Emergent Corporate Strategy Essay.
CORPORATE STRATEGY is the direction an organization takes with the objective of achieving business success in the long term. Recent approaches have focused on the need for companies to adapt to and anticipate changes in the business environment. The development of a corporate strategy involves establishing the purpose and scope of the organization’s activities and the nature of the business it is in, taking the environment in which it operates, its position in the marketplace, and the competition it faces into consideration.
Strategic management is a relatively young subject. It has its roots in the economic and social theories of the 1930s and 1940s – perhaps even earlier. It only really began to emerge as a separate topic in the 1960s and 1970s. Even today, there is only partial agreement on the fundamental principles of strategic management with many views, ideas and concepts. Among the numerous early contributors, the most influential were Alfred Chandler, Philip Selznick, Igor Ansoff and Peter Drucker.
Alfred Chandler recognized the importance of coordinating management activity under an all-encompassing strategy.
Interactions between functions were typically handled by managers who relayed information back and forth between departments. Chandler stressed the importance of taking a long term perspective when looking to the future. In his 1962 ground breaking work Strategy and Structure, Chandler showed that a long-term coordinated strategy was necessary to give a company structure, direction and focus. He says it concisely, “structure follows strategy.” Times change and concepts evolve so by the 1980s one can choose between two pathways when developing a strategy for a corporation, non-profit organization or an institution: the prescriptive and the emergent approach. Deliberate strategy is goal-orientated. It asks: what do we want to achieve? Emergent strategy is means-orientated. It asks: what is possible, with the means we have at our disposal? Already in 1985 Mintzberg and Waters were publishing: ˮOf strategies, Deliberate and Emergentˮ were they stated that deliberate strategy is realized as intended whereas emergent strategy are patterns of consistence realized despite, or in the absence, of intention.
There are 8 different types of strategy between the two poles of deliberate and emergent strategy: planned, entrepreneurial, ideological, umbrella, process, unconnected, consensus, imposed. Many authors have defined the two approachments in different ways. In Linch’s view a prescriptive thinking is one whose objectives are defined in advance and whose main elements have been developed before the strategy commences. Such an approach usually begins with an analysis of the outside environment and the resources of the company. The objectives of the organization are then developed from this. There then follows the generation of strategic options to achieve the objectives, from which one (or more) may be chosen. The chosen option is then implemented. This full range of activities is called the prescriptive strategy process. Henry Mintzberg, in his work, The Rise and Fall of Strategic Planning, was a critic of the analytical approach arguing that label strategic planning should be dropped because strategic planning has impeded strategic thinking and also because unpredictable events, such as the introduction of new regulations or technologies, will regularly act to force the original strategy off its course.
From a contrary point of view Ansoff shows that firms in fast-paced, competitive environments who use a systematic process for strategic planning very often go on to dominate their marketplace. Their logical, analytical approach allows them to devise predictive and pre-emptive strategies from which they can meet new opportunities head on. For instance, in 1995 EasyJet used incredible foresight to introduce low cost flights allowing it to take advantage of a more cost-conscious European Market. The prescriptive approach regards strategy development as a systematized and deterministic process where analysis of the organisation, its performance and external environment leads to the formation of a rational, long-term plan. Senior management is in charge of defining the final objectives and the plan is then put into action through the successive layers of the organization. Managers who use the analytical method are usually those with a low appetite for risk and activate in a slow changing market.
On the other hand, the emergent strategy is a pattern of action that develops over time in an organization in the absence of a specific mission and goals, or despite a mission and goals. Emergent strategy is sometimes called realized strategy. Mintzberg argues that strategy emerges over time as intentions collide with and accommodate a changing reality. Emergent strategy is a set of actions, or behavior, consistent over time, “a realized pattern [that] was not expressly intended” in the original planning of the strategy. When a deliberate strategy is realized, the result matches the intended course of action. An emergent strategy develops when an organization takes a series of actions that with time turn into a consistent pattern of behavior, regardless of specific intentions. “Deliberate strategies provide the organization with a sense of purposeful direction.” Emergent strategy implies that an organization is learning what works in practice.
