A corollary of the principle that strategy must relate to management preferences is that a competitor’s strategy will also reflect its management’s preferences. Analyzing the char-acter, habits, ways of thinking, and stakes of a competitor’s management team can help to predict the strategy that a competitor will employ and the conviction with which it will be pursued.
It is clearly important to understand the predispositions of the key managers in competitive firms. To this end it is useful to record and study their strategic initiatives and responses in prior circumstances. Most managers have a limited strategic repertoire, particularly when they have been rewarded for what they have done before. In 1994 Wal-Mart entered the Canadian market. Its strategy was highly predictable—to repeat the formula employed so successfully in the United States. It was up to the incumbent Canadian retailers to decide how to respond. Most tried to “out Wal-Mart Wal-Mart.” In short order the Woolco discount chain was out of business (sold to Wal-Mart) and so was the Kmart chain (bought by Zellers). The largest remaining competitor, Zellers, fought on under its slogan, “Because . . . the lowest price is the law.” But Zellers’ sales and profits continued to suffer and in 1998 it capitulated, dropping the slogan and announcing that henceforth it would “out-flank” Wal-Mart and compete with an emphasis on fashion and style.29 What the incumbent retailers seemed to have missed in all of this was the focus, conviction, and force with which Wal-Mart would proceed—which was just as evident as its visible strategy if you studied its U.S. management.
It is often possible to anticipate how a competitive manager is inclined to act on the basis of past personal history. This analysis should be coupled with what can be deduced about his or her personal stakes in the current situation. Is the manager on a fast track, looking for quick results? Is she or he near retirement? Are any unusual pressures being exerted by board members, shareholders, or bankers? Long-standing competitors use this understanding to predict strategy down to the finest nuances. By tracking new manage-ment appointmanage-ments, such as when a competitor hires a new marketing vice president with a reputation for building market share by cutting prices, you can develop a pretty good idea about what is going to happen next.
A competitor’s activities in a specific product market will depend on the number and nature of the issues with which its management is contending, and on the prior-ity it gives to the specific market in question. It is often useful to analyze the rela-tionships among functional and/ or product groups in a competitive firm and to predict the response of this system to emerging threats. To the degree that competitors are harnessed by frozen preferences, their actions are predictable, and advantages can be gained by avoiding their areas of priority. The big hope of many of the new internet-based businesses, for example, from automobiles to books to banks, is that they can get a head start and build a defensible position before the conventional competitors in their industries notice and react with force.
SUMMARY
The object of management preference analysis is to identify conflicts between the moti-vations of key managers and the strategies that are important to their businesses, and to point to the actions that are required to resolve them. Conflicts arise when managers oppose a strategic proposal that is otherwise very desirable for the business, or when they freeze on strategies that are inconsistent with business opportunities and constraints.
The resolution of these conflicts calls for a careful analysis of the roots and change-ability of the preferences involved and for action that is tailored to this understanding.
It is sometimes possible to find strategic modifications that will accommodate existing preferences, but more often it is necessary to take organizational action to achieve consistency. Such action might range from persuasion to changes in job context to reassignment.
The final stage of analysis is to assess the feasibility of achieving consistency between preferences and strategy. In some cases the costs will be too high or the chances of suc-cess too low and you will have to recycle to generate new strategic proposals. On closer calls you will have to make judgments about the capacity of the business to develop new organizational capabilities, the subject of the next chapter.
Notes
1. Andrews, Kenneth R. “Ethics in Practice.” Harvard Business Review 67 (September–
October 1989): 99–105. Print.
2. Pfeffer, Jeffrey. “Shareholders First? Not so Fast.” Harvard Business Review 87.7/ 8 (2009):
90–91. Business Source Complete, EBSCO. Web. 15 Aug. 2011.
3. Mitchell, R. K., Agle, Bradley R., and Donna J. Wood. “Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts.”
Academy of Management Review 22 (1997): 853–886. Print.
4. Business Corporation Act of Ontario Service Ontario, 2011. Web. 29 Sept. 2011.
<www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90b16_e.htm>.
5. Charreaux, G., and P. Desbrières. “Corporate Governance: Stakeholder Value Versus Shareholder Value.” Journal of Management and Governance 5 (2001): 108. Print.
6. “A Trying Year.” The Economist Global Agenda, (January 9, 2004): 1. Print.
7. McLean, Bethany. “Is Enron Over-priced?” Fortune 143 (March 5, 2001): 122–126. Print.
8. McLean, Bethany. “Why Enron Went Bust.” Fortune 144 (December 24, 2001): 58–65.
Print.
