Strategy Analysis
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Transcript of Strategy Analysis
Strategy Analysis 1
Running Head: Strategy Analysis
Strategy Analysis
By
Walter A Van Stone
October 2009
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TABLE OF CONTEXT
Abstract...………………………………………………………………. 3
Introduction…………………………………………………………… 3
Design School Origins…………………………………………………. 4
Design School Content………………………………………………… 4
Risk…………………………………………………………….. 5
Uncertainty…………………………………………………….. 6
Managing Uncertainty…………………………………………………. 7
Influences of Market structure…………………………………………. 7
Environment…………………………………………………………… 8
Environmental School Origin………………………………………….. 8
Environmental School Context………………………………………... 9
Risk…………………………………………………………….. 9
Uncertainty…………………………………………………….. 10
Managing Uncertainty…………………………………………………. 11
Influences of Market structure…………………………………………. 12
Environment…………………………………………………………… 13
Conclusion…………………………………………………………….. 13
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Abstract
The two schools of strategy that were selected for analysis are the design school and
environmental school. An attempt will be made to analyze both strategic schools of
thinking through three dimensions: root, content and process, and contextual. Secondly,
evaluate how risk uncertainty and how effective resource allocations are best managed.
Thirdly, evaluate how market structure influences strategic options. And lastly, evaluate
how fast-moving environments are best approached.
Introduction
Many organizations today are seeking to understand-and many experts are
writing about organizational strategy formations. These strategy formations are focused
around ten distinct schools of thought (Mintzberg, Ahlstrnd, and Lampel, 1998) two of
which schools are referred as to the design school and environmental school. Countless
articles have been written about the design and environmental schools and how
organizations attempt to create and incorporate these strategy formations effectively.
There are numerous reasons for the popularity of the topic. These concerns of
organizational strategy formations are heightened by an organizations global market
structure, and the environment in which they operate; such as risk, uncertainty and
resources.
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Design School Origins
According to Mintzberg, Ahlstrand, and Lampel, (1998), “The origins of the
design school can be traced back to two influential books written at the University of
California and at M.I.T.; Philip Selznick’s Leadership in Administration of 1957, and
Alfred D. Chandler’s Strategy and Structure of 1962” (p. 24). It was Selznick’s
conception of “distinctive competence,” which brought about a need for firms to align
(implement) its internal capabilities to its external expectation.
Design School Content
According to Mintzberg, Ahlstrand, and Lampel, (1998) organizational strategy is
made up of ten distinct separate schools of thinking; of these ten schools the design
school is one of them. As Carlopio (2009) points out that the design school is not the
process of designing or creating a strategy; “the term “design” is used in its noun form, in
the sense of a form or a structure, rather than in its verb form, in the sense of generation
or creating strategy” (p. 1). However, when used (Carlopio quoting Mintzberg, 1990 and
Mintzberg and Lampel 1999) “in its verb form, it is done so only in the sense that an
organization’s structure must be “tailored to the individual case” or designed to gain “the
essential fit between internal strengths and weakness and external threats and
opportunities” (p. 1). The design school is divided into two clear-cut strategy processes.
The process examines an organization’s internal strengths and weaknesses to its external
environment threats and opportunities. The examination establishes the organizations key
success factors (external) and its distinctive competences (internal) fit through what is
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known as strengths, weakness, opportunities, and threats (SWOT) analysis. The design
school model also takes the view of the organizations social responsibility and
managerial values during the creation, evaluation and choice strategies.
Ansoff (1991) argued that “Mintzberg makes no direct reference to the context in
which his prescriptive principles should be used” (p. 454) However, according to Ansoff,
Mintzberg does indentify two contexts that if possible may apply; with a new
organization, and its initial strategy development and during an organizational change to
a stable environment.
Risk
Risk is something for which solutions can be developed proactively, with
foresight and based on known information, in order to reduce the chance for mistakes. To
lessen the risk an organization must identify their calculated risk and manage it. The use
and benefits of tools for project risk management article by Raz and Michael (1999) state
that "Risk management is one of the key project management processes" (p. 9). Their
study revealed (through questionnaires) that in the software and high-tech industry the
efficiency of risk management is though the use of tools. They found that the tools
implemented were those that were currently used in contemporary management practices.
