Art of War by Sun Tzu - Literature review Example

?HISTORY OF STRATEGY The beginnings of Strategy can be d back to as early as 506 B.C. Sun Tzu, a Chinese general wrote the book “Art of War” which is believed to be the oldest military treatise in the world. This book made up of 13 chapters covered every detail about fighting a war, right from planning, waging the war, strategies, maneuvering, the quality of terrain, use of spies, attack and defence tactics etc. Sun Tzu was aware of the tremendous cost of fighting a war and the consequential huge losses. Hence, he clearly outlined the greatest highlight of his book proclaiming that the best way to win a war was “by fighting as few battles as possible”. This laid the first foundations of strategy. This book, even today, continues to be the strategy bible for some of the best corporate leaders, football coaches, cricket mentors etc. Contributions to strategy were from different domains – military, political, academic and practitioners as well. The word strategy is derived from “strategos” – a combination of the Latin words “stratos” meaning an Army and “agein” which meant to lead. “Strategos” was used to refer to an Army General in Athens. In 1505 AD, Nicolo Machiavelli, a politician authored a book titled “The Prince”. This book consisting of 26 chapters dealt with principles of the governance of a kingdom or a State. His strategy of taking control of country by either treating the powerful citizens very well or crushing them completely, gave rise to the Machiavillean philosophy in politics and governance. The academic origins of Strategy can be traced back to the 1960s when Drucker, Ansoff and Chandler studied the prosperity of large successful American corporations before and after the II World War and created a platform for the "Classical School of Business Strategy". Though it had its roots in the Military Strategy, this school has never been replaced by a better total view about strategy. They propounded that Direction setting or “Strategy formulation” as an important responsibility of top managers. Business practitioners such as Sloan, the President of General Motors from 1923 to 1946, designed the concept of a “Divisionalised Corporation”. Jones, the Chairman of ICI, contributed his thoughts on how to make the Board of Directors in an organisation work better. Grove, the President & CEO of Intel Corporation presented his insights as to how to run an organisation in an environment of very rapid technological advances. In 1965, Moore, the co-founder of Intel, brought out the very popular Moore’s Law. The law stated that the number of transistors / inch would double every 2 years. This law held good for about sometime but was overshadowed by the giant strides made by chip manufacturers in the technology front, in so much so that Moore himself, publicly acknowleged that technology had far outgrown the Moore’s Law. The present law suggests that the data density per chip doubles every 18 months. The evolution of the concept of Strategic Management travels back to the 1950s, when Ford and the Carnegie Corporation, sponsored research into curriculum of business schools. The major recommendation of the study was to expand business education to include a course on Business Policy which helped application of analytical techniques to businesses. By the 1970s, most of the top B-schools in the world had a course on Business Policy and the focus became wider. By the 1980s, research literature on competitive strategy had grown and the course on Business Policy began to look at the large picture of business. Hence, Business Policy was changed to Strategic Management. Johnson and Scholes (2002) defined Strategy as “direction and scope of an organisation over the long term”. It would be prudent to compare and contrast Strategic management with Operational Management. While both these concepts dealt with management per se, these two approaches are diametrically opposite. While Operational Management was routine in nature, small in scale, specific to an operation, was driven, by and large, by the resources available and essentially, had a short term perspective, Strategic Management was holistic in its outlook with a rich array of features. It was focused on the long term, driven by expectations and the environment and looked at fundamental organisationwide changes. Strategic management was complex, non-routine and highly ambiguous. There are three levels of Strategy – Corporate Strategy, Business Strategy and Functional Strategy. Corporate strategy is the single overarching long term plan for the entire organisation, as a whole. It is one single strategy, irrespective of the size and nature, and addresses the issues of the multi-business enterprise. It embraces all other levels of strategy. The Corporate Strategy encompasses the scope, nature, purpose and choice of business. Research literature on Corporate strategy gives us broad insights into the major issues confronted by corporate giants the world over across the different time horizons right from the decades of the 1950s to twenty first century and the relevant responses of the business houses. In the 1950s, the major issue was “overload at the centre” or the central headquarters of the corporations. The strategy adopted was “divisionalization” of the business houses into smaller, manageable divisions. In the 1960s , the single point focus of businesses was “growth” which resulted in “diversification” of all types and kinds. “Resource allocation” became the priority in the 1970s to which “balanced portfolios” provided adequate solution. “Poor performance and value gaps” dogged the business world in the 1980s and business corporations were forced to take a second and hard look at their operations, forcing many of them to “restructure” their working to the newer demands of the business environments and the market place. “Core business” was the watchword in the 1990s and the corporate world became obsessed with “manageable portfolios”. The 2000s looked at maximizing “shareholder