Tag Archives: strategy

El dia a dia, Llibres, PhD, Phd - Comprehensive Exam

71 – The Concept of Corporate Strategy (Andrews, 1971)

Reference:

Andrews, Kenneth J., “The Concept of Corporate Strategy”, Irwin, 1971 (Ch. 1-5)

Kenneth R Andrews (1916 – 2005) was an academic who wrote and thought on business policy or corporate strategy at the Harvard Business School. He is regarded as one of the ‘fathers’ of modern business strategy and has been credited with giving corporate strategy its dominant strategy[1]. Originally, a schloar of American literature (his PhD was on Mark Twain)in 1946 he was persuaded by Edmund Learned to join Harvard Business School[2] where he taught for forty years. His books are a popular source of SWOT analysis in business strategy. [Source: Wikipedia]

Topic: Formulation and implementation of corporate strategy.

Summary and citations:

• General Management tasks: “…assignable to three roles – organization leader, personal leader, and architect of organization purpose” p3
• “The complexity of the general manager’s job and the desirebility of raising intuititve competence to the tlevel of verifiable, conscious, and systematic analysis suggest the need,… for a unitary concept” p10
• “The basic determinants of company character, if purposefully institutinoalized, are likely to persist through and shape the nature of sbstancial changes in product-market choices and allocation of resources.”p14
• “Incrementalism might have… the appearence of consciously formulated strategy, but may be the result… of skillful improvisatory adaptation”. P17
• “In a dynamic company, moreoever, where strategy is continually evolving….”p17
• “Corporate strategy is an organizarion process, in many ways inseparable from the structure, behavior, and culture…”p18
• “The ability to identify the four components of strategy –(1) market opportunity, (2) corporate competence, (3) personal values and aspirations, and (4) acknowledgede obligations to segments of society other than stockholders- is easier to exercise than the art of reconciling their implications in a final pattern of purpose”. P19
• Uniqueness: “The most important characteristic of a corporate pattern of decision that may properly be called strategic is its uniqueness” p22
• Forced-growth Strategies : 1) Acquisition of competitors; 2) Vertical integration; 3) Geographical expansion; 4) Diversification (p24)
• Brice Scott’s stages: 1) Single product (single business) ; 2) single-product with functional specialization; (dominant business) 3) multiple product lines organization based on product-market (related business) –the most successful strategic pattern; 4) unrelated business p25
• Criteria for ealuation: “A strategy must be explicit to be effective and specific enough to require some actinos and exclude others. Clarity should not imply rigidity” p27 “Uniqueness is morethe produc tof imagination than experience” p28; “Vulnerability to competition is increased by lack of interest in market share” p28; “….consistency becomes a viatl rather than merely an esthetic problem” p29 “the riskiness of any plan should be compatible with the economic resources of the organization and the temperament of the managers concerned” p29
• “… a high risk srategy that failed was not necessarily a mistake” p32
• Company environment: technology, ecology, economics, industry, society, politics (p38)
• “to conceive of a new development in response to market information and prediction of the future is a creative art” p45 –more than economic analysis-
• Consideration of all combinations of 1) Environmental conditions and trends; 2) opportunities and risks; 3) Dinstinctive competence; 4) Corporate resources
• Importance of personal values: “what they personally want to do” p53
• “… actions taken can be rationalized so as not to seem quite so personal as I have suggested they are” p55
• “Finally, at a higher level of sophistication, the strategy should have some appeal for all employees” p55
• “A change in corporate directino and the energy and innovation required to make it successful usually call for a cultural adaptation that is better encouraged than forced” p59
• “Strategic innovation is a practical alternative to violent restructuring” p60
• “The effort to formulate personal purpose might well acompany each individual’s contributions to organizational purpose” p62
• “As much as a leader wishes to trust others, he has to judge the soundness and validity of his subordinates’ positions” p63
• “Strategy is a human construction; it must in the long run be responsive to human needs. It must ultimately inspire commitment. It must stir an organization to successful striving against competition. People have to have their hearts in it.” P63
• Ethical values: “strategists might and can do to what they want to do. We now move to what they ought to do” p65
• “The decentralization of authority that makes large organizations possible requires trust rather than suspicion in the granting of appropiate autonomy to subordinates” p67
• Concern about the world: “The willingness to undertake joint ventures…share management,…cooperate…to train nationals… oppportunity for combining entrepreneurship with responsibility…” p71
• “Governments everywhere are active claimants to a voice in individual corporate strategy” p72
• “Business cannot remain healthy in a sick society” p73
• “Overregulation of the individual by corporate policy is no more appropriate than overregulation of the corporation by government” p75
• “…a company should not venture into good works that are not strategically related to its present and prospective economic functions” p76
• The determination of strategy: “1) appraisal of present and foreseeable opportunity and risk in the company’s environment, 2) assessment fo the firm’s unique combination of present and potential corporate resourcess or competence; 3) determination of the noneconomic personal and organizational preferences to be satisfied, and 4) identification and acceptance of the social responsabilities of the firm” p78

