Reflecting on the contemporary strategy process

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Saint-Petersburg State University

School of Management

Reflecting on the contemporary strategy process

Zelenskaia V.S., student Graduate

Saint-Petersburg, Russia

Annotation

The article considers how strategy processes look like from a historical point of view and presents the ten strategical schools that have been identified through researching prior studies in strategic management. There is an absolute link between accounting and management strategy choice of a company because a company might base its' budgeting, and especially accounting activities, on prior information, whereas a company strategy is created by predicting future, and utilizing the historical information known to the company. In the following, it will be discussed how the strategy schools, mentioned in the article, have been utilized, how these schools have been evolving and is there some new future strategy schools emerging in the horizon.

Keywords: strategy, strategy schools, management, contemporary implementation

Ten schools of strategy formulation

The design school is the original strategy perspective. This perspective is trying to achieve a fit between the organization and its environment, which includes a fit between internal strengths, weaknesses, external threats and opportunities. The goal is to design different strategies and then choose the best one. This is common especially in the United States.

The second school is the planning school, which is a formal and systematic process broken down into different steps, including checklist. These steps are supported by different techniques such as budgets, programs and operating plans. The strategy process is driven by the top management who gathers and processes strategic information, which becomes implemented through a well-articulated package. This process is common in France and United States.

The third and last prescriptive school is the positioning school. It is an analytical process which view was dominant in the 1908s. The planners in the positioning school are analysts who analyses the industry and its position. The positioning school can be explained with the help of Michael Porter's competitive strategy (1980). In the long run, profitability comes from a competitive advantage, which includes three basic strategies to achieve them; low cost, differentiation and focus. The strategies describe how a company gets competitive advantage in its industry. The positioning school is popular in the United States.

The first descriptive school is the entrepreneurial school, which is a visionary process. Instead of designing, planning or positioning, we vision strategies and think of them in broad perspectives. Here we focus on particular contexts by the leader, such as niche, private ownership and start-up. The leader has a close control in implementing his vision. This process is common in Latin America and in China.

The cognitive school is a mental process where strategies such as frames, models and concepts are developed in people's minds. Cognitive biases in strategy making has been studied a lot since 1980s as well as seeing cognition as knowledge structure mapping, concept attainment, and information processing. What has been adopted recently to this view is the interpretive or constructivist view of the strategy process, where cognition is used more as a subjective and more creative way, instead of an objective way.

The learning school is an emergent process where strategy making is a learning process. There are two different strategies: intended strategy and emergent strategy. It is a learning oriented view of strategy which emerges from the grass root and which tacit knowledge. Here formulation and implementation intertwine and strategists can be found throughout the organization. It is especially common in Japan and Scandinavia.

The power school is a process of negotiation where strategy making is based on power. There are two kinds of power: micro and macro power. Micro power is seen as strategy development within the firm, whereas macro power is seen as a strategy development which views the organization as an entity that uses power over others. A strategic change can be explained as a change in relative power positions. It is especially common in France.

Cultural schools are a social process that is based on the culture. It focuses on common interests and integration. It is especially implemented in Scandinavia and Japan, where people like the social, spiritual and the collective.

The environmental school is a reactive process that concerns how organizations uses freedom to win the environment. This process is especially common in Scandinavia and Japan. Contingency theory and institutional theory can be used to explain this process. Contingency theory considers the environmental responses expected from organizations whereas institutional theory is concerned with the outside pressures organizations has to deal with.

Finally, the configuration school is a process of transformation that sees organizations as a process of configuration and transformation. The base discipline here is history, whereas the main message is to integrate and transform. Configuration integrates the claims of the other schools, such as planning and entrepreneurship in its own place. Configuration is most popular in the Netherlands. Transformation is described as a leap from one state to another, which is prescriptive and more practitioner oriented, and its most popular in the United States.

Different perspectives to approaching the schools

To better help understand the different schools let's consider different perspectives to examine the schools.

Prescriptive and descriptive. Prescriptive schools are concerned with how you should form strategies, and contain the design, planning, and positioning school. They take a “managing” approach to growth, emphasizing their own possibilities of enabling developments in strategy. Descriptive schools, on the other hand, discuss how strategies are actually formed. They compass the entrepreneurial, cultural, learning, cognitive, power and environmental. In contrast to the prescriptive schools, these schools take a more “natural” approach to growth, where the role of a manager is to guide and graft strategic initiatives. The descriptive schools are more intertwined with each other, as compared to the relatively clear-cut prescriptive ones.

One process or different processes. Whilst it is drawn a clear distinction between the different approaches to strategy, when it comes to strategy process they prefer to keep the question open. The suggestion is a framework that encompasses all the schools, not merging them into one process, but still all of them occurring under the umbrella of a single process. In several resources is explained that strategy formation necessarily is all of them, yet they can have very different weights in different companies, environments, and circumstances. For example, a company's strategy process can start of as entrepreneurial, tilting toward other schools as the strategy matures.

