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THE CHALLENGES OF STRATEGIC MANAGEMENT OF COMPANIES IN
THE XXI CENTURY
Fernando Alcoforado *
The current context of organizations stimulates some thoughts on the challenges of
Business Administration in the future. The challenges faced by companies in the future
can be summarized in three main points: 1) the chaos and complexity of the world
economy, 2) the competitiveness at the moment, and 3) competition for the future.
The challenge of chaos and complexity of the world economy
The major challenge faced by business leaders in the contemporary era is represented by
the need to plan the development of their productive systems in an environment of
highly complex and often of chaotic changes. The conventional management model
consider administering an activity of “feedback” negative, ie, establishing a strategy and
leads the company in the desired direction with the correction of deviations from the
plan outlined and the results achieved.
In an era where everything changes rapidly, it can be said that the principles governing
that model are outdated when applied to an external environment as the current
characterized by instability. Furthermore, the decisions taken by their leaders at a
particular time may not lead to the desired result because inevitably be affected by
mutations that occur inside and outside the organization over time.
To be effective, the planning process needs to take into account, necessarily, instability,
uncertainty, with its turmoil and its risks. In the contemporary economic environment, it
has become commonplace to speak in turmoil and instability in the markets as occurred
in 2008 with the crisis of the world capitalist system that affected all countries and
companies. One of the great difficulties of the planning process is to minimize the
uncertainties when we know that change is the only rule stable at the present time and
the past is increasingly less as a basis for projecting the future.
The classical views about the disorder were all derogatory, because science has always
been oriented towards the discovery of certainties. All knowledge is reduced to order
and all randomness would just appearance, the result of our ignorance, necessarily be
overcome at some future time. The development of chaos theory from the 1970s
contributed to the formulation of a very different model that prevailed until then that it
was basically deterministic and linear. In the model based on chaos theory, the world is
more complex and fundamentally non-deterministic and nonlinear. Chaos theory has
been imposed from the advances in the understanding of linear and nonlinear processes
and especially with the help of computers.
Common use of the term "chaos" is always associated with the disorder. Chaos, in
science, does not mean disorder, "it is order masked randomness", according to Lorenz.
The advent of chaos theory helps to legitimize the disorder and randomness in the
scientific field. Henceforth, you can continue conceptualizing some phenomena as
strictly deterministic, but it is recognized that such phenomena are the exception in the
field of natural events. It soon became clear to some thinkers in the social sciences that
chaos theory and complexity would throw much light on human organizations such as
companies, markets, economies and ecology. Things are more than the sum of its parts;
equilibrium is death; causes are effects and effects are causes; disorder and paradox are

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everywhere.
What contemporary science has demonstrated, through Chaos Theory and Complexity,
is that both the balance as the relations of cause and effect are the exception rather than
the rule. This understanding allows us to better understand the organizational dynamics
of strong turbulence in these contexts, as well as devise new possibilities for companies
to become able not only to "dialogue" with this turmoil, but take advantage of it in order
to evolve.
What Chaos Theory is doing, in essence, is to show that everything in the Universe is
composed of both order and disorder by, while the science accept that uncertainty has
no way be settled. The ultimate goal of knowledge should no longer be to unravel the
secrets of the world, but to propose to engage with this world and its uncertainties.
In the model based on chaos theory, organizations are to be seen as systems subject to
oscillations which could be damped, namely that the systems would be able to return to
equilibrium. The model is now considered a self-regulated system, where the gaps are
identified by signs of feedback and then offset corrected, mitigated or neutralized,
always through incremental changes. It reached such a model it is believed that
fluctuations which broaden with time lead to the collapse of the system, and only
systems capable of remaining stable in time survive.
Prigogine defends the thesis that small random perturbations can be quickly amplified,
leading the system to an even greater instability, up to a limit called "bifurcation point"
from which the structure is disrupted system (a “symmetry breaking"). After the
bifurcation point, the system behavior becomes erratic for some time, but tends to
stabilize at a new equilibrium - but qualitatively distinct from the original. The system
now features new modes of organization, structurally more complex. It evolved.
Most notable in this process is, according to Prigogine, the fact that it is impossible to
predict the evolutionary path the system will take from the bifurcation point. During the
phase of instability, the system "experiences" numerous variants of "possible futures"
before "deciding" for its new stable level of complexity. The whole process is, in short,
a process of self-organization, which protects the system from entering the path of
entropy, ie, the inexorable decline [PRIGOGINE, Ilya, Stengers, Isabelle. O Fim das
Certezas - Tempo, Caos e as Leis da Natureza (The End of Certainty - Time, Chaos and
the Laws of Nature). São Paulo: UNESP, 1996 and PRIGOGINE, Ilya, Stengers,
Isabelle. Entre o Tempo e a Eternidade (Between Time and Eternity). São Paulo:
Companhia das Letras, 1992].
To cope with the uncertainties of the future, companies must use the Scenarios
technique adopting the premise that the future is multiple, many futures are possible and
the path that leads to many futures is not necessarily unique [Godet, Michel. Manual de
Prospectiva Estratégica (Handbook of Strategic Foresight). Lisboa: Don Quixote,
1993). The essential purpose of scenarios is to provide executives with a meaningful
picture of likely future in different time horizons. From the scenarios, executives can
design the inter-relationship of your organization and the environment in a few years.
They can also design ways to change this relationship, to ensure a more favorable
positioning of the company in the future.

