Strategic Management in Organisations at a Time of Economic Turbulence - Dissertation Example

Strategic Management in Organisations at a Time of Economic Turbulence Introduction At the onset, it is necessary to define strategy, which according to Johnson and Scholes (1993) “is the direction and scope of an organisation over the long term: ideally which matches its resources to its changing environment and, it particular, its markets, customers and clients so as to meet stakeholder expectations” (Smith & Open Learning Foundation, 1996). Strategies are aimed at envisioning long term business goals and subsequently aligning the various business units as well as their operations towards the optimal manifestation of the goals. According to Gerald A. Cole “strategic management is a process, directed by top management, to determine the fundamental aims or goals of the organisation, and ensure a range of decisions which will allow for the achievement of those aims or goals in the long term, whilst providing for adaptive responses in the shorter term” (Cole, 2003). More often than not, strategy formulation requires a holistic approach wherein the three major areas that are taken into consideration by any organisation are its internal resources, its external environment, and its ability to enhance the value of its shareholders. Apart from these main areas of concern, there are also five central elements that determine the success of strategic decisions. These are sustainable decisions; means to develop processes that are capable of delivering strategy, competitive advantage, identification and utilization of linkages that exist between the organisation and its business environment, and a clear organisational vision that provides a quantifiable as well as achievable goal. This report will take into account these tenets of strategic management and will thereby endeavour to explore and analyse the prescriptive and emergent approaches in order to develop effective strategic management in organisations during periods of economic turbulence. Approaches to Strategic Management The various approaches to strategic management ensue largely from the seven elements that are generally accepted across organisations and contribute towards the construction of strategy statements. These elements are vision, mission, comparative advantage, organisational goals and objectives, CSFs (Critical Success Factors), shared values, and action orientation (Rabin, Miller & Hildreth, 2000). However, the two discrete approaches to this vast area of academic as well as organisational interest are the perspective approaches and the emergent approaches (Partridge & Sinclair-Hunt, n.d.). Prescriptive Approaches Meaning Strategic management is often considered by some theorists as a process that is rational as well as intentional. The basis of such a notion is “the idea that organisations can plan strategies in advance and then implement them in full” (Partridge & Sinclair-Hunt, n.d.). This concept of strategy that necessitates planning to be followed by positioning defines the prescriptive approach to strategic management. In the prescriptive approach, “strategy is formulated and chosen by thorough and detailed analysis of the external environment and internal capabilities using various tools and techniques, such as the Boston Consulting Group’s (BCG’s) share/growth matrix and Porter’s value chain and five forces” (Partridge & Sinclair-Hunt, n.d.). In this type of strategic management, the decision making powers are vested in the top management, and operational managers who may make some contribution towards the process of strategy formulation remain responsible for the implementation of the decisions. Advantages Though this approach shares certain common aspects with the emergent approach, it “stresses that the practice of strategic management is a rational and linear process will well-defined and –developed elements before the strategy begins” (Chan-Olmsted, 2005). During periods of economic turbulences the prescriptive approach may prove to be helpful due to the centralisation of decision making activity. It helps in setting clear objectives that “provide focus for the business” (Campbell, Stonehouse & Houston, 2002). Disadvantages Owing to the bureaucratic element that underlies this approach, it does often so happen that it lacks in flexibility and managements face problems while incorporating changes during the implementation phase. Prescriptive approaches may also prove to be detrimental for organisations. It has been observed that “there are often major discrepancies between planned and realised strategy” (Evans, Campbell & Stonehouse, 2003). As had been previously observed, the prescriptive approach lacks flexibility and hence rigid planning within a dynamic business environment that is additionally characterised by economic turbulence may prove to be unproductive. Under stringent circumstances, organisational