Mixing the deliberate and the emergent strategies in some way will help the organization to control its course while encouraging the learning process. “Organizations …[may] pursue … umbrella strategies: the broad outlines are deliberate while the details are allowed to emerge within them” (from Mintzberg, H. 1994, The Rise and Fall of Strategic Planning). Linch defines emergent strategy as one that does not have the same fixed objectives as the prescriptive approach. The whole process is more experimental with various possible outcomes depending on how matters develop. To quote, ‘An emergent strategy is one whose final objective is unclear and whose elements are developed during the course of its life, as the strategy proceeds.’ Thus the early stages of emergent strategy may be similar to prescriptive strategy – analysis of the environment and resources. But then the process becomes more circular, learning and experimental.
Formulation of strategy runs parallel to implementation and managers at multiple organizational levels have a key input into the actual strategies pursued by the organization. This model’s emphasis on learning underlies more recent theories which focus on the value of knowledge as a core organizational competence for gaining competitive advantage. Despite heaving a good, solid, prescriptive strategy with their low cost flights, Easy Jet embraces with success also the emergent approach by launching allocated seats on all flights, in order to get competitive advantage. Budget airline says it will make more money from seat allocation than speedy boarding scheme preferred by rival Ryanair. EasyJet is ending the desperate rush for prime seats on low-cost flights by launching allocated seating across its network. Having been eschewed by budget carriers in the past for impeding fast turnaround times, the Luton-based airline said seat allocation did not appear to slow down journeys and is more lucrative than speedy boarding schemes. It expects 1a and 6a to be the prime picks on flights following trials on 6,000 flights this season.
Allocated seating was be rolled out across easyJet’s network from November, with all passengers allocated a seat. Those wishing to change their seat will be charged £12 for front row and over-wing seats, £8 for berths in the four rows behind the front row, and £3 to reserve a seat anywhere else on the plane. Passengers who don’t pay for a particular spot will be randomly allocated a seat as well when they check in, free of charge, although the chances of getting a seat up front will be diminished. “The majority of people will not have to pay for their seat,” said an EasyJet spokesman, adding that the airline would attempt to seat families together even if they don’t pay for specific seats. EasyJet has mulled allocated seating trials in the past but Carolyn McCall, EasyJet chief executive, has decided to push ahead after a trial scheme showed encouraging results.
The trials found that on short-haul flights such as London to Glasgow, the £3 window seat 6a was the most popular, while on longer routes such as London to Sharm-el-Sheikh the £12 1a berth is the most sought-after due to the more substantial legroom. Predictably, seats in the middle and near the back found the fewest takers, with 16b the least desired on short haul and passengers avoiding 19b on long haul. “This is an example of EasyJet trying to do all it can to make travel easy and affordable for our passengers,” said McCall. “Our customers asked us to trial allocated seating and we are really pleased with the positive passenger feedback during the trial. As importantly, we have shown that we can do so while delivering strong on-time performance – the most important driver of passenger satisfaction.” EasyJet said that more than seven out of 10 passengers on trial routes preferred the system to speedy boarding, where passengers pay around £10.50 to board a flight first – a service also offered by Ryanair. Low-cost airlines have been characterized by their strategy of charging for as many services as possible, from inflight food to checking bags into the hold.
However, some notions such as allocated seating have been ruled out by the likes of Ryanair because of their potential to clutter up planes, which would prevent low-cost carriers from executing the 25-minute turnaround times – the gap between a plane arriving at its gate and pushing off again – that allow them to run the busiest possible timetable. Andrew Lobbenberg, an analyst at HSBC, said the move would benefit EasyJet because it gives the airline the opportunity to make money from all seats on a flight rather than the 30 berths set aside for speedy boarding. “We would expect sales of pre-allocated seat selection and premium seat allocation in the front of cabin and exit rows to certainly exceed speedy boarding revenues. Speedy boarding was limited to 30 passengers per flight, but we imagine a higher share of passengers will opt to secure their seats in advance of travel.” He added: “Moreover, we think the switch to allocated seating will make travelling on EasyJet notably less stressful.