Personal comments, interesting issues and findings:

• The book distinguishes very clearly the formulation and the implementation of corporate strategy. The formulation is progressively explained, in a very clear way, the concepts are clearly explained and Andrews gives a lot of examples. I think it is a book written for practitioners, managers and CEO’s.
• Importance of the Personal Values: I have found a strong will of rationalizing causes (i.e. reasons for internationalization). This might be because normally, the facts are analyzed after the phenomenon happened (ie the company is already international) and not when the decision was taking place. I think there is a strong component on strategic decisions (and any decision) consisting on the influence of personal values. For instance, in class, Guillaume explained to us the way he discarted a supplier, mainly by personal reasons. But these reasons would never be reported as personal, he said. The importance of personal values is showed in the case of strong-personnality leaders and founders: the character of Richard Branson is in the base of its risky and broad diversification.
• I like the balance that Andrews shows between the separation of the economic analysis and calculation of ROI and the personal interests of managers.
• As Chandler “structure should follow strategy” p20
• Mimetism (effects of instittionalisation?) : “Sometimes the companies of an industry run like sheep all in one direction” (p32) instead of uniqueness. Personal interest of the manager – problem of agency.

El dia a dia, Llibres, PhD, Phd - Comprehensive Exam

72 – Corporate Strategy (Ansoff, 1965)

Reference:

Ansoff, H. Igor, “Corporate Strategy”, McGraw Hill, New York, 1965 (Ch.1-6)

H. Igor Ansoff (December 12, 1918 – July 14, 2002) was a Russian American, applied mathematician and business manager. He is known as the father of Strategic management.
Professionally, Ansoff is known worldwide for his research in three specific areas: 1) The concept of environmental turbulence; 2) The contingent strategic success paradigm, a concept that has been validated by numerous doctoral dissertations; 3) Real-time strategic management.
Marketing and MBA students are usually familiar with his Product-Market Growth Matrix, a tool he created to plot generic strategies for growing a business via existing or new products, in existing or new markets. [Source: Wikipedia]

Topic: Analytical approach to the definition of a corporate strategy.

Summary and citations:
• “The purpose of this book is to synthesize and unify these into an overall analytic approach to solving the total strategic problem of the firm” (preface)
• Classes of decisions: strategic, administrative and operating
• A new method for modelling for strategic decisions because the Capital Investment Theory (CIT) is not applicable to strategic management decisions (chap 2)
• “..decision rules for search and evaluatino of products and markets are not the same for all firms.” P22
• “Our concern must be not only with evaluation of projects for given rules, which is the main concern of CIT, but also with formulation of the rules for each individual firm” p23
• Adaptative search method: “1) a “cascade” procedure of successive narrowing and refining the decision rules, 2) feedback between stages in the cascade, 3) a gap-reduction process within each stage, and 4) adaptation of both objectives and starting-point evaluation” p28
• System of objectives: “both economic (exert primary influence) and social objectives (secondary)”; “The central purpose of the firm is to maximize long-term return on resources employed within the form” p38 “influences: responsibilites and constraints”
• “Contrary to Cyert and March, we assume that the business form dies have objectives which are different and distinct from the individual objectives of the participants” p39
• “…significant aspect of the adaptative search method… is the circular dependence of the goals on the environment and of the choice of environment on the goals” p49
• External (defensive, aggressive) flexibility or internal flexibility (liquidity of firm’s resources)
• Types of synergies: 1) Sales synery; 2) Operating synergy; 3) Investment synergy; 4) Management Synergy. P80
• “The problem of strngths and weaknesses and the problem of synergy are seen to be related” p91
• Grid of competences: 1) R&D; 2) Operations; 3) Marketing; 4) General Management (p100)
• “The major ise of the competence profile is in assessment of this balance in four different parts of the strategic problem: 1) Internal Appraisal; 2) external Appraisal; 3) Synergy Component of Strategy; 4) Evaluation of individual opportunities” p102
• Growth vector components – table 6.1 p109