In addition they also uncovered those organizations who managed risk well, used tools to
reduce the risk; through analysis or the use of check lists. Moreover, the mangers that
used tools to lessen risk felt that using risk management tools contributed to the success
of their project; therefore managers tend to use a risk management tool. However, the
authors caution that “during the life of the project managers become "busier” and are
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subject to mounting resource and time pressures and are likely to neglect the risk control
phase. Consequently, risk control tools are used sporadically or not at all..."(p.11-12).
The risk of the design school strategy is the “separation of formulation from
implementation: detaching thinking form acting. The formulation-implementation
dichotomy is central to the design school,” (Mintzberg, Ahlstrand, Lampel, 1998, p. 36).
The strategy formation is only viewed as a thinking process (formulation) while the
actual execution (implementation) of the strategy is over looked. For example
Mintzberg’s basic design school model (Mintzberg et al, 1998). Thus the school views
strategy as an end to its means of a process. Moreover, its simplification may over look
the complexities and authenticity of implementation, as well as, non adaptability to a
changing environment and its organizations lessons learned (emergent strategy theory).
On the other hand, its simplicity creates a clear sequential flow process that suite a stable
environment and promotes strong management leadership, mainly the chief executive
officer (CEO).
Uncertainty
Uncertainty, unexpected or unforeseeable changes, cannot be proactively planned
or predicted and must be dealt with in a more reactive manner; uncertainty therefore,
creates risk. The challenge to the design school strategy is the resolution of uncertainty
through SWOT analysis. It can be argued that design strategy cannot identify every
possible scenario for an organization to become successful even with its distinctive
competencies to insure a best-fit strategy let alone its organizations social responsibility
and managerial values during the creation, evaluation and selection of the best-fit
strategies. In fact, the design school assumes that decisions made to ensure best-fit
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strategies are known. If that is truly the case then American and United Airlines, through
design school strategy, would have known about 9-11 and the resultant effect it had on
their companies as well as the whole airline industry for that matter.
Managing Uncertainty
Coping and managing uncertainty is easier said than done. Uncertainty,
unexpected or unforeseeable changes, cannot be proactively planned or predicted and
must be dealt with in a more reactive manner. However, according to Mason-Jones and
Towill (2000) uncertainty can be managed. Moreover, the authors argue that companies
that are proactively involved with uncertainty can reduce its uncertainty occurrence.
“Those companies who design business strategies which acknowledge the presence of
uncertainty and provide mechanisms for pro-actively tracking it are rewarded by an
opportunity to enable best practice ahead of competitors whose responses are purely
reactive” (p. 40). Therefore, uncertainty can be managed by indentifying environmental
changes and then embarking upon and reducing uncertainty either sequentially or
concurrently.
Influences of Market structure
The design school strategy market structure examination establishes the
organization key success factors (external) and its distinctive competences (internal) fit
through what is known as SWOT analysis. It is through SWOT analysis that originations
influence market structure. SWOT analysis establishes goals of an organization and as
goals are establish than a strategy or game plan is implemented to achieve the goals.
Kotler and Keller, (2007) cites Porter’ “three generic strategies that form a good starting
point for strategic thinking: overall cost leadership, differentiation and focus” (p. 31). For
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example, firms that adapt the cost leadership strategy become the lowest production of
products that produces a product lower than their competitors thus establishing
economies of scale.
Environment
Once again, the design school uses of SWOT analysis looks at the external or
internal threat, through scanning its environment. The examination establishes the
organizations key success factors (external) and its distinctive competences (internal) fit
Zajac, Kraatz, and Bresser (2000), argue that “organization’s strategy should fit (and/or
changed to fit) with its environmental and organizational context” (p. 432). Threats to
firms can be identified as either major or minor threats. Kotler and Keller (2007) caution
that major threats must be monitored by firms to change and adapt its strategy if
necessary. Zajac, Kraatz, and Bresser (2000), also caution that “One central feature that
may affect the propensity of organization adaptation is the competitive environment of a
local area. Organizations often look to local competitors for clues regarding the
appropriateness of potential strategic changes,” (438).
Environmental School Origin
In Mintzberg, Ahlstrand and Lampel (1998) environmental school the strategy
formation is seen as a reactive process. Its genesis started with the “contingency theory.”
