Current Trends in Strategic Management
OUTLIN
E
• The New Economy
• New Directions in Strategic Thinking
• Redesigning the Organization
• New Modes of Leadership
The Turbulent 21st Century
Collapse of New
Economy
Corporate Scandals
• Enron, WorldCom, Parmalat
• Jack Welch’s retirement package
•Dot.com bubble bursts
•TMT recession
International
competition intensifies
• China as Workshop of the World
• Outsourcing to LDCs
The Curse of
Terrorism
• Sept. 11, 2001
•Suicide bombings in
Israel, Iraq, Saudi
Arabia, Turkey,
Afghanistan
Decline of
Multilateralism
War
• Invasion of Afghanistan
& Iraq
•Civil wars in Congo,
Liberia, Sudan, Somalia
•Collapse of Doha round
• Trade wars between US, EU, China
•Weakening of UN
Unstable
Currencies
US$ declines by >50% against
Euro 2002-04
Age of
Disbelief
Fear of Disease
•SARS, Mad Cow, Bird
Flu
Directions in Strategic Management
Practice—Trends of the 1990s
Key Trends of the 1990s:
•Quest for shareholder value
•Adjusting to increased
turbulence & more intense
competition
Influential Strategy Concepts:
•Modern financial analysis
—shareholder value, economic profit,
option theory
•Core competences and intangible
assets
•Dynamically competitive markets
—“hypercompetition”
•Competitive advantage through
alliances, networks, and standards
Major Themes of Business
Strategy:
•Cost cutting—squeezing
overhead, business process reengineering, increasing labor
productivity
•Outsourcing/refocusing/
divestment
•Performance management and
incentive alignment
Forces Shaping Company Strategies 2001-04
Future Sources of Profit
Limits of downsizing/cost cutting
Where are future sources of
profit?
Concepts & Theories
The Business
Environment
•Uncertainty
•Stalling of economic
liberalization
•Intense competition
Technology
•Resources & capabilities as
Continued advances in ICT
basis for competitive advantage
•Knowledge-based theory
of the firm
Demands of society
•Option theory
•Social & environmental responsibility
•Complexity theory
•Ethics & fairness
•Quest for meaning
Emerging Developments
STRATEGY
•Multiple competitive advantages/multiple capabilities
•Innovation / New Product Development / New
Business Development
•Alliances & networks
MANAGEMENT SYSTEMS
• Knowledge management
(incl. best-practice transfer)
• Redesigning incentive systems
• Rethinking performance management
• Capturing human creativity
ORGANIZATION
STRUCTURE
• Reconciling flexibility
& integration
• Modular structures
• Multidimensional structures
• Informal organization &
self-organization
The Need to Redesign Organizations
THE PAST
Emphasis on control
THE FUTURE
Emphasis on co-ordination
Single performance
goal
Multiple performance goals
Decisions located
centrally
Decisions located where
relevant knowledge exists
Simple structures,
unified line of command
Multidimensional
structures
Diffused authority, but
clear responsibilities
Organization by design
Self organization
Emerging Organizational Forms
Organizing for capability
development
Shifting emphasis of organization
design from control to coordination
From unitary to parallel
structures
Separate coordination structures for
different processes. E.g. 3M’s product
development structure; separate structures
for TQM and change management
Process-based
organizations
Organizing around business processes
Organizing around corporate processes
- entrepreneurial process
- competence building process
- renewal process
Project-based organization
E.g. engineering cos., consulting firms, also
manufacturing cos. e.g. Oticon
Network and virtual
organization
E.g. electronics in Silicon Valley, clothing
and packaging equipment in Italy
New Models of Leadership:
What Competencies do Top Managers Need?
