The Concept of Managing Organizations Strategically - Research Paper Example

Business- strategy Strategic management is the process by which an organization formulates its objectives and manages to achieve them. Strategy is the means to achieve the organizational ends. A strategy is a role to the destination Viz., "Objectives of the firm". Picking a destination means choosing an objective. Objective and strategies evolve as problems and opportunities are identified, resolved and exploited. The interlocking of objective and strategies characterize the effective management of an organization. The process binds, coordinates and integrates the parts in to whole. Effective organizations are tied by means-ends chains into a purposeful whole. The strategies to achieve corporate goals at higher levels often provide strategies for managers at lower levels. So Strategic management is a stream of decisions and actions, which lead to the development of an effective strategy or strategies to help achieve corporate objectives. Strategic management is concerned with deciding on the strategy and how the strategy is to be put in to effect. Strategic management allows an enterprise or an organization to base its decision on long-range forecasts. It also allows the firms to take action at an early stage of a new trend and consider the lead-time for effective management. A sound strategic management process helps to ensure that all organizational parts are working to towards the same objective and purpose. Strategic management will never be a cure-all especially for the incompetent management; it can go a long way in improving an organizations long-term performance. Now looking at the importance of strategic management and its relevancy in the present circumstances, the subject strategic management itself is in the midst of an evolutionary process. In the course of its development, several strands of thinking are emerging which are gradually leading to a convergence of views. We now have a wealth of insights into the complexities of strategic behavior- the observable characteristics of the manner in which an organization performs decision-making and planning functions with regard to the issues that are of strategic importance to its survival, growth and profitability. Several persons, among whom are the doyens in the field of strategy, have contributed to the formulation of these perspectives. Indeed the Mintzberg and his associates, from whose writings these perspectives have been adopted here, call them the 10 schools of thoughts on strategic formation (Mintzberg, H., Ahlstrand, B. and Lampel, J., 1998). The above-mentioned 10 schools of thought can be classified under three categories as follows: The Perspective schools: This school contains 3-schools and they are (a) Design school where strategic formation is a process of conception. (b) Planning school where strategic formation is a formal process (c) Positioning school where strategic formation is an analytical process. (a) The design school, which perceives strategy formation as a process of conception, developed mainly in late 1950 and 60's. The main contributors to the design school are Selznick (1957) and Andrews (1965). Under this school strategy is seen as something unique, which is in the form of a planned perspective. The CEO as the main architect guides the process of strategy formation. The process of strategy formation is simple and informal and based on judgement and thinking. In this school strategic management has been treated as process of accomplishing match between internal capabilities and external possibilities i.e. (SWOT) of an organization. Senior management is supposed to formulate simple and clear-cut strategies (Prigogine 1984, Kemp and Ashish, 2005). But this system have some shortcomings i.e. this system is not analytical or intuitive. In the time of rapid changes, this system is comparatively more static. b) The planning school that perceives strategy formation as a formal process, developed during 1960's. The main contributor to the planning school is Ansoff (1965). Under this school, strategy is seen as a plan divided into sub strategies and programmes. The planners play the lead role in strategy formation. The process of strategy formation is formal and deliberate but this school neither supports real-time strategy making nor encourages creative accidents. c) The, which perceives strategy formation as an analytical process developed mainly in 1970's and 80's. Under this school, strategy is as a set of planned generic positions chosen by a firm on the basis of an analysis of the competition and the industry in which they operate. The analysts play the lead role in strategy formation. The process of strategy formation is analytical, systemic and deliberate. The major contributors of this study/school are Schendel and Hatten (1970's) and Porter (1979, 80a,b, 1985, 87, 91, 98, 2001). This school stressed that strategy depends on the positioning of the firm in the market and within its industry. It mainly depends on the tools like competitive advantage, five forces model, value chain, BCG matrix, Game theory etc. but it neglects power, politics, cultural, social elements and biased towards larger companies. In this school, strategy is reduced to generic position selected through formalized analysis of industry situations. Now the Porter's five forces framework is one of the major concepts, which provides us an understanding of the competitive nature of an industry. Here in the category of Perspective school, we are analyzing the mobile industry in UK with the help of the tool i.e. Porter's five forces framework within the Positioning School. Now if we take mobile phone industry in U.K., we find that competitive rivalry between network operators was becoming intense. In a market approaching saturation, emphasis was placed on