La reinterpretación de las deidades aztecas

We need to look first at a synopsis of the analytical and theoretical ideas of some of the big names in strategic management. This is the material that has been taught on MBA courses, which, of course, are mostly concerned with private sector management. The synopsis does not cover everything ever taught on MBAs over the years, but the names included here have been very prominent:

Ansoff, Porter, Miles and Snow, Hamel and Prahalad, Quinn and Mintzberg.

Igor Ansoff (1968) wrote one of the first systematic treatments of strategic decision-making for private sector firms. His style was very analytical. He mainly presented ideas about business strategy formulation, and no doubt he mainly had the private sector of the United States in mind as he wrote. He saw the key deci-sions for firms as decideci-sions about what markets to be in and what products to pro-vide. We can describe these decisions as concerned with ‘product–market scope’.

He was consistently interested in developing analytic frameworks for use by practitioners. It was an important feature of his approach that he wanted to see strategic decision-making improve. He was not just trying to understand and describe the decision processes actually in use in firms. He wrote for the benefit of the managers who were responsible for strategic decisions – the chairs of the board, board members, chief financial officers, planning specialists and others.

He saw his ideas as offering a theory of strategic decisions. His key concepts were: objectives, strategy (discussed in terms of choice of product–market scope,

1 Private sector inspired 2 Strategy as practice

3 Politics of public management 4 Managing public organizations Strategic management

research in the public sector

■ Figure 6.1

Types of strategic management research in the public sector

growth, synergy and competitive advantage) and capabilities. He understood strategy as moving the firm from its present position to the position defined by its strategic objectives. The strategy was seen as constrained by the capabilities of the firm. (In this way, and by his emphasis on capabilities, he anticipated some of the concerns of the resource-based school of strategic management.) He described his theory as a behavioural theory because it dealt with individu-als making decisions within the firm. He made the assumption that firms were profit-oriented.

He envisaged that a firm had economic objectives, including optimizing the efficiency of its total resource conversion process, and social or non-economic objectives. He believed that it was actually very difficult to set objectives and goals for a firm without considering the environment. He pointed to a circular dependence between objectives and the environment, so managers may set objec-tives initially and later decide that they needed revision in the light of informa-tion about the environment. Objectives might also need to be revised after an appraisal of the firm’s resources. In summary, he was saying that setting objectives did not take place necessarily only once and at one moment in time, and the pro-cess of strategy formulation did not nepro-cessarily follow a simple linear sequence.

He suggested the planning horizon could be from 3 to 10 years, and that a long-term period was from the planning horizon onwards. He warned that in most real-world situations only some of the future alternatives would be known and some alternatives would be vague. In other words, he accepted that there were problems about knowing the future.

The work of Ansoff is hard to summarize because it contained a lot of ideas and analytical suggestions. For example, Ansoff suggested that a firm thinking of moving into a new industry could assess the functional capability requirements of an industry (general management, research and development, manufacturing, marketing). We could relate this analysis of functional capability requirements of an industry to ideas of each industry having a set of key success factors (Ohmae, 1982). Ansoff ’s attention to strategic decisions on entry to new industries makes sense in terms of the concerns then common in large businesses in the 1960s, which were frequently contemplating diversification options.

Ansoff also proposed the idea of a framework for a capability profile. He conceptualized the framework as having two dimensions, which were, first, func-tional areas and, second, categories of skills and resources. The management of a firm could use a capability profile framework (see Table 6.1) to analyse its own capabilities to meet objectives and could compare this with a profile based on the most successful competitors in its own industry. In the case of a diversifica-tion decision (product–market scope) this framework provided a method for a firm to compare its strengths and weaknesses with the most successful competi-tors in the industry in question.

He provided advice on the data required for carrying out an external appraisal.

This data included growth and profitability characteristics of various industries, product and market opportunities that were available to a firm outside its present scope and data on risks associated with strategic decisions.

He drew attention to the need for balance when making decisions; for exam-ple, the firm might be considering a decision on products, markets and growth that seemed obvious in terms of its objectives, but there was also a need to take account of, for example, long-term objectives that might include one of the firm being flexible.

He also advised balancing risk and reward when making strategic decisions.

First, he pointed out that management’s ability to foresee the future in any detail is limited and he warned that there would be unforeseeable events. But, second, he pointed out that there are risks associated with foreseeable events. For exam-ple, the firm’s proposed strategic actions may impact on other firms and it can be expected that these other firms will try to respond in some way that might minimize the effectiveness of the firm’s strategic actions. His analytical solution to the problem of risk calculation is to advocate the expected value approach, in which risk is assessed versus the gain.

Michael Porter was the towering figure in the strategic management writing of the 1980s. He dominated 1980s thinking on strategy and strategic manage-ment in the private sector. Porter’s ideas became the mainstay of business policy courses in the 1980s and then, later, strategic management courses on MBAs.