value” which forced business houses to focus again on value. “Divestitures” gained currency as organisations started hiving off and shedding those divisions or functions which proved to be a drag on the company’s value creation. Business Strategy is formulated one for each business. It highlights the products, markets and the competitive advantages of a business. This is necessary since the strategy for running a manufacturing business would be drastically different from the one for a virtual organisation. Likewise, an automotive manufacturer would find it impractical to replicate his strategy for running a computer business. Hence, single businesses would have a single business strategy while a multi-business house with, say, six different types of businesses will have six different business strategies, one each catering to the unique, special needs of six individual businesses. Functional strategies, otherwise known as Operational Strategies, are designed for each function of a business such as Marketing, Finance, Systems, Human Resource, Research & Development. Thus, there are as many functional strategies in an organisation as the number of departments or functions. The Strategic Management process consists of five steps – Environmental analysis, establishing organisational direction, strategy formulation, strategy implementation and strategic control. Environmental analysis addressed the two major components of the business environment, namely, the micro environment and the macro environment. The micro environment consisting of the immediate surroundings of the organisation such as employees, customers, the value framework, suppliers and vendors, supply chain and logistics, advertising agents, research and media organisations, included all those factors and players which had an influence only on the firm. The macro environment comprising the political, social, economic, technological, legal, physical, demographic and international forces, looked at all those major players and forces beyond the control and scope of the individual organisation, and which influenced all the players in the industry, irrespective of size and shape. Also, called the controllable and uncontrollable environments respectively, this analysis was typically carried out by means of the SWOT – Strengths, Weaknesses, Opportunities & Threats – matrix. The objective is to critically analyze the internal strengths and weaknesses and to determine the present and future external opportunities and threats, to an organisation. Also known as the TOWS matrix, it highlighted four options – Maxi-Maxi, Mini-Maxi, Maxi-Mini and Mini-Mini strategies, vis-a-vis the several components of the matrix. Organisational direction setting was through the hierarchy of plans – Vision, Mission, Goals, Objectives, Tactics, Tasks and Control. The Vision represented a capsule of the its values and aspirations, in most general terms, essentially an impossible dream. It highlights the long-term objective and specifies the future desired state. It attempts to answer the question “What do we want to create ?” in the organisational context. The company’s mission is the short-term goal and spells out what is to be done and how, in a given time period, to enable it to progress towards its grand vision. It answers its purpose of existence. Strategy formulation is the process of designing a strategy that leads to a sustainable competitive advantage. Strategy implementation refers to all actions involved in realizing the logically developed strategies. Strategic control is a special type of organisational control that focuses on the monitoring and evaluation of the Strategic Management process. Strategic Leadership was most closely identified with the Chief Executive Officer of an organisation who was held ultimately responsible for the success of a strategy. It represents a symbolic and substantive role and dealt with the role of the CEO and assignment of key managers. Studies on Strategic Management in practice led to insights on the planned intended strategy of an organisation, its emergent strategy, opportunistic strategy, imposed strategy, realized strategy and its unrealized strategy. The environmental analysis of a business can be carried out through regular, irregular or continuous environmental scanning systems. Scenario planning is a technique which postulates two or four possible future scenarios which an organisation is likely to face at some point of time into the future. No assessment of likelihood of occurrence is made. An assessment of the likely effects of each scenario is undertaken and actions necessary to survive and succeed, are identified. None of the scenarios may occur in reality, but this exercise is carried out to encourage and promote out- of- box thinking. Corporate governance refers to the balance of power among the owners, managers, employees, the government and the public, at large, in an organisation. It represents the force that regulates the power of the various stakeholders. Porter’s five-force model facilitates the external analysis of a firm vis-a-vis the industry competitors, the bargaining power of buyers, the bargaining power of sellers, the threat of potential entrants into an industry and the threat of substitute products. The Corporate survival model in addition to these five forces looked at the influence of lobby groups, government ideology and policy, fashion and fickleness and the role of complementors. Little’s life cycle matrix, outlined various strategies to be followed across the four stages of a product life cycle – introduction, growth, maturity and decline – in the context of an organisation’s competitive position viz. Dominant, Strong. Satisfactory, Wean and Very Weak. Ohmae, through the Strategic Triangle, studied the interplay of three forces – company, competitors and customer - in relation to the cost and value added offered, for a product/ service. Competitive advantage is defined as any advantage which helps an organisation win over competition. This advantage could be