the rational approach requires what strategy?
deliberate strategy
the bounded rationality approach requires what strategy?
emergent strategy
academic approaches to strategy
- rational approach
- Firms try to achieve strategic competitiveness and earn above-average returns
- I/O model takes external environment as main input for strategy formulation, which is then implemented and produces performance outcomes
- Resource-based model looks at firm’s capabilities to define competitive advantage - Carnegie School / Behavioural Theory of the Firm:
- All human decision making is affected by bounded rationality
for contingency theory crucial fit is
between strategy, organisational design and environment
Strategy is
the
operationalization of the firm’s goals of efficiency and/or effectiveness; and
the structure is the means to achieve them.
strategy can be described in terms of five forces
of the firm’s economic situation:
suppliers, buyers, substitutes, potential entrants, and the rivalry among existing competitors.
Burton’s types of strategies
(1) reactor, (2) defender,
(3) prospector, and (4) analyzer without or with innovation.
exploration
includes search, variation, risk-taking, and innovation. Exploration is the process of seeking new technologies or new ways of doing things.
exploitation
includes refinement, efficiency, selection, and implementation. Exploitation is taking advantage of current or known technologies to do things in a new or novel way
reactor
low on both exploitation and exploration
- Adjusting to the situation after things happen
- low information processing demands
- Decreased profits or earnings
- Loss of major customer
- Internal problems, such as after a merger
- Focussed neither on efficiency nor on effectiveness
- No innovation
- Executive do not systematically anticipate, plan and project into the future
- Technological developments come as surprises
- Problematic, in particular in the long run
- often observed in organizations in transition (after merger)
Example: Polaroid; Digital Corp.
defender
high on exploitation, and low on exploration
• Aimed at keeping the organisation’s position in the market
- Maintaining competitive position
- Sales forecasting used as tool
- Competitive prices and high quality
• Focussed on refinement of current products rather than innovation
- Process innovation
- Aimed at efficiency: repeatedly doing the same thing efficiently
• Vulnerability comes from products no longer desired in the market
- you cannot change much or quickly
Example: LEGO, Coca-Cola
prospector
high on exploration and low on exploitation
• High on exploration:
Focus on innovation
- Regularly creates new ideas to the detriment of being efficient
- require continous scanning of the external environment
- Often found in start-ups
- driven by effectiveness
• First-mover advantage
- Creator of change, so that others must adjust
- Change-oriented, preferring the new over the status quo
• Risky strategy:
- can exhaust resources
- First-mover advantage might be lost if others are quicker
Example: 3M, biotech firms
analyzer without innovation
high on both exlporation and exploitation
- focused on keeping the marketshare
- main goal is efficiency, and moderate effectiveness
• Passive innovation or copy strategy
- Strong focus on exploitation, moderate on exploration
- imitate what others do
- Avoids the risk of first mover
• Using defender strategies combined with an eye on trends
- Must be organized to detect and imitate quickly
- Otherwise doing the same things efficiently
• Vulnerability can come from following the wrong trends
Example: Samsung, magazine and tv prosuctions, fashion industry
analyzer with innovation
high on both exlporation and exploitation
• Active innovation strategy: new product and services on a regular basis
- ambidextrous strategy: combining exploration and exploitation
• Like prospector: going beyond what others do
- Either market or technology driven
• Dual focus is difficult to balance
- Risk that firm cannot capitalise on innovation investments
Example: Apple, IMB, Xerox (not successful)
Conceptualisations of the environment
- Uncertainty: unpredictability, unavailability of data
- Complexity: number of factors in the environment and their interdependence
- Temporal dynamics: instability, turbulence, high-velocity environment
- Ignorance or confusion about some factors
- Hostility: malicious external threats
Ashby (1956): Law of Requisite Variety
“Variety absorbs variety, defines the minimum number of states necessary for a controller to control a system of a given number of states.”
If a system is to be stable, the number of states of its control mechanism must be greater than or equal to the number of states in the system being controlled.
calm environment
low on both unpredictability and complexity
- Simple, few surprises
- Few products, predictable markets
- Globalisation, deregulation, financial crisis etc. have eroded calm environments
- the political and financial issues usually are not major challenges for management except if the firm is in a monopoly situation protected by the political system;
- no forecasts.
- Organisation scholars have argued since 1950 that environments are dynamic and complex
- Dangerous to think your environment is calm when it is not
Example: Utility companies, some public organizations
varied environment
high complexity, low unpredictability
• Complex -many factors to consider
- Factors can be interrelated, but relatively predictable
- Many products, predictable markets
- Market forecasts, analysis of political trends used as tools
- the focus of the excutive is on planning and coordination
Examle: LEGO
• For LEGO, environment changed to locally stormy when they tried to compete with electronic toys
locally stormy environment
low complexity, high unpredictability
• You know that a certain factor has an impact, but you don’t know how the factor will turn out
- Weather conditions for farming
- Initial access to funds or customer deals for start-ups
• Can be dealt with locally if you organise for flexibility
Ashby (1956) proposed the Law of Requisite Variety, which states that a system’s internal flexibility must meet the outside uncertainty for the system to survive. This means that a firm needs to be flexible so that it can meet the unpredictability of its environment.
- only a few factors have to be monitored and they are relatively independent (the adjustments can be made one by one);
Example: General Electric
turbulent environment
high on both unpredictability and complexity
•
•Most difficult environment in which to operate:
- forecasting does not work
- requires flexibility and coordination
+ large and fast information-processing capacity so that the firm can choose quickly among alternative courses of action.
Example: global airlines
open systems theory
views organizations as highly complex entities, facing considerable uncertainties in their operations and constantly interacting with their environment
calm environment fits with … strategy and … org goal
calm environment fits with reactor strategy and neither org goal
varied environment fits with … strategy and … org goal
varied environment fits with defender strategy and efficiency
as org goal
locally stormy environment fits with … strategy and … org goal
locally stormy environment fits with prospector strategy and effectiveness as org goal
