Issues in Strategic Management
1. Introduction:
"Rather than comparing[war] to art, we could more accurately compare it to commerce, which is also a conflict of human interests and activities; and it is still closer to politics, which in turn may be considered as a kind of commerce on a larger scale".
Carl von Clausewitz, 'On War', Book I, Chapter 3.
A strategy is "those decisions that have high medium term to long term impact on the activities of the organisation, including the analysis leading to the resourcing and implementation of those decisions, to create value for key stake holders and to outperform competitors" (Hubbard,Rice,Beamish,2008) where a complex array of forces new delivery technologies, changing demographics, the emergence of corporate universities, and a global economy is creating a new competitive landscape. (Harvey Blustain, Philip goldstein and Gregory lozer). Strategy depends on the characteristics of the environment and the choosen goals.
An organisation is a "social entity that is goal oriented, designed as deliberately structured and coordinated activity system and is related to the external environment".(Richard L draft, tenth ed. p10) and the boundary where the organisation and competitive environment meet, communicate or act on with each other is the Interface. Strategy is managing the interface between organisation's capabilities together with the opportunities open to the organisation in its industry and its competitive environment.(Paul Fifield, ed 2).
In this article, We are going to discuss how strategy can be seen as the interface between the organisation and the competitive landscape basing my interpretation on three different perspectives of strategic management The Basic design school model, The Resource Based view of the firm by Jay Barney and the Game theory model. All these three models evolved one after the other in the continuum of evaluation of strategic management with three different perspectives of prescriptive, normative and descriptive.
2. Strategy as an interface
Strategic management is essentially the management of the interface between the organisation and its external environment. It is different from all other areas of management by virtue of the fact that it concerns with the interface between all the elements of the external environment and all internal areas and characteristics of an organisation. (John viljoen and Susan Dann, 4th ed.,p19).
Managing the interface between an organisation and its external environment requires management to have a full understanding of both internal and external factors.(porter 1980, 1998).
a)The Firm Strategy Interface:
A strategic manager should consider the capabilities of the organisation in creating his strategy. Internal analysis, unique resources, capabilities and core competencies determine what a firm can do in achieving it's goals. The firms should effectively manage its current core competencies, while simultaneously developing newer ones. (Hitt et., al, 2007). This interaction between the strategy development and firm's internal stimuli can be best describe as Firm Strategy interface.
b)The Industry Environment Strategy Interface:
In an industry, not all competitors compete directly with each other. There are several different groups of competitors. These groups are called strategic groups, because each group consists of competitors competing along similar dimensions(e.g. product quality, range, geographic scope)(Howard,2008). The Michael Porters five forces model of competition Threat of new entrants, intensity of competitor rivalry, threat of substitute products, power of buyers and power of suppliers, which determine the complexity of the competitive environment should be considered for formulating a strategy.(Hitt et. Al, 2007).
4. Theories:
a)The Design School Model:
The Design school model of strategic management had been crystallised with the publication of Learned, Christensen, Andrews and Guth's 1965 text developed to teach business policy at the Harvard business school and Igor Ansoff's book on corporate planning. The essence of this model was to match the internal resources and capabilities of the organisation( referred as strengths and weaknesses) with the demands of the external environment(opportunities and threats) which co aligns the enterprise distinctive capabilities with its market opportunities (Mintzberg 1990a:111).
Andrew described it as a " a simple practitioner's theory, a kind of everyman's conceptual scheme"(Learned et al., 1969), yet inspite of its simplicity and incompleteness, it is substantial for rational decision making. Andrew himself claimed that " it is definition of the managers central function contributing depth and details for finding alternatives and to the predicted return of investment for each of this alternatives".( Learned et al., 1969) .
In the Mintzberg Depiction of the Design School Model, the creation of strategy lies at the centre of the process as shown in the above figure. Based on the depictions made by Mintzberg and Andrews, we can interpret that this model concentrated on building the strategy as a interface between the firm and the competitive environment but taking consideration of the firm processes as a main component in creating strategies.
b)Game theory:
Game theory's development is generally sourced to the publication of a book in 1944 by Von Neumann and Morgenstern. Game theory is most applicable when there are many competitors and each can have a significant influence on the outcome through their own actions. The strategy in the Game theory is to make the 'right' competitive and collabrative moves.(Von Neumann, J.& Morgenstern,O.1944, Theory of Games and Economic Behaviour)
Game theory consists of three main principles:
- Consider the expected reactions of competitors to any move that is made by the organisation and reason backwards. This is perhaps the essential difference between a game theory approach and a traditional strategic approaches.
- Know competitor organisations and your own. Different organisations think differently based on their resources, capabilites, histories, values, key stakeholders and managerial mindsets.
- Differentiate between one period competition and repeated competitions. Repeated competition allows for current strategies to be influenced by past outcomes.
Based on Brown and Eisenhardt argument " Game theory is incomplete because it focuses on 'where do u want to go?' and neglects the other half of the strategy 'how are you going to get there?'", We can interpret that Game theory deals with the second phase of interface between the strategy and competitive landscape. It deals with the assessing the interactive dynamic competitive strategy.
D'Aveni concluded that the existing concentration of traditional strategies on issues of organisation internal environment would not result in long term sustainable competitive advantage. He says that Game theory helps in remoudling the strategy for long term sustainability of competitive advantage.
From the above interpretations, we may conclude that Game theory replicate the interface between the strategy and competitor environment.
c) Resource Based view:
The fundamental principle of the Resource Based view of the firm is that "the basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm's disposal" (Wernerfelt, 1984, p172; Rumelt, 1984, p557 558). In 1959 itself, Edith Penrose defined this view stating " A firm is more than an administrative unit. It is also a collection of productive resources, the disposal of which between different users and over time is determined by administrative Decisions. When we regard the function of the private business firm from this point of view, the size of the firm is best gauged by these productive resources it employs".
Abnormal results can be obtained if the resources satisfy the Four criteria of sustainable competitive advantage and capabilities become core competencies when the resources are: Valuable, Rare, Non substitutable and costly to imitate. (Jay barney, 1991, 117). This theory particularly emphasized on organisational resources to maintain their position in the competitive landscape. The firms should mould their resources according to the technological changes happening in the competitive environment.
The resource based view had been recently extended to Dynamic capability framework. The resources might be built in the organisation for many years, they will be socially complex and casually ambiguous, even to the organisation, it is not clear how the combination of its resources might give competitive advantage.
A study by Danny Miller strategic management journal, of a number of firms shows how some of them can get above average returns based on their asymmetric resource base. We can interpret that the strategy as an interface between the firm and the external environment, it should consider refining the core resources of the firm to earn above average returns and sustain its competitive advantage in the competitive environment.
Conclusion:
"If all you're trying to do is essentially the same thing as your rivals, then it's unlikely that you'll be very successful".
Michael Porter
By accessing and analysing all the above discussed theories, I took care of different theoretical perspectives of strategic management in evaluating the statement that Strategy can be seen as an interface between a organisation and the competitive landscape. Strategy can be said to be connecting the organisation with the competitive environment and remoulding itself according to the replications advanced by the competitive environment, which also means that strategy is like a communication channel between the firm and the industry environment.
