Strategy development processes Intended or emergent? Searching for ideas Managing multiple processes

Strategy Making : Design or Process? Strategy as Design Strategy as Process Many participants / groups responding to multitude of external and internal forces Planning and rational choice Intended Strategy Emergent Strategy Realized Strategy 10

Intended strategy, or designed An intended strategy is deliberately formulated or planned by managers. This may be the result of deliberate rational analysis, or of strategic planning.

The role of rational analysis Helps to evaluate alternative strategies and select the most appropriate for the given context Helps to define direction and goals, and select proper course of action, and assign resources to implement the proposed strategy Improves decision making down the organization by promoting a common understanding of issues and sharing common assumptions Strategy analysis can enhance exploration of ideas, innovation and learning. 11

Beware of the limits of analysis ... Complexity can be overwhelming, change can be unpredictable the results of analysis can be wrong Investment to more analysis may cost a lot analytic units, numerous staff, time or executives turned into analysts ...paralysis through analysis... It may be isolated from actual decision making ivory tower thinking 11

Example: AT&T and IMB initially got their forecasts wrong... Their vision: convergence of telecom and software AT&T: bought a computer company IMB: bought a telecom company Initial vision: shattered by the rise of microcomputers the advent of the Internet 11

Strategic Planning Systems Epitome of rationality.... or bureaucracy?

Strategic Planning Systems: what are they? Systematised, step by step, chronological procedures involving different parts of the organisation Expression of collective rationality or part of “rationality” ritual? Their design and use depends on context In large firms tend to be formalized In small firms they are less developed.

Strategic Planning Systems: components Plans, long & medium term Strategic plans, business plans Corporate resource plans (e.g. HR, IS…) Annual Plan and Budgets Monitoring system Reporting on progress (outcomes vs targets) Related processes Top down, bottom up

The role of strategic planning Formulating strategy: a means by which managers can understand strategic issues and formulate strategy Learning: a means of questioning and challenging the taken-for-granted Co-ordinating business-level & functional strategies within an overall corporate strategy, share assumptions Communicating intended strategy and providing agreed objectives or strategic milestones – a means for implementation.

Benefits of planning There are additional psychological benefits: can provide opportunities for involvement, leading to a sense of ownership, provides a sense of security to managers and re-assures managers that the strategy is ‘logical’.

Dangers associated with planning Confusing strategy with the plan Detachment from reality Paralysis by analysis – staff, not line activity Failure to gain ownership - narrow involvement Dampening of innovation - cumbersome process, can stifle ideas .

Analysis & Design is not the only way in strategy development The actual strategy making in practice is often less analytic, more unstructured and diffused Often an outcome of negotiation, compromise and bargaining among multiple participants (political view) The outcomes of rational analysis and design may have limited effect on the final choice of strategy, or may be bypassed by actual processes Or simply, rational analyses may be an input in the diffused deliberation processes

Pattern in a series of decisions ……not a ‘grand plan’. Emergent strategy Pattern in a series of decisions ……not a ‘grand plan’.

The wider system in and out matters It can produce successful strategies Realizations cannot be totally guided by business plans and management intentions Chance may matter, alertness to emerging ideas also Emergent processes can be used, or even be managed to an extent Strategy is both planned and also just happens

Emergent strategies ... Ideas /outcomes may come from various sources, in and out Outcome of social and political processes in and around organizations Outcome of networking, of “open innovation” processes May upset management’s intentions May be outside the existing model, or the dominant logic

Managing emergent processes: “Logical incrementalism” Logical incrementalism is the development of strategy by experimentation and learning – from partial commitments rather than through formulations of total strategies. It involves: Search for ideas Experimentation Co-ordinating emergent strategies – drawing together an emerging pattern of strategy from subsystems

External or internal search? “Closed” innovation – the traditional approach to innovation relying on the organisation’s own internal resources – its own laboratories and marketing departments. Usually it is secretive, anxious to protect intellectual property and avoid competitors free-riding on ideas “Open” innovation involves the deliberate import and export of knowledge by an organisation in order to accelerate and enhance its innovation. Exchanging ideas openly is seen as likely to produce better products more quickly E.g. Procter & Gamble move from closed to open..

Strategy: planned or emerging? Planned / Intended Realized strategy differs from Planned by 70 – 90 % Outcome Emerging «Πρός γάρ τό τελευταίον εκβάν έκαστον των πρίν υπαρξάντων κρίνεται» (Δημοσθένης)

Multiple Strategy development processes Intended and emergent

Challenges for managing strategy development process Multiple strategy development processes – most organisations will develop strategy involving several approaches. There is no one right way to develop strategy but the context can be important. Organisational context matters – Strategy development processes will differ according to context - environmental conditions and capabilities.