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It should be noted that Scenario is a description of a future and its corresponding path.
The scenario is a group formed by the description of a future situation and the way the
events which convey the situation led to the future situation. The scenarios are designed
to prepare the organization for the increasing uncertainty of the future, to support
decision making for the formulation of major institutional goals and strategies, identify
opportunities and risks arising from changes in the external environment and establish a
benchmark for the development of the organization's strategic plan.
It is important to make a clear distinction between scenarios and forecasting. Often
predictions are merely extrapolations of trends. Scenarios in turn, are complex systems
that seek to reveal early signs of changes in the future. But what constitutes a "good"
scenario?
1. Good scenarios affect the trial of executives on how the future should be. Often
scenarios are designed to be self-fulfilling prophecies (positive or negative).
Therefore, the art of preparing and interpreting a scenario is only the first step to
change the future.
2. Good scenarios recognize that although past and present are important in setting
directions for the future, the executives goal is to transform trends, which requires
visions of a radically different future. In other words, they take into account the
dynamics of the future and the power of human agency to shape it.
3. Good scenarios allow the translation of statements about the future insights on
risks/ probabilities for the decision maker. Scenarios quality guide executives on
mental "calculations" about what can happen and the inter-relationships between
the facts and their decisions.
4. Good scenarios test all elements of a larger system and its interactions with the
environment. Therefore, they take into account, in a comprehensive and balanced
economic, technological, social, political, psychological, cultural, spiritual, etc.
5. Scenarios provide good descriptions of the future so vivid that executives can put
yourself in the situation to understand this future in a way that would not be
possible only through numbers and graphs.
6. Good scenarios give "clues" that can be found years before the occurrence of the
events that they signal. This is a fundamental difference between scenarios quality
and futuristic mere speculation without foundation.
7. Good scenarios are the result of reflections of people with diverse intellectual
references, cultural and social. The diversity of views ensures the wealth of future
idealized and gives rise to the executives to choose the future they want to build.
The challenge of competitiveness in the current moment
The challenge of competitiveness at the national and world requires companies to
establish themselves as network. Recent studies suggest that one of the most effective
forms of corporate action occurs through cooperation networks, because the isolated
strategies hardly lead to the delivery of information and financial resources to enable the
exploration of new markets, especially in the case of small and medium enterprises.
These studies also show that the success of the organization in networks depends on
developing a relationship of trust between partners, a challenge that is presented to those
organizations not accustomed to this type of procedure.
The convergence between organizational requirements and technological change
established network integration as the dominant form of competition in the most
advanced sectors of the economy, with a tendency to extend to all types of

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organizations. Japan was the country that inaugurated after World War II so successful
this model of network integration. In this new context entry barriers rose and widened
the exclusion process. Cooperation and network systems offer the possibility to share
costs and risks, as well as keeping up to date with information constantly renewed. But
networks also act as "gatekeepers". Within them, new opportunities are created
permanently. Outside the networks, survival becomes increasingly difficult for
companies.
The advent of new information technologies has enabled the emergence of a new
organizational form characteristic of informational and global economy, "the company
network." The performance of a given network depends on two of its fundamental
attributes: the "connectivity", which is structural ability to facilitate noise-free
communication between its components, and the "coherence" to the extent that there are
shared interests between the network's goals and its components. Organizations capable
of generating knowledge and process information efficiently; adapt to the variable
geometry of the global economy, be flexible enough to rapidly transform their ways
under the impact of rapidly changing cultural, technological and institutional, and
innovate, as innovation becomes the main competitive weapon, able to sustain this
“hurricane” that involve organizations.
The argument that a large company is the best way to reduce uncertainty and minimize
transaction costs, transactions on the company absorbing, simply does not apply when
confronted with empirical information from the spectacular process of capitalist
development based on networks outside the company. Also attributed the development
of large company with several units in the contemporary era, the growing size of the
market and the availability of communications technology that allow control of this
large market by big business, thus obtaining economies of scale and scope and
absorbing in the company. However, empirical analyzes on the structure and practice of
global corporations seem to show that these two views are outdated and should be
replaced by the emergence of national and international networks companies and
corporate subunits, as the basic organizational form of informational economy / global.
The organizational effects are exactly the opposite of those expected by traditional
economic theory. Although the size of the market should induce the formation of
vertical business with multiple units, the globalization of competition dissolves the big
company in a multidirectional web of networks that become the true operating unit.
This means that the increase in transaction costs due to the increase of technological
complexity does not result in the internalization of transactions in the company, but in
outsourcing transactions and "shared costs" across the network, increasing the
uncertainties, but also allowing its diffusion.
Most economic activities are organized into five types of networks:
• Networks of suppliers: include subcontracting agreements between a client (the
company focus) and their intermediate input suppliers;
• Networks of producers: coproduction agreements that enable competing producers
join their production capacities and financial / human in order to broaden their product
portfolios and geographic coverage;

