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Current trends in strategic management
The document discusses current trends in strategic management, including new directions in strategic thinking, redesigning organizations, and new modes of leadership. It outlines some key trends of the 1990s like the quest for shareholder value and adjusting to increased competition. It also discusses emerging developments like knowledge management, rethinking organizational structures, and the leadership competencies needed for the future like creativity, flexibility, and relationship building.
Current trends in strategic management
- 1. Current Trends inStrategic ManagementCurrent Trends in Strategic Management • The New Economy • New Directions in Strategic Thinking • Redesigning the Organization • New Modes of Leadership OUTLIN E
- 2. The Turbulent 21st CenturyTheTurbulent 21st Century Collapse of New Economy •Dot.com bubble bursts •TMT recession Collapse of New Economy •Dot.com bubble bursts •TMT recession Corporate Scandals • Enron, WorldCom, Parmalat • Jack Welch’s retirement package Corporate Scandals • Enron, WorldCom, Parmalat • Jack Welch’s retirement package War • Invasion of Afghanistan & Iraq •Civil wars in Congo, Liberia, Sudan, Somalia War • Invasion of Afghanistan & Iraq •Civil wars in Congo, Liberia, Sudan, Somalia Age of Disbelief Age of Disbelief The Curse of Terrorism • Sept. 11, 2001 •Suicide bombings in Israel, Iraq, Saudi Arabia, Turkey, Afghanistan The Curse of Terrorism • Sept. 11, 2001 •Suicide bombings in Israel, Iraq, Saudi Arabia, Turkey, Afghanistan Fear of Disease •SARS, Mad Cow, Bird Flu Fear of Disease •SARS, Mad Cow, Bird Flu Unstable Currencies US$ declines by >50% against Euro 2002-04 Unstable Currencies US$ declines by >50% against Euro 2002-04 Decline of Multilateralism •Collapse of Doha round • Trade wars between US, EU, China •Weakening of UN International competition intensifies • China as Workshop of the World • Outsourcing to LDCs
- 3. Key Trends ofthe 1990s: •Quest for shareholder value •Adjusting to increased turbulence & more intense competition 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 Major Themes of Business Strategy: •Cost cutting—squeezing overhead, business process re- engineering, increasing labor productivity •Outsourcing/refocusing/ divestment •Performance management and incentive alignment Directions in Strategic Management Practice—Trends of the 1990s Directions in Strategic Management Practice—Trends of the 1990s
- 4. Future Sources ofProfit Limits of downsizing/cost cutting Where are future sources of profit? Technology Continued advances in ICT Forces Shaping Company Strategies 2001-04 Concepts & Theories •Resources & capabilities as basis for competitive advantage •Knowledge-based theory of the firm •Option theory •Complexity theory The Business Environment •Uncertainty •Stalling of economic liberalization •Intense competition Demands of society •Social & environmental responsibility •Ethics & fairness •Quest for meaning
- 5. STRATEGY •Multiple competitive advantages/multiplecapabilities •Innovation / New Product Development / New Business Development •Alliances & networks MANAGEMENT SYSTEMS • Knowledge management (incl. best-practice transfer) • Redesigning incentive systems • Rethinking performance management • Capturing human creativity Emerging Developments ORGANIZATION STRUCTURE • Reconciling flexibility & integration • Modular structures • Multidimensional structures • Informal organization & self-organization
- 6. The Need toRedesign OrganizationsThe Need to Redesign Organizations THE PAST THE FUTURE Emphasis on control Emphasis on co-ordination Decisions located centrally Decisions located where relevant knowledge exists Simple structures, unified line of command Multidimensional structures Diffused authority, but clear responsibilities Single performance goal Multiple performance goals Organization by design Self organization
- 7. Emerging Organizational FormsEmergingOrganizational Forms Process-based Organizing around business processes organizations Organizing around corporate processes - entrepreneurial process - competence building process - renewal process From unitary to parallel Separate coordination structures for structures different processes. E.g. 3M’s product development structure; separate structures for TQM and change management 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 Organizing for capability Shifting emphasis of organization development design from control to coordination
- 8. THE REQUIRED COMPETENCIES OF BUSINESSLEADERS • 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 New Models of Leadership: What Competencies do Top Managers Need? New Models of Leadership: What Competencies do Top Managers Need?
- 9. The Current Best-Seller •Raynor, The Strategy Paradox • Corporate manages uncertainty (5+ year timeframe), divisions manage commitments/deliverables • 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.
- 10. What is complexitytheory? • Based on an agent…an 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.
- 11. 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’
- 12. Key Result Areas •Some key results in complexity theory have proved important for management – Emergence – Agent-Based Search – Patches
- 13. Emergence • Emergence – Simplerules 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 as simple rules” – How-to, boundary, priority, timing, exit rules
- 14. Agent-Based Search • Exploringa 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”
- 15. Patches • Stu Kauffmanfound 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
- 16. 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…
- 17. 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)
- 18. 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 Welch’s various initiatives? • To what extent should other large, diversified corporations imitate the management systems and leadership style developed by Welch at GE?
- 19. Case: AES • What’sunusual 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 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?
- 20. Conclusion • Strategy ofthe future: – Complexity theory – Dynamic capabilities – Blue ocean – Strategic options – Efficient design – people, decisions, rewards, structure, process