The Development of Strategy
An organisation’s strategy is based on what its managers intend to be the direction in which the organisation should proceed, although subsequent actions at the operational level can cause the overall strategy to be changed. Other factors which can have an effect on the way in which the strategy develops may come from either within or outside the organisation.
(a) External influences may include:
- political pressures, such as monopoly restrictions, taxation policies, employment legislation, foreign trade regulations, environmental protection legislation imposed by government or by the efforts of pressure groups;
- cultural changes, due to changes in lifestyles, consumer demands, and people’s attitudes towards a “greener” environment.
(b) Internal influences can include:
- the availability of resources within the organisation;
- changing expectations of stakeholders;
- the position of the organisation in the marketplace.
An example of the political environment affecting an organisation’s strategy is provided by Pirelli’s decision to move away from tyres and into the telecommunications sector. They achieved this by combining with Benetton in order to take over Olivetti and thus to acquire a controlling interest in Telecom Italia.
In doing so Pirelli ignored conventional wisdom, by exchanging precious cash for debt and a stake in a company offering no clear synergies. They even paid an 80% premium to the prevailing share price. Pirelli investors saw this as a poor strategic decision, particularly at a time when the telecommunications industry was suffering badly, and responded immediately by sending its share value plummeting.
This decision by Pirelli has been described by market commentators as a political rather than an economic one, and as marking a return in Italy to old-style family capitalism and the enhancement of dynasties.
Johnson, Scholes and Whittington developed the idea of how different strategic patterns are developed by distinguishing between what they call “intended”, “realised” and “emergent” strategies.
These are those strategies which are deliberately planned and designed by the corporate planner. They come from the top down and they are often based on systematic analysis and deliberate decisions and follow a systematic process using strategic systems. They are literally “strategy as design”, and are useful in that they provide a structured and systematic way of thinking about strategic issues and decisions. These strategies maybe planned in formal strategic planning workshops and are usually developed by the corporate planning department, sometimes with the help of corporate strategy consultants. Strategic leadership plays a key role in intended strategies with one or a small group of senior managers driving the strategic planning process. Sometimes intended strategies at the individual business level are externally imposed by corporate headquarters or, in the case of public-sector organisations, by government or civil servants
These are the actual strategies that an organisation follows in practice. These are often different from its intended strategies, and are usually a compromise. There are many possible reasons why actual strategies may differ from those intended. For example, internal organisational politics may require that intended strategies be modified. In many organisations intended strategies are modified as a result of internal power politics and “bargaining” between different groups and individuals. Another reason for realised strategies being different from planned ones is when the planned strategies turn out to be unworkable, or perhaps when the environment has changed since the plans were developed. Finally it may well be that the intended plans are resisted or even rejected by interested parties affected by the plans: such interested parties could be managers, employees, or shareholders, or perhaps suppliers, customers, distributors, or even the local community.
These are strategies that gradually emerge from the day-to-day decisions and activities of the organisation. In this sense they are also “realised strategies” but are less the result of negotiation and bargaining and more due to what Quinn has termed “logical incrementalism”. This means that strategies are developed through a process of trial and error, from which the organisation (or rather its managers) gradually learn which strategies are the most effective and practical. There is no doubt that the ability to learn is an important and useful skill in the contemporary organisation, especially with heightened environmental complexity and the quickening pace of change. Emergent strategies, however, give rise to the danger of uncertainty and strategic drift.