Many factors need to be considered when forming a strategy. Different groups each have their own opinion about what these factors are, and these ideas are separated into school. One school may think that strategy should be deliberate or emergent. Another may think that the structure of an organization supersedes strategy. In fact if a company looked at strategy logically in most times these decisions are quite easy to make. I believe that the most useful system is the planning school's strategic hierarchy.
This consists of a long-term strategy where the boundaries are broad enough to allow room for flexibility and allowances for changes in environmental conditions. This is further broken up to a series of medium term strategies while day-to-day operations are given short-term strategies. This essay will attempt to reason the advantages of this plan and discuss the components that should be needed based on the different managerial schools of thought. In theory a strategy can range between purely deliberate and purely emergent.
Purely deliberate strategies tend to be long-term plans where the goal of the strategy is clearly defined. Each step in the strategy's implementation is preconceived and all factors are considered. A purely emergent strategy achieves a goal through a string of actions absent of intention. Actions are taken based on achieving a consistent goal but a future action is never considered. In practice strategies tend to lean towards one side or the other without being "pure" in either. Deliberate strategies are useful because their implementation is more efficient.
If all actions are planned it leaves less room for stray activities that use up valuable time and resources. Each action follows up another so they are more synchronised. Administration would also be easier as every department can focus on a main goal rather than being told a new plan constantly. For example a research and development department is more likely to come up with a breakthrough when concentrating on one project. Managers can act more effectively if they understand why they are doing things. Hence deliberate strategies should allow firms to reach a goal further.
One of the reasons given by those who support emergent strategies is that it is flexible to environmental change. Any amount of analysis regardless of quality would not be able to predict every change in a firm's environment. It is true that emergent strategies would be better at adapting to change, as new factors are considered constantly. The planning school system I suggested considers both factors. A long-term plan where the strategy is modified in response to change allows for flexibility yet still interlinks each action.
This means that instead of numerical objectives a general idea of where the firm should head is given. In day-to-day operations where environmental turbulence is a negligible factor short-term deliberate strategies should be used. Managers as described above would be more efficient with a known strategy. Also long term plans allow preparation for dealing with changes. It is usually better to try and stop a disaster from happening then to clean up the mess afterwards. (Mintzberg 1998) One of the cases that is often used to support emergent strategy is the Honda case.
This case is an example of a company successfully gaining in the absence of a long-term strategy. Honda's objective was to penetrate the American market. It attempted to sell larger motorcycles, but was unable to compete with existing producers. Eventually it moved on to marketing a smaller motorcycle that ended up targeting an untapped market. Soon it gained a huge market share and dominated that sector of the industry. However luck and the lack of competition was the main attributes to Honda's success rather than a triumph of a emergent strategy.
It is true that the inexpensive, safer and smaller model was what the market needed. Honda had already produced such a motorcycle in Japan yet decided not to push it. Instead it became a last resort when the larger motorcycles they attempted to market failed. Systems of trial and error become very expensive as well as wasting a lot of time. Honda's American budget was very low by the time the large motorcycles collapsed. Imagine if it had tried another plan and spent the last of the budget on it. The company would most likely have been forced to return to Japan and this small motorcycle domination may never have happened.
Sears, the company that saw the potential of the market, should be credited instead. In fact in this scenario it would not have mattered if a deliberate or emergent strategy were used. Success would most likely be achieved for the first firm to enter that market. Hence it is a problem of analysis rather than the strategy itself. However one of the merits of Honda's case was its achievement of strategic control. Honda used its market power switch from a consignment system to a cash-on-delivery system. This restructured the industry and gave the manufacturers the advantage.
The manufacturers get their money quicker and remove the possibility of non-payers. Effectively Honda changes the environment for its advantage. As mentioned before turbulence in the environment is a huge problem for strategic planning. Hence the greater the ability a firm has in controlling it the more stable its strategic basis is. Therefore the planning process would be more effective as market analysis would be more accurate. A strategy should not just try and adapt to changes, but attempt to internalise, as many external factors as possible to more accurately understand them.
