The Perspective and Emergent Approaches to Strategic Management - Essay Example

The Perspective and Emergent Approaches to Strategic Management Introduction Organizations formulate and adopt strategies to gain competitive advantage in the business environment and to achieve sustainable growth. Researchers and scholars have expressed diverse views on the concept of strategic planning and its role in the company’s success. Strategic management still has numerous queries which await a perfect answer. Organizational researchers nurture individual views on strategic management which is dependant on the nature of their interpretation. However efforts are still in the process to identify the most effective view on strategic management and planning which will also be compatible with the organisation’s external and internal environment. Whenever an organization succeeds in terms of profitability and productivity, it is usually assumed to have effective strategies. But the effectiveness of the strategy for a prolonged time remains dubious. Strategies are developed by the management with the support of logical approach, analytical activities, and experiences. Present day management researchers added another agent to the above mentioned ingredients of strategy making, i.e. the dynamic nature of business environment which keeps on changing. The changing nature of business environment influences the effectiveness of the strategies and brings differences in its output (Murray, Poole & Jones, 2005, p.168). Present report is an attempt to analyze the different views of researchers on strategic planning and its associated factors. In a broader sense the study discusses ‘Prescriptive and Emergent’ approaches to strategy formulation and their suitability in the present day business organizations. What is going on? Irrespective of suggested views and arguments on the concept of strategic management, organizations as well as academicians have agreed on the core concept which describes conversion of organizational resources into needs of unsatisfied customers keeping a profit which satisfies the long-term objectives of the stockholders. The debate among the researchers is regarding the methods, models, system, or processes which could be used to achieve the core objective of strategy. The approaches for strategic planning, irrespective of the methods, models, and processes used to execute the plan, can be classified into four generalized approaches as General Electric/Ansoff /McKinsey approaches, Management by objective approaches, Business policy approach, and Non-strategic approach. The approach described by the GE/Ansoff/McKinsey is considered to be the most standard one because the remaining approaches are driven by objectives and adopts programs for implementing the approaches instead of competitive strategies (Vaghefi & Huellmantel, 1999, p.57-58). A critical observation will reveal that all of the above mentioned approaches possesses two different views, one which considers long-term planning as meaningful and advocates it for designing strategies through rational thinking while another view perceives long-term planning as irrelevant and encourages experimentation, adjustments, and learning for strategy development. Most of the present day organizations perform their long-term planning and achieve their objectives through different course of actions. Organizations, developing long-term strategies, need to consider the element of change due to increasing level of uncertainty in the business environment. PEST analysis of global business environment 250 Political environment – After the financial crises, governmental supports have been raised for open market place to recover the damages of the recession. During the process of recovery political and economic conflicts can emerge among nations which can pose as a significant threat to the open trade system. Political pressure can be increased on developing nations by the developed nations who were stronger before the crisis. Joint efforts are made by governments to analyze and find the causes of the crises. International trade affairs become more sensitive, indicating a threat for the developing economies (Frieden, November 2009). Economical environment – Decreasing demand in the U.S. has resulted in lower import activities which have heavily affected the global economy, especially the developing nations. China has supported the economy of developing nations by bringing sustainability in their growth rate. This has been achieved by increasing the domestic demands which has encouraged import activities. Some of the industrialized nations such as Germany and Japan have recorded very high surpluses in their current accounts. Sharing the burdens with that of the U.S. can be done by the nations by increasing their demand at domestic level (UNCTAD, n.d.). Social environment – Recent financial crisis had a significant impact on the social environment around the world. Financial crises has influenced people’s livelihood across the world which has become more interconnected (Shah, 2009). The rapidly increasing global population has increased scarcity of resources around the world. Highly unstable market due to fluctuating demand and supply rate in the international market. (ICMR, n.d.) Technological environment - The global technological environment is directed towards collaborative activities or joint efforts which are expected to create opportunities for developing nations. Technological innovation has encouraged the activities of knowledge sharing which has empowered the process of innovation. This has led to the deliverance of maximum output for the benefit of all the partners. Technological developments have provided new business tools for performing collaborative actions for the overall development of the world (Walker & Elberson, 2005). Prescriptive