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• Networks of customers: the threads that are ahead, between industry and distribution
networks and marketing channels;
• Coalitions standard: potential coordinated by defining global standards with the
explicit goal of arresting as many companies as possible to its default interface; and,
• Networking technology cooperation: to facilitate the acquisition of technology
projects, enable the joint development and production processes and allow shared access
to scientific knowledge and generic R & D.
Multinational companies are the holders of power derived from wealth and technology
in the global economy, since most networks are structured around them. But at the same
time, are internally differentiated in decentralized networks and externally dependent on
their participation in a complex and changing structure of interconnected networks.
Furthermore, each component of these internal and external networks is embedded in
cultural environments/ specific institutional (nations, regions, local) that affect the
network in various levels. In general, networks are asymmetric, but each of its elements
cannot survive alone or enforce its rules.
However, cultures and institutions continue to shape the organizational requirements of
the economy, in an interaction between the productive logic, the technological base for
processing and the characteristics of the social environment. The architecture and
composition of business networks in education around the world are influenced by the
characteristics of the societies in which these networks are embedded. For example, the
content and strategies of electronics companies in Europe are heavily dependent on
European Union policies concerning the reduction of dependence on technology from
Japan and the United States, but the Siemens alliance with IBM and Toshiba in
microelectronics is forced by imperatives technology.
The company network is increasingly international and its management will result in
administrative interaction between strategy and overall network nationally and
regionally rooted interests of its components. The various currents of contemporary
organizational studies have to account for the complexity of the internal and external
environments where organizations gravitate and seek synergies and interrelationships
between some approaches, especially between power and institutions, not disregarding
important aspects of other approaches, how new information technologies and
communication, efficiency and very competitive pressure in different organizational
environments.
There is a common cultural code in the various mechanisms of the network enterprise. It
consists of many cultures, values and projects that pass through the minds and inform
the strategies of the various participating networks, changing at the same rate that the
network members and following the organizational and cultural transformation of the
network units. It is indeed a culture, but a culture in the ephemeral, a culture of each
strategic decision, a patchwork of experiences and interests, instead of a bill of rights
and obligations. It is a multifaceted virtual culture, as in visual experiences created by
computers in cyber space to rearrange reality. The spirit from the information age is the
culture of creative destruction, accelerated by the speed of the optoelectronic circuits
that process its signals.

