability. Likewise, Intel has better ability to design and manufacture ever more powerful microprocessors for PCs which shapes its inimitable quality. The RBV approach is quite different from the traditional approaches to strategy and the above citations of examples are the evidences that the approach is applicable in the modern times. Organisational Characteristics of Firms that Adopt RBV approaches to Strategy The firms that adopt the RBV approach to strategy must have the following aspects in line with the operations: The structure of the firms should be unique and identifiable to the industry and at the same time should be hard to imitate. For example, Caterpillar has global formal reporting structure The firms should have strong management and control system. For example, Wal-Mart that has unique inventory control system The compensation policies to the employees should be well framed The business processes should be integrated to the industry demands Complementary resources and capabilities are essential for grasping all the opportunities prevailing in the market Advantages and Disadvantages of Resource Based View Approach to Strategy Advantages It helps to identify the firm’s key important resources essential for achieving competitive advantage in the industry The approach helps to evaluate the features of the resources to identify the most essential ones The approach provides basis for caring and protecting the most valuable resources of a firm that ultimately gains the sustainable competitive advantage for the firm Disadvantages The approach has been presented as a static concept. Many firms suffer the necessity to cope with the unstable external environment It bears the underlying suggestion that managers may have limited ability to evolve as a resource for sustained competitive advantage The approach is difficult for testing empirically The approach fails to explain the appropriate level of depth of analysis. For example, how much the resources should be analysed for assessing their capability as key resource for competition (Foss & Et. Al., 2006) Question No: 5 Compare and contrast the Classical and Processual schools of strategy from the Whittington model. What does your analysis suggest are the different characteristics required of strategic leaders from these two perspectives? Support your answer with relevant theory and example. Prof. Richard Whittington (2001) has presented strategic perspectives on strategy on which he has defined four approaches: the classical, the evolutionary, the processual and the systematic approaches to strategy. The objective is to compare the thoughts of classical and processual schools of strategy. According to the classical theory, profit-maximization is the outcome of strategy. According to the processual theory, the outcome of strategy is rather pluralistic in nature, meaning that possible outcome of strategy is more than just profit (Cox, 2010). Classical School of Strategy The classical approach is all about using the resources effectively in order to achieve the desired long-term goals. The main features of this approach are rationality, partition of planning and execution and commitment. The firms that follow this approach experience a feeling that the main task of the top managers is planning and control and that of the operational mangers is to implement those planning of the top managers. The main belief of this school of strategy is that strategy formulation is done only by the CEOs and no other person of the organisation can perform this task (Batamuriza & Et. Al., 2006). Practical examples cannot be presented as evidence because the above method of organisational functioning has become outdated as managers now believe in group works and no discrimination because good ideas can come to anybody’s mind. But there are some firms that still follow this approach like the government held organisations. Processual Approach to Strategy In the processual approach to strategy, it is believed that the goal of an organisation is not only kept confined within making profit. Here it is assumed that each organisation’s individual present their own objectives and tries to cuddle for determining set of goals. While the strategists in the classical approach puts more emphasis on rational analysis, the processual strategists disagree and states that existing rules and routines are needed to be followed for forming strategies. The processual theorists emphasise on building up internal strengths, rather than moving out to the market and trying to grasp the entire opportunities prevailing. The most valuable resource of an organisation is knowledge (Batamuriza & Et. Al., 2006). In contrast to the classical theory where it is believed that strategies are first formulated and then implemented, the processual theory suggests that strategies are formed by actions. This approach has a direct link with the resource based view. The organisations identify internal sources required for utilizing an opportunity rather than trying out each and every option which the organisation cannot grasp. In a gist, processual approach does not believe in rational planning; it believes more in internal insight than external foresight. Characteristics of Strategist Leader Following Classical Approach The strategist leaders in firms following classical schools of strategy are those who are indulged in this activity all the time. They are the top level managers in an organisation. The identified characteristics of these strategists can be the following: The leaders should be goal oriented and committed in nature There should be a clear picture of the goal that they strive to achieve There should be only one goal in their mind, that is, profit maximization The leaders must possess the capability of making rational analysis of opportunities prevailing The leader should be able to separate the essence of conceptualisation and execution as the theory suggests Characteristics of Strategist Leaders Following Processual Approach The leaders that formulate strategies based on the processual approach should have the following features: The strategist should have the patience and capability of listening to each objectives presented by the individuals The available internal resources should be critically analysed so that key resources can be identified efficiently The objective of the strategist should be to frame more than just one goal (profit maximisation) The strategist should be able to focus on two way communication within the organisation The strategies should be formulated based on certain rules and routines made by the organisation itself References Baraldi, E. & Et. 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