managements are necessitated to be spontaneous in responding to environmental ripples so that they may be sufficiently proactive in identifying opportunities and threats. Moreover they should also be highly creative in order to improvise business strategies according to the situational demands. Prescriptive strategies take the form of predetermined instructions that hardly leave any room for creativity and are supposed to be implemented by junior and middle management cadres. This in turn proves to be detrimental to the KSA (Knowledge, Skills and Abilities) quotients of the organisations as the employees gradually lose the flair for creative thinking. Simultaneously, “rigid adherence to plans may mean missed business opportunities” (Evans, Campbell & Stonehouse, 2003). Analysis of Barings’ Bank Case The six major selection criteria that underlie strategic decisions are consistency, suitability, validity, feasibility, business risk, and attractiveness. For any strategic alternative to be sustainable the basic requirement is that it should be consistent with the organisational intention as well as objectives. Simultaneously the strategy should be suitable for the business environment of the organisations. However, it is important that the data and the projections that are used to develop the strategic option should be tested for validity. Organisations should factor in data pertaining to marketing research in order to generate an all-encompassing idea about their current status. Feasibility depends on three factors, viz. internal constraints (finance, technical skills, etc.), external constraints (political, economical, legal, social, technological, and environmental), and commitment of employees as well as management. Business risk should also be assessed as it is very important for most organisations to avoid unnecessary risks. Finally, the stakeholders, both internal and external, should find the strategy attractive. While going through the Barings’ Bank case, it may be observed that the management had a high quotient of personal emotions. This element had impeded the decision making team from critically analysing the needs of the organisations and thus they ended up in hiring a person who was a complete mismatch with Barings’ strategic goal. In a typically bureaucratic approach to human resource management, Barings’ management was found to practise nepotism and thus they failed to evaluate the KSAs of Leeson before delegating the responsibilities to him (Hoch, Kunreuther & Gunther, 2001, P. 5-6). Barings’ relied too much on intuition that had led to a phenomenon of managerial confusion. This had also pushed the bank into a zone of self deception wherein it “failed to recognise that such an intuitive management style was no longer appropriate” (Hoch, Kunreuther & Gunther, 2001, P. 6). It may be observed that though Barings’ had adopted the prescriptive approaches, it could not analyse the perils associated with the South East Asian markets. Owing to this drawback the prestigious bank had failed “to institute a sufficiently rigorous system of controls” (Hoch, Kunreuther & Gunther, 2001, P. 6) despite the fact that it had emphasised on speeding up its operations. Though the prescriptive approaches are rigid, they are undoubtedly systematic and hence organisations that follow the tenets of these approaches are bound to enrich their capabilities to strategise. In the case of Barings', the bank had failed to detect the fraudulent activities of Leeson and simultaneously underestimated risks that were associated with him. Barings’ had suffered from insufficient regulations and it also lacked sufficient IT (Information Technology) to support its decision making process. These were major drawbacks given that the bank was planning to expand its operations into the emerging markets of South East Asia. Figure 1: The McKinsey 7S Model (Source: Channon, 1999, P. 170) According to Ansoff (1965) as well as other prominent theorists, the prescriptive approach “focuses on long term planning aimed at achieving a fit between an organisation’s strategy and its environment” (Stonehouse, Campbell, Hamill & Purdie, 2009). For this purpose the internal competencies are matched with environmental opportunities as well as threats. Owing to the fact that this approach is deliberate, “strategic management is presented as a highly systematised and deterministic process, from the setting of objectives through external and internal analysis, to the formulation and implementation of a grand organisational strategy aimed at achieving a fit between the organisation and its environment” (Stonehouse, Campbell, Hamill & Purdie, 2009). The stages of this process being highly structured as well as prescribed, “it structures complex information, defines and focuses business objectives, establishes controls, and sets targets against which performance can be measured” (Stonehouse, Campbell, Hamill & Purdie, 