in the form of cost, differentiation, time-based, first mover advantage or technology-focused. Ohmae’s competitive advantage model suggested intensifying functional differentiation, building on relative superiority, pursuing aggressive initiatives and exploiting the strategic degrees of freedom. Corporate or Parenting advantage refers to the value added by the corporate headquarters of a firm to individual businesses. Against the backdrop of rival parents and the trends and scenarios prevailing in the market place, parents ought to achieve a fit between its own characteristics and the characteristics of its businesses. This would facilitate achieving an optimum fit between the decisions of the parent and the decision on the portfolios thereby adding to the advantages for the organisation, as a whole. The Market Commitment Model dealt with four dimensions of price, emotion, service and performance. The pricing strategy was weighed against the service structure – personalized, symbiotic or comprehensive. Against this context, performance was measured against speed, reliability, convenience and functionality. The emotion component referred to the design, political, innovative and recognition aspects of a product/ service. Benchmark, essentially, represents a standard or a reference. Benchmarking is an objective comparison of resources, capabilities and processes of an organisation with that of the highest standards achieved anywhere in the world. This is a useful strategy to become a world class company. Porter’s Value chain analysis helps determine the value contribution to a product/ service by the various elements – Infrastructure, Human resource, Technology, Procurement, Inbound logistics, outbound logistics, Operations, Marketing & Sales, and Service. The purpose is to identify those highly critical elements with the greatest value addition which need to be sustained and enriched by the organisation. Simultaneously, the least value addition elements could be outsourced, without any dilution of competitive advantage. The revised Value Chain model incorporated the components of Strategic Management, Core competence and Information Systems and Knowledge Management. Porter formulated the theory of Generic Strategies. The three generic strategies highlighted are Cost leadership, differentiation and focus. In cost leadership, a firm aims to be the lowest cost producer in its industry.  The differentiation strategy of a firm seeks to be unique in its industry. The generic strategy of focus targets a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others. This strategy has two dimensions – cost focus and differentiation focus. Core competence (Prahlad & Hamel, 1980) refers to a technical or management subsystem which confers sustainable and unique competitive advantage and add value to an organisation. The traditional perspective of competence revolved around market share, Stand alone features, Strategic Business Unit focus and speed to market ability. In contrast to this, the Core Competence model was built on share of future opportunities, long term vision, corporate competence and the pattern of alliances. It represented its unique, special ability and the collective knowledge of the organisation. Shareholder value analysis focused on the operating, investment and financial management decision taken by a firm. These decisions have a bearing on the value drivers such as duration of value growth, sales growth and profit margins, fixed and working capital investments and cost of capital. The valuation components considered were cash from operations, the discount rate and the debt. All these components influenced the corporate objective of creating and maximizing shareholder value. Strategic assets of an organisation which led to distinctive organisational capabilities include monopoly advantages, experience curve and licensing and regulation. Portfolio analyses of businesses are generally undertaken with the help of techniques like the BCG Matrix, GE Industry-Attractiveness & Business Strength and the life cycle analysis of an industry. The Boston Consulting Group Matrix categorized business portfolios into Cash cows, Stars, Dogs and Question marks, on the basis of market share and market growth rate. Those portfolios falling under the Cash cow segment must be sustained and enriched. Star portfolios represented the future of the organisation. The Dogs were businesses which had to be divested or liquidated, at the earliest possible opportunity. The question marks referred to those portfolios which needed to be further evaluated and investment decisions made accordingly. The General Electric “Industry Attractive Business Strength” matrix is akin to the BCG matrix and herein the business portfolios were examined against the parameters of industry attractiveness and business strength. Each of these factors was subdivided into three sub-categories – Low, Medium and High and hence, the nine cell matrix. Dependent upon the position of the portfolios in the matrix, strategies for holding, investing or divesting the portfolios were suggested. Chandler studied the role of the nature and size of the organisation structure on strategy. His findings were that structure follows strategy. He opined that once a new strategy was created, new administration problems emerged and the economic performance of the organisation declined. Thereafter, a new appropriate structure is invented and the profits return to previous levels. Peters argued against this theory and tried to prove that the reverse was true. According to him, structure influences strategy. It is the structure of the organisation that determines over time what strategy is adopted. He cited examples of organisations with very strong cultures like CNN, Google, McKinsey etc. in his defence. However, empirical studies support the theory that Structure follows Strategy. The McKinsey 7s Framework described the seven important Ss for an organisation. They were Strategy, Structure, Style, Systems, Shared values, Staff and Skills. Strategy