approach Prescriptive approach describes the process of strategy formulation and implementation as a logical, rational, and systematic process which considers the long-term objectives of the organization. In this approach strategists perform analyses of internal and external environment of the organization and clearly define the objectives for corporate and business activities in a long-term perspective. Strategies are formulated, selected, and implemented by the strategists to achieve the defined objectives. The prescriptive approach considers strategic planning as a formalized process and emphasizes on the long-term health of the organization. Clear and well set objectives for the corporate as well as business activities are the major advantages of prescriptive approach. The prescriptive approach also supports performance monitoring by converting the objectives as targets for the organization. This helps the organizational members to measure their performance level and find the gap between the desired and actual performance levels. Rational thinking and logical interpretations are essential parts of the prescriptive approach for strategy formulation and implementation. Allocation of resources to different objectives and their efficient utilizations can be judged by this approach. This supports organization in efficient utilization of organizational resources to meet the long term objectives of the organization. Since the prescriptive approach is concerned with long term objectives and develops them accordingly, it is considered to be stiff and rigid which reduces the flexibility of the organizational plan or strategy. Increased rigidity and inflexibility of the strategies are some of the major drawbacks of the prescriptive approach due to which it is not adopted by many organizations and are not encouraged by several researchers (Campbell, Stonehouse & Houston, 2002, p.293-94). Relevant example Barings Bank of U.K. serves as an ideal example of prescriptive approach of strategy formulation and implementation. The company heavily relied on prescriptive approach and ignored the turbulences created by the external environment which significantly affected their business. The company ignored the uncertainty present within the economic environment which resulted into its bankruptcy. The company relied to an excessive extent on its institution’s management style which remained same even after the expansion of the business. As the business grew larger, the complexity of the business also increased, which led to the demand for new and innovative management style. However these were not given enough importance by the higher authorities of the bank. Another major mistake performed by Barings is having made quick decisions with the aim to grab the emerging market opportunities and overlooking the issues present in the Leeson’s record (Hoch, Kunreuther & Gunther, 2004, p.5-6). Emergent approach The emergent approach for strategy formulation and implementation is also referred as incremental approach as it states that strategies evolve over a period of time following an incremental pattern. The emergent approach of strategy development views businesses as complex structures which operates within a social system which is highly dynamic in nature and keeps on changing by making its impact felt on the businesses. In such conditions when the external environment is highly unpredictable and dynamic, organizations develop strategy with respect to the business environmental condition. This approach encourages flexibility of strategies which support organizations to face different business conditions. Another positive feature of the emergent approach is its high emphasis on the learning part of the organization. Managers rely on learning processes and develop their knowledge base to be creative and versatile for handling the wide range of environmental challenges faced by the organizations. Adopting emergent approach for strategy formulation reduces the rigidity of the strategy and manipulates the direction in which organizations can move for achieving their objectives. One of the major weaknesses of the emergent approach is its situation based modification of strategy which increases the chances of distracting the organizational strategy from its core purpose. Performance assessment is another issue present in the emergent approach since under this approach organizations don’t have any explicit purpose or objectives against which actual performances can be measured. Due to the absence of any firm objective or purpose for long term, organizations face difficulty in assessing the current performances and making comparisons to identify the differences (Campbell, Stonehouse & Houston, 2002, p.295). Relevant example Microsoft is an organization which is widely known for its emergent strategic approaches and the company has nothing called long term plan. The company keeps on learning from its current and past experiences which help them to form a clear understanding of the present and forthcoming business conditions. The company develops its strategy based on its knowledge level and learning which it utilizes for analyzing the present business environment and performs accordingly. A very good example is that, the company was not into the business of internet few years back but after identifying the opportunities available in the business, the company invested huge funds and adopted several internet initiatives. Similarly the company has decided to enter the business of cable television and offer entertainment services. Considering these significant decisions taken up by the company’s higher authority it can be understood that the company possesses no specific pattern of decision making and acts in a dynamic manner in this highly uncertain environment. In spite of not having any specific long term plan and