When you ask managers, “What is Strategy?” The managers who respond with a more accurate response often describe it as one of three practices.
A purely planning exercise
A course of action that emerges over time
The outcome of the resources which are available to the company.
Although none of the above clearly defines a strategy, they accurately depict the three theoretical approaches: the planning approach, The Emergent Approach, and the Resource-Based Approach.
The Planning Approach
Once a well-defined objective is set, the business environment analyzed, and forecasts made, senior management can work out a plan to be passed down for implementation. This is a rational and objective approach to planning. Henry Mintzberg and many others have pointed out that this approach possesses some unfounded assumption, as shown below:
one can predict the future accurately enough to make rational choices
It is possible to detach strategy formulation from everyday management
It is possible to forego short-term benefit to gain a long-term advantage
The strategies proposed are capable of being managed in the way proposed
The Chief Executive has the knowledge and power to choose among options
After careful analysis, strategy decisions can be clearly specified, summarize and presented; these strategic decisions do not need to be altered because circumstances outside the company have changed
Implementation is a separate and distinctive phase that only comes after a strategy has been agreed upon
All of the above assumptions are fallacies; thus, a purely planning approach to strategy is ineffective and not advisable.
The Emergent Approach
According to this approach, one cannot plan their strategy; it is organic and unpredictably emerges over time. The idea that people are not totally rational and logically takes into account the following:
Due to bounded rationality, people can only handle a relatively small number of options.
Dominant paradigms lead people to become biased in their interpretation of data.
Due to bounded rationality, people are likely to seek a satisfactory solution rather than maximize profits.
Unpredictable outcomes arise from the need to negotiate to satisfy various interest groups.
A company’s culture and politics get in the way of appropriately rationalizing resource availability and external factors.
Arguably, just because the world is a complex and changing place does not mean that managers are forced to be purely reactive. The following reasons justify proactive actions:
It is expected that adjustments to corporate objectives as time goes on are inevitable. Still, it is healthy for a company to be directed along the general lines of a broad mission.
Resources MUST be deterministically deployed; otherwise, they will be used inefficiently.
Appeasing interest groups within the organization should be perceived as a constraint, not a cause for inaction.
In many cases, investments take a considerable time to reach fruition; therefore, a degree of long-term planning is inevitable.
It is better to make an informed judgment based on some information than no information or to ignore information altogether.
The act of attempting to plan makes the basis for management action clear.
Resource-Based Approach
This approach is primarily concerned with searching for competitive advantage by manipulating how a company’s resources are utilized. The overriding theme is that a successful company develops the ability to take advantage of opportunities as they arise and to create the opportunities themselves by innovative behaviour. Note the following concept terms:
Competences arise from the continuous deployment and integration of resources over time and across activities.
Core competencies are necessary for successful performance.
Distinctive capabilities are competencies superior to competitors.
Strategic capabilities aggregate the above-mentioned concepts.
The challenge with the Resource-Based Approach is that it makes success appear to be a mysterious outcome. It asserts that core competencies are difficult to imitate and that sustainable competitive advantage is unique to every company. This now begs the question, “How does a sustainable competitive advantage arise in the first place?” Especially when in our highly competitive global marketplace, almost everything can be replicated or adapted quickly.
The key takeaway is to recognize that competitiveness and advantage are derived from the choices we make. Organizations make their best decisions through a combination of all three approaches to strategic planning. Like all things, an organization is positioned on a time continuum in a changing environment. Harnessing strategic planning from the perspective that it’s a dynamic process encompassing all three approaches will provide your firm with the greatest chance of achieving success.
This blog post is based on the work of Professor Alex Scott MA, MSc, Ph.D. published by Heriot-Watt University – Edinburgh Business School
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