Current Trends in Strategic ManagementCurrent Trends in Strategic Management• The New Economy• New Directions in Strategic Thinking• Redesigning the Organization• New Modes of LeadershipOUTLINE
The Turbulent 21stCenturyThe Turbulent 21stCenturyCollapse of NewEconomy•Dot.com bubble bursts•TMT recessionCollapse of NewEconomy•Dot.com bubble bursts•TMT recessionCorporate Scandals• Enron, WorldCom, Parmalat• Jack Welch’s retirement packageCorporate Scandals• Enron, WorldCom, Parmalat• Jack Welch’s retirement packageWar• Invasion of Afghanistan& Iraq•Civil wars in Congo,Liberia, Sudan, SomaliaWar• Invasion of Afghanistan& Iraq•Civil wars in Congo,Liberia, Sudan, SomaliaAge ofDisbeliefAge ofDisbeliefThe Curse ofTerrorism• Sept. 11, 2001•Suicide bombings inIsrael, Iraq, SaudiArabia, Turkey,AfghanistanThe Curse ofTerrorism• Sept. 11, 2001•Suicide bombings inIsrael, Iraq, SaudiArabia, Turkey,Afghanistan Fear of Disease•SARS, Mad Cow, BirdFluFear of Disease•SARS, Mad Cow, BirdFluUnstableCurrenciesUS$ declines by >50% againstEuro 2002-04UnstableCurrenciesUS$ declines by >50% againstEuro 2002-04Decline ofMultilateralism•Collapse of Doha round• Trade wars between US, EU, China•Weakening of UNInternationalcompetition intensifies• China as Workshop of the World• Outsourcing to LDCs
Key Trends of the 1990s:•Quest for shareholder value•Adjusting to increasedturbulence & more intensecompetitionInfluential Strategy Concepts:•Modern financial analysis—shareholder value, economic profit,option theory•Core competences and intangibleassets•Dynamically competitive markets—“hypercompetition”•Competitive advantage throughalliances, networks, and standardsMajor Themes of BusinessStrategy:•Cost cutting—squeezingoverhead, business process re-engineering, increasing laborproductivity•Outsourcing/refocusing/divestment•Performance management andincentive alignmentDirections in Strategic ManagementPractice—Trends of the 1990sDirections in Strategic ManagementPractice—Trends of the 1990s
Future Sources of ProfitLimits of downsizing/cost cuttingWhere are future sources ofprofit?TechnologyContinued advances in ICTForces Shaping Company Strategies 2001-04Concepts & Theories•Resources & capabilities asbasis for competitive advantage•Knowledge-based theoryof the firm•Option theory•Complexity theoryThe BusinessEnvironment•Uncertainty•Stalling of economicliberalization•Intense competitionDemands of society•Social & environmental responsibility•Ethics & fairness•Quest for meaning
The Need to Redesign OrganizationsThe Need to Redesign OrganizationsTHE PAST THE FUTUREEmphasis on control Emphasis on co-ordinationDecisions locatedcentrallyDecisions located whererelevant knowledge existsSimple structures,unified line of commandMultidimensionalstructuresDiffused authority, butclear responsibilitiesSingle performancegoalMultiple performance goalsOrganization by design Self organization
Emerging Organizational FormsEmerging Organizational FormsProcess-based Organizing around business processesorganizations Organizing around corporate processes- entrepreneurial process- competence building process- renewal processFrom unitary to parallel Separate coordination structures forstructures different processes. E.g. 3M’s productdevelopment structure; separate structuresfor TQM and change managementProject-based organization E.g. engineering cos., consulting firms, alsomanufacturing cos. e.g. OticonNetwork and virtual E.g. electronics in Silicon Valley, clothingorganization and packaging equipment in ItalyOrganizing for capability Shifting emphasis of organizationdevelopment design from control to coordination
THE REQUIREDCOMPETENCIES OFBUSINESS LEADERS• business literacy• creativity• cross-culturaleffectiveness• empathy• flexibility• proactivity• problem-solving• relation-building• teamwork• visionTHE LEADERSHIPNEEDSOF ORGANIZATIONSThe ability to:• build confidence• build enthusiasm• cooperate• deliver results• form networks• influence others• use informationNew Models of Leadership:What Competencies do Top Managers Need?New Models of Leadership:What Competencies do Top Managers Need?