cost coverage, the offering of new products and services and on general customer services. Buying power of consumers was high. The danger for providers was confusing consumers with over complex offers. Independent firms (e.g. in UK car phone ware house) competed with retailers owned by network operators (e.g. Vodaphone). Others offer cheaper deals through newspaper advertisements and the Internet. Equipments manufacturers also competed for market share. Nokia, Motorola and Ericsson, had concerns about market saturation. Areas of potential growth were multi-task chips and smart cards in phones to aid m-commerce. Upgrading was now more important than market penetration. In 1990's the main threat to substitution was technological regression where customers returned to fixed line telephony because of high mobile charges. But by 2000, call charges getting reduced and the threat to substitution subsequently reduced. Now more threatening was the convergence of mobile telephony with Internet and PDA's (Personal digital assistants). The basic threat of substitute is from the speed of technology changes in the telecommunication sector as a whole. Threat of new entrants in the UK mobile phone market is low because of the huge initial cost in terms of licenses fee and general initial investments in new 3G (broadband) technologies. Power was a function of who was ahead of the game in 3G. Future power struggle were likely to be a function of deregulation, upgrading and the uptake of new functionality. Now this above example shows that how the concepts of Positioning school within the Perspective School helps the organizations to evaluate the current market environment to take any decisions regarding the company's different strategies. This situation generally take consideration of external environment but other factors has not been considered properly. This shows the unidirectional way of analysis. The Descriptive School:- It contains next 6 schools which are a) The entrepreneurial school where strategy formation is a visionary process. b) The Cognitive school were strategy formation is a mental process c) The Learning school where strategy formation is an emergent process d) The Power school where strategy formation is a negotiation process e) The Cultural school where strategy formation is a collective process f) The environmental school where strategy formation is a reactive process. The entrepreneurial school, which perceives strategy formation as a visionary process developed mainly in the 1950's. Under this school, strategy is seen as the outcome of a personal and unique perspective often aimed at the creation of a niche. The lead role in strategy formation is played by the entrepreneur/leader. The process of strategy formation is initiative, visionary and largely deliberate. The major contributors to the school are Schumpeter (1950's), Cole (1959) and several others, most of whom are economists. The school likes a typical simple structure responsive to leaders directive generally found among start-ups, companies owned and managed by a single individual, or turnarounds in large established enterprises. Many of the procedures and power relationships are suspended to allow the visionary leader considerable latitude for maneuvering (Kemp & Ashish, 2005). In this school, strategies are designed mainly based on the leader's intuition and sometimes have vague vision. It is difficult to find right leader and often leaders have tendency to go too far. The Cognitive school, which perceives strategy formation as a mental process, developed mainly in 1940's and 50's. Under this school, strategy is seen as an individual concept that is the outcome of a mental perspective. A thinker-philosopher plays the lead role in strategy formation. The process of strategy formation is mental and emergent. The major contributors to the cognitive school are Simon (1947 & 1957), and March & Simon (1958). This school as concepts is not very practical beyond conceptual stage. Cognitive process of strategy formulation is currently not very useful to guide collective strategy processes. The learning school, which perceives strategy as an emergent process has had a legacy from the 1950's through the 1990's. Under this school, strategy is seen as a pattern that is unique. The lead role displayed by the learner within the organization whenever that might be. The process of strategy formation is emergent, informal and messy. The major contributors to the learning school are Lindblom (1959, 1960), Cyert & March (1963), Weick (1969), Quinn (1980), Senge (1990) & Prahalad & Hamel (early 1990's). It offers a solution to deal with complexity and in predictability in strategy formation. More people can learn than just the leader. It is strong in complex conditions with continuous change and in professional organizations. Sometimes this school could lead to having no strategy. It is not very useful in crisis or instable conditions. It has been associated with the increase in cost also. The power school, which perceives strategy formation as negotiation process developed mainly during the 1970's and 80's. Under this school strategy is seen as a political and cooperative process of pattern. Any person in power (at the micro level) and the whole organization (at the macro-level) play the lead role in strategy formation. The process of strategy formation is messy, consisting of conflict, aggression and cooperation. At the micro level the process of strategy formation is emergent while at the macro level it is deliberate. The major contributors to the power school are Allison (1971), Pfeffer and Salancik (1978) and Astley (1984). The shortcomings of this school are that it largely encourages political divisions, uses lot of energy, causes wastage and distortion and can lead to just tactical maneuvering. The cultural school, which perceives