Create conditions for better strategy to happen Integrate diffused processes with deliberate strategic planning Integrate multiple inputs / perceptions from many sources in and out Balance influences, broaden or streamline representation in the strategy making processes Address competitive edges, challenge taken for granted assumptions Create the conditions for strategies to emerge.

Strategy ideas for the new era We need a portfolio of ideas, not just one from the top Encourage ideas to surface, select ideas, provide incentives to come out Networking, developing relations Develop radar capabilities, “Surfing on the wave of change” Understanding the potential of open innovation 6

Perceptions of strategy development Strategy will be seen differently by different people: Senior executives usually see strategy in terms of intended, rational, analytic planned processes Middle managers may see strategy as the result of vertical and lateral influences and political processes Extending the strategic role of leadership To managing the system & processes of strategy creation To exploit mid level management capability

The role of middle managers … as strategic partners

How Honda entered the USA market Formal strategy in the 1960s: Sell bigger and more luxurious motorcycles To beat Harley-Davington Hesitated to push the small 50cc Supercubs Soon larger bikes started to break Honda used the small 50cc bikes to ride around on errands Clients from sport goods stores spotted the small bikes Honda responded Sold small bikes to retail stores Not to traditional dealers!

How Intel started: Epoch I Memory devices Intel begun as a supplier of memory devices (DRAMs) 1971: an engineer invented the microprocessor Processors were peripheral All through the 70s the lion’s share of sales was on DRAMs Resources were heavily invested in DRAMs Processor sales grew gradually in emergent applications

How Intel entered the microprocessors: Epoch II Market conditions changed In the early 80s Japanese DRAM makers attacked the USA market DRAM profit margins dropped significantly By 1984 Intel was on a crisis Move towards microprocessors Some people cultivated the idea Explicit change of strategy: a deliberate move towards microprocessors.

Mid level managers as strategic partners Middle level managers can exercise important influence Decisions of middle managers often shape strategies They know better the resources & capabilities (RBV) They can develop cross functional coordination, cutting across “silos” Need to involve mid levels in strategy creation Not only in execution of top level strategy To create environment conductive to strategy creation Design participative processes

What mid level managers can do Translate / communicate strategy down Strategy execution & creation Select / screen new ideas Facilitate, encourage initiative Create environment for strategies to emerge, built skills, relations

Wide participation in strategy: Values Jam at IBM IBM integrates its staff in strategy making Global debate on strategic issues, theme based Grassroots discussion of ideas Reinvention of values in 2002 by Palmisano (CEO) 50000 employees took part in an intranet discussion of company values 22 million pages were analyzed with language software Structured improvisation, such as Jam in the jazz music 6

Seek ideas: Let all flowers blossom…

But select ideas for implementation

Who to involve in strategy making Selective participation Select experts, managers and externals who know Mainly in strategy formulation Wide participation Activate employees, open participation Continuous discussion, workshops… Include selected externals (experts, consultants, other) Narrow participation Managers and staff directly involved Selected employees, from operations involved in implementation Those to be involved in implementation operations Project teams Implementation consultants Low e.g.new unrelated activity Familiarity with strategic option High e.g.new related activity Low High Implementation requirements / difficulty

Summary: challenges in managing strategy development processes Top and middle management have to be alert to: Recognising that different processes of strategy development may be needed at different times and in different contexts Recognising the systems and processes that give rise to emergent strategy Managing multiple processes of strategy development Establish processes for selecting and evaluating emergent in addition to planned strategies Assigning a proper role to middle managers in strategic planning

Manage external influences in strategy Strategies may be imposed by powerful external stakeholders: Government can determine strategy in public sector organisations (e.g. police, utilities). Multinational companies may have elements of strategy imposed (e.g. forming local alliances). Business units may have their strategy imposed by head office (e.g. part of a global strategy). Top management has a role to manage these influences to an extent.

A personal lesson for you: Extend your role in strategy making “Seek involvement” in ongoing moves Align with change initiators Combat inertia, take calculable risk Exercise leadership Take initiative, search for new ideas Sell your ideas “Issue selling” Package your idea in strategic frame Seek opinions, find info, use experts Use formal and informal channels Mobilize support, form coalitions 6

Avoid common myths “Top management makes strategy, the people down the hierarchy implement it”. Strategy ideas are also generated by people down the organization in the course of implementation Implementation feeds back to strategy with new ideas and knowledge about what works in practice There are limits to top management knowledge and capability “Strategy is produced by analytical units and staff experts in a strategic room next to the CEO” Isolates strategy making from executive hierarchy and the implementing organization Often irrelevant (ivory tower thinking) Plans, analyses and studies produced by central units are one of the inputs in strategy making 6