Strategy - prescriptive and emergent schools
There are many paradigms on the origin of strategy. Critically evaluate the various schools of thought that exist in both the prescriptive and emergent schools. Use a specific organisational example to critically evaluate the key characteristics of each. – Mintzberg model of 10
This report will attempt to analyse strategy, using Mintzbergs 10 schools of thought relating to strategy. Organisations will be used to demonstrate the various schools and to critically evaluate each one.
Strategies exist at a number of levels in an organisation; individuals may have a strategy to get where they want to be in their careers as well as the organisational strategy. Johnson G et al (1999) states that there are at least three levels of strategy:
· Corporate strategy
· Business unit strategy
· Operational strategy
‘Corporate strategy is concerned with the overall purpose and scope of the organisation to meet the expectations of owners or major stakeholders and add value to the different parts of the enterprise’ Johnson G et al. An example of this can be seen with Gateshead Primary Care Trust (GPCT) who are required to develop a strategy for patient care. For example, it is essential to have along term plan – where we want to be in 10 years time. Often money is available from the Government, but there is a tight deadline, without a strategy GPCT would not be ready to put plans into action, securing the funding available. This is not to say that all plans made come to fruition, this also depends on various factors, most importantly the Government of the time. Especially in Public Sector, plans need to be changed when a Government comes into power as each part has its own agenda for the Health Service. This is an example of an organisation that has a prescriptive strategy, which often become emergent due to outside pressures. In private companies corporate strategy is very much affected by the demands and expectations of shareholders and the stock market.
‘Business Unit strategy is about how to compete successfully in a particular market’ Johnson et al (1999). Strategies need to be linked to a strategic business unit, which is a part of the organisation, which has an external market for goods or services. In the Public sector such as the Health Service this might be a part of the service, which deals with a specific client group and how their needs can be met. An example of this can be seen with the Out-of-hours work currently going on, a strategy has been put in place for 2004 when GP’s are no longer required to provide an out-of-hours service. This is a prescriptive strategy, as GPCT know what is required of them, however it becomes emergent as guidelines are released from the Department of Health.
Chaffey (1999) also stated that strategies exist on different levels ‘Firms have corporate strategy (what business shall we be in) and business strategy (how shall we compete in business).
The third level – ‘operational strategies are concerned with how the component parts of the organisation in terms of resources, processes, people and their skills effectively deliver the corporate and business level strategic direction’ Johnson et al.
This is the level where most decisions or activities happen; organisations usually depend on people and their skills to deliver the strategic plans. It is therefore important that the decision makers are aware of what goes on at grass root levels and takes opinions and suggestions on board.
Chaffee sees strategy as having three distinct pathways:
· Linear strategy - is the planning and forecasting carried out by an organisation.
· Adaptive strategy – is the closest to strategic management as it focuses the managers attention on best fit, an example could be again GPCT who because of limited funds need to plan its services accordingly – providing the best fit of services, which are not always the ideal.
· Interpretative strategy – this sees strategy as a metaphor and is not something which can be measured in qualitative terms.
Mintzberg talks about deliberate strategies and emergent strategies. This can be seen in GPCT where a strategy is made, but over time it is realised that other departments are effected by decisions made. The strategy then become emergent as other ideas and goals are sought. This is a way of planning a stage at a time, which eventually produces a plan, which comes together. This may not be the original plan or strategy the organisation had in mind. It is important that companies can change and mix these two forms of strategy to allow for changes and learning patterns and to be able to react to the unexpected. Chaffee1990 states ‘strategies are not purely deliberate, theorists agree that intended emergent and realized strategies may differ from one another’.
Mintzberg uses an elephant to describe strategy and organisations and its managers as blind people. He says that no one has had the vision to see the entire beast, that we have merely grabbed some part and we are ignorant to the rest. He also goes on to say that to understand strategy we need to understand the various parts, this will enable us to grasp the beast – strategy. He uses ten schools of thought to describe ten parts of strategy-formation.
The first school is the Design School; this is a prescriptive school, which views strategy as providing the best possible fit. It regards it as matching the internal situation of the organisation to the external situation of the environment. Porter states ‘establish fit is the motto of the design school’
The strategy is developed through a deliberate process based on the SWOT analysis; this is carried out when a new project is being launched to ensure that the correct model is being implemented
A manager may decide a strategy, but the structure is usually already in place, therefore it is important to look at the history of the company. Strategy and Structure do go together, but any change would be gradual rather than both changing together.
‘Structure follows strategy, as the left foot follows the right’ Chandler (1962), this is to say that a structure of a company is affected by its strategy, but this is not always true, dependant on how established the present structure is, sometimes it requires tweaking to establish best fit.