objective for the organization, Microsoft is accepted as one of the successful organizations around the world (Rabin, Miller & Hildreth, 2000, p.277). Which better fits the organization? Between the two proposed approaches for strategy formulation and implementation, emergent approach is considered to be more suitable for the organizations. Since the global business environment has become more unpredictable and uncertain it becomes essential for the organizations to prepare themselves for all sorts of business conditions. More importantly organizations should encourage sustainable growth rate which can support their survival along with their growth under different business conditions. The prescriptive approach emphasizes on long term planning and insists on rational and logical thinking which has no relevance with the present day business environment since no one knows what can happen in near future and what could be the consequences of the events on the business environment. In this context, developing long term plans for the organizations cannot be considered relevant for the business environment present with them. On the other hand emergent or incremental approach for strategy development encourages learning and knowledge sharing among organizations at a global level. Developing knowledge base from the past experiences through collaborative learning approaches will help the organizations to gain the relevant strength required to survive in the dynamic business environment. Balance between descriptive theories and critical views The two approaches for strategy formulation and implementation have different views on the evolution of strategy and its application in the short and long term plans for the organizations. The prescriptive approach insists on developing long term plans for the organization with a clear formulation of the corporate and the business objectives of the organization. On the contrary, the emergent approach considers long term planning as illogical since it’s based on the present business environment which is highly unpredictable and keeps on changing with the time. Changes taking place in the business environment might lead to the creation of situations in which organizations find themselves incapable of meeting the requirements for achieving the set objectives. So it is suggested that present day business organizations should club their strategy formulation simultaneously with their learning activities to frame an effective business strategy. Organizations which lack a long term plan face difficulties to understand the purpose of their strategies and the direction in which the organization is proceeding. This can be considered as a major drawback of emergent approach over the prescriptive approach. Evaluation The prescriptive approach has been found to be partially helpful for the organizations in the contemporary business environment because it provides a rational view of the market which helps them to identify the crucial factors that ensure the smooth running the business organization. The global business environment has both positive and negative factors that influence the organizations and demands their cooperative approach for facing the global environmental issues pertaining to the business world. Most of the factors external to the organization have significantly encouraged organizations to unite together against all odds and solve the issues by sharing knowledge and learning activities. It can be observed from the PEST analysis that technological innovation has forced organizations to work in collaboration with each other and utilize their potential resources for finding solutions to the global business issues. Similarly the political and economic condition around the world has become sensitive due to recent financial crisis. This has provoked business organizations across the globe to share the problem of financial scarcity by modifying their demands and consumption at the domestic level. Organizations have responded positively to it as a result of which the overall global standard of the businesses are gradually improving. This has been possible mainly due to the process of shared learning and knowledge development. Conclusion Both the prescriptive and the emergent approaches for strategic management have their own merits and demerits. Both the approaches have views different from each other except the core purpose which is, to meet the expectations of the customers and investors in terms of products, services and profitability. Prescriptive approach nurtures a traditional view for strategic management and does not take into consideration the dynamic environment while the emergent approach has innovative understanding of strategic management which helps it to handle challenges posed by the contemporary business conditions. Emergent approach has high chances of acceptance by the present day organizations since they need to conquer the uncertainty of the business environment. On the other hand, prescriptive approach helps the organizations to locate their purpose of existence. It also helps them to measure performance in relation to the objectives set for long term goals. Organizations should set their long term objectives and develop their strategies accordingly. However considering the uncertain external environment organizations should also simultaneously encourage learning processes to implement the knowledge gathered from past experiences. Learning activities will help the organizations to develop alternative strategies which will act as a buffer when the situation demands. Reference Murray, P., Poole, D. & Jones, G. 2005. Contemporary issues in management and organisational behaviour. Thomson Learning Nelson. Vaghefi, M. & Huellmantel, A. 1999. Strategic management for the XXIst century. CRC Press. 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