Strategic Management




On being asked to define strategic management, the temptation is to respond by asking what is not strategic in management. In other words, as soon as the idea of management is addressed, it is necessary to see it as strategic, although clearly much of management is about managing organizational routines. Such a response begs the question of what is meant not only by strategy, but also by management. Some writers on strategy and management have seen the two as coincident, but others perceive the focus on strategy to be contemporary and linked to the emergence and development of large, often multisite and sometimes multinational corporations. Both terms are in need of definition, even though we know that their meanings are tied to the context of their use. Nowhere is this made more obvious than when consulting the Shorter Oxford English Dictionary, where both terms are treated in terms of usage and would seem to share a similar genesis in activities concerned with battle or the military.




Management has its derivation in managing as controlling the affairs of the household or training horses (to be put through the exercises of the manège). Alternatively, it refers to the handling of weapons or instruments to serve one’s purposes. It is then about directing both animate and inanimate resources toward a particular objective. But the art of managing can also be seen as the use of contrivances for effecting some purpose, often by way of deceit or trickery. On the other hand, it can refer to indulgence or consideration shown toward a person. As with the term strategy, there is a strong association between management and military activities since it is clear that ”handling weapons” and the use of horses cannot be separated from the conduct of battle in medieval warfare. The relationship continues even today, with the police use of horses in managing crowds during mass demonstrations. These activities might be seen as the ”hard” practices of management, but the term has links with a ”softer” meaning in which it refers to ”animal and household husbandry,” where it relates to caring for and maintaining what is under its tutelage.

Strategy has its origin in military history and may be defined as the art of projecting and directing the larger military movements and operations of a campaign. Chandler (1962) defined it largely in terms of long term goals and the means (i.e., courses of action and allocation of resources) for attaining them. In organizations, however, strategy operates at various levels.

  • Corporate strategy refers to how the corporation defines itself, what business it is in, and its future direction and scope.
  • Business strategy is concerned with the application of the corporate strategy to a subsidiary, division, or business unit of the corporation.
  • Strategic management focuses on managers in general acting strategically in order to make the best use of the corporation’s competitive advantages, core competences, and market positioning and to advance the corporate mission, while having due regard for external constraints and opportunities.

While these different levels of strategy need to be distinguished, often the term strategic management is used less technically to refer generically to all three levels.

Intellectual and Social Context

Insofar as the term management was used within the field of productive work, it tended to be associated with engineering and the military; thus, social class was extremely important in the context of recruitment into, and the pay differentials of, managerial positions during the period of the Industrial Revolution. The transparency of this privilege declined after 1790, when payment became attached to the job rather than to the person and seemed to coincide with an erosion of the differential between proprietors and salaried managers, though the latter were more often than not the relatives of the former (Pollard 1965: 139, 145). At this time, however, management was seen as restricted to achieving the goals of the organization as laid down by entrepreneurs, who determined the nature and scope of the business, its goals, finance, and markets (Pollard 1965: 3). In effect, proprietors were rightly seen as entrepreneurs and were responsible for strategic thinking (a term not used at the time), whereas managers were simply functionaries translating their ideas into practice.

Once the joint stock company legislation was passed in 1854, those owning capital could invest their funds without being liable for anything other than the amount invested should the company fail. They therefore took the opportunity to spread risk through owning a portfolio of shares in several companies, thus becoming absentee landlords. Managerial agents were employed to run the business, but they also assumed responsibility for designing strategies against which the owners could evaluate their performance at annual general meetings.

After this institutional separation of owner ship from control, the distinction between entrepreneurs and managers began to erode as the latter assumed executive responsibility for both activities, although they were accountable to a board of directors who represented the interests of shareholders. Insofar as managers were clearly beginning to be recognized as of equal, if not greater, importance than the absentee owners, this could be seen as a point of discontinuity between the pre-managerial and the managerial world. This, it could be claimed, provided the conditions that made it possible for strategic management to be practiced and eventually for it to become a topic of academic and popular management discourse.