strategy formation as a collective process developed mainly in 1960's. Under this school, strategy is seen as a unique and collective process. Under this school, strategy is seen as a unique and collectively displayed within the organization. The process of strategy formation is ideological constrained, collective and deliverable. The major contributors to the cultural school are Rhenman & Normann (late 1960's). This school emphasizes the crucial role that social processes, beliefs and values are playing in decision-making and strategy formation. It helps to deal with mergers and acquisition but it often taken as a vague and could be misused to justify the status quo and aggravate resistance to change. The environmental school, which perceives strategy formation as a reactive process, developed mainly in the late 1960's & 70's. Under this school strategy is seen as something generic occupying a specific position or niche in relation to the environment. The environment as an entity plays the lead role in strategy formation. The process of strategy formation is passive and imposed and hence, emergent. The major contributions to the environmental school are Hannan and Freeman (1977) and contingency theorists like Pugh et al. (late 1970's). Over emphasis on environment renders it less useful for strategy formation and denies real strategic choice for organizations. Now we will analyze the entrepreneurial school within Descriptive school of thoughts which will show that how a visionary leader in South-West Airlines and his strategy formulation skills made it one of the profit making airlines even after 9/11 incidence when almost all the airlines faced financial crunch. In 2004, the Southwest airline was by all accounts America's best-managed airline. In the early 2000s, southwest market capitalization was bigger than those of the major us airlines, American, united and continental combined. Since 1973, the Dallas based airline made profits without a break. This was an astounding feat in a difficult industry plagued by price wars, recessions, oil crisis and the most recently, the WTC attack. Indeed, southwest was the only airline in the U.S. to report profit in the difficult third quarter of 2001. The US economy went into recession. But by remaining lean and mean and keeping cost under control, southwest sailed through comfortably. Kelleher's philosophy of managing well in good times to be ready for bad times seemed to be paid off. Form early 90's upto September 2001 airlines business was increasing. But after 2001 WTC attacks airline business has been dropped. In the year 2003 airline industry again had faced lean patch due to Iraq war, SARS, weak economy higher energy cost and terrorism related concerns all airlines struggled for survival. Despite these challenges, Southwest reported profit year after year. Organizational analysis: Airlines CEO says that "we look for attitudes: people with sense of humor who do not take themselves too seriously. We'll train them according to our requirements but the one thing we cannot change in people is inherent attitudes." We look for people with other-oriented, outgoing personalities, individuals who become part of an extended family of people who work hard and have fun at the same time. Southwest always looks for a team player. Training played an important role at southwest. Both functional expertise and team building skills were emphasized. The airline used various programmes to promote cross-functional communication. Some training programme tried to inculcate leadership qualities among employees by teaching them how to lead with integrity, care for customer and respect for company's core values. Southwest had tried to encourage discretion and authority among the lower level employees. Southwest laid extraordinary emphasis on coordination. Effective coordination required frequent, timely, problem-solving communication carried out through relationships based on shared goals, shared knowledge and mutual respect. Southwest employed a lean organization structure. There were only four layers of management between a frontline super wiser and the CEO. The company sought to eliminate inflexible work rules and rigid job descriptions. Southwest believes it was important to give its employees access to information about the company, competitors and the industry. To promote a feeling of ownership among employees southwest introduced an employee profit sharing plan way back in 1973. It had instituted many awards to motivate its employees. Culture is the glue, which holds the organization together. It encompasses beliefs, expectations, norms, rituals, communication patterns, symbols, heroes and reward system. Southwest had attempted to promote a close-knit family like culture. A culture committee was setup to reinforce the spirit of southwest by communicating the airlines mission, vision, values, norms and philosophy. Southwest encourages his employees to challenge conventional wisdom, encouraged to implement new ideas quickly. It viewed integrity as a core value. It builds confidence in his employees so as to get things done faster. Leadership played a major role in shaping the strong southwest culture. Southwest succeeded in an intensely competitive industry. Strong relationship among employees, managers, unions and suppliers had enabled the airline to be extraordinarily good in cutting cost and improving customer's satisfaction. Herbert Kellehar, the chairman of Southwest airlines attempts to create a family feeling among his employees by remembering their names and personality sending out birthday cards. In attempt to stay competitive in the deregulated airline industry, he asked for and received considerable concessions from employees and their union. His hands on leadership style won him the respect and followership of his employees. The austerity measures