2009). However, global business environments are highly complex and chaotic and hence plans that are rigidly defined may prove to be futile in addressing the unanticipated demands as well as opportunities and threats. By correlating Barings’ strategy with McKinsey’s 7S Model, it can be observed that the six peripheral elements, viz. strategy, structure, systems, style, staff and skills were not sufficiently aligned and hence the organisation could not achieve shared values. While the management followed an intuitive style, the bank lacked necessary IT systems and moreover selection of staff was biased out of favouritism. Emergent Approaches Meaning The foundation for the emergent approaches is that “it is impossible to plan strategy in a turbulent environment – conditions change before any plan can be implemented” (Partridge & Sinclair-Hunt, n.d.). The tenets of this approach suggest that “strategy is a process that arises out of learning or from a shared cultural understanding or simply as a result of muddling through or flowing with events” (Partridge & Sinclair-Hunt, n.d.). An interesting feature of this approach is that the strategy becomes noticeable only with retrospection as managers might observe a steady pattern while looking back, albeit it might not necessarily be a deliberate strategy. According to Richard Lynch (1997), the emergent approach “does not present a clear, final objective for its strategy as proponents believe that strategy emerges, adapts, and evolves over time” (Chan-Olmsted, 2005). Advantages It has been observed that this approach of strategy formulation enhances the flexibility of organisations that operate in turbulent environments and thus allow them to respond proactively to threats while helping them exploit available opportunities. Moreover, in times of changing business needs, stakeholder interactions undergo frequent changes thereby necessitating strategy to be emergent (Campbell, Stonehouse & Houston, 2002). This approach is also known as the incremental approach of strategic management it centres on the basic premise that strategy should be developed incrementally and over time. The foundation of such an idea is that “businesses are complex social organisations operating in rapidly changing environments” (Campbell, Stonehouse & Houston, 2002). This approach benefits from enhanced organisational flexibility and can also influence the process of organisational learning (OL). Moreover, the emergent approach may offer an in-house culture wherein the managers “can think and act creatively rather than have to act within the rigid framework of deliberate strategy” (Campbell, Stonehouse & Houston, 2002). Disadvantages The main drawback of this approach is that the lack of an explicit objective often impedes the quantitative evaluation of performance. Perhaps the most significant problem with the emergent approach of strategic management is that “there is a danger of strategic drift as objectives lack clarity” (Evans, Campbell & Stonehouse, 2003). Though it is justified for organisations to devise impromptu strategies to meet circumstantial demands of a highly uncertain business environment, it is advisable that they align the same with clear objectives. However, the emergent approaches often preclude comprehensible objectives and hence the alignment of organisational operations becomes chaotic under environmental pressures. While coping with problems arising out of this shortcoming, organisations may lose track and end up in compromising their competitive advantages. During economic turbulences this may prove to be too costly to afford. Apart from this major drawback, the emergent approaches are also characterised by the lack of well defined targets. Analysis of Tata Steel Theories developed by Lindblom (1959), and Mintzberg and Waters (1985) suggest that “strategy will emerge and evolve incrementally over time” (Stonehouse, Campbell, Hamill & Purdie, 2009). This point to the fact that there is an inherent element of organisational learning that is associated with the emergent approach of strategic management. The strategic intent of Tata Steel that is expressed as a hierarchy comprising organisational vision, mission statement, strategic goals and business strategies provide a comprehensive idea about “its ethos of aligning business opportunities with national building” (Kazmi, 2008). It can be observed that this Indian behemoth continually aims at achieving holistic excellence. The strategic goals of this company are to gradually drift from commodities towards brands, achieving positive EVA (Economic Value Addition) for core businesses, maintaining cost leadership, enhancing shareholders’ value, enhancing employees’ morale and job satisfaction, and achieving sustainable growth. For the purpose of attaining these ambitious goals, Tata Steel has adopted a set of strategies that speak of the importance that the company attaches to organisational learning