Although some notion of strategy has been a central feature of armies for centuries, Hoskin and Macve (1986) argued that strategic management only became meaningful when writing, recording, and calculation became common practice within organizations. Strategy and management were identified as virtually synonymous since they were mutually interdependent.

Hoskin (1990) sought to pursue this theme with greater precision, suggesting that modern management had its genesis in mid nineteenth century America with the development of the Pennsylvania railroad. By ”importing the practices of writing, examination, and grading,” Hoskin (1990: 23) argues, Herman Haupt of the Pennsylvania railroad changed the ”rules of business discourse” in the direction of being ”proactive and future oriented,” or what we would now define as strategic. It is this orientation to strategic corporate decision making that Hoskin identifies as synonymous with a concept of modern management. This is seen as coterminous with the development and transformation of the internal discourses and practices of organizations into a written recorded and calculable form.

Modern management, from this point of view, is grounded in the knowledge and power that make it possible to control labor and the organization of production in pursuit of a set of strategic ends such as profit or corporate expansion. It is accomplished through practices that turn everything and everyone into an ”object” to be managed (Miller 1987). Case files on employees and customers are written, recorded, and stored, and their behavior is continuously examined so as to render it calculable in terms of both the present and future prospects of the corporation. Examining, quantifying, and grading people and events brings them readily within the disciplinary gaze and the techniques of surveillance of strategic managers who exercise power and constitute knowledge within organizations.

While so far this analysis has been entirely academic in focus, as with many of the concepts in management, the strategy literature is heavily dominated by managerial approaches that see the academic’s role as helping managers to do their jobs more effectively and efficiently in terms of meeting goals presumed to be those of, or defined by, that self same management. This takes us to an examination of the main approaches and dimensions of strategic management.

Major Approaches and Dimensions

The idea of strategy in management did not become standard in academic discourse until the 1960s, when the Master of Business Administration (MBA) was widely introduced. However, an equivalent notion of planning can be traced as far back as 1916 to the writings of Fayol (1949 [1916]: 43), who, in arguing that ”managing means looking ahead,” presumably was reporting on his experience of planning as a practitioner. While business schools were established in the US around the turn of the twentieth century (Wharton, 1881; Harvard, 1908; Stanford, 1925), largely in response to industrialization and the need for ”trained managers” (Robinson 1995), it was not until around the middle of the twentieth century that they began to expand dramatically and to begin their development in the rest of the world.

It is possible to identify numerous approaches to strategy (Mintzberg 1994), but these can be contained within two broad perspectives – the rational and the processual. Similarly, there are several levels or dimensions in addition to those of corporate, business, and generic management strategy, but again these can be restricted to issues relating to creation, formation, development, and implementation. It should be noted, however, that these various approaches, levels, and dimensions may differ depending on the area of the business – accounting and finance, customer service, human resource management, information and computer technology, marketing, operations, and so on.

Rational Approach

The rational approach continues to dominate mainstream thinking about strategy, particularly within economics, but also, with some modifications, in organization analysis. One of the most popular rational approaches is Porter’s (1980) competitive forces model. Although broadly based on the economic theory of competition, the model also draws on the marketing theory of product differentiation and the organization theory of corporate power.

If the magnitude of the five competitive forces is zero, the strategic competitive advantage of the company is infinite for it is, in effect, in a monopoly position, although this is rare. The normal situation is for the five forces of competition to be of variable degrees of magnitude, and all will affect the strategic competitive advantage of the company, the price it can charge for its products or services, and hence its profitability. Product differentiation, especially when supported by expensive advertising, helps to reduce, if not eradicate, product substitution and the threat of new entrants, as do highly capital intensive operations. However, high levels of profitability will attract new entrants regardless of capital costs and product differentiation, and high prices will encourage both suppliers and buyers to look for substitutions. Powerful suppliers push up costs, as does the effect of competitors, and powerful buyers will force down prices.

Within organizations studies, the rational approach is most vividly represented by the Design School, which sees strategy largely as being designed and developed by senior executives and then distributed through the hierarchy in a top down, cascade like fashion. Strategic management is informed by a SWOT analysis, which involves developing the strengths and minimizing the weaknesses of the organization as well as exploiting environmental opportunities and neutralizing any threats. Implementation of the strategy is expected to proceed bureaucratically without divergence or disruption.