There are definitely continuities between the early work of Igor Ansoff and the work of Michael Porter. First, they both shared an interest in analytical think-ing. Second, both tended to see the choice of industry as an important strategic choice. And just as Ansoff drew attention to possible opportunities within the environment, Porter was interested in how businesses might be positioned within an industry, which resulted in his famous technique known as a five-forces anal-ysis. Finally Porter, like Ansoff, was trying to write for practitioners who needed to develop strategy. In Porter’s case, however, he also hoped he was writing for scholars who wanted to understand private sector competition better.

Porter believed every firm had an explicit or implicit strategy, with their explicit strategy possibly being developed through a planning process. He began with the proposition that there were significant advantages from an explicit strat-egy formulation process.

■ Table 6.1 Capability profi le Functional areas

His conception of strategy formulation and the strategic decisions facing any business was: first, a business should make a decision about which industry to be in; and, then, second, a business should choose a strategy that would place it advantageously in relation to the competition within its chosen industry.

He presumed that the profit potential of a business was determined by the industry it was in. He developed his five-forces analysis to help the business decide on its positioning within an industry, which meant looking at the pattern of competition in an industry and then deciding on what he called a generic strategy. The five forces which he saw as constructing competition within an industry were: first, rivalry among existing firms; second, the bargaining power of suppliers; third, the bargaining power of buyers; fourth, the threat of new entrants to the industry; and, fifth, the threat of substitute products and services.

To cope with the five competitive forces, a business had available a choice of three generic strategies. He called these overall cost leadership, differentiation and focus. It is often noted that his view was that it was rarely possible for a business to use more than one of these three generic strategies at a single time.

He argued (Porter, 1980, p.35): ‘effectively implementing any of these generic strategies usually requires total commitment and supporting organizational arrangements’.

His definition of overall cost leadership was, in a nutshell, the pursuit of low costs relative to competitors. This became a sustainable strategy if having achieved relatively low costs the firm obtained above-average profits: a high margin could be reinvested in new equipment and modern facilities in order to maintain relatively low costs. The second generic strategy, differentiation, involved differentiating the product or service, which meant that the business was perceived in the industry in question as offering something that was unique.

There were many different ways in which differentiation could be achieved:

design, branding, technology, customer service, and so on; and there could be differentiation along one or more of these dimensions. Successful differentia-tion would produce high profit margins, and these could be used (invested) to maintain differentiation. The focus strategy was a strategy in which the business concentrated on a particular segment of customers, or a particular segment of a product line, or a particular geographical area. This meant it could deliver cus-tomer value at a cost that was right for the cuscus-tomers in question.

Porter offered other analysis techniques, such as the analysis of strategic groups, which involves mapping an industry to capture the essential strategic differences among firms in the industry. He is also well known for his value chain analysis technique, which was a way of identifying possible changes in the activities of a business to reduce costs or add customer value.

So, to sum up Michael Porter’s ideas, he offered to practitioners the idea that strategic decisions involved selecting an industry according to its profit potential, and then making use of strategy formulation to position a business within that industry, taking account of the competitive forces of the industry. While Porter accepted that there were a very large number of competitive strategies possible, he assumed that underneath this large possible number were the three generic

strategies of cost leadership, differentiation and focus. In addition to addressing the analysis stage through his five-forces analysis, and dealing with the choice stage in terms of three generic strategies, he also paid attention to planning the implementation of a generic strategy through his value chain analysis.

Miles and Snow (1978) carried out research (mainly in private sector busi-nesses) and identified a small number of generic competitive strategies. Miles and Snow labelled these organizations as prospectors, defenders, analysers and reactors. This might easily have been the main framework for thinking about strategy options for private sector businesses if Porter (1980) had not come along and eclipsed their research and theory.

Miles and Snow went beyond simply characterizing types of strategy and set out associated aspects of organizational arrangements. Mintzberg et al. (1998) later characterized Miles and Snow as offering a configurational theory of strate-gic management, meaning that each type of strategy had a pattern in relation to a set of variables. Arguably this occurs because there is a system of relationships, and so if one variable changes, then there is an associated set of changes triggered in other variables. For example, according to Miles and Snow, each strategy has implications for which functional areas are more important. A defender strategy implies more importance for the finance function, and the prospector strategy implies more importance for the marketing function.

Miles and Snow’s data included a sample of not-for-profit hospitals. We can use two hospital cases from this sample to illustrate how organizational factors were linked to strategy. The first case is one of the not-for-profit hospitals that was said to be following a defender strategy. It had goals, structure and perfor-mance that had been stable for 5 years. It had comfortable financial reserves and had made an operating surplus in each of the 5 years. This was attributed to low labour costs and efficiency in its operations. In terms of management character-istics, Miles and Snow said that hospitals with a defender strategy of producing services as efficiently as possible tended to have a powerful financial function, whereas marketing was unimportant because such hospitals had a limited set of markets and services. This appeared to be true in this case: the two key decision makers were the chief administrator and the hospital’s controller, and the hospital was said to be aiming for a well-defined and restricted market.

Miles and Snow identified another hospital as having a prospector strategy.