Personal comments, interesting issues and findings:
• This is a book for managers, with concepts and procedures to be used. I think though that it is quite dense to be applied.
• The corporate strategy is too ROI-centered
• Ansoff was mathematician and it can be viewed in his approach: First defines the problem, then gives definitions of the tools, then solves the problem with the defined tools. Very deterministic and carthesian.
• Agrees with Andrews about the influence of the environment. Also sees strategy as a always-adapting process with feed-back.
• Bases strategy on decisions made on quantitative values (rates, ratios, ROSales, networth, inventory, assets, etc), based on finance.
• As personal objectives of individuals, the author also considers goals as: 1) maximum current earnings; 2) Capital gains 3) Liquidity of estate; 4) social responsibility – Enlightened self-interest; 5) social resposibility – Philanthropy; 6) attitude toward risk (p62). No consideration of more ‘soft’ values (!). Even 4 and 5 are considered for profit (but not economical) !!
• “Is strategy necessary?” p112 might be a question that many authors might take for garanted but I think that is good to be asked.
• Last diagram p202 makes me think (and smile) if this is a book really for managers to be used in a practical way. It is more an informatic algorithm than an ‘enlightning’ vision.

Llibres, PhD, Phd - Comprehensive Exam

77 – Strategy and Structure: Chapters in the History of the Industrial Enterprises (Chandler, 1962)

Reference:
Chandler, Alfred D.
Strategy and Structure: Chapters in the History of the Industrial Enterprises
The MIT Press, Cambridge, Mass., 1962

Alfred DuPont Chandler, Jr.[1] (September 15, 1918 – May 9, 2007) was a professor of business history at Harvard Business School, who wrote extensively about the scale and the management structures of modern corporations. Chandler graduated from Harvard College in 1940. After wartime service in navy he returned to Harvard to get his Ph.D. in History. He taught at M.I.T. and Johns Hopkins University before arriving at Harvard Business School in 1970. He received a Pulitzer Prize for his work, The Visible Hand: The Managerial Revolution in American Business (1977). [Source: Wikipedia.com]

Topic: The creation and the spread of the multidivisional form of organization in American industry.

Main questions :
Thesis: Structure follows strategy
How multidivisional structures were created?

Data and Methods :
Analysis of 4 industrial cases. Chandler described how the chemical company Du Pont, the automobile manufacturer General Motors, the energy company Standard Oil of New Jersey and the retailer Sears Roebuck managed a growth and diversification strategy by adopting the revolutionary multi-division form

Summary and citations:

Introduction
• “The initial proposition is then, that administration is an identifiable activity, that it differs from the actual buying, selling, processing, pr transporting of the goods, and that in the large industrial enterprise the concern of the executive is more with administration than with the performance of functional work” p9
• “A second proposition is that the administrator must handle two types of administrative tasks when he is coordinating, appraising and planning the activities of the enterprise” p9 (1-long-run health and 2-day to day operation)
• “Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals” p13
• “Structure can be defined as the design of organization through which the enterprise is administered”. P14 . Two aspects. 1) lines of authority and communication and 2) information and data that flow in these lines.

I – Historical settings
• “The more common road to the formation of the vertically integrated enterprise was by way of horizontal combination and consolidation.” P29
• “After 1890’s, administrative innovations [standardization of procurement and processes] were much more important to the development of American business than legal ones [i.e. New Jersey amendment]”. P31
• “And by 1900, some of the very largest of the new enterprises were already responsible for the administration of integrated multifunction subsidiaries as well as single-function departments” p38
• “After 1900…three types of strategies. Growth came either from an expansion of the firm’s existing lines to much the same type of customers, or it resulted from a quest for new markets and sources of supplies in distant lands, or finally it came from the opening fo new markets by developing a wide range of new products for different types of customers.” P42
• “…structure does follow strategy, and the different types of expansion brought different administrative needs requiring different administrative organizations.” P49