The contingency theory argues that the solution for a managerial problem is contingent
“it depends” on factors or other forces (environment) that are imposing on the final
outcome. For example if an organizations external environment was balanced then the
organizations internal environment was also balanced. Thus, the environmental school
strategy is reactive (depends) to its external and internal forces. Later, theorists known as
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“population ecologists” claimed that external forces put organizations into a niche
environment which forced the organization to adapt to it environment.
Environmental School Content
Mintzberg, Ahlstrand and Lampel (1998) argue that the environmental school
strategy is a response to the challenges imposed by the external environment. “The other
schools see this as a factor; the environmental school sees it as an actor-indeed the actor”
(p. 286). Like contingency theory, the environmental school strategy general forces are
the central actor in the strategy process. Theorists of the environmental school believe
that there is no one best way to organize; it depends on the organization’s structure, its
size, technology and requirements of its environment. Therefore, the organization will
react to these forces. Leadership “becomes a passive element for purpose of reading the
environment and insuring proper adaptation by the organization” (p.288). However the
“organizations end up clustering together in distinct ecological-type niches, positions
where they remain until resources become scarce or conditions too hostile. Then they
die” (p.288). Like the design school the environment school also uses SWOT analysis
Risk
The environmental schools strategy shortcomings are that the magnitude of the
environment forces lend to ambiguity. Therefore the strategy formation becomes useless
and not realistic. According to Grant, (2003) “increased volatility of the business
environment makes systematic strategic planning more difficult. Rapid change requires
strategies that are flexible and creative…” (P. 491) Thus, the risk to organizations using
an environmental school strategy is that it is susceptible to change; change takes a long
time in a large organization structures. Moreover, during this time period of change
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competitors can aggressively attack an organizations market, thus, regardless of its
environment; the result is that organization fails to survive. In addition, it can be argued
that an organization-even if it had time and unlimited capital-risks their existence due to
the endless possibilities to any indisputable best possible resolution to any given
environmental condition. Simply said, there are too many unforeseen and uncertain
possibilities in developing a strategy formation. According to Alessandri (2008) risk is
one of the fundamental factors that impinge on an organization’s strategic decision
process. “Perceived risk and the organizational context can lead to differing approaches
to making decisions…environmental, organizational and cognitive factors appear to play
significant roles in risky choices” (p.198).
Uncertainty
One of the unforeseen possibilities in developing an environmental strategy
formation is uncertainty. Uncertainty, unexpected or unforeseeable changes, cannot be
proactively planned or predicted and must be dealt with in a more reactive manner.
Theorists of the environmental school believe that there is no one best way to organize; it
depends on the organization’s structure, its size, technology and requirements of its
environment. Thus the organization will react to these forces. For example, Jensen,
Johansson, and Lofstrom (2006) investigate interactional uncertainty with respect to
projects. The authors identify factors that cause uncertainty in an organizational
environment and how uncertainties affect project formation, processes and results; a two
dimensional model, through vertical and horizontal uncertainty analysis. It is through
these models that the authors concludes “how different degrees of uncertainty affect the
conditions of various projects and their accomplishments…that uncertainty can operate
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on many levels at the same time: interactional uncertainty goes together with both
operational and institutional uncertainty” (p. 10-11). Although, there is evidence through
Jensen et al. (2006), and others who have researched uncertainty in organization on
making strategic decisions; there is no single tactic to strategy decisions that will
completely eliminate uncertainty, however, it will help guide, and inform organizations in
managing their uncertainty.
Managing Uncertainty
Courtney, Kirkland and Viguerie (1997), warns CEO’s of the dangers of
managing uncertainty. They suggest that the biggest danger in uncertainty is that
organizations management or leaders should not view uncertainty as either certain or
uncertain; what is referred to as a “binary way” a narrow thinking of strategy for
uncertainty. Courtney et al., (1997) suggest that “uncertainty requires a different
approach- one that avoids this dangerous binary view” (p. 68). The authors identify four
levels of uncertainty; circumstances for which organizations can determine uncertainty
during strategic decisions. Additionally, organizations that are confronted with a highly
uncertain business environment, more often than not, differentiate its products and its
business units so that an organization can focus on a smaller market and certain
challenges; thus an origination becomes a strategic business unit and enters into its niche
market. For example, if the British fondness of motorcycles is different than American
fondness in motorcycles then it becomes a challenge to a manufacturer to produce a
single motorcycle that will satisfy both markets. Therefore, it would be necessary to
adapt to the environmental forces and create two separate markets as well as strategic
business units to diminish uncertainly. Moreover, undervaluing the management of
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uncertainty will lead to strategic decisions that neither defends against a market threat nor
takes advantage of market opportunities.