This was because it was focused on finding new services and new opportuni-ties. For example, it began to offer a service to local people and was also setting up new health-care programmes that were problem-specific. Miles and Snow (1978, p.55) said it had ‘a strong emphasis on identifying new needs and devel-oping innovative delivery systems’. The power in the organization was aligned to this type of strategy, which meant that the locus of power was with medical staff engaged in new service development, whereas those in finance, operational and quality functions were relatively unimportant.

Gary Hamel and C.K. Prahalad spearheaded the arrival of a major new strate-gic management paradigm in the late 1980s and early 1990s, a paradigm that did much to challenge the position of Michael Porter as the leading figure in private

sector strategy. Hamel and Prahalad ushered in a concern for competence-based competitive advantage. Their fresh thinking on strategy was set out at length in a popular book published in 1994. Arguably, they offered three key concepts for thinking about strategic management: they said that private sector competition could be successfully based on ‘intellectual foresight’, ‘core competencies’ and

‘strategic alliances’. Their proposition was that industry leadership could be won on this basis and that incumbent industry leaders were losing out to newcomers that competed on this new basis.

Very briefly, their chief ideas were as follows (Joyce and Woods, 1996). They suggested that competence-based strategy was corporate strategy (as against Por-ter’s early focus on the strategy of individual business units within a firm). They replaced the idea of thinking about a company as a portfolio of independent businesses, representing a set of financial assets, with the idea of regarding a company as having core competencies. The challenge was to develop these core competencies and utilize them to bring about growth.

Hamel and Prahalad described core competencies as a coordinated set of skills and technologies. They stressed that core competencies were organizational and not personal, even though skills were ‘lodged’ within people. They gave as examples of core competencies: optics, imaging and microprocessor controls (Canon), operating systems (Citicorp), engines (Honda), substrates, coatings and adhesives (3M), digital technology (NEC) and miniaturization (Sony). They explained that core competencies were learnt, the result of collective learning in the organization. Learning could take place when an organization developed new products and produced them. This would be learning by doing. Some learning might be tacit. One implication of this is that managers might know what core competencies their organization had but find it difficult to describe or explain their nature. An advantage of this to the organization could be that it would be difficult for others to imitate a genuine core competence learnt by doing.

The core competencies were embodied in core products, and core products were parts of end products made by a company’s business units. Out of this came a view of competitive advantage quite distinct from that propounded by Michael Porter. Competition was no longer a matter of fitting into an industry;

competition was to create future products and future industries. In their hands, competitive advantage had become future-oriented. The company should man-age the development, acquisition and deployment of core competencies. By the company managing the process of combining technologies and skills into competencies it could enable its individual business units to respond quickly to changing opportunities (see Figure 6.2). Moreover, their view completely revised business metrics: it would be increasingly meaningless to measure corpo-rate success on the basis of market share of an industry, since core products could be exploited in a range of end products within different industries.

Identifying core competencies was crucial to making this new approach to corporate strategy work. It was claimed that most companies would have quite a small number of core competencies, maybe five or six core competencies at

most. The assessment of company activities to identify the core competencies was supposed to be guided by three criteria:

1 Does this activity enable the company to enter a wide variety of markets?

2 Does this activity create a large proportion of the perceived customer bene-fits of the end product?

3 Is this activity difficult for competitors to imitate?

Hamel and Prahalad (1994) actually saw the building of core competencies as one of three elements in the new competition process for industry leadership:

1 companies were in a competitive race for intellectual leadership (industry foresight);

2 companies competed in building core competencies and creating strategic alliances and coalitions; and

3 companies competed in marketing (selling) their products or services.

They suggested that from beginning to end was a very long process, which might last decades. The first stage – gaining industry foresight – involved imagining new benefits for customers that might be currently difficult to manufacture because of the need for technological developments. Such foresight could not be produced by some kind of technical extrapolation of past trends. Trend analysis might help in

Features Relationships

Competence-based competitive advantage (Hamel and Prahalad, 1994) Source: Adapted from Box 7.8 of Joyce and Woods, 1996.

the process of imagining future products or services offering new functionality to customers, but it might take, for example, empathy. Strategic alliances were viewed as a kind of potentially risky cooperation between companies, and Hamel and Pra-halad even thought that those firms cooperating might be in a race to extract bene-fit from the cooperation. Such cooperation might matter in terms of technological developments, but it might also matter for the competition to market new products or services (for example, in terms of rivalry in the setting of industry standards).

Arguably, out of this type of thinking came the idea of business models and the suggestion that competition was increasingly between business models rather than between products and services. Slywotzky (1996) and Gary Hamel (2002) both made useful contributions to the idea of a business model. Both emphasized the importance of differentiation, which might also indicate the influence of Michael Porter. Both emphasized the system-like qualities of an effective business model.

Arguably, out of this type of thinking came the idea of business models and the suggestion that competition was increasingly between business models rather than between products and services. Slywotzky (1996) and Gary Hamel (2002) both made useful contributions to the idea of a business model. Both emphasized the importance of differentiation, which might also indicate the influence of Michael Porter. Both emphasized the system-like qualities of an effective business model.