Contemporary strategy analysis

2001-2011 was filled with many black swan events (i. e. events that are extremely rare, have a major impact and are unpredicted even if they are rationalised retrospectively) e. g. Sep 11 attack, Lehman Brother collapse, Greece/Iceland bailouts, Arab Spring revolutions, major earthquakes and tsunamis) Rise of BRIC countries creating a multipolar world 2. Sluggish Economic Growth + Increased Competition Economic growth in advanced economies sluggish throughout the medium term governments and household sectors are over-leveraged

insufficient productive investment from companies sitting on cash excess capacity in most sectors -> resulting in strong price competition Internationalisation of companies from emerging-market countries e. g. contract manufacturers (OEM) in China and India competing with their customers in final markets. 3. Technology Disruption Digital technology disrupting incumbents (e. g. Netflix replacing Blockbuster) and redrawing industry barriers (e. g. Apple, Nokia, Nintendo, Blackberry now competing in same mobile device market) 4. Social Pressure and Crisis of Capitalism

Loss of social legitimacy of companies as a result of a fall-out from the 2008/9 financial crisis – disdain for companies (hypocrisy + greed of bankers, traders, etc) and their leaders (e. g. Occupy Wall Street movement) Rise of alternative forms of business enterprise as better, more sustainable models over limited liability companies – e. g. state-owned firms (China, Brazil) and cooperatives (i. e. businesses mutually owned by consumers or employees). Challenge faced by companies of whether to unilaterally create/stick to its own values (which may become out of step) or reflect the current values and attitudes of society it operates within.

Item 2: New Directions in Strategic Thinking 1. Re-orientate Corporate Objectives of Companies Reconcile the need for profit maximisation with a broader societal role (i. e. companies having greater social and environmental responsibilities) Move away from focusing on stock market valuation alone – Management should not focus on profits but what strategic factors that drive profits or create value e. g. customer satisfaction, innovation Best antidote to corporate empire building and CEO hubris is a stronger emphasis on basic principles of strategy analysis. 2. Seeking More Complex Sources of Competitive Advantage

Competitive advantages in today’s dynamic world is difficult to sustain due to high rate of technology diffusion + increased competition from emerging market companies who are more cost-effective Developing multiple layers of competitive advantage is now required (e. g. as shown from companies that maintained profitability and market share for years (e. g. Toyota, Wal-Mart), combined with the ability to combine multiple capabilities. 3. Managing Options The portfolio of options of a company e. g. growth options, abandonment options, and flexibility options are increasingly important as sources of value.

Therefore option thinking should be adopted into a firm’s strategy: e. g. industry attractiveness should not depend on profit potential, but option potential (e. g. an industry that produces a no of different products, comprises multiple segments, has many strategic groups, utilises a wide variety of alternative technologies) e. g. a resource is attractive if it can be deployed in different businesses and support alternative strategies (e. g. nanotechnology). Dynamic capabilities are important because they generate new options. 4. Understanding Strategic Fit

Importance of fitting the strategy of the firm with the firm’s business environment and its resources and capabilities. 2 major concepts regarding linkages within companies: complementarity and complexity Complementarity: the importance of linkages among a firm’s management practices and finding the optimal configuration (e. g. a six-sigma quality program needs to be accompanied by changes in incentives, recruitment policies, product strategy, etc) Complexity: the idea that companies are complex systems whose behaviour results from interaction of a large number of independent agents.

This results in unpredictability, self-organisation by a company and a company positioning between inertia, chaos, and evolutionary adaptation Common to both concepts is the contextuality of linkages: Do the benefits from any particular activity depend on which other activities take place? 2 dimensions of this contextuality: contextuality of activities (are management activities and their benefits dependent or independent of each other? ); contextuality of interactions (do activities interact in similar ways across firms) Item 3: Redesigning organisations

The challenge of today’s business environment is reconciling multiple dilemmas (e. g. product at low cost, but also innovate), requiring multi-dexterity. Companies are now multi-dimensional structures with organisational capabilities for each business area e. g. quality management processes, social and environmental responsibility, knowledge management, innovation and exploration, etc. 1. Solution to Complexity – Making Organisations Informal, Self-Organising and Permeable Informal Organisation: Rely upon informal rather than formal structures and systems e.g. team-based structures which rely on coordination rather than control. Companies are moving towards project based organisations – temporary cross-functional teams charged with clear objectives (as opposed to permanent functions and continuous operations). Such teams are more able to achieve innovation, adaptability and rapid learning than more traditional structures and avoids issues of over-concentration of power and rigid, inflexible structures (e. g. W. L. Gore, supplier of Gore-Tex boots).

This is an example of a consensus-based hierarchy, which emphasises horizontal communication, over an authority-based hierarchy, which emphasises vertical communication. Self-Organisation: Humans (and therefore, companies) have a capacity for self-organisation. Three factors are conductive for self-organisation: identity, information and relationships. Identity is a shared cognition of what the organisation is (what is core, distinctive, and enduring about the character of the company) and an emotional attachment towards what it represents.

A strong consensus of identity provides a powerful basis for coordinated action that permits flexibility and responsibility to be reconciled with continuity and stability. Information and communication networks within companies support spontaneous patterns of complex coordination with little or no hierarchal direction Relationships, or informal social networks, allow information to be created and transformed and allows the organisation’s identity to expand and include more stakeholders. The more access people have to one another, the more possibilities there are. 2. Breaking Down Corporate Boundaries

There are limits to the range of capabilities that companies can develop internally. Therefore, companies must collaborate in order to access the capabilities of other companies e. g. strategic alliances. Today’s web-based technologies permit much wider networks of collaboration (e. g. use of ICT technologies by P&G and IBM to draw upon ideas and expertise across the globe or the rise of open-source communities that build highly complex products such as Linux). Item 4: Changing Role of Managers The changing conditions and types of organisations require new approaches to management and leadership.

Previous era of restructuring and shareholder focus associated with change masters (highly visible, individualistic and often hard-driving management styles e. g. Michael Eisner of Disney, Rupert Murdoch) “Buck-stop here” peak decision-making role of CEOs may no longer be feasible or desirable for the current era. Instead, it is the role of guiding organisational evolution that is more important nowadays (being a social architect by creating an environment where every employee has the chance to collaborate, innovate and excel).

CEOs should be less concerned about decision-making and more concerned about cultivating identity and purpose. Senior managers also require different knowledge and skills nowadays – e. g. self-awareness, self -management, social awareness (empathy) and social skills – i. e. emotional intelligence. They should move away from being administrators and controllers and become entrepreneurs, coaches and team leaders instead. In particular, Rapid evolution requires a combination of both incremental improvement and stimulating radical change (e.g. Sam Palmisano at IBM) Establishing simple rules: the idea that companies can be managed by a few simple rules (boundary rules and “how-to” rules) with limited managerial direction otherwise (e. g. Cisco) Managing adaptive tension: Create a level of tension that optimises the pace of organisational change and innovation. This is done through imposing demanding performance targets, but ensuring targets are appropriate and achievable.