Systems Approach to Strategic Management - Book Report/Review Example

Strategic Management Contents Contents 1 Literature Review 3 Comparative Analysis 9 Conclusion 12 Bibliography 15 Introduction Strategic thinking aims at exploring and developing the unique opportunities for value creation. The process of strategic thinking involves creative and proactive dialog between the people who actually affect the company’s direction. An effective strategic thinking unlocks opportunities for value creation and challenges the firm’s assumption of its value propositions. Strategic thinking assumes importance in the sense that it shapes the future path of an organization. It shows the way as to how a firm would reach its goal. In the process of designing a strategy firms must take into account the stakeholders who form the integral part of any organization. Strategists and analysts over the time have taken up the issue of business strategy from various angles. The differences in their thinking can be analyzed from a huge range of basic disciplines on which these strategic arguments are based upon. Any system of classification puts a certain danger mark. The danger mark comes up due to the fact that an effort to put up the individual concepts and ideas in a certain fixed number of boxes leads to the oversimplification of this idea. Henry Mintzberg proposed nine schools of thought which dominate the present strategic thinking in organizations. These schools of thought try to provide diversity as to how strategic thinking is developed, formulated, improved and finally implemented in organizations. These schools were made keeping in mind the basis behind their thinking. The ten schools of thought are as follows- 1. The Design School 2. The Planning School 3. The Positioning School 4. The Entrepreneurial School 5. The Cognitive School 6. The Learning School 7. The Power School 8. The Cultural School 9. The Environmental School Mintzberg divided these nine schools of thought into two groups namely, the perspective and the descriptive schools. The Design, positioning and planning school constitute the prescriptive school and the other schools namely, Cognitive, entrepreneurial, Political, learning, environmental and cultural schools constitute the descriptive school of thought. The difference has been made on the basis of the main theme behind each of these schools of thought. The field of strategic planning was also studied by Whittington. Whittington proposed a strategic matrix in which he made four divisions namely, classical management, Evolutionary management, Systemic and process. He stated that the proponents of each of these theories focused on different beliefs and measures that must be analyzed while framing a strategy. Literature Review Strategic management is an extremely dynamic domain that enjoys a constant attention from academicians as well as corporate leaders from all over the world. Over the years, this field of study has undergone a myriad of changes that have taken place due to the changing nature of the global business environment. Figure 1: Whittington’s Strategic Management Matrix (Source: West, Quazi & Davies, 2009, pp.3) The figure appended above illustrates the strategic management matrix propounded by Whittington (2001). It may be observed that strategic management has come a long way since the 1960s when patrons of classical management like Chandler (1963), Ansoff (1965), Porter (1980), and Drucker (1989) had defended the perspective of institutionalism that calls for the maximisation of profits. Subsequently, during the 1970s, strategy became process oriented. During this decade, stalwarts such as Pettigrew (1973), Weick (1979), and Mintzberg (1983) shed commendable light on organisational change management. It is during this period that the concept of business process reengineering (BPR) came into the forefront. Furthermore, corporate managements started laying emphasis on stakeholder participation as well as downsizing. Following these changes that were introduced into corporate structures at large, the 1980s witnessed an evolution in terms of the strategic context. It is during this period that management theorists like Cyert and March (1963), Williamson (1981), Hannan and Freeman (1988), Ansari and Bell (1991), and Brown and Eisenhardt (1998) felt the importance of maximising the value of shareholders. In addition, the evolutionists also shifted focus to the competitive markets. During the 1990s, as the figure reveals, strategic management attained significant maturity, and during this span of time systemic theorists such as Ouchi (1980), Gross and Lynch (1991), and Neely, Gregory and Platts (1995) “suggested a complex integration of systems, processes and structures, combining classical, process and systems approach” (West, Quazi & Davies, 2009, pp.3). It has been observed that “while the evolutionists focused on shareholder profit maximisation and perpetual market competition, classical theorists emphasised control of the external environment in pursuit of financial