The evolutionary perspective. Many authors also discuss combining the short- and long-term views of strategic developments. Here, they propose an evolutionary perspective: strategy is an unpredictable, unfolding process, through which companies seek to be unique in beneficial ways. Their main argument is that rather than trying to depict strategy through a stable framework, strategists should seek to understand its evolution as a phenomenon that is constantly on the move. This has left the schools with complex intertwined relationships, where schools partly spring from other schools. There are four key drivers to this development: (i) collaborative contacts between organizations, (ii) competition and confrontation due to rivals, (iii) recasting old strategies, and (iv) creativity of managers exploring new ways of doing things. In this perspective, thus, one should be especially alert to the developments and successions of the different schools.

The fundamental nature of strategy

strategic accounting management company

Adhering to the safari vocabulary the authors lend the words of John Godfrey Saxe, describing strategy as an elephant i.e. something so large that no one person is able to grasp it entirely. They propose that managers assume narrow perspectives on it, and the article is written to allow the practitioners to widen their approaches. To them, managers need these lenses to be able to see strategy for what it is: a complex process that by nature is comprised of different types of activities, that ultimately, after all, are parts of a larger strategy formation process. All schools are needed for effective strategy work, to see the elephant fully.

There is an interesting debate related to the article. The authors criticize, fairly hard even, Porter's approach to strategy. Porter sees strategy as deliberate and deductive, not paying explicit weight to learning (in the author's' words, Porter “denies its very existence”). The two sides are in clear conflict: the authors propose strategy can be everything a company does, while Porter has written an article about what strategy is not.

In our view, there is merit to both sides. However, the arguments Porter puts forward make a more compelling case, with the authors providing valuable new lenses to a challenging topic. Interestingly enough, the school the authors argue encompassing the entire strategy formation process, the configuration school, is about creating coherent clusters of characteristics and behaviors, i.e. choosing the activities it does and does not do, how they are done, and ensuring they support each other. Sounds a lot like Porter.

Real life implications

Based on Mintzberg and Lampel article of 1999, there is ten pre-existing schools of strategic management, that, looking at prior prominent research in the area of strategic management. The problem with all the ten presented schools is to somehow anchor them into reality. Can these schools be context-dependent, based on the company in a specific situation or in a specific industry? In my opinion companies utilize a mixture of the pre-existing schools in their strategy processes, and we think that there is a possibility of new strategies emerging in the future. These future schools might be alterations of the already existing schools.

The American energy and transportation company, Tesla, has made it very clear that they are here to stay and change the entire notion of transportation by moving the cars to using energy-efficient and ecological solutions. Tesla's initial management strategy was to sell expensive cars with a premium price, thus appealing to the richer group of customers (Tesla, 2006). This was the thought of Elon Musk back in the 2006, whereas now in the upcoming years the company is planning on expanding into providing cars to even the middle-class consumer of the Model 3s - an affordable electric car that is attainable for a big part of the consumers in the US market (not only the high-income consumers, as planned in the beginning of their activities) (The Economist, 2016). Based on our knowledge of Tesla as a company and how their strategy processes have been portrayed in the media, one can at least draw the conclusion that Tesla can be identified as presenting most of the schools. Design school can be identified because Tesla has identified its' strength, as well as opportunities in the niche of eco-friendly premium automobiles and against other actors in the market. Tesla also definitely can be identified having the entrepreneurial school as part of their strategy process, because the company has been created from an idea of the “leader”, Elon Musk, and tries to have a visionary outlook on their products and transform the world of transportation.

Can we apply the ten theories to real life? Yes, we can, but we need to remember that they seldom occur in real life individually, instead- they can be identified as intertwined, combining at least two or even three schools in one company's strategy for processes. The descriptive and prescriptive schools presented in the article are somewhat too theoretical in the sense that they are too rigid to be applied to reality.

The ten schools in the management strategy do affect the management accounting and vice versa. Management accounting, i.e. budgeting and cost-accounting and investment strategies, can be deemed to take into account solely the historical financial information but we also need to understand, that it takes into account what the company is expecting to achieve economically in the future. Therefore, companies need to anchor their future expected and required economic achievements into their strategy processes. If a company is for instance in a fast-developing industry, such as technology industry, the company might have a process strategy that portrays partially the Learning school, and in that case the strategies for management accounting related matters might emerge from even lower levels of the company, not only the management. The management might for instance receive indications of improving or altering budgeting, in case some specific investments are shown unnecessary by employees in the lower tiers of the company. Same thing applies to investment strategies: the management might have one idea of the investment targets, whereas the employees of the financial department might have a better understanding of the necessary investments and forward them to the management. As mentioned, the ten schools are very rigid and can be deemed very clear. We think that the future upcoming changes in all the industries will affect the development of the ten schools. For instance, e-commerce companies might develop internally their own types of schools but they will probably be very similar to the already existing schools.

References

1. Tesla official website // Tesla (2006). The Secret Tesla Motors Master Plan (just between you and me)

2. The Economist // Tesla's mass-market ambitions, On a charge

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