STRATEGY FORMATION

Introduction
The central question here is how in practice strategies are made in organisations i.e. the process of strategy formation. There have been conflicts of opinions on the best way of forming strategies. This confusion has been between those who define strategy as a pattern of decisions and those who view strategy as a pattern of actions. Many theorists talk of strategy when an organisation has decided on a consistent course of action that it intends to pursue (intended) while others speak of strategy when an organisation has actually unveiled a consistent course of action in practice (realised). According to Mintzberg and Waters, intended strategies are the patterns of decisions that organisations plan to execute while realised strategies are the patterns of action that have been accomplished. When intended strategy leads to realised strategy, Mintzberg and Waters call it deliberate strategy but when realised strategy comes about in the absence of intentions it is emergent strategy. i.e. strategy emerging unintentionally as strategists take one step at a time trying to piece together a viable course of action. Some strategists argue that organisations should strive to make strategy in a highly deliberate manner by first explicitly formulating comprehensive plans before implementing them. This is called the planning perspective. On the other hand others argue that in reality new strategies emerge over time and that organisations should facilitate this messy, fragmented, piecemeal formation process. This is called incremental perspective.

The Planning Perspective

This is where strategies are deliberately planned and executed and anything that emerges unplanned is not strategy. Here time and effort must be put into formulating an explicit plan, making use of all available information and weighing all of the strategic alternatives. Tough decisions are made and priorities are set before action is taken. Think before you act is the motto. Once a strategic plan is adopted, action should be swift, efficient and controlled. Implementation must be secured by detailing the activities to be undertaken, assigning responsibilities to managers and holding them accountable for achieving results. So in the planning perspective, strategies are intentionally designed. The planning perspective requires a long formulation phase, including extensive analysis of the present situation, coming up with a number of options, evaluating the alternatives, choosing the best option, and further detailing in the form of a 1

blueprint. The characteristic of this approach is that the entire process can be disassembled into a number of distinct steps that need to be carried out in a sequential and orderly manner. Only by going through these steps in a structured manner will the best results be obtained.

Advantages of the Planning Perspective

1. The plan gives the organisation direction. By first setting a goal and then choosing a strategy to get there, organisations can be given a clear sense of direction. Managers can then select actions that are efficient and effective within the context of the strategy.

2. The plan allows for organisation programming. The clear plan set allows effective execution. A structure can be chosen, tasks can be assigned, responsibilities can be divided, budgets can be allotted, and targets set. A control system can be created to measure results in comparison to the plans so that corrective action can be taken.

3. It helps achieve optimisation. By considering all available options before making a decision, organisations can allocate their scarce resources to the most promising course of action.

4. Planning facilitates coordination between all of the involved parties. By agreeing on a joint plan before action is taken, differences of opinion can be ironed out, activities can be mutually adjusted and a consistent organisation-wide strategy can be pursued.

5. It allows for the formalisation and differentiation of strategy tasks. Due to its highly structured and sequential nature the programs above can be formalised. By pulling the strategy into a number of formal, sequential activities, strategy-making tasks can be divided among a larger group of people and specialisation can be developed leading to division of labour. (i.e. formulation, analysis, implementation, evaluation, monitoring). This leads to better use of talents.

6. It encourages long-term thinking and commitment. Planning directs attention to the future. Instead of just muddling through, planning challenges strategists to define the desirable future and work toward it. It also commits the organisation to a course of action and allows for investments to be made now that may only pay off in the long run.

Disadvantages
Plans will always be based on assumption about how future will unfold i.e. forecasts, yet prediction about the future is very difficult. The future can be predicted only by extrapolating from the past, yet the future can be very different from the past.

Way Forward
There should therefore be caution in deterministic plans. A contingency plans based on different future scenarios whereby a number of alternative plans are held in reserve in case key variables in the environment suddenly change. Organisation also should stage regular reviews and realign the strategic plans to match the altered circumstances. This is usually accomplished by going through the planning cycle every year and adapting plans to fit with the new forecasts.

The Incremental Perspective

This is a situation where strategy formation process is not about comprehensively figuring out strategy in advance, but actively finding out by doing and gradually blending together initiatives into a coherent pattern of actions. Here making strategy involves sense-making, reflecting, learning, envisioning, experimenting and changing the organisation, which cannot be neatly organised and programmed. Incremental approach argues that new strategy largely emerge over time as managers proactively piece together a viable course of action or reactively adapt to unfolding circumstances. Incremental approach argues that planning and control are only valuable for routine activities that need to be efficiently organised but not suitable for nonroutine activities like innovation which cannot be structured and controlled. Strategy formation should move incrementally allowing new ideas to emerge over time and increase commitments as ideas prove their viability in practice. This means strategists should not act like commanders but like organisational developers questioning assumptions, challenging ideas, encouraging learning, championing new initiatives and supporting change.