outcomes” (West, Quazi & Davies, 2009, pp.3). It is worth mentioning that “processualists focused on restructuring for financial gain but also included some of the human elements by encouraging participatory downsizing”, in addition to which “systems theorists focused on extracting elements of the classical, processual and systems” (West, Quazi & Davies, 2009, pp.3). Figure 2: Four Perspectives of Strategic Management Analysis (Whittington, 2001) (Source: West, Quazi & Davies, 2009, pp.3) The above figure summarises the four major perspectives in the context of strategic management analysis. It may be observed that the classical theory (1960s) conceptualises a formal strategy that is centred on the rationale of profit maximisation and is focuses on internal plans of organisations. Being influenced by the theories pertaining to economics as well as military strategy, the classical theory calls for an analytical process. The processual theory (1970s) helps in conceiving a crafted strategy whose rationale has been found to be vague by Whittington (2001). In this context, it may be mentioned that Mintzberg, one of the major proponents of this theory, had urged organisational managements to focus on internal politics as well as cognitions, and channelize their efforts to practise change management as and when necessary. This theory is influenced largely by psychology and the process that is required to translate it into reality includes bargaining and learning. The evolutionary theory (1980s) is based on efficiency of the organisational strategic intent and it has been observed that the underlying principle is that of survival. This theory recognises the levels of competition that characterise the global markets and hence necessitates organisations to focus on their external environment. Quite interestingly, this theory draws inspiration from Darwinism as well as economics. Finally, the systemic theory (1990s) showcases a more localised embedded strategy that focuses on the societies external to organisations. It is influenced by theories of sociology and is centred on social processes. It goes without saying that “the complex, embedded and dynamic nature of modern organisations requires a systemic approach to strategic management”; while arguing that “in the Systemic view, the norms that guide strategy derive…from the cultural rules of the local society”, Whittington (2001) has furthered his opinion by saying that “The internal contests of organisations involve not just the micro-politics of individuals and departments but the social groups, interests and resources of the surrounding context” (Gregory, n.d., pp.6-7). However, Jackson (2003) is of the opinion that “in privileging contextual aspects of organisation, Whittington’s approach may be said to be aligned with merely the cultural school and as such fails to realise the full potential of a systems approach to strategic management”; he has argued that “the systems discipline has a rich history of how to use methodologies in combination that has culminated in an approach known as critical systems practice” (Gregory, n.d., pp.7). It has been observed during the course of the current research that in the schools of strategic thought that follow a prescriptive approach (i.e. design school, planning school, and positioning school), the external environment is considered as reasonably constant. Under such circumstances, the task of strategy formulation becomes challenging as it has to “influence the environment, either responding to it or adjusting the organisation to it” (Volberda & Elfring, 2001, pp.4). The basic assumption in this context is that organisations can analyse the environment and distil the potential opportunities as well as threats from it. It may also be assumed that organisations have the required time that may be utilised through a premeditated or impromptu approach in order to recognise the prospective of a strategy. Although “the ‘design’ school still works on the assumption that the CEO can design an explicit ‘grand strategy’ for the entire enterprise”, Mintzberg and Waters (1985) have argued that “strategies are not always explicitly formulated, but can come about spontaneously without a priori intentions” (Volberda & Elfring, 2001, pp.4). Furthermore, Burgelman (1983), and Bourgeois and Brodwin (1984) have shown that “strategies often take place bottom-up and that the top management approves of these afterwards (‘retrospective sense making’)” (Volberda & Elfring, 2001, pp.4). In a similar way, “the ‘planning’ school assumes that a correct strategy can only come about by means of frequent and systematic forecasting, planning and control”, and various scholars including Mintzberg (1973) have shown in their researches that “in turbulent environments planning is, however, often insufficient and leads to rigidity” (Volberda & Elfring, 2001, pp.4). Figure 3: Normative Assumptions (Prescriptive Schools vs. Descriptive Schools) (Source: Volberda & Elfring, 2001, pp.5) It may be observed from the above figure that owing to the inherent