9. Zimmerman, John W. “Is Your Company at Risk? Lessons from Enron.” USA Today 131 (November 2002): 27–30. Print.
10. Pound, John. “The Promise of the Governed Corporation.” Harvard Business Review 73 (March–April 1995): 89–98. Print.
151 S u m m a r y
11. Gandz, Jeffrey, Mary Crossan, Gerard Seijts, and Carol Stephenson. Leadership on Trial:
A Manifesto for Leadership Development. London: Richard Ivey School of Business, 2010.
Print.
12. The Financial Times December 2, 2002: 21. Print.
13. The Financial Times January 20, 2003: 8. Print.
14. The Globe and Mail [Toronto] January 13, 2004: B17. Print.
15. The Globe and Mail [Toronto] January 13, 2004: B1. Print.
16. Carroll, Archie B. “Corporate Social Responsibility: Evolution of a Definitional Construct.”
Business & Society 38 (September 1999): 268–295. Print.
17. Margolis, Joshua D., and James P. Walsh. “Misery Loves Companies: Rethinking Social Initiatives by Business.” Administrative Science Quarterly 28 (2003): 268–305. Print.
18. Friedman, Milton. “The Social Responsibility of Business is to Increase its Profits.” The New York Times [New York] September 13, 1970. Print.
19. Andrews, Kenneth R. The Concept of Corporate Strategy. Rev. ed. Homewood, Illinois:
Richard D. Irwin, Inc., 1980. 74. Print.
20. The Globe and Mail [Toronto] January 23, 1998. Print.
21. The Globe and Mail [Toronto] April 8, 1998, B1. Print.
22. The Globe and Mail [Toronto] March 12, 1998: B1. Print.
23. The National Post [Toronto] March 12, 1999: D3. Print.
24. “Wanted: A Manager to Fit Each Strategy.” Business Week (February 25, 1980): 166–
173. Print.
25. Hayes, Robert H., and William J. Abernathy. “Managing Our Way to Economic Decline,”
Harvard Business Review 58 (July–August 1980): 67–77. Print.
26. The Globe and Mail [Toronto] January 27, 1998. Print.
27. Guth, William D., and Renato Tagiuri. “Personal Values and Corporate Strategy.” Harvard Business Review (September–October 1965). Print.
28. Janis, Irving L. “Groupthink.” Psychology Today (November 1971): 43–46, 74–76. Print.
29. Globe and Mail [Toronto] May 20, 1998. Print.
By this point you have developed one or more strategic proposals that look good. They make sense given what is happening in your firm’s external environment, and while you would probably have some resource and preference gaps to fill in order to execute any of the proposals, none of the challenges seem overwhelming. Now you need to determine what organizational changes, if any, would be required to implement each proposal, and if such changes are feasible in the time you have available.
Although we have worked through a process that begins with defining strategy, and examining the environment and resources, this need not be the sequence. There are many people who advocate that having a nimble organization is the essence of strategy.
It is the organization that we should place on a pinnacle, not the strategy. For example, Reeves and Deimler state that “Traditional approaches to strategy assume a relatively stable world. They aim to build an enduring competitive advantage by achieving domi-nant scale, occupying an attractive niche, or exploiting certain capabilities and resources.
But globalization, new technologies, and greater transparency have combined to upend the business environment. Sustainable competitive advantage no longer arises from positioning or resources. Instead, it stems from the four organizational capabilities that foster rapid adaptation.”1 They point to the ability to read the environment, experiment rapidly, manage complex interconnected systems, and motivate employees and partners.
Clearly flexibility and agility are important capabilities in dynamic environments, but this does not negate the need for a sound, albeit nimble, strategy and the identification of the associated capabilities beyond agility and flexibility.
As well, there are many people who view decisions concerning the organization as part of execution—strategy is formulated and then executed through the organization. While we view the literature on execution as informative for the organization-strategy connection in the Diamond-E Framework, we think it is a mistake to relegate organization considerations as something that occurs after the strategy is formulated. Our focus in this chapter is on what we call organizational capabilities. By this we mean what your people are collectively capable of doing when they work together. Being quick at something, like developing a new product and getting it to market, is an organizational capability and so is the ability to innovate. In the language of the Diamond-E model, the people in your organization are resources, but what they are capable of doing together is an organizational capability. A decision to hire five automotive design engineers, for example, is a resource decision. What they are actually capable of, once they are working for you, is the addition they make to your