Influences of Market Structure
Like the design school, the environmental school market structure examination
establishes the organizations key success factors (external) and its distinctive
competences (internal) fit through what is known as SWOT analysis. It is through SWOT
analysis that originations influence market structure. SWOT analysis establishes goals of
an organization as goals are established then a strategy or game plan is implemented to
achieve the goals. With the environmental school strategy, market structure is dependent
on the market in which an organization operates. Organizations that closely fit with their
environmental requirements survive, while organizations that do not fit disappear; thus
organizations adapt to their environment due to the competitive dynamics of their
industry. For example, the banking industry is just one case in point that will have to map
innovative strategies in order to survive or disappear in 2015. According to the article:
The retail banking industry in 2015: Trends and strategies to focus on and develop.
(2007), research that was conducted by IBM institute for Business; two mammoth
developments is forecasted to shape the banking industry, one of which is that “universal
banks and ultra-focused niche players thrive: large players benefit from super scale while
niche players aggressively pursue the most desirable customers. Banks in the middle will
suffer from this situation,” (p.32). The other development is that customers will change
the game in which banks operate; population growth, technologically savvy consumers,
and long life expectancies of older customers. Thus for banks to survive they will have to
be responsive to environment conditions, threats, and empowered customers.
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Environment
Most organizations adapt to their environment. However, in the environment
school strategy the definition of the environment is so vague that it become of no use
when doing a strategy analysis. Therefore, two organizations in the same industry with
the same environmental factors will have two completely different strategies. (Cray,
Haines, Mallory, 1994). Oertel and Walgenbach (2009), suggest that an organization
which positively uses the environmental school theory, also use the basic concepts of
organizational ecology theory. The base of ecology theory is that “organizations are
selected by the environment, i.e., organizations that closely fit with environmental
requirements survive, while organizations that do not fit disappear. Organizational
environments prefer organizations that have a high degree of reliability and
accountability,” (p.252). To increase the reliability and accountability, Tan and Tan
(2005) who cites Hrebiniak and Joyce (1985), Khandwalla (1977) and Mintzberg (1979),
suggest that “strategic choice theories for firm strategy are that management should take
into account the multiple ways in which organizations interact with their environments
through the process of mutual adaption between the organization and its environment”
(P.146). Therefore, organizations can constructively recreate its environment with a
different approach to strategy, (Tu 2009).
Conclusion
These strategy formations are focused around ten distinct schools of thought
(Mintzberg, Ahlstrnd, and Lampel, 1998) two of which schools are referred as to the
design school and environmental school. Organizations attempt to create and incorporate
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these strategy formations effectively. However, organizational strategy formations are
heightened by an organizations global market structure, and the environment in which
they operate; such as risk, uncertainty and resources.
It can be argued that design strategy cannot identify every possible scenario for an
organization to become successful through its distinctive competencies to ensure a best-
fit strategy let alone its organizations social responsibility and managerial values during
the creation, evaluation and selection of the best-fit strategies for their environment.
Most organizations adapt to their environment through scanning and SWOT
analysis. However in the environment school strategy the definition of the environment is
so vague that it become of no use when doing a strategy analysis. Therefore, two
organizations in the same industry with the same environmental factors will have two
completely different strategies.
Companies that are proactively involved with uncertainty can reduce its
uncertainty occurrence. The biggest danger in uncertainty is that organizations
management or leaders should not view uncertainty as either certain or uncertain; what is
referred to as a “binary way” a narrow thinking of strategy for uncertainty. Thus there is
no single tactic to strategy decisions that will completely eliminate uncertainty.
Organizations that undertake the challenges of designing, and executing strategies
for the future will; compete profitably, accomplish growth, and find themselves
becoming design strategy leaders among their global competitors.
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