drawbacks of the prescriptive schools, the descriptive schools are gaining importance against the backdrop of the current business scenario. In general, the descriptive schools advocate a bottom-up strategy formulation process that is largely spontaneous in keeping with the volatility of the global business environment. Figure 4: Schools of Thought in Strategic Management (Mintzberg, 1990) (Adopted from Volberda & Elfring, 2001, pp.7) Furthermore, as the above figure illustrates, the descriptive schools are based on the disciplines of psychology, political science, anthropology and biology; it may be observed that they lay emphasis on power coalition, ideology, etc. these schools also propagate organisational democracy as well as transparency as the central actors in the strategy formulation process include stakeholders, “everybody who learns”, and “everybody with power” (Volberda & Elfring, 2001, pp.7). The generic purpose of strategy, as has been described by Chandler (1962), “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” (Jacobs & Statler, 2004, pp.2). However, it is beyond any doubt that “the field of strategic management has developed in a particular way and this has produced notable strengths and weaknesses, preoccupations and blind spots” (Pettigrew, Thomas & Whittington, 2006, pp.3). Comparative Analysis The study conducted below tries to differentiate the two divisions of Mintzberg’s School of thought. Fig 5. Correlation between the ten dominant schools of thought . (Source- Kotelnikov V., n.d.). The figure above shows the correlation among the strategic schools of thought. In this graph the internal and external processes serve as the two axes for the graphs. The positioning, planning, and design school of thought which constitute the prescriptive schools of thought differ from the descriptive school of thought in many aspects. The descriptive school of thought is perceived to be more controllable and comprehensive with respect to the internal processes. On the contrary the prescriptive school of thought is considered to be quite confusing an unpredictable with respect to the external environment. The only exception in this case is the Entrepreneurial school of thought which is perceived to be comprehensive and controllable with respect to the internal process. The cultural, power schools of thought are perceived to be in an intermediary stage with respect to the external world. The prescriptive and descriptive schools of thought also differ on the internal processes as well. The prescriptive school of thought is considered to be rational in nature. The constituent schools of thought of the descriptive school of thought are perceived to be natural with respect to their internal processes. The only exception being the environmental school of thought is perceived to be rational in nature. The graph also shows major differences among the constituents of both prescriptive and descriptive schools of thought. The positioning planning school of thought differs from the other two schools of thought with respect to its internal environment where the positioning planning is perceived to be rational and the entrepreneurial school of thought is perceived to be natural in nature. In case of the prescriptive school of thought the environmental school of thought is perceived to be rational in nature whereas all the other constituents of the prescriptive school of thought are natural in nature. A study conducted by Hypotheticorp says that organizations cannot entirely depend on the prescriptive schools of thought. This is because organizations in the globalised world need to show flexibility in their attitudes. The study states that the prescriptive schools of thought generally focus on the way in which strategies are formulated. The main principle of the prescriptive school of thought is that of performance claim. The term performance claim states that the average returns for an organization is directly proportional to the effectiveness of its strategic planning. The prescriptive school helps in understanding the course of strategy formulation, but do not shed any light on how these strategies could be executed in an organization. The descriptive school of thought on the other hand is inspired by the cultural sciences and social behavior. The descriptive schools of thought lays stress o organizations to study the strategies of organizations that are successful in their respective fields. It lays stress on organizations to learn from these experiences and use them while framing a strategy. In other words the descriptive school of thought lays importance on flexibility while framing and implementing strategies. They urge organizations to move away from a system of prior strategy planning to a system of posterior planning strategy (Hypotheticorp, n.d.). The prescriptive school of planning is considered to be highly attractive for strategists as these rely on the popular and well understood tools like SWOT, Porter’s generic strategies etc. The descriptive schools on the other hand do not