II – DuPont
• The Finance Committee was taken in charge by the top management, Pierre and Coleman DuPont.
• “From this time on [1914], the criterion for promotion was competence rather than family background.” p64
• “This strategy of product diversification was a direct response to the threat of having unused resources” p90
• “The structure accepted in Sept, 1921, has serve the du Pont Company effectively ever since. Losses were soon converted into profits… “p112
• “The strategy of diversification quickly demanded a refashioning of the company’s administrative structure if its resources, old and new, were to be used efficiently and therefore profitably” p113
• “And in transforming the highly centralized, functionally departmentalized structure into a “decentralized”, multidivisional one, the major achievement had been the creation of the new divisions.” P113

VI – Organizational innovation – A comparative analysis
• Importance of the financial department. DuPont introduced a 3rd role of this department. “Planning, coordinating, and appraising the work of other departments and the enterprise as a whole”. P288’. “Thus these departments became increasingly part of the central and even of the general office organizations” p288
• “The central office activities that tied the work of the functional departments to the changing market usually came about only after a slowing of market demand”. P291
• More attention was paid in bringing together departments to improve products than to coordinate product flow. P292
• “(Managers) had to be encouraged to concentrate on entrepreneurial rather than operational activities” p294
• “the initial awareness of the structural inadequacies … came from executives close to top management , but who were not themselves in a a position to make organizational change” p303
• “it took sizable crisis to bring action “ p303
• “the men who make the critical decisions in any economy can be defined as those who have the actual or real, rather than merely the legal, power t o allocate the resources available to them and who, in fact, determine the basic goals and policies for their enterprises. Clearly the general executive is such a man”…”stockholders and legal owners long ago abdicated this function” p312
• “The general executive of the large corporation is then a crucial and identifiable a figure mid-twentieth century economy as Adam Smith’s capitalist was in the late eighteenth century, and Jean Baptiste Say’s entrepreneur in the early nineteenth” p314
• “Unless structure follows strategy, inefficiency results” p314
• “the empire builder rarely became an organization builder” p315

VII – The spread of the multidivisional structure
Technologic changes and market diversity are the main drivers for companies to adopt multidivisional structures. Metallurgic companies (Steel, Aluminium, Copper, Nickel) don’t accept the new structure. Others (processors of agricultural products, rubber, petroleum) accept partially the new structure and other industries (electrical and electronics, machinery and chemicals) accept widely the new structure.
• Those who accept widely the new structure: “The leading companies in all these industries have increasingly developed new product lines sold in markets quite different from their original one.”p362
• “the fewer the markets and the simpler the marketing process, the easier will be the administration and coordination of functional departments” p343
• Family-firms have tended to be slower in changing both structure and strategy than the others. p380

Conclusion
• “Structure has been the design for integrating the enterprise’s existing resources to current demand; strategy has been the plan for the allocation of resources of anticipated demand”. P383
• “Thus four phases or chapters can be discerned in the history of the large American industrial enterprise: the initial expansion and accumulation of resources; the rationalization of the use of resources; the expansion into new markets and lines to help assure the continuing full use of resources; and finally the development of a new structure to make possible continuing effective mobilization of resources to meet both changing short-term market demands and long-term markets trends.” P385.

Personal comments, interesting issues and findings:

• P29: When Chandler says “marketing”, he is referring to logistics and distribution of finish products. Chandler’s marketing together with “the procurement of raw materials” would now be called supply-chain management (SCM). Chandler calls marketing “advertising”. Also, in the chart 1 p10, there are not represented the departments of Quality (came later, in the 80’s with the Japanese methods), Human Resources, Logistics or Marketing (included in Sales?).
• I think that the person makes the position. Some persons do less that what their position implies and in opposition, some people go beyond the responsibilities of their position. But I agree with Chandler (p290), multidivisional structure is needed in order that the character and training of the mid-executives matter.
• Ch VII: On the spread of the multidivisional form, the author focuses on technological and market diversity as the mains drivers for its acceptance in specific groups of industries. I think that now, the use of technologies and knowledge-based economies tend to collaborative networks organisations but it is true that industrial companies still adopt the multidivisional structure.
• A new book “The New How: Building Business Solutions through Collaborative Strategy” by Nilofer Merchant (2010) says that the multidivisional structure creates an “Air Sandwich” between top management and workers. This is the consequence of top management setting strategies and workers implementing them. According to Merchant, collaborative networks can bring a solution to this “gap”.
• A conclusion of this book is that to change, you need a crisis. DuPont implemented the new structure not in the “happy” years of the WWI but after the war, when sales decreased.
• As seen in the book, top management is initially against change (ie Irénée DuPont)