It will be far better for families travelling together. It will also remove the hassle of boarding which we think has been a material deterrent for business travelers. It should also be helpful for relations with airports: as customers spend less time standing in queues for hours before the flight, they should be free to spend more time and money in airport stores.” An emergent approach leads to more creative and responsive strategy making which is well suited to the hyper-competitive and unpredictable environments of today. Interestingly, Hamel and Prahalad pointed out that the most successful firms in the world do not tie themselves down to mission, goals and objectives or the predetermined plan. One of these corporations is obviously Apple, which is in a never-ending development. Apple prides itself on its innovation.
When reviewing the history of Apple, it is evident that this attitude permeated the company during its peaks of success. For instance, Apple pioneered the PDA market by introducing the Newton in 1993. Later, Apple introduced the easy-to-use iMac in 1998, and updates following 1998. It released a highly stable operating system in 1999, and updates following 1999. Apple had one of its critical points in history in 1999 when it introduced the iBook. This completed their “product matrix”, a simplified product mix strategy formulated by Jobs. This move allowed Apple to have a desktop and a portable computer in both the professional and the consumer segments. In 2001, Apple hit another important historical point by launching iTunes. This marked the beginning of Apple’s new strategy of making the Mac the hub for the “digital lifestyle”. Apple then opened its own stores, in spite of protests by independent Apple retailers voicing cannibalization concerns. Then Apple introduced the iPod, central to the “digital lifestyle” strategy. Philip W. Schiller, VP of Worldwide Product Marketing for Apple, stated, “iPod is going to change the way people listen to music.”
He was right. Apple continued their innovative streak with advancements in flat-panel LCDs for desktops in 2002 and improved notebooks in 2003. In 2003, Apple released the iLife package, containing improved versions of iDVD, iMovie, iPhoto, and iTunes. In reference to Apple’s recent advancements, Jobs said, “We are going to do for digital creation what Microsoft did for the office suite productivity.” That is indeed a bold statement. Time will tell whether that happens. Apple continued its digital lifestyle strategy by launching iTunes Music Store online in 2003, obtaining cooperation from “The Big 5” Music companies—BMG, EMI, Sony Entertainment, Universal, Warner. This allowed iTunes Music Store online to offer over 200,000 songs at introduction. In 2003, Apple released the world’s fastest PC (Mac G5), which had dual 2.0GHz PowerPC G5 processors.
Product differentiation is a viable strategy, especially if the company exploits the conceptual distinctions for product differentiation. Those that are relevant to Apple are product features, product mix, links with other firms, and reputation. Apple established a reputation as an innovator by offering an array of easy-to-use products that cover a broad range of segments. However, its links with other firms have been limited, as we will discuss in the next section on strategic alliances. There is economic value in product differentiation, especially in the case of monopolistic competition. The primary economic value of product differentiation comes from reducing environmental threats. The cost of product differentiation acts as a barrier to entry, thus reducing the threat of new entrants. Not only does a company have to bear the cost of standard business, it also must bear the costs associated with overcoming the differentiation inherent in the incumbent.
Since companies pursue niche markets, there is a reduced threat of rivalry among industry competitors. A company’s differentiated product will appear more attractive relative to substitutes, thus reducing the threat of substitutes. If suppliers increase their prices, a company with a differentiated product can pass that cost to its customers, thus reducing the threat of suppliers. Since a company with a differentiated product competes as a quasi-monopoly in its market segment, there is a reduced threat of buyers. With all of Porter’s Five Forces lower, a company may see economic value from a product differentiation strategy. A company attempts to make its strategy a sustained competitive advantage. For this to occur, a product differentiation strategy that is economically valuable must also be rare, difficult to imitate, and the company must have the organization to exploit this. If there are fewer firms differentiating than the number required for perfect competition dynamics, the strategy is rare. If there is no direct, easy duplication and there are no easy substitutes, the strategy is difficult to imitate.