apply equally to management and employees. Leading by example those who follow him, he seems concerned about both the tasks to be done and the people who work for him. His leadership style is also congruent with the airline's policy of providing friendly service and keeping costs low (Basic information has been taken Jody, Gittel Hoffer (2003) The Southwest Airlines Way, McGraw-Hill.). This above discussed example show that how a visionary leadership can make a change/ turnaround in the organization and made it frontrunner within the concerned industry. But in this school one thing, which may not happen often, is the discovery of a visionary leader who can change the direction of the organization. The Integrations school, which is the 3rd school and where strategy formation is a process of transformation. It contains the last 10th the over all school called Configuration school. The Configuration school, which perceives strategy formation as a transformation process developed during 1960's and 70's. Under this school, strategy is viewed in relation to a specific contest and could be in a form that corresponds to any process visualized under any of the other nine schools. The process of strategy formation is integrative, episodic and sequential. In addition the process could incorporate the elements pointed out under one of the nine schools of the thought. In this school, strategy and organizations structure are closely integrated and should be reconciled. Key to strategic management is most of the time to sustain stability or at least adoptable strategic change. It is able to manage disruptive process without destroying the organization. But in reality there are many gray shades. It is not just limited to number of valid configuration. The major contributors to this school are Chandler (1962), Mintzberg and Miller (late1920) and Miles and Snow (1978). Now for the Configuration school, every organization may have its own organization structure according to its over all conditions. So in this school each and every organization has it's own way of implementing strategy and organization restructuring. One of the important examples is the BBC, which has been a well-known broadcaster from UK, which was founded in 1922, now governed by autonomous board of governors. Its income is derived from license fee paid by 22 million households. Its broadcast reached over 50 million people domestically each week and almost 300 million worldwide. It has a global reputation for quality of programmes. In April 2000, in a speech to 400 managers, which was subsequently relayed to all staff, Grey Dyke, the new Director-General (DG) laid down his vision and plans to restructure the way in which the organization worked. The new DG had a background in commercial television and was more flamboyant and street wise. Like many new leaders, his first steps is stamping his brand on the BBC, was to review its structure and management process in Building One BBC. Prior to 2000, John Brit's structure of BBC was built on the principles adopted by many parts of the public sector at that time. He created an internal market by separation the management in to divisions covering the three major aspects of broadcasting, Resources, Programmme Production and Programme broadcasting. Each of these divisions had its own headquarters, several business units and traded with each other in an internal market and also with third parties outside BBC. Most of the things that might be centralized in other organization were developed and duplicated, financial management. In his introduction to Building One BBC, Grey Dyke explains the background to the structural changes. Our aim is for the BBC to be a place where people work collaboratively enjoy their job and are inspired and united behind a common purpose to create great television programmes and outstanding online services. If the BBC is to be a magnet for the best talent in Britain then it must be an exciting and creative workplace to work. He lists out five goals to be addressed to make the changes in the structure of the organization.. To put audiences first and creativity and programmer making at the heart of BBC. Over time to raise the proportion of BBC funding that is spent on programmes from76% to 85%. Create a culture of collaboration, in which people work together to make great programmes. To change the way the organization works so that we can take decisions quickly and act decisively while retain sufficient checks and balances to avoid damaging mistakes To make sure that the BBC is properly equipped with the skills it needs to complete effectively in the digital world. So Grey Dyke makes the following changes to achieve the desired goals. (1) A flatter structure. (2) A more inclusive top-team. (3) Three programmers division replaced BBC production. (4) In sports, children and education commissioning and programme making will be reintegrated to create a single BBC division for each area (5) Over the corporation, a more collaborative commissioning process will be introduced, with programme guarantees in most areas. (6) A new media division will be setup (7) Duplication of central and support functions will be eliminated (8) Internal barding will be simplified. This whole process of configuration school leads BBC to be a more flexible and dynamic organization, which is more likely to adopt in changing environment. In the process of discussing the case of BBC we had seen that the configuration school adopts all the measures discussed in rest of the 9 strategy schools. So strategic management, a newer and broader concept of managing organizations strategically, takes into account all the aspects of managerial problems, the process of solving them, and many variables operate in a problem-solving environment. References: 1. Ansoff, H. 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