Process Approach

The process approach considered the Design School to have a naive view of organizations, since it presumed rather than demonstrated coherence and consensus. From an examination of the processes whereby decisions are made and implemented, it is clear that there is as much conflict as consensus, as much contest as compliance, and as much competition as cooperation within organizations. Implementation cannot therefore be presumed to be a smooth and uncontested process; it therefore makes sense to adopt a more flexible approach toward strategic management (Mintzberg 1994). In order to secure the commitment of those who have to implement strategies, managers need to “find” strategies lower down the organization rather than simply trying to impose formal plans from above. This approach seeks to remedy the failings of formal strategic planning, which include its inflexibility, its preoccupation with management control, and the problems that these generate for creative and innovative work. If strategies emerge from below, they will not suffer the same problems of implementation since staff will identify with them. Incremental and emergent conceptions of strategy, where design and implementation go hand in hand on a trial and error basis, are more appropriate in con temporary turbulent environments (Mintzberg 1994).

A process approach draws on contingency theories of organization, which reject universal approaches to management in favor of flexibility and responsiveness to the environment, often presumed to be unstable. Scenario planning, in which every aspect of the environment is investigated in order to produce medium and long term forecasts of its development, is a necessary prerequisite for this kind of strategic management.

Current Emphases in Research and Theory

Strategic management has tended to assume a different form and content, not only historically, but also in relation to where it is located within the organization. Generally, corporate strategy is a boardroom discourse and practice, although it will usually also be a responsibility of senior managers who advise the board. Business strategy, by contrast, is invariably a cascaded translation of this corporate strategy to the various divisions, departments, or business units of the organization. However, much depends on how power is distributed in the organization since some corporations operate a strict command and control system, whereas others may simply distribute budgets and leave their divisions, units, or profit centers to manage themselves. A divisionalized structure usually means that strategy is distributed to the divisions or profit centers, but those corporations that retain strategic thinking at the center have clearly not been influenced by the idea of “emergent” strategy.

Corporate strategy may be understood as having passed through at least five phases from the 1950s until the present (Grant 1998). Financial control dominated in the early period, giving way to a concern for planning, then strategic diversification, competitive advantage, and, most recently, a preoccupation with innovation and guru prescriptions. Insofar as these approaches to corporate strategy have been simply recording the fads and fashions of business practice, they remain descriptive in content but often seek to influence practitioners and thereby follow a prescriptive line that suggests a particular approach is more effective than previous ones. Sometimes those academics (e.g., Gary Hamel, Rosabeth Moss Kanter, Tom Peters, Michael Porter) prescribing the ”strategic one best way” entered the bestseller lists through entertaining vast armies of business managers with time to kill in airport lounges and on long haul flights.

Strategy, then, like other aspects of management, is subject to the fads and fashions of managerial thinking. Knights and Mueller (2004) suggested an alternative classification to the rationalist (realist) and processual (social constructionist) approaches, for these are respectively objectivist and subjectivist. A non-dualist approach perceives strategy neither as a ”thing” nor merely as a ”process” to capture but as an ongoing project that reflects and reproduces particular forms of subjectivity. Although closer to the social constructionist than to the objectivist approach, it combines both to theorize a range of rationalities, processes, and politics, but then seeks to delve beneath the surface of discursive practices to explore their dynamic. Whereas the process theory recognizes organizational politics only to seek its eradication on the basis that it is often disruptive to the achievement of strategic objectives, the project theory sees politics as an inescapable but necessary part of securing managerial and staff commitment to the strategy. Strategy can only be fully accomplished when it coincides with the subjectivity of members of the organization. While strategy clearly is about penetrating existing and new markets, gaining competitive advantage, restructuring, or mergers and acquisitions, an unintended effect is how it trans forms individuals into subjects that secure their sense of identity, meaning, and purpose by participating in the activities it invokes (Knights & Morgan 1991). In short, a side effect of strategy is a stimulation of subjective self discipline that secures the management control of employees, enrolls the support of fund managers and shareholders, and facilitates the mobilization and incorporation of consumers as loyal customers.