and knowledge management – two vital tenets of the emergent approaches. The company also aims at outsourcing strategically which helps in reducing costs. Conforming to organisational democracy and the norms of participative management, the company encourages innovation by employees and allows them the rather costly “freedom to fail” (Kazmi, 2008). This in turn enhances OL and also sets free the potential of employees. Another benefit that Tata Steel reaps from this strategy is that it creates future leaders. As a result it can rotate “key talent across business groups” (Team OLB, 2008). The company regularly invests in new businesses that it finds attractive and simultaneously undertakes divestments along with mergers and acquisitions. Ranking high in terms of CSR (Corporate Social Responsibilities), Tata Steel ensures safety as well as environmental sustainability that add further value to its business. Though it has been expressed in a previous section of this report that organisations muddle through under circumstances of turbulence, Quinn (1978) had suggested that “rather than muddling through, many organisations continually adapt their strategies to changing circumstances” (Stonehouse, Campbell, Hamill & Purdie, 2009) and had rechristened this logical incrementalism. Precisely, strategy develops judiciously as organisations respond to environmental changes. Quinn had further commented that “the real strategy tends to evolve as internal decisions and external events flow together to create a new, widely shared consensus for action among key members of the top management team” (Hussey, 1998). He has concluded his opinions about the emergent approaches by saying that “the most effective strategies of major enterprises tend to emerge step by step from an iterative process in which the organisation probes the future, experiments, and learns from a series of partial (incremental) commitments rather than through global formulations of total strategies” (Hussey, 1998), this approach turns out to be logical as well as incremental. From the TBEM (Tata Business Excellence Model), it is clear that the company adopts an all encompassing approach by factoring in environmental opportunities, departmental goals and targets, performance implementation, and comprehensive review of performance as well as progress. The company attaches sufficient importance to customer feedback that are utilised to identify the CSFs and integrated with the process of strategy formulation. Though the emergent approach is often blamed for lacking clarity of objectives, it serves as a spontaneous means to respond to environmental uncertainties that may emerge at any point of time given the skyrocketing competition that exists in the context of global business arena. Comparative Analysis of the Strategies From the report it is evident that each of the two strategic approaches that have been discussed herein has its characteristic advantages and disadvantages. However, it may be inferred that despite its limited disadvantages, the emergent approach proves to be promising enough to enhance the competitive advantage of an organisation through reinforcement of organisational learning and knowledge sharing as opposed to the bureaucratic nature of the prescriptive approach. Under circumstances of economic turbulences, organisations generally tend to put in extra efforts to adopt a holistic approach to formulate business strategies. In general the levels of commitment exhibited by organisational employees towards strategic management vary from low, through emerging and developed, to mature (Hill & Stewart, 2007). In order to cope with the inherent resistance to change, managements have to make use of interventions pertaining to organisational dynamics so that they may successfully align the operations with the business goals and also integrate and institutionalise the changes though effective implementation of strategy. Managements should introduce the knowledge pertaining to strategic management in order to create a fundamental understanding of the subject among the employees. They should also promote exploratory discussions with the aim to outline the strategic direction of the organisation. It is extremely necessary to nurture team building among senior managers. This in turn will give rise to a participative culture and thus will enhance knowledge sharing, and of course, decision making. Gradually, managements should recognise the need for competencies related to strategic management and simultaneously reinforce the practise of team building. So far it has been observed that the approach is largely an emergent one. However, in the following step managements should preferably adopt a prescriptive approach and cascade organisational strategy to the various SBUs (Strategic Business Units) through the respective managers. At this stage the managements are necessitated to monitor strategic implementations and should