Weaknesses of Planning
Problems cannot be simply recognised and analysed, but can be interpreted and defined in many ways depending on how the strategist looks at it. A full analysis of a wicked problem is impossible. Due to a wicked problems complexity and links to other problems, a full analysis would take forever. Wicked problems are very complex, consisting of many sub-problems. Formulating a master plan to solve all sub-problems in one blow is very complex and the more complex a plan, the larger the chance of failure. It is therefore wiser to tackle sub-problems individually and gradually blend these solutions into a cohesive pattern of action.

As soon as an organisation starts to implement a plan, its actions will induce counteractions. Customers will react, competitors will change behaviour, suppliers will take a different stance, regulatory agencies might come into action, unions will respond, the stock markets will take notice and company employees will draw conclusions. Planners will not be able to forecast and incorporate other stakeholders reactions into the plans and the plan will be outdated as soon as implementation starts. The unpredictability of external and internal reactions to a plan leads to a weakness of the planning. In such a situation strategist need to remain flexible and adaptive, postponing fixed commitments for as long as possible. Incremental approach therefore calls for a behaviour that acknowledges the fact that strategy formation is a process of innovation and organisational development in the face of wicked problems in an unknown future.

Conclusion
The question is should strategy formation be a deliberate process or more of an emergent one? Should strategist strive to formulate and implement strategic plans supported by a formalised planning and control system? Or should strategist move incrementally, behaving as inventors, organisational developers? Not all agree on one answer to these questions. It is up to you to wrestle with the paradox of deliberateness and emergentness.

Planning versus incremental perspective Planning Perspective

Emphasis on Nature of strategy Nature of formation Deliberate emergent

Incremental Perspective
over Emergent over deliberate Gradually shaped Finding out and and of acting actions

Intentionally designed

strategy Figuring out

Formation Process Formation process steps Focus on strategy as a Decision-making Decision-making focus

Formally structured Unstructured and comprehensive fragmented First think, then act Pattern (plan) of Thinking intertwined

decision Pattern (behaviour) Political

Hierarchical Optimal 4

resource Experimentation and parallel

allocation coordination View of developments Posture future towards future Forecast anticipate

and initiatives and Partially unknown Unpredictable and

the Make commitments, Postpone commitments, prepare for the future remain flexible Learning (organisational development) top- Requires broad cultural and cognitive shift.

Implementation on Strategic change

focused Programming (organisational efficiency) Implemented down

DEVELOPING THE STRATEGY The Prescriptive Approach

Long term

Analysis of the environm ent

monitoring At least

Findin g strate gic route

Vision, mission & objectiv es

Optio ns devel opme nt

Ration al selecti on

Implement ation

Analy sis of resour ces

Consider ing the 7S

At least once Long-term monitoring

The Emergent Approach

Analysis of turbulent environm ent

Constant monitoring

Identificatio n of vision, mission, & objectives

Strategy development & implementat ion

Analysi s of resour ces

Constant monitoring

THE SEVEN S FRAMEWORK Introduction

The Seven S was the work of Pascale and Tonny Athos to challenge the Boston Consulting Group matrix of problem child, cash cows, dogs and stars. The seven

S shows the inter-relationships between different aspects of corporate strategy. The elements need to be brought together. The framework has no obvious starting point all the elements are equally important and are interconnected such that altering one element may impact on others. The framework makes clear that effective strategy is more than individual subjects such as strategy development or organisational change. It is the relationship between strategy, structure and system coupled with skills, style, staff and superordinate goals. The framework provides a way of examining the organisation and what contributes to its success.

Structur e Syste ms

Strategy

Superordin ate goals Skills Style

Staff

Strategy: This is the route that the company has chosen to achieve competitive success. Structure: This is the kind of organisational structure that the company has adopted. Systems: This is the procedures that make the organisation work. It is everything from capital budgeting to customer handling.

Style: This is the way the company conducts its business, epitomised especially by those at the top. Staff: This is the pool of people who need to be developed, challenged and encouraged. Skills: This is not just the collection of skills that the organisation has but the particular combinations that help it to excel. Superordinate goals: This goal of a higher order and expresses the values, concepts and vision that senior management brings to the organisation.

Different treatment of the Seven S Strategy

Structure

Planned
Elites in organisation unite into groups based on functions. Focus is needed to drive strategy forward Mandatory system used, meeting formats & reports always prepared to an agreed standard Managerial style for administration to keep the organisation operating smoothly Collegiality is important to obtain team spirit and support colleagues Hard mind are needed to deliver the bottom-line profit

Emergent
Pluralist organisation structures, teamwork essential & crossfunctional activities undertaken Discretionary system used, organisation not swamped with form-filling that will drive entrepreneurial initiatives Transformational style for quantum leaps in performance that are essential for major new initiatives Individualism is important where new ideas, heretical solutions to existing problems are required Soft hearts are needed when issues such as responsibility for environment, customers and employees rights are under discussion Skills are involved when it is important to develop new skills that move competences to a completely new level

System

Style

Staff

Shared Value

Skills

Maximise skills, concentrate on what the organisation already does best