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Strategic Management – more learning and less planning

January 6, 2014

“A detailed plan may be comforting but it is not strategy”

(Roger L. Martin, Harvard Business Review 2014 [1])

Students of strategy have a long and ancient history of strategic thinking to draw upon. The most famous historical experts wrote with a focus on martial strategy and political concerns. Sun Tzu´s “The Art of War” written over 2000 years ago [2], Machiavelli’s [3] “The Prince” (1532), Miyamoto Musashi’s [4] “Book of the Five Rings” (c. 1645) and Carl Philipp Gottfried von Clausewitz’s [5] unfinished “vom Kriege” (1832), are all in this tradition of strategic thought and are still widely read today.

Strategic management as we now know it began to emerge in the United States in the 1960s during the era of Chandler [6], Sloan [7] and Ansoff [8]. These academics, business men and consultants established a planning focused paradigm for strategy that was very much top-down and where strategy was primarily an elitist, executive pursuit. This planning oriented paradigm drew heavily on the rationalist and scientific management tradition [9] and organisations were essentially seen as resource allocating structures that were controlled through well understood command and control processes.

Large strategy and planning departments became the norm in US corporations. This approach to strategy development and management has an underlying mental model that believes the past is the key to the future and that data from past experience can be extrapolated in the planning process to provide a reasonable prediction of future conditions. While this may have been true for some industries in the past, it is common experience today that the degree of complexity and the dynamic nature of modern business environments often render the use of such strategic management approaches, at best, ineffective.

The oil crisis in the 1970’s ushered in a new world of economic and geopolitical uncertainty. This uncertainty has increased since the 1980’s as the widespread adoption of new information and communication technologies in turn ushered in accelerating globalisation and transparency in political and commercial environments that threaten the established powers in both areas. New concepts for strategic management were developed in response to this turbulence. Mintzberg and Waters[10], for instance, described strategy as being emergent in nature, with the actual realised strategy evolving from the intended strategy as organisations react to environmental change. Brown and Eisenhardt[11] point out that constant change is the norm for many companies and the ability to continuously re-invent oneself is supported by limited organisational structures combined with the freedom to improvise and with low cost experimentation that help the learning process which is critical to understanding the strategic environment.

The essence of strategy is decision-making. The nature of the decisions in strategic management means that the decisions we make necessarily rule out other possible futures[1]. This fact is reflected in the popularity of Options Theory in strategic thinking. Williamson[12] suggests that a well-managed portfolio of options for the future and the ability to integrate planning and opportunism are useful in addressing complexity.

Environmental turbulence has become the norm for many organisations. Much traditional management theory and practice however has the goal of establishing controls that constrain the organisation, thereby making the organisation stable but unfortunately inflexible in the face of needed change. Pascale[13] argues that stability is not the goal but mastering the ability to constantly change.

Organisations with effective organisational learning capabilities are better equipped to create, acquire and transform tacit knowledge into explicit knowledge[14] enabling constant transition to new states. This is especially difficult for established firms which may have to unlearn what worked in the past and simultaneously learn what will work in the future, leaving them at a distinct competitive disadvantage compared to start-up companies who do not carry the intellectual baggage of the market incumbents.

Getting this strategic balance between the routines that provided past success and the ability to dynamically reconfigure[15] the organisation to meet new challenges is tricky. Poorly developed organisational learning capabilities represent a distinct disadvantage as subtle but critical internal and external signals are overlooked or, if recognised, not transferred to where strategic decisions are made or implemented. The valid lifetime of strategic plans has radically reduced over the past few decades, leaving organisations that learn faster than their competitors and that can dynamically reconfigure based on that learning at a distinct competitive advantage.

References

[1] Martin, R.L., (2014), “The Big Lie of Strategic Planning”, Harvard Business Review, January-February pp. 78-84.

[2] Sun Tzu, (c. 2400 BC), “The Art of War”, Translated by Samual B. Griffith 1963, Oxford University Press, Oxford

[3] Machiavelli, N. (1532), “The Prince”, Translated by George Bull 1961, 3rd Edition, London, Penguin Books Limited.

[4] Miyamoto Musashi (c. 1645), “Book of the Five Rings”, Translated by Stephan F. Kaufman, 1994, Vermount, Tuttle Publishing,

[5] Clausewitz, Carl von.”Hinterlassene Werke des Generals Carl von Clausewitz über Krieg und Kriegführung”. 10 vols. Berlin, 1832-37

[6] Chandler, A.D. (1962), Strategy and Structure”, Cambridge, MA, MIT Press.

[7] Sloan, A.P. (1963), My Years with General Motors”, London, Sedgwick and Jackson.

[8] Ansoff, H.I. (1965), Corporate Strategy”, New York, McGraw-Hill.

[9] Taylor, F.W. (1911), “Principles of Scientific Management”, New York, Harper and Row

[10] Mintzberg, H., & Waters J.A., (1985), “Of Strategies Deliberate and Emergent”, Strategic Management Journal, Vol. 6, pp.257-272.

[11] Brown, S.L., & Eisenhardt K.M., (1997), “The Art of Continuous Change: Linking Complexity Theory and Time-Paced Evolution in Relentlessly Shifting Organizations”, Administrative Science Quarterly, Vol. 42, No. 1, March,  pp. 1-34.

[12] Williamson, P.J., (1999), “Strategy as Options on the Future”, Sloan Management Review, Volume 40, No. 3, pp 117-126.

[13] Pascale, R.T. (1999), “Surfing the edge of chaos”, Sloan Management Review, Spring, pp. 83–94.

[14] Child, J. (2003), Organisational learning in Faulkner D. and Campbell A. (eds) The Oxford Handbook of Strategy, vol. 1, Oxford, Oxford University Press.

[15] Teece, D.J., Pisano, G. and Shuen, A., (1997), “Dynamic capabilities and strategic management”, Strategic Management Journal, vol. 18, no. 7, pp. 509–33.

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