How Individual Behaviour Affects Organisational Strategy - Essay Example

?Strategy and Social Dynamics: How Individual Behaviour Affects Organisational Strategy This essay seeks to connect the behaviour of individuals within society and society itself with the idea of organisational strategy. It begins with a definition of strategy, before considering four different categorisations of strategy and how the individual and organisational combine to create these approaches. The essay concludes with a summary of the key findings of the analysis. What is Strategy? The definition of strategy will depend on who is asked. Porter (1996), for example, states that operational effectiveness is not strategy, and that strategy is about doing things differently to competitors such that a unique advantage is created. This is a great distance from the view of Chandler (1962), who views strategy as being connected to how an organisation is administered outside of functional responsibilities. His definition of strategy is “the determination of the basic long-term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals” (Chandler, 1962, p.13). Porter (1996, p.75) finally reaches a definition of “creating fit among a company’s activities”, which does bear some relation to Chandler’s view, although Chandler deals with the long term survival of the organisation, where Porter acknowledges that achieving fit determines strategy success and if there is no fit, then nothing to sustain (ibid). Teece (1993 p.199) recounts Chandler’s view that competitiveness depends upon organisational and financial capabilities, and supporting institutions. Porter would disagree with the idea of resources and capabilities being important to strategy, which not only puts him at odds with Chandler but also with Penrose. Penrose’s view of strategy was that it was “to increase total long-term profits” (Penrose and Petelis, 1999, p.12) again, emphasising the long term view. She also viewed administration as important, identifying that “administrative co-ordination and ‘authoritative communication’ define the boundaries of the firm” (Penrose and Petelis, 1999, p.9). She saw firms as resource bundles that could be combined in specific ways to generate products and services “for sale in the market for a profit” (ibid), a view with which Porter disagrees, and which causes her to be portrayed as the founder of the resource-based view of strategy (Foss, 1999, p.87), although Foss argues that what is now seen as the resource-based view is not what Penrose was describing in her work. Standard strategy textbooks provide definitions of strategy, based on the views of the authors. Johnson et al (2008, p.857) say that strategy “is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations”, a broad definition that would find both favour and disagreement with the earlier writers mentioned above. But what is interesting is the difference between definitions of strategy in 1959 (Penrose – the year her book was published), 1962 (Chandler), 1996 (Porter) and Johnson et al (2008). There is no direct linear progression, yet Johnson et al’s definition includes all of the ideas of the earlier theorists. It would seem that all of the ideas have merit, and affect strategy, but their discovery was due to something else that caused different things to be discovered at different times. Categories of Strategy Different writers have different ideas of strategy, but only one has attempted to bring all of these together to create a coherent whole. Richard Whittington (2001) considered the different theorists’ views on strategy and tried to make sense of them by constructing a model that produced four different types of strategy. He provides a summary of these in the form of a table, reproduced here: Classic Processual Evolutionary Systemic Strategy Formal Crafted Efficient Embedded Rationale Profit maximisation Vague Survival Local Focus Internal (plans) Internal (politics/ cognitions) External (markets) External (societies) Processes Analytical Bargaining/ learning Darwinian Social Key influences Economics/ military Psychology Economics/ biology Sociology Key authors Chandler; Ansoff; Porter Cyert and March; Mintzberg; Pettigrew Hannan and Freeman; Williamson Granovetter; Whitely Emergence 1960s 1970s 1980s 1990s Table 1: The four perspectives on strategy Source: Whittington 2001 p.53 From this, it is clear that there are different views of strategy, and they evolved in some sort of sequence across a period of around fifty years. The rationale of the Classic approach is evident in both Chandler’s (1962) and Porter’s (1996) views and definitions of strategy. The Classic approach is stated as being focused on profit maximisation, which ties in with the approach of companies today, which are required to maximise shareholder value, sometimes at any cost. The rationale for the Evolutionary approach also appears evident in today’s reliance on the markets to decide who should survive and who should not, unless governments intervene to rescue organisations for particular reasons. In 2008, Gordon Brown authorised the support of the UK banking system using taxpayer funds, although the amount involved is reported to be several amounts ranging from an initial commitment of ?500bn (Naughton 2008) through to ?1tn (Seager and Treanor, 2009) and ?850bn (Grice, 2009) before a revision to ?6bn (Vina 2010). Based on this, Whittington’s model needs to be revised to bring it up to date, although Grant (2010 p.17) has produced a more current version, his ideas do not relate directly to those of Whittington. The Classic Perspective The key issue that links strategy, individual behaviour and social dynamism is the final line of Whittington’s table: when the different types of strategy appeared. Looking at the Classic perspective, this appeared in the 1960s, although it could be argued that it was the first approach to strategy evident in organisations following the approaches adopted by F W Taylor and Ford (Mullins, 2007, pp.42-46). Whittington (2001) characterises the individual skills necessary for classic strategy success as being rational and objective, setting goals and controlling from the top of the organisation as a lonely figure making decisions and watching as the “troops” in the organisation carry out the resulting actions The sixties represented a period of stability and sustained growth for organisations, but they faced issues relating to co-ordinating and controlling because organisations were growing extremely large and complex (Grant, 2010, p.14). This is the background for Chandler’s long-term planning and administration approach. The approach to strategy was a response to a context that existed at the time: large, complex organisations with increasing areas of activity and numbers of people doing things needed to be controlled to ensure the organisation’s objectives were met and resources targeted appropriately. This approach to strategy, known as corporate planning, led many organisations