Gateshead Primary Care Trust (GPCT) can be used to illustrate a ‘design school’ as it has attempted to build its structure around its strategy. GPCT is a relatively new organisation that initially was able to restructure, slotting existing staff into new positions. Mintzberg states that this is the best time to lean towards the design school, as it must have a clear sense of direction in order to compete with its more established rivals. Chandler (1962) and Miles & Snow (1978) say that a strategy based on the analysis of the environment must be chosen and then an appropriate organisational structure must follow to create a fit between these.
GPCT’s strategy is governed by Government legislation, which sets out targets in patient care. GPCT went through a period of time when there appeared to be no strategy in place, Directors were not in post and the organisation had the feel of drifting, with no goals or direction. This can be very unsettling for staff who were used to working for a much larger Acute Trust. It is also difficult to plan a strategy, taking into account this ‘drifting’ period as the outside environment changes so frequently within the Health Service, what was topical last month may not be now.
The PCT must look to its population needs, areas of depravation and decide the best fit for services with resources available; they strive for ‘Equity in healthcare’. As the funding comes direct from the Government, services must also be designed to meet the many targets imposed, there are reporting mechanisms in place to ensure this happens.
Although this school seems to be quite simple, matching the internal environment with the external, this is not the case in the majority of situations. GPCT had a strategy in place to meet access targets for GP patients in Gateshead. They changed the structure within the Strategy & Modernisation Directive to include 4 posts as Practice Liaison managers working across the borough. They also appointed an access manager all designed to ensure targets were met, whereby patients could access a GP appointment within 24 hours. This was thrown into disarray with the Ryton practice that ‘threw’ 3000 patients from his list. This left the PCT with a massive problem as people in Ryton did not have access to a GP. Although the practice liaison managers were in place there was very little they could do and GPCT were required to rethink their strategy and work on contingency plans. This is also an example of a prescriptive strategy, changing into an emergent strategy as events beyond control come into focus. It was not possible to predict the future (Mintzberg)
However due to the fact that GPCT underwent a major change in situation, due to the formation of a new Trust and the break away from the Acute Trust it still fits into the design school. Mintzberg states ‘the design school model would seem to apply best at the junction of a major shift for an organisation, coming out of a period of changing circumstances and into one of operating stability’. It has taken GPCT over a year to reach this stage, but the Trust has finally settled into a stable organisation, with its own strategic direction and policies and procedures.
It will always have to adhere to Government legislation, but due to the Modernisation Document produced by the government now have clear objectives and goals. Trusts are always competing for best practice status and are constantly looking at the changing environment, linking in with new housing and regeneration areas.
Although GPCT have turned a corner in relation to their planning it was seriously under performing in regards to budgets; 5 months into the financial year, they were showing a deficit of ?5m. There has recently been a change of Chief Executive, the former leaving at a moments notice. The acting Chief Executive has held meetings with senior staff to carry out a SWOT analysis to determine what measure need to be taken to get the Trust back on track. Although GPCT were looking at the external environment, it had not budgeted for the internal emergent strategies, such as the contingency plan for Ryton GP’s.
Pettigrew and Mintzberg argue that fully-fledged strategies seldom exist, with strategic decisions seldom being the result of planned moves. The new Chief Executive appears to realise that he will need to adjust his strategy according to outside influences. The last Chief Executive it would seem did not allow for this.
This change in leadership seems to have the Directors working together to realise Government targets and to carry forward the ideals of the design school.
The design school underlines the basic principles of strategic management, that ‘strategy represents a fundamental fit between external opportunity and internal capability’ Mintzberg.
The Planning School is the second prescriptive school, which is a formal and complex process, often relying on professional planners. It follows a rigorous set of steps from the first analysis of the situation to the development of various alternative scenarios.
States that success requires a strategy which provides a consistency of direction based on a clear understanding of the ‘game’ being played and an acute awareness of how to manoeuvre into a position of advantage. This demonstrates the need to plan each move for maximum gain.
Capland and Norton states ‘Strategic planning is a pro-active, holistic approach to building your business that allows you to create your future, not simply react to current trends. Define the future you want to create for yourself and your business. Establish your values, set clear goals and specific time frames, and crystallize the action steps that will help your vision become a reality’
An organisation that would demonstrate the design school is Marks & Spencer (M&S), a large multi national company who hit financial problems due to poor planning and realised it needed a strategic plan to reinstate them as leaders in the marketplace.
The first step was to appoint a new Chairman and Chief Executive, Luc Nandevelde who looked at the recovery plan in place and decided this wasn’t enough to address the problem, Marks and Spencer needed to get back its core strengths, allowing them to regain their place in the market.