use simple tools like SWOT, but these are based on complex theories and do not provide any straight cut recipe for achieving success. Roger et al. (1999) studies the relationship between organizational performance and strategic planning and concluded that the performance of an organization depends on the strategic contents and is not affected by strategic planning. Hill et al (2004) stated that the prescriptive school of thought which has its basis in the actions that are taken by a company loses importance when there is a well defined strategy in force (Hypotheticorp, n.d.). Whittington analyzed the four schools of thought namely, classical management, evolutionary management, systemic management and process management. He stated that the evolutionists mainly focused on the shareholder whereas the classical theorist laid emphasis on the external environment. The prosessualits included the human elements as well as the financial outcomes in their study. The systems theorists focused on the combination of the above three schools of thought. Whittington’s strategic management also states that the process oriented school of thought which was introduced in 1970 is vague in the present day context. This school of thought envisages strategic planning through the process of Business Process Reengineering. Whittington laid stress on the fact that organizations need to create suitable mechanisms for ensuring that strategic process remains objective in nature. Whittington challenged Mintzberg schools of thought by stating that managers and strategists must draw learning’s from the lesser visible power sources like the state’s political resources etc which were completely left neglected by Mintzberg (Levy, D et al. n.d., pp.5). Conclusion Strategic planning is perhaps considered to be the most important aspect for organizations in the globalised world. It is the company’s strategy that serves as the guiding philosophy behind the functioning of an organization. Strategic planning constitutes the interrelationship between formal intended and informal emergent strategic plan. Strategic planning is one aspect which cannot be made rigid or too flexible. It has to be an intermediary among the two ends. The reason for this could be attributed to the changing nature of the external environment in which the organizations operate. There are instances when the external environment remains stable for a long time. However there are instances to show that the external environment has changed drastically. This is the reason why organizations cannot entirely rely on prescriptive strategies which are assumed to be less flexible in nature. Organizations on the other hand cannot make their strategies too flexible as it would make them unstable in the long run. Organizations must therefore adopt a prior intended and a posterior based emergent strategy. A sustainable combination of these two strategies would offer the best possible solution for an organization considering the changes that occur in the globalised world. Strategic management deals with humans as well as the social interaction between them. It also involves the internal as well as the external environment. Strategic management is not a onetime process rather it constitutes an ongoing process that needs to be evaluated from time to time so as to attain sustainable competitive advantage. References Gregory, J. A. No Date. A Systems Approach to Strategic Management. [Pdf]. Available at: http://journals.isss.org/index.php/proceedings51st/article/viewFile/840/207 [Accessed on August 19, 2010]. Hypotheticorp. No Date. Strategic Management and Serendipity. [Online]. Available at http://hypotheticorp.org/wp/essays/serendipity/ [Accessed on August, 19, 2010]. Jacobs, D. C. & Statler, M. February 2004. Strategy Creation as Serious Play. Working Paper 43. Imagination Lab Foundation. [Pdf]. Available at: http://www.imagilab.org/pdf/wp04/WP43.pdf [Accessed on August 19, 2010]. Kotelnikov, V. No Date. Ten major Strategic Management Schools. [Online]. Available at http://www.1000ventures.com/business_guide/mgmt_inex_stategy_10schools.html. [Accessed on August, 19, 2010]. Levy et al. No Date. Critical Approaches to Strategic Management. [Pdf]. Available at http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.124.6043&rep=rep1&type=pdf [Accessed on August, 19, 2010]. Pettigrew, M. A., Thomas, H. & Whittington, R. 2006. Handbook of Strategy and Management. London: SAGE Publications Ltd. Volberda, W. H. & Elfring, T. (Eds.). 2001. Rethinking Strategy. London: SAGE Publications Ltd. West, L., Quazi, A. & Davies, D. 2009. The Balanced Scorecard as a Framework for Performance Management in the Non Profit Sector. ANZMAC. Bibliography Dobson, P., Starkey, K. & Richards, J. 2004. Strategic Management: Issues and Cases. 2nd ed. Wiley-Blackwell. Faulkner, O. D. & Campbell, A. 2006. The Oxford Handbook of Strategy: A Strategy Overview and Competitive Strategy. Oxford University Press. Sadler, P. & Craig, C. J. 2003. Strategic Management. 2nd ed. Kogan Page Publishers.   Read More