to develop five- or ten-year plans (ibid, p.15). It was relatively easy to see the future and any changes were spaced out in such a way that change management models such as Lewin’s unfreeze-change-refreeze approach (Mullins, 2007, p.736) were capable of actual execution as intended. The focus on co-ordinating and controlling resources, including human ones, reflects the origins of the study of strategy in the USA and their history. Cooke (2003) identifies links between the study of management and the use of slaves in the nineteenth century, and especially to the Classic perspective: he highlights instances of records concerning the management of plantations that demonstrate use of Taylorist scientific management principles (Cooke, 2003 p.1897). Cooke also considers the American Civil War to be an industrial revolution, severing the ties between working on the land and working in industry and commerce, replacing the Feudal system that existed in the South (ibid). This relates to Marx and Engel’s views on the division of labour and forms of property expressed in The German Ideology (Mandarini and Empson, 2010, pp.2-5) and denotes ownership of both the resources used to produce products and services and the results of that production, in the form of revenues, profits and, potentially, ideas, perpetuating the class system within a society. Following the second world war, there were sufficient jobs in the UK for full employment to be achieved. Technology focused on methods of production rather than information and computing technologies and manufacturing was the primary driver of industry. This provided the backdrop for the long term approach seen in the Classic view. The Processual Perspective The long-term view was discovered to have drawbacks when the oil crises in the 1970s occurred and were not foreseen by anyone. A review of the approach to strategy took place against a backdrop of economic instability, rising unemployment and increasing international competition (Grant, 2010, p.15). Strategy shifted from long-term planning to the seeking of competitive advantage. Porter’s (1980) Five Forces competitive model was used to analyse industry competition to discover how firms could gain a competitive edge over others. Mintzberg and Waters (1985) suggested that planned strategies rarely happened as planned with the realised organisational strategy that actually happened emerging over time, in response to external events. They define strategy as being “a pattern in a stream of decisions” (Mintzberg and Waters 1985 p.257). Such a definition would certainly have been appropriate at the time, as organisations found themselves changing decisions constantly to keep up with the volatility in the environment. Areas such as organisational power and politics and limits to rational action became important (Whittington 2001), with a reduced focus on strategic flexibility and reduced expectations of success. The clear processes of strategy formulation and execution become blurred as organisations and individuals are compelled to act rather than think or plan. The Evolutionary Perspective In the UK in the 1980s, the markets became more important to economic policy. Industries that had previously been subjected to stringent regulation found the regulation reduced or removed completely, giving them the ability to compete unhindered (Sloman, 2005). A move towards free markets meant that competitive advantage became more important, and firms invested time and money trying to acquire such advantage by buying up competitors within the same industry or from associated industries. Banks, for example, began to deal with insurance and share-related products, buying up existing insurance and pension companies or working with strategic partners to develop the capability to provide a “one-stop shop” for all a customer’s financial needs. Many firms ceased to exist, through either going bust or being bought out by larger firms. Smaller firms consolidated to become larger firms, with some looking to international markets for additional revenue streams. Strategy considered resources, capabilities and core competencies to achieve the much-needed competitive advantage. Whittington (2001) identifies the abandoning of rational optimisation and adoption of environmental fit, with weaker performers, whether organisations or individuals, being forced out. The market and/or organisation will decide which of them will survive. The Systemic Perspective Moving into the 1990s, there were two recessions and high unemployment, as well as a severe curtailing of union rights(Sloman, 2005). Control moved back to the employer, reinforcing Marx and Engel’s views (Mandarini and Empson, 2010, pp.2-5), with ownership becoming concentrated in the hands of the institutional investors. Survival was the name of the game, with massive corporate restructuring taking place during both recessions to avoid going out of business. This perspective relates strategy content to strategy contexts and the impact of the sociological. Because individuals come from society, they are steeped in its values and cannot abandon them when they arrive at work. As such, those values will affect how they do their jobs and influences other than the organisation’s requirements will be at work, albeit implicitly (Whittington, 2001). Both organisational and national culture begin to be important as these also affect organisational actions. Supporters of the Systemic Perspective argue that strategy “must be sociologically sensitive” (ibid, p.52), a key point as the pace of globalisation increases. The Future? Figure 1: Evolution of strategic management: dominant themes Source: adapted from Grant, 2010, p.17 Grant (2010) identifies some strategy themes for the current decade, however, it is likely that, while the themes became more important and relevant in 2010, organisations failed to take heed of them, resulting in significant disillusion with the way business does business. Whether things will change and Grant’s themes become more important in the new decade remains to be seen. Conclusion A consideration of strategy indicates that it is a product of its time and context. Different ideas of strategy emerged relative to the macro-environment of the time, and appear to continue in the same vein. Anyone formulating strategy who ignores the societal context of the time risks producing a worthless plan that is inappropriate for the culture of the location within which it is to be executed. Word Count: 2,069 words excluding diagram and references References Chandler, A. D. (1962) Strategy and Structure: Chapters in the History of the Industrial Enterprise MIT Press, Cambridge, Mass. Cooke, B. (2003) ‘The Denial of Slavery in Management Studies’ Journal of Management Studies Vol. 40 No. 8 pp.1895-1918 Foss, N. J. (1999) ‘Edith Penrose, Economics and Strategic Management’ Contribution to Political Economy Vol. 18 No. 1 pp.87-104 Grant, R. M. 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