and Structure represented the hardware or the tangibles while the other five comprised the software or the intangibles. Structure represented the nature and the size of the organisational structure – flat, vertical, pyramidal etc. Style referred to the way and the manner in which the management functioned – authoritarian, democratic, country club and so on. Systems are crucial to the success and prosperity of any organisation and can be a definite source of competitive advantage. The number and quality of support staff goes a long way in improving customer interactions. Skills denote the personal and group abilities, expertise, knowledge levels and the learning attitudes of the human resource in an organisation. Shared values which are the super-ordinate goals transcend individuals and groups. They are the collective aspirations of the human resource and are strong drivers of individual and organisational excellence. All these six factors, sustains and drives the overall strategy. An optimum and judicious blend of these seven factors go a long way in achieving success and prosperity for an enterprise. The newer 7s model factored in the influences of changing organisational culture, changing business processes and changing culture on the seven factors of the earlier framework. Strategic change looked at the organisational change process against the backdrop of the nature and severity of the strategy changes. Five levels – Stable strategy, Routine Strategy change, Limited Strategy change, Radical strategy change and Organisational direction change, tried to study and understand the implications on the products, market, organisation and the industry. Implementation of the strategy is a very important step in the overall Strategic Management process. Five approaches to strategy implementation namely Commander approach, Organisational Change approach, Collaborative approach, Crescive approach and Cultural approach have been highlighted. The extent of cooperation and collaboration of the employees in top and other levels of the organisational hierarchy in activities such as goal setting, factors being considered in strategy formulation, perception of success, the role of the CEO and the efforts of the employees across the entire cross-section of the managerial hierarchy in the planning and implementation of strategy decided the implementation approach. The Commander approach is essentially a top-down approach with dictates on strategy formulation and implementation coming from the top management such as the CEO, Board of Directors etc The Collaborative approach is the exact opposite of the Commander approach and relies on whole-hearted and voluntary collaboration from all the employees, across the cross-section of organisational hierarchy. The Organisational change approach looked at necessary changes to be carried out to the organisational hierarchy vis-a-vis the various levels of management prevalent. “Crescive” which means incremental, evaluates strategy formulation and implementation, in terms of the incremental gains achieved. The Cultural approach factors in the role and influence of the organisational culture on the strategic framework. Against the backdrop of organisations with strong and weak organisational cultures, this approach also makes interesting reading. Strategic Control refers to a special type of organisational control that focuses on monitoring and evaluating the Strategic Management process. The routine control mechanism prevalent consists of four stages – establishment of standards, measurement and comparison of performance, performance gap analysis and initiation of corrective action. In addition to this rigmarole, strategic control includes Strategic surveillance, Premise control, Implementation control and Special Alert Control. While the standard control process monitors progress to meet annual objectives, the Strategic control framework, monitors and steers the basic direction of the company. Porter’s diamond in relation to the competitive advantage of nations depicted four major factors – demand conditions, factor conditions, related and support industries and Strategy structure and rivalry. This model became the basic strategic technique adopted by nations across the globe to achieve and sustain competiveness in a hyper competitive globalized world. Demand conditions looked at the nature and size of the nation’s demand for all classes of goods and services. Factor conditions represented the four major factors of production – man, money, management and material. Industry competiveness is a factor hugely dependent on the existence of related and support industries. The overall strategic policy of a nation was influenced by the other three forces. References Strategic Management – Hill and Tampoe, Oxford Edition, First edition. Strategic Management – Pearce & Robinson, Prentice Hall, Tenth edition Strategic Management – Thompson, Gamble and Strickland, First edition. Strategic Management – Fred David, Prentice Hall, Eighth edition. Moore E Gordon, Moore’s Law, http://www.intel.com/technology/mooreslaw/ Johnson & Scholes 2002, http://www.ukessays.com/essays/business/devising-a-strategy.php Porter, Porter’s Generic Competitive strategies, http://www.ifm.eng.cam.ac.uk/dstools/paradigm/genstrat.html Porter E Michael, Porter’s five forces, www.quickmba.com/strategy/porter.shtml  Prahlad CK & Hamel Gary, Core competencies, http://www.valuebasedmanagement.net/methods_corecompetence.html The McKinsey 7s Framework, http://www.mindtools.com/pages/article/newSTR_91.htm Porter E Michael, Value Chain analysis, http://tutor2u.net/business/strategy/value_chain_analysis.htm Ohmae Kenichi, Strategic triangle, http://www.sayeconomy.com/strategic-triangle-by-kenichi-ohmae/ The BCG Growth=Share Matrix, http://www.netmba.com/strategy/matrix/bcg/ GE-McKinsey Matrix, www.business-tools-templates.com/.../General%20Electric%20GE%20McKinsey%20Matrix%20User%20 Peters Tom, Structure is not organisation, www.tompeters.com/docs/Structure_Is_Not_Organisation.pdf Read More