Current Trends in Strategic Management

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Current Trends in Strategic Management
OUTLINE

• The New Economy
• New Directions in Strategic Thinking
• Redesigning the Organization
• New Modes of Leadership

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The Turbulent 21st Century

• Collapse of New Economy
• Dot.com bubble bursts
• TMT recession

• Corporate Scandals
• Enron, WorldCom, Parmalat
• Jack Welchs retirement package

• War
• Invasion of Afghanistan
• Iraq
• Civil wars in Congo, Liberia, Sudan, Somalia

• 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
• Collapse of Doha round
• Trade wars between US, EU, China
• Weakening of UN

Age of Disbelief

• Fear of Disease
• SARS, Mad Cow, Bird Flu

Unstable Currencies US declines by gt50 against
Euro 2002-04
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Directions in Strategic Management
PracticeTrends of the 1990s

• Key Trends of the 1990s
• Quest for shareholder value
• Adjusting to increased
• turbulence more intense competition

• Major Themes of Business Strategy
• Cost cuttingsqueezing
• overhead, business process re-
• engineering, increasing labor
• productivity
• Outsourcing/refocusing/
• divestment
• Performance management and
• incentive alignment

• 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

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Forces Shaping Company Strategies 2001-04

• The Business
• Environment
• Uncertainty
• Stalling of economic
• liberalization
• Intense competition

Future Sources of Profit Limits of
downsizing/cost cutting Where are future sources
of profit?

• Concepts Theories
• Resources capabilities as
• basis for competitive advantage
• Knowledge-based theory
• of the firm
• Option theory
• Complexity theory

Technology Continued advances in ICT

• Demands of society
• Social environmental responsibility
• Ethics fairness
• Quest for meaning

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Emerging Developments

• STRATEGY
• Multiple competitive advantages/multiple
  capabilities
• Innovation / New Product Development / New
• Business Development
• Alliances networks

• ORGANIZATION
• STRUCTURE
• Reconciling flexibility
• integration
• Modular structures
• Multidimensional structures
• Informal organization
• self-organization

• MANAGEMENT SYSTEMS
• Knowledge management
• (incl. best-practice transfer)
• Redesigning incentive systems
• Rethinking performance management
• Capturing human creativity

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The Need to Redesign Organizations
THE PAST
THE FUTURE
Emphasis on control
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
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Emerging Organizational Forms
Organizing for capability Shifting emphasis of
organization development design from control
to coordination
From unitary to parallel Separate coordination
structures for structures different processes.
E.g. 3Ms product development structure
separate structures for TQM and change
management
Process-based Organizing around business
processes organizations 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 E.g. electronics in Silicon
Valley, clothing organization and packaging
equipment in Italy
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New Models of LeadershipWhat Competencies do
Top Managers Need?

• THE REQUIRED
• COMPETENCIES OF
• BUSINESS LEADERS
• business literacy
• creativity
• cross-cultural
• effectiveness
• empathy
• flexibility
• proactivity
• problem-solving
• relation-building
• teamwork
• vision

• THE LEADERSHIP NEEDS
• OF ORGANIZATIONS
• The ability to
• build confidence
• build enthusiasm
• cooperate
• deliver results
• form networks
• influence others
• use information

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The Current Best-Seller

• Raynor, The Strategy Paradox
• Corporate manages uncertainty (5 year
  timeframe), divisions manage commitments/deliverab
  les
• 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.

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What is complexity theory?

• Based on an agentan 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.

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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

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Key Result Areas

• Some key results in complexity theory have proved
  important for management
• Emergence
• Agent-Based Search
• Patches

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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 Reynolds Boids Program
• Eisenhardt uses this principle in Strategy as
  simple rules
• How-to, boundary, priority, timing, exit rules

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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

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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

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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

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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)

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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 Welchs
  various initiatives?
• To what extent should other large, diversified
  corporations imitate the management systems and
  leadership style developed by Welch at GE?

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Case AES

• Whats unusual about AESs structure, management
  systems, and leadership style?
• Has AESs 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?

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Conclusion

• Strategy of the future
• Complexity theory
• Dynamic capabilities
• Blue ocean
• Strategic options
• Efficient design people, decisions, rewards,
  structure, process