The first step he took was to appoint a new board of directors who could take existing staff forward to realise their true capabilities. Their objectives were to make M&S famous once again for quality and service.
M&S put together a prescriptive strategy, which outlined plans to enable them to regain their place in the market. They developed an operational plan, which included the company returning to selling its own brands, guaranteeing customers quality, value and service. They also looked at redesigning stores creating more selling space and creating a core up market design.
M&S appointed Walker Media as their planning agency and although the plan they put in place took longer than they anticipated to prove successful, they were always convinced it would work as they focused on the key areas, which were important to their customers, their products, stores and people.
M&S have succeeded in forecasting their success because they were already a well established organisation that had loyal customers, Mintzberg states ‘ organisations develop plans for the future and they also evolve patterns out of their past’.
With such a turn around of store layouts and the introduction of new clothing lines such as ‘per uno’ the customers were encouraged to give them their support again. Although Ansoff wrote in Corporate Strategy, 1965 that a company could construct forecasts with accuracy of say plus or minus 20%, in the case of M&S they could predict a much higher success rate.
In comparison, a company who have not survived despite using a planned approach is C&A, who had 113 stores across the UK. C&A were established in 1922 and were popular as they offered affordable clothing for all ages. However it did not predict discount stores such as Matalan and Peacocks and failed to overcome the dramatic change in the market. Mintzberg states ‘how in the world can predictability be predicted’, this is true in the case of C&A who tried a range of initiatives to protect itself from the growing competition, but after racking up huge losses decided that closure of its UK operations was the only answer.
Johnson and Scholes talk about strategic actions and choices, but as shown in the case of C&A they are not always enough to secure the future of an organisation.
Another prescriptive school is the Positioning School, which is influenced by the works of Michael Porter. The principles are an analytic process, which places the organisation within the context of the industry that it is in and looking at how it can improve its competitive positioning within that industry. ‘Firms that occupy these positions enjoy higher profits than other firms in the industry’ Mintzberg et al.
Porter states that an organisation must find its niche, ‘being all things to all people is a recipe for strategic mediocrity and below average performance’.
Positioning in the market is important as demonstrated by Nestle who have applied their competencies and products to foreign markets where competition is minimal. Nestle will have competitive advantage over a company who places all its activities in a single location. Nestle must still evaluate the decision to enter a foreign market and whether this positioning will realise returns in the future.
During the early 1990’s, Nestle faced increased competition due to saturation in the European and North American markets, also branded foods were being replaced by supermarket own brands. This led to price competition in several areas of the food market, for example cereals, coffee, soft drinks.
Nestle decided to concentrate its markets in Eastern Europe, Asia and Latin America, which were attractive because as they had entered a stage of economic growth and market orientated economic policies by the government. Consumers in these nations. The core strategy of Nestle is to enter the markets early, before its competitors, thus positioning itself to gain competitive advantage of the market share. Porter (1998) states ‘Competitive strategy is the search for a favourable competitive position is an industry’.
Nestle have decided to concentrate on just a few strategic brands, building a superior marketing position in each of these niches.
This strategy adopted by Nestle offers great growth opportunity and the chance to build a substantial position with regard to its competitors. There is risk attached to positioning in emerging markets and the company need to be flexible and adapt to difficult situations. The company should focus on long-term perspective rather than short-term profitability.
Nestle have several strategic business units (SBU’s) that have overall responsibility for business development, one of these is responsible for co-ordinating the activities of domestic and foreign divisions within the product group.
Although the positioning school is primarily a prescriptive school in the case of Nestle it has also experienced emergent strategy. In Nigeria for example Nestle had to rethink its traditional distribution methods because the road systems were poorly developed. They built a network of small warehouses around the country, employing local staff to enable them to respond to local conditions quickly.
The company were able to take a prescriptive strategy and quickly adopt an emergent strategy to respond to need.
It is almost impossible to look at the positioning school as solely prescriptive as organisations change direction and find their niche in the market. Advances in technology allow firms to compete and trade on a global basis, which dictates that they need to be able to respond to changes and produce an emergent strategy. Before the advancement of technology organisation would be able to position themselves in the market and concentrate on one area without strong competition, however this has changed in recent years.
Nestle could also be used as an example of an entrepreneurial school as they are very innovative in their thinking.
The fourth school is the Entrepreneurial School which ‘focuses the strategy formation process exclusively on the single leader, but it has also stressed the most innate of mental states and processes – intuition, judgement, wisdom, experience and insight’ The organisation becomes responsive to the vision and dictates of an individual.