The Current Best-Seller• Raynor, The Strategy Paradox• Corporate manages uncertainty (5+ year timeframe),divisions manage commitments/deliverables• Corporate must create “strategic options” rather thangrowth 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 alternativestrategy that might or might not be implemented, not simply anoption on further investment in a new business that might or mightnot succeed.
What is complexity theory?• Based on an agent…an ant in a colony, an electronin an atom, a worker in a company...• A complex system is defined as any network ofinteracting agents (or processes or elements) thatexhibits a dynamic aggregate behavior as a resultof the individual activities of its agents.• An agent in such a system is adaptive if its actionscan be given a value (performance, utility, payoff,fitness etc.) and the agent behaves so as toincrease this value over time.
Complex Adaptive System• A complex adaptive system is one in which agentsadapt to higher levels of fitness over time• A fitness landscape is simply a visualrepresentation of the payoffs from taking differentstrategies• Fitness landscapes can be rugged (with manypeaks or troughs) or smooth• Co-evolution creates a ‘dancing fitness landscape’
Key Result Areas• Some key results in complexity theory haveproved important for management– Emergence– Agent-Based Search– Patches
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 Reynold’s Boids Program• Eisenhardt uses this principle in “Strategy assimple rules”– How-to, boundary, priority, timing, exit rules
Agent-Based Search• Exploring a rugged fitness landscape by trial anderror to try and find the highest peak can take along time• Using agents to explore the landscape and zero inon promising regions may be faster• Beinhocker uses this principle in “RobustAdaptive Strategies”– Keep moving– Deploy platoons of hikers– Mix short and long jumps– “Populations of strategies”
Patches• Stu Kauffman found that dividing an NK latticeinto several patches and minimizing the energy ineach patch without reference to the global energylevel gave better solutions than global search onvery rugged (i.e. complex) landscapes• Having sub-units optimize their part of theproblem may be better than trying to find anoptimal solution for the whole organization– Kauffman suggests that multi-divisional organizationsmight benefit from less rather than more centralizedcontrol
Complexity as Metaphor• Complexity theory has been extended frombiology and physics into other arenas• Undoubtedly, societies, economies, andorganizations are complex adaptivesystems, too.• If an organization is like an NK modelthen…
Interpretation• Adaptation (biology) rather than efficiency(machine) should be promoted• A variety of small experiments should beundertaken to explore the “fitnesslandscape”• Rely less on central controls• Recognize that change can yield big (orsmall) results and solutions can emergefrom the interaction of agents (workers)
Case: Jack Welch• What were the principal strategic and organizationalchanges introduced by Welch at GE?• Why has the strategy, structure, and systems created byWelch been successful in delivering shareholder value andinsulating GE from the fashion for breakup to which mostother conglomerates succumbed?• Can you detect a theory of management or set of generalprinciples that link together Welch’s various initiatives?• To what extent should other large, diversified corporationsimitate the management systems and leadership styledeveloped by Welch at GE?
Case: AES• What’s unusual about AES’s structure,management systems, and leadership style?• Has AES’s success been because of, or despite,these practices?• Given the current challenges that AES faces,should it adopt more conventional managementsystems and processes,or should it maintain thevalues, principles, and management methodsestablished by Sant and Bakke?• What can other firms learn from AES?
Conclusion• Strategy of the future:– Complexity theory– Dynamic capabilities– Blue ocean– Strategic options– Efficient design – people, decisions, rewards,structure, process