Methodological Issues and Future Directions

The major methodological problem in studying strategy is access, because ordinarily corporations are secretive about their strategy on the basis that it contains competitively sensitive data and material. Few academics have managed to secure access to the boardroom to observe rather than speculate on how strategy is formulated. Consequently, most studies of strategy rely on archival or secondary data that are in the public domain. Rarely does research take place in the boardroom where strategy is enacted (see, however, Knights & Willmott 1992; Samra Fredericks 2000). Only direct observation of boardroom interactions can avoid the selection of material for purposes of impression management, since the ongoing context of seeking to develop or implement a strategy in a boardroom meeting must prevail over any attempt to impress the observer.

The above two studies used the most sensitive of methods – recorded observations – to study boardroom behavior and the data are therefore available for further analysis. They sought to show how strategy was accomplished through, rather than independently of, the boardroom social encounters and that it was both a medium and an outcome of the exercise of power and the concern to secure identity among board members. Samra Fredericks (2000) not only tape recorded board meetings but also video recorded them, thus providing verbal transcripts as well as the various bodily movements and expressions that often reveal more than the words themselves. Both studies used a range of methods, including non participant observations, work shadowing, interviewing, and documentary investigation.

A fairly limited literature has begun to develop that may be seen as providing some of the missing links on what makes strategy work operationally. Developing a strategy, whether from above or below, does not amount to operationalizing that strategy or translating it into practice. This requires organizational members to be fully conversant with the strategy as well as committed to it. Recent research has used methods that secure access to boardroom meetings where strategy is usually formulated and/or distributed to other members of the organization. Drawing on analytical approaches about subjectivity and self discipline, this research suggests that strategy is less important for its actual content than for the effect it has on subjects, who may begin to secure a sense of themselves – their meaning, purpose, and identity – through engaging in the discourses and practices that the strategy invokes.

References:

  1. Ansoff, H. (1965) Corporate Strategy. McGraw-Hill, New York.
  2. Chandler, A. (1962) Strategy and Structure. MIT Press, Cambridge, MA.
  3. Fayol, H. (1949 [1916]) General and Industrial Management. Pitman, London.
  4. Grant, R. M. (1998) Contemporary Strategy Analysis. Blackwell, Oxford.
  5. Hoskin, K. W. (1990) Using History to Understand Theory: A Reconsideration of the Historical Gen­esis of “Strategy.” Paper delivered at the EIASM Workshop on Strategy, Accounting, and Control, Venice, October.
  6. Hoskin, K. W. & Macve, R. H. (1986) Accounting and the Examination: A Genealogy of Disciplinary Power. Accounting, Organizations, and Society: 105-36.
  7. Knights, D. & Morgan, G. (1991) Corporate Strat­egy, Organizations, and Subjectivity: A Critique. Organization Studies 12(2): 251-73.
  8. Knights, D. & Mueller, F. (2004) Strategy as a “Project”: Overcoming Dualisms in the Strategy Debate. European Management Review 1(1): 1-7.
  9. Knights, D. & Willmott, H. (1992) Conceptualizing Leadership Processes: A Study of Senior Man­agers in a Financial Services Company. Journal of Management Studies 29(6): 761-82.
  10. Miller, P. (1987) Domination and Power. Routledge & Kegan Paul, London.
  11. Mintzberg, H. (1994) The Rise and Fall of Strategic Planning. Prentice-Hall Europe, Hemel Hempstead.
  12. Pollard, S. (1965) The Genesis of Modern Management: A Study of the Industrial Revolution in Great Britain. Edward Arnold, London.
  13. Porter, M. (1990) Competitive Strategy. Free Press, New York.
  14. Robinson, P. (1995) Snapshots from Hell. Warner Books, New York.
  15. Samra-Fredericks, D. (2000) Doing ”Boards-in ­Action” Research: An Ethnographic Approach for the Capture and Analysis of Directors’ and Senior Managers’ Interactive Routines. Corporate Governance 8(3): 244-56.

Back to Sociology of Organizations