The worse position to be in is when the environment imposes the strategy on the firm. The strategy would most likely not be right for the company. An example is when a powerful buyer restricts the actions of the firm and so eliminating many possible strategies. For the system I suggested to work the environment must be made a small a factor as possible. The Honda case also demonstrates that strategic analysis is often a difficult task. As proven by Honda's success there was clearly a weakness in the industry. Yet none of the companies were able to spot it, and only by luck was it finally exploited.
The same goes for the "You always meet the nicest people on a Honda" advert. Although it multiplied sales by a huge factor, the executives at Honda had never given serious consideration to it. The only reason it was implemented was because it was free. One of the reasons against a planned strategy is that industrial or internal analysis is not accurate. Actual "hard" evidence is difficult to find and predictions can only be board. However a better-planned strategy will build defences to possible changes rather then respond to them. Strategy should be thought of as a game of risk analysis and probability.
The greater the time-span the strategy is expected to last the greater the need for flexibility. The greater the profit potential the more acceptable any risks involved are. A firm needs to look logically at the information they have, and act in a way that is most likely to help achieve their goals. Results based on analysis may not be correct, but using them should give a better decision than taking a random action without regard to any factors. A planned system is better than a random system. A common debate is whether strategy is a case of rationality or learning.
Rational thinking is making decisions based on analytical reasoning and the original intention. (DeWit & Meyer 1998). Learning involves taking actions to solve individual problems and then learning the intention afterwards. However the initial decision in any strategy must require rational thinking. Any idea must have an intention behind it. A strategist may learn new things from solving an unrelated problem, but in the end any decision made is the result of his knowledge base. A logical thought process would combine both these things.
The result of each action or process adds to the knowledge base, and hence each action or decision is rational. The planned system I supported does not have to be absent of learning, as the two ideas interlink when strategy is approached logically. Chandler (1961) argues that structure follows strategy. A firm decides on a strategy and then builds an organisation around it. This was evident when firms began diversifying their production as a strategy. Trying to do this in a centralized organization was administratively too difficult, and hence firms developed a multi-divisional structure.
This allowed different divisions to specialise on separate products, increasing company efficiency. However social trend kicked in and firms that had not diversified began splitting into multiple divisions. This provided little gains for such firms, and hence it is an example when structure should only be created after strategy. However structure should not always come second. Often reinventing a company's structure is a costly experience. Often routine is lost and so efficiency from experience is removed.
I think a strategy should be formed around the main framework of an organization, making minor changes if needed. Radical change is often an unneeded risk, and should only be attempted if accompanied by the most creative or innovative of strategies. Strategy and structure should be seen synonymously, neither given precedence over the other. In search of the most creative and innovative strategy some firms forget the point of it in the first place. Take Xerox, who had a huge net-worth relative to Hewlett Packard in 1973 from its photocopying empire.
However as time Xerox rejected countless possible products and idea in search of a strategy that was as innovative as the one that first created the empire. During this time, Hewlett Packard had tried producing many smaller inventions and ended up making much more profits. Firms should not spend too much time looking for the perfect strategy and forget to act. Eventually a firm cares only about success and not the strategy that got it there. This is not to say that strategy is inconsequential, but that firms should always approach strategy logically.
Even in the most deliberate plan if something is obviously wrong it would be foolish not to change it. Firms should act intelligently without using their strategy as some kind of bible. In the end a lot of success was not a result of strategy. It is too easy to look at wonderful success stories like Honda or Hewlett Packard and believe that their strategy is the path to riches. Although many scholars would like to admit otherwise, luck is often the final hurdle for any strategy rather good or bad. Honda found them in a market where they could monopolize and demand was high from a change in trend.
Another firm trying the same strategy would get vastly different results. Hence their success cannot be used as a proof of the strategy. Strategy formation should not consider every variable to work out the exact outcome but instead attempt to swing probability in the firms favour. Take a situation where a striker in football is waiting for a cross. He positions himself where he is most likely to get it, but has no guarantee that it will ever reach him. A firm needs to find the most favourable position for achieving its goals, but ultimately it can only sit back and hope for the best.