Developing strategy is a matter of creating a sense of direction and purpose and ensuring strategic fit. It used to be regarded as a logical, step-by-step affair that was described by Whittington (1993) as the classical approach – strategy formulation as a rational process of deliberate calculation. Conceptually this involves the following:
- Define the mission.
- Set objectives.
- Conduct internal and external environmental scans to assess internal strengths and weaknesses and external opportunities and threats (a SWOT analysis).
- Analyse existing strategies and the business model to determine their relevance in the light of the internal and external appraisal. This may include gap analysis, which will establish the extent to which environmental factors might lead to gaps between what could be achieved if no changes were made and what needs to be achieved. The analysis would also cover resource capability, answering the question: ‘Have we sufficient human or financial resources available now or that can readily be made available in the future to enable us to achieve our objectives?
- Define in the light of this analysis the distinctive capabilities of the organization.
- Determine corporate and functional strategies for achieving goals and competitive advantage, taking into account the key strategic
issues. These may include business strategies for growth or diversification, business model innovation, or broad generic strategies for innovation, quality or cost leadership; or they could take the form of specific corporate/functional strategies concerned with product-market scope, technological development or human resource development.
- Prepare integrated strategic plans for implementing strategies.
- Implement the strategies.
- Monitor implementation and revise existing strategies or develop new strategies as necessary.
This model of the process of strategy formulation should allow scope for iteration and feedback, and the activities incorporated in the model are all appropriate in any process of strategy formulation. But the model is essentially linear and deterministic – each step logically follows the earlier one and is conditioned entirely by the preceding sequence of events. This is a misrepresentation of reality. In practice the formulation of strategy can never be as rational and linear an affair as some writers describe it or as some managers attempt to carry it out. As Quinn (1980: 15) pointed out, this formal planning approach ‘tends to focus unduly on measurable quantitative forces and to underestimate the vital qualitative, organizational and power-behavioural factors that so often determine strategic success in one
situation versus another’. He also noted that organizations typically construct their strategies with processes that are ‘fragmented, evolutionary, and largely intuitive’ (ibid: 15).
It is also necessary to bear in mind that, as described by Mintzberg and Lampel (1999: 27), the formulation of strategy is a highly complex process: ‘Strategy formation is judgemental designing, intuitive reasoning, and emergent learning; it is about transformation as well as perpetuation; it must involve individual cognition and social interaction, cooperative as well as conflictive; it has to include analyzing before and after as well as negotiating during; and all this may be in response to a demanding environment. Try to omit any of this, and watch what happens!’
The reality of strategy
Sparrow et al (2010: 4) asserted succinctly that: ‘Strategy is not rational and never has been’. It has been said (Bower, 1982: 631) that ‘strategy is everything not well defined or understood’. This may be going too far, but in reality, strategy formulation can best be described as ‘problem solving in unstructured situations’ (Digman, 1990: 53) and strategies will always be formed under conditions of partial ignorance. Quinn (1980: 9) pointed out that a strategy may simply be ‘a widely held understanding resulting from a stream of decisions’.
He believed that strategy formulation takes place by means of ‘logical incrementalism’, ie it evolves in several steps rather than being conceived as a whole. The following are his views on the strategy process.
Source review The evolutionary nature of strategy – Quinn (1980: 14–15)
Although the formal planning approach is excellent for some purposes, it tends to focus unduly on measurable quantitative forces and to under-emphasize the vital qualitative, organizational and power-behavioural factors that so often determine strategic success… The processes used to arrive at the total strategy are typically fragmented, evolutionary, and largely intuitive… The real strategy tends to evolve as internal decisions and external events flow together to create a new, widely shared consensus for action among key members of the top management team.
Pettigrew and Whipp (1991: 26) pointed out that: ‘… strategy does not move forward in a direct linear way, nor through easily discernible sequential phases. Quite the reverse, the pattern is much more appropriately seen as continuous, iterative and uncertain.’
Another difficulty is that strategies are often based on the questionable assumption that the future will resemble the past. Some years ago, Robert Heller (1972: 150) had a go at the cult of long-range planning: ‘What goes wrong’, he wrote, ‘is that sensible anticipation gets converted into foolish numbers: and their validity always hinges on large loose assumptions’. More recently, Faulkner and Johnson (1992: 17–18) have said of long-term planning that it:
… was inclined to take a definitive view of the future, and to extrapolate trend lines for the key business variables in order to arrive at this view. Economic turbulence was insufficiently considered, and the reality that much strategy is formulated and implemented in the act of managing the enterprise was ignored. Precise forecasts ending with derived financials were constructed, the only weakness of which was that the future almost invariably turned out differently.
Strategy formulation is not necessarily a deterministic, rational and continuous process, as was pointed out by Mintzberg (1987). He believes that, rather than being consciously and systematically developed, strategy reorientation happens in what he calls brief ‘quantum loops’. A strategy, according to Mintzberg, can be deliberate – it can realize the intentions of senior management, for example to attack and conquer a new market. But this is not always the case. In theory, he says, strategy is a systematic process: first we think, then we act; we formulate then we implement. But we also ‘act in order to think’. In practice, ‘a realized strategy can emerge in response to an evolving situation’ (ibid: 68) and the strategic planner is often ‘a pattern organizer, a learner if you like, who manages a process in which strategies
and visions can emerge as well as be deliberately conceived’ (ibid: 73). This concept of ‘emergent strategy’ conveys the essence of how in practice organizations develop their business and HR strategies.
Mintzberg was even more scathing about the weaknesses of strategic planning in his 1994 article in the Harvard Business Review on ‘The rise and fall of strategic planning’. He contends that ‘the failure of systematic planning is the failure of systems to do better than, or nearly as well as, human beings’. He went on to say that: ‘Far from providing strategies, planning could not proceed without their prior existence… real strategists get their hands dirty digging for ideas, and real strategies are built from the nuggets they discover.’ And ‘sometimes strategies must be left as broad visions, not precisely articulated, to adapt to a changing environment’. He emphasized that strategic management is a learning process as managers of firms find out what works well in practice for them.
Following up on the Mintzberg thesis, Digman (1990: 11) commented that the most effective decision-makers are usually creative, intuitive people ‘employing an adaptive, flexible process’. Moreover, since most strategic decisions are event-driven rather than pre-programmed, they are unplanned. And Boxall and Purcell (2003: 34) suggested that ‘… it is better if we understand the strategies of firms as sets of strategic choices, some of which may stem from planning exercises and set-piece debates in senior management, and some of which may emerge in a stream of action’.