The strategy of the Entrepreneurial school is emergent as the leader has the foresight to move with the times. They are able to adapt to change and although they may have planned their strategy they will not be averse to changing it if demand shifted or changed.
A company, which demonstrates this, is Easyjet, with its founder Steios Haji-Ioannou, who still controls this company and other EasyGroup companies such as EasyInternet Cafe, EasyCar.com and EasyValue.
His vision is to keep costs low by eliminating unnecessary costs and ‘frills’. His most successful venture has been the EasyJet airline, which has grown since its launch in November 1995. Initially it was Luton based, offering two routes from Luton to Glasgow and Edinburgh, it has now grown to offering 114 routes from 38 European airports. Following the merger with Go-fly in August 2002 it became Europe’s Number 1 low cost airline.
Haji-Ioannou saw a gap in the market for cheap fares available to everyone and was one of the first airlines to sell seats on line in April 1998. Now 90%of all seats sold are sold over the Internet making EasyJet one of Europe’s biggest Internet retailers.
Ioannou looked at the airline industry and saw ways of cutting costs, which were innovative; he had the vision to look at the needs of people but at the same time providing an efficient cost effect airline. Some of the things he introduced were:
· Ticket less travel – confirmation and travel deals are sent by email
· No free lunch – as everyone complains about it – why provide it
· Efficient use of airports – turn – around times reduced to 30 minutes
· Paperless operations – The management and administration of the office is run entirely on IT systems which can be accessed anywhere in the world.
However Haji-Ioannou took a risk when he launched EasyJet, he had previously founded Stelmar Tankers, a shipping company which listed on the New York Stock Exchange in 2001, maybe it was this success which spurred him onto to pastures new. McClelland (1961) states that ‘the entrepreneur is not a gambler or a speculator, not essentially a man who chooses to bear risks, but a calculator’
However not everyone agrees that entrepreneurs have vision and are innovative, Peter Drucker (1970) sees entrepreneurship as synonymous with heavy risk and the handling of uncertainty. However of Richard Branson or Haji-Ioannou hadn’t taken risks they would not have amassed the fortunes they have today.
Easyjet also encourages an informal culture with a very flat management structure, which eliminates unnecessary wasteful layers of management. Ties are banned except for pilots and ‘hot-desking’ and remote working have been practiced since the organisation started. Staff are encourage to put ideas and suggestions forward and are classed as a valuable asset. Stacey says that an Entrepreneurial approach always has to incorporate learning; this is evident in the EasyJet chain from the managing directors to the workforce, who are all encouraged to learn and grow.
Easyjet are very forward thinking and visionary, continually looking for a gap in the market and expanding on this. When logging onto their site to book flight tickets, there are links to car hire, insurance and hotels – no opportunity is missed – Mintzberg describes the Entrepreneurial school as a vision – which is exactly what the founder of EasyJet has.
Haji-Ioannou entered the Guinness Book of records by establishing himself as the world’s youngest international scheduled airline chairman when he launched EasyJet in 1995 at aged 28. He has also been named Entrepreneur of the year on many occasions and EasyJet have won many awards for the best travel site and best online retailer. Perhaps the most appropriate award he could have won was the one he won in March 2002, EasyJet named as ‘Top Management Team’ in annual British Telecom awards recognising the UK’s most visionary company.
Richard Branson is another example of an Entrepreneur, who has branched into other areas, very successfully. His train service is not doing too well at the minute, as they are not reliable, but Branson has the vision to make this work. His Virgin airline can be compared to EasyJet in that they are both successful, although directed at different markets. Richard Branson sees himself as very much the leader of the business, the entrepreneur, he states ‘I have not depended on others to do surveys or market research or to develop grand strategies. I have taken the view that the risk to the company is best reduced by my own involvement in the nitty gritty of the new business’
Richard Branson didn’t want to compete on price, but instead offered quality at a price. Easyjet offer value for money and enable more people to travel by air, Ioannou explains his strategy as ‘ based on the belief that demand for short-haul air transport is elastic – in simple English, if you reduce your price more people will fly’. Both entrepreneurs have vision and have looked at using this to benefit different parts of the market. Schumpeter (1947) clarifies this ‘New combinations including the doing of new things that are already done in a new way’ This is a way of saying that they have not invented the wheel, but have merely found better more efficient ways of doing things.
The next school is the Cognitive School, which describes strategy as a mental process.
Clear vision, effective thinking, skilled project management and action planning are essential in meeting the increasingly fast paced design and development needs of today.
Strategists are largely self-taught, developing their knowledge and thinking structure though direct experience, shaping what they do.
‘The cognitive school is at best an evolving school of thought on strategy information.’( Mintzberg et al 1998)