also carefully identify and rout any disruptive instance of non-conformation to team building process. Finally, a succession planning should be formally designed to institutionalise the strategy. Hence, it can be observed that a judicious blend of both the approaches is necessary to bring about effective development of strategy within an organisation. Conclusion Through the sections of this report attempts have been made to outline the two major approaches of strategic management, viz. the prescriptive approaches and the emergent approaches. It has been observed that the prescriptive approaches, in accordance with the name, are quite deterministic as well as systematic and hence lack sufficient flexibility. In contrast, the emergent approaches are flexible and hence modification can be made to them as and when the business environment demands. In the backdrop of the highly volatile global business environment wherein competitions are incrementally increasing along with uncertainties related to consumers’ demands and stakeholders’ expectations, it is extremely necessary for organisations to adopt holistic approaches by blending both the approaches in order to manifest optimum results during periods of economic turbulences. As opportunities are scarce and threats are aplenty under such situations, the process of strategy formulation should be highly effective in order to maintain competitive advantage and enhance stakeholders’ value. Hence, managements are necessitated to generate strategy through an emergent approach. This is done by promoting team building among senior managers and subsequently communication of the strategic decision to the strategic business units/ departments in a top-down manner by adopting a prescriptive approach. Thus, a balance should be maintained between centralisation and decentralisation of decision making power and managements should have the knowledge as far as drawing the line is concerned. This will in turn help organisations to achieve excellence in strategy development through enhanced organisational learning and knowledge sharing. At the same time it would create a sustainable vision which will inspire all the business units to perform optimally knowing that their efforts will be evaluated as well as quantified. References 1. Campbell, D., Stonehouse, G. & Houston, B. 2002. Business Strategy: An Introduction. 2nd ed. Butterworth-Heinemann. 2. Channon, F. D. 1999. The Blackwell Encyclopaedic Dictionary of Strategic Management. Vol. 2. Wiley-Blackwell. 3. Chan-Olmsted, M. S. 2005. Competitive Strategy for Media Firms: Strategic and Brand Management in Changing Media Markets. Routledge. 4. Cole, A. G. 2003. Strategic Management. 2nd ed. Cengage Learning EMEA. 5. Evans, N., Campbell, D. & Stonehouse, G. 2003. Strategic Management for Travel and Tourism. Butterworth-Heinemann. 6. Hill, R. & Stewart, J. 2007. Management Development: Perspectives from Research and Practice. Routledge. 7. Hoch, J. S., Kunreuther, H. & Gunther, E. R. 2001. Wharton on Making Decisions. John Wiley and Sons. 8. Hussey, E. D. 1998. Strategic Management: From Theory to Implementation. 4th ed. Butterworth-Heinemann. 9. Kazmi, A. 2008. Strategic Management and Business Policy. 3rd ed. Tata McGraw-Hill. 10. Rabin, J., Miller, G. & Hildreth, B. W. 2000. Handbook of Strategic Management. 2nd ed. CRC Press. 11. Partridge, L. & Sinclair-Hunt, M. No Date. Strategic Management. Select Knowledge Limited. 12. Smith, J. & Open Learning Foundation. 1996. Planning and Decision Making. Wiley-Blackwell. 13. Stonehouse, G., Campbell, D., Hamill, J. & Purdie, T. 2009. Global and Transnational Business: Strategy and Management. 2nd ed. Wiley-India. 14. Team OLB. June 14, 2008. Outlook Business. Vol. 3. No. 12. Outlook Publishing. 15. Witcher, J. B. & Chau, S, V. 2009. Strategic Management. Cengage Learning EMEA. Bibliography 1. Dobson, P., Starkey, K. & Richards, J. 2004. Strategic Management: Issues and Cases. 2nd ed. Wiley-Blackwell. 2. Faulkner, O. D. & Campbell, A. 2006. The Oxford Handbook of Strategy: A Strategy Overview and Competitive Strategy. Oxford University Press. 3. Sadler, P. & Craig, C. J. 2003. Strategic Management. 2nd ed. Kogan Page Publishers. 4. Stahl, J. M. & Grigsby, W. D. 1997. Strategic Management: Total Quality and Global Competition. Wiley-Blackwell. 5. Thompson, L. J. & Martin, F. 2005. Strategic Management: Awareness and Change. 5th ed. Cengage Learning EMEA. Appendices Appendix 1‑1: Case Study of Barings' Bank (Part - 1) (Source: Hoch, Kunreuther & Gunther, 2001, P. 4-8) Appendix 1‑2: Case Study of Barings' Bank (Part - 2) (Source: Hoch, Kunreuther & Gunther, 2001, P. 4-8) Appendix 1‑3: Case Study for Barings' Bank (Part - 3) (Source: Hoch, Kunreuther & Gunther, 2001, P. 4-8) Appendix 2-1: Case Study of Tata Steel (Part - 1) (Source: Witcher & Chau, 2009, P. 22-25) Appendix 2-2: Case Study of Tata Steel (Part - 2) (Source: Witcher & Chau, 2009, P. 22-25) Read More