There are four primary organizing dilemmas when considering product differentiation as a strategy: inter-functional collaboration, connection to the past, commitment to market vision and institutional control. To resolve these dilemmas, there must be an appropriate organization structure. A U-Form organization resolves the inter-functional collaboration dilemma if there are product development and product management teams. Combining the old with the new resolves the connection to the past dilemma. Having a policy of experimentation and a tolerance for failure resolves the commitment to market vision dilemma. Managerial freedom within broad decision-making guidelines will resolve the institutional control dilemma. Five leadership roles will facilitate the innovation process: Institutional Leader, Critic, Entrepreneur, Sponsor, and Mentor. The institutional leader creates the organizational infrastructure necessary for innovation.
This role also resolves disputes, particularly among the other leaders. The critic challenges investments, goals, and progress. The entrepreneur manages the innovative unit(s). The sponsor procures, advocates, and champions. The mentor coaches, counsels, and advises. Apple had issues within its organization. In 1997, when Apple was seeking a CEO acceptable to Jobs, Jean-Louis Gassée (then-CEO of Be, ex-Products President at Apple) commented, “Right now the job is so difficult, it would require a bisexual, blond Japanese who is 25 years old and has 15 years’ experience!” Charles Haggerty, then-CEO of Western Digital, said, “Apple is a company that still has opportunity written all over it. But you’d need to recruit God to get it done.” Michael Murphy, then-editor of California Technology Stock Letter, stated, “Apple desperately needs a great day-to-day manager, visionary, leader and politician. The only person who’s qualified to run this company was crucified 2,000 years ago.” Since Jobs took over as CEO in 1997, Apple seems to have resolved the innovation dilemmas, evidenced by their numerous innovations.
To continue a product differentiation strategy, Apple must continue its appropriate management of innovation dilemmas and maintain the five leadership roles that facilitate the innovation process. In a few words emergent strategy does not mean chaos, but unintended order instead; does not mean that management is out of control, only that it is open, flexible and responsive as well as willing to learn; ultimately it implies learning what works. The purely prescriptive approach, where realized strategy is formed exactly as intended, and purely emergent strategy- order (consistency in actions over time) in absence of intention about it do both not exist in real life. The purely prescriptive and purely emergent strategy are two poles of a continuum of observable strategies in practice.
Within the framework of an environment which is by and large unpredictable, many organizations are forced to become more flexible and adaptive to change. This supports the adoption of an emergent approach to strategy development which invokes a more intelligent capacity to respond to new opportunities. Nonetheless, such a strategy can preclude control over actions and may risk a lack of direction. A greater use of strategic planning tools for internal and external analysis would certainly facilitate improved organizational learning and enhance strategic thinking even while following an emergent approach. This recognition that the prescriptive and emergent processes, rather than being mutually exclusive, can be complementary approaches that reinforce each other is being highlighted in more recent theories such as the Logical Incrementalism approach proposed by Quinn.
Although many management writers seem to seek one ‘best way’ to conduct strategy, these approaches are not necessarily incompatible. Different approaches may be suitable at different times, depending on the context or situation, and an organization may pursue a combination of approaches. For example, an organization can have a clear direction and an overall plan – which it expects to have a amend or adapt as events unfold. It may also encourage small-scale strategic initiatives or projects throughout the organization.
They help the organization to develop new skills and retain flexibility; they also have the potential of spreading if conditions are appropriate. All in all, most viable strategies in today’s business world should have customized elements of prescriptive and emergent characteristics in order to manage the complexities of their business and still triumph over changing circumstances. The final conclusion is that “Strategy formation walks on two feet, one deliberate and one emergent.” (Mintzberg & Waters)