THE LEADERSHIP
NEEDS
OF ORGANIZATIONS
The ability to:
•
•
•
•
•
•
•
build confidence
build enthusiasm
cooperate
deliver results
form networks
influence others
use information
THE REQUIRED
COMPETENCIES OF
BUSINESS LEADERS
• business literacy
• creativity
• cross-cultural
effectiveness
• empathy
• flexibility
• proactivity
• problem-solving
• relation-building
• teamwork
• vision
The Current Best-Seller
• Raynor, The Strategy Paradox
• Corporate manages uncertainty (5+ year timeframe),
divisions manage commitments/deliverables
• Corporate must create “strategic options” rather than
growth options
– “Strategic Flexibility”
• identify scenarios, build capabilities, manage portfolios of options
• the ability to pursue alternative strategies that could be useful,
depending on how key uncertainties are resolved
• the most appropriate exposure to strategic risk and opportunity
– A strategic option is an option on an element of an alternative
strategy that might or might not be implemented, not simply an
option on further investment in a new business that might or might
not succeed.
What is complexity theory?
• Based on an agent…an ant in a colony, an electron
in an atom, a worker in a company...
• A complex system is defined as any network of
interacting agents (or processes or elements) that
exhibits a dynamic aggregate behavior as a result
of the individual activities of its agents.
• An agent in such a system is adaptive if its actions
can be given a value (performance, utility, payoff,
fitness etc.) and the agent behaves so as to
increase this value over time.
Complex Adaptive System
• A complex adaptive system is one in which agents
adapt to higher levels of fitness over time
• A fitness landscape is simply a visual
representation of the payoffs from taking different
strategies
• Fitness landscapes can be rugged (with many
peaks or troughs) or smooth
• Co-evolution creates a ‘dancing fitness landscape’
Key Result Areas
• Some key results in complexity theory have
proved important for management
– Emergence
– Agent-Based Search
– Patches
Emergence
• Emergence
– Simple rules can produce complex behavior!
• See logistic equation, for example
– “Order for free” – no need for central control!
– Just find the right simple rules for agents to follow
• Artificial Life Example
– Craig Reynold’s Boids Program
• Eisenhardt uses this principle in “Strategy as
simple rules”
– How-to, boundary, priority, timing, exit rules
Agent-Based Search
• Exploring a rugged fitness landscape by trial and
error to try and find the highest peak can take a
long time
• Using agents to explore the landscape and zero in
on promising regions may be faster
• Beinhocker uses this principle in “Robust
Adaptive Strategies”
–
–
–
–
Keep moving
Deploy platoons of hikers
Mix short and long jumps
“Populations of strategies”
Patches
• Stu Kauffman found that dividing an NK lattice
into several patches and minimizing the energy in
each patch without reference to the global energy
level gave better solutions than global search on
very rugged (i.e. complex) landscapes
• Having sub-units optimize their part of the
problem may be better than trying to find an
optimal solution for the whole organization
– Kauffman suggests that multi-divisional organizations
might benefit from less rather than more centralized
control
Complexity as Metaphor
• Complexity theory has been extended from
biology and physics into other arenas
• Undoubtedly, societies, economies, and
organizations are complex adaptive
systems, too.
• If an organization is like an NK model
then…
Interpretation
• Adaptation (biology) rather than efficiency
(machine) should be promoted
• A variety of small experiments should be
undertaken to explore the “fitness
landscape”
• Rely less on central controls
• Recognize that change can yield big (or
small) results and solutions can emerge
from the interaction of agents (workers)
Case: Jack Welch
• What were the principal strategic and organizational
changes introduced by Welch at GE?
• Why has the strategy, structure, and systems created by
Welch been successful in delivering shareholder value and
insulating GE from the fashion for breakup to which most
other conglomerates succumbed?
• Can you detect a theory of management or set of general
principles that link together Welch’s various initiatives?
• To what extent should other large, diversified corporations
imitate the management systems and leadership style
developed by Welch at GE?
Case: AES
• What’s unusual about AES’s structure,
management systems, and leadership style?
• Has AES’s success been because of, or despite,
these practices?
• Given the current challenges that AES faces,
should it adopt more conventional management
systems and processes,or should it maintain the
values, principles, and management methods
established by Sant and Bakke?
• What can other firms learn from AES?
Conclusion
• Strategy of the future:
–
–
–
–
–
Complexity theory
Dynamic capabilities
Blue ocean
Strategic options
Efficient design – people, decisions, rewards,
structure, process