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The challenge of competing for the future
Hamel and Prahalad argued that instead of thinking in the enterprise as a set of business
units, managers should begin to see it as a set of core competencies, ie, skills and
technologies that allow a company to offer benefits to customers [Hamel, Gary and
Prahalad, CK Competindo Pelo Futuro (Competing For the Future). Rio: Editora
Campus, 2005]. Hamel and Prahalad notes that often what prevents companies envision
the future and find a new competitive space is not knowing the future, but the fact that
managers tend to see the future through the lens of the markets they serve currently.
Hamel and Prahalad suggest that, to see the future, managers must stop thinking of
existing products and services and start thinking about their underlying functionality.
Instead of asking: What is our product or service? Managers should ask: What are the
benefits of existing products or services offer customers?
Hamel and Prahalad coined a new term: strategic architecture. The strategic architecture
is basically a high-level plan of using new features, the acquisition of new skills or
migration of existing skills and reconfiguration interface with customers, they write. It
is equivalent to a plant architecture, detailed enough to show the basic structures, but
not to the point of showing the exact location of all “electrical outlets”. However, the
strategic architecture - or plan if you have to use the term - is sufficiently detailed to
provide guidance on what your company should be doing right now to prepare for the
future.
A strategic architecture shows her skills to the organization should start developing
right now. That new groups of customers should begin to understand right now, which
should explore new channels at this time, what new development priorities should look
at this point to intercept the future. The strategic architecture is a broad plan of approach
to the opportunity. The question addressed by a strategic architecture is not what to do
to maximize the company's revenue or enter an existing market product, but what the
company should do today in terms of acquiring skills in preparation to capture a
significant share of future revenues in an arena of emerging opportunities.
The organizational transformation must be driven by a view on the future of the
industry. As the company wants this type of activity is framed in the next five or ten
years? What it needs to do to evolve the way most beneficial to the company? Skills and
techniques that the company needs to start developing now, if it wants to occupy the
prominent point in the future? How should the company be organized to opportunities
that may not be fully within your current area of expertise? Since most companies do
not start with a shared vision of the future, the first mission of the directors is to develop
a process to gather the collective wisdom within the organization. Concern for the
future, a sense of where the opportunities are, and an understanding of organizational
change are not the domain of any particular group. People from all levels of the
company can help to define the future.
To create the future, it´s necessary a preview of the business world. Why talk in
preview, not in vision? Vision connotes a dream or an apparition. The preview in
business is based on profound insights on technology trends, demographic, political and
lifestyle, which can be channeled to rewrite the rules of business activity and create new
competitive space. Although understanding the potential implications of these trends
requires creativity and imagination, any "vision" that does not rely on a solid foundation
will probably be chimerical. Other challenges relate to the establishment of relations of

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trust between stakeholders (business owners, shareholders, employees, suppliers,
customers, unions and workers, communities and governments, among others), as well
as to meet the demands of ethical behavior and corporate responsibility.
The movement of expansion of international mergers and acquisitions has changed the
property settings worldwide. This issue is becoming increasingly important when
considering the movement for change in the ownership of enterprises and economic
opening worldwide. At the beginning of capitalism, this question had not relevant,
because who administered the company was the owner. With the expansion and
increasing the size of the companies, there was need to delegate decisions and
responsibilities to professional management. According to some authors, the need to
delegate decisions led to what in literature is called "agency problem", which refers to
the relationship of trust between investors and their representatives.
The theory is that certain human characteristics, such as a tendency to selfishness and
opportunism, motivate decisions that benefit managers but not shareholders, affecting
the trust relationships between these agents. This problem becomes more serious in
situations where the delegation of responsibility is a priority because of the wide spread
of shareholders. In England and the United States there is a tendency to put enormous
power in the hands of the chief executive.
The recent scandals involving companies such as Enron and WorldCom in the United
States have brought to light several important issues relating to government and
corporate management. One of them refers to passivity, lack of information and the
professionalisation of boards. Another refers to opportunistic behavior, inefficient and
corrupt chief executives of certain companies, leading to huge losses for minority
shareholders. A third refers to the poor relation of the shareholders and management
with other stakeholders such as employees and customers.
The need to control corruption and to impose limits on senior executive pay has given
rise to one of the main contradictions of contemporary capitalism. As the agency
problem adds shareholder interests around the creation of value, it reinforces the
consensus that the issue of decency and ethics can only be solved by some key measures
such as better monitoring of the CEO and the use of accounting and operating
procedures that ensure value creation.
However, it is recognized that the adoption of ethical criteria can be much more easily
obtained through the cooperation and participation of other stakeholders in business
decisions. Thus, paradoxically, the emphasis on value creation - which gives the power
of surveillance management predominantly to investors and owners - can fail in their
intentions, because neglecting the contribution of stakeholders. Furthermore, the
excessive orientation towards management value generation has often led companies to
adopt measures that hurt the determinations of implicit agreements with employees.
As the company has to generate value for shareholders and at the same time, pay high
salaries to executives, it is up to other stakeholders pay these costs. You can start by
customers. The maxim that "the customer is king" has served to justify practices that
actually serve to create barriers between them and the company. Outsourcing through
call centers is one of them. Can hardly be contacting the operational area of the
company through them. In most cases, employees are not able to solve the customer's
problems because they do not know the company and the context in which the problem
appears. More recently, call centers have been constituted in units of profit for

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companies through contracts with telephone companies. Often, customers are paying
the cost of the call centers, because the longer remain in the queue, the more the
company earns the cost of the call.
Another practice that has been abused is downsizing, in which case those costs are paid
by employees. The thirst for power and executive compensation have reinforced this
practice, and to this day do not know enough of how downsizing and its twin sister,
outsourcing, contribute to the improvement of organizational performance. In general,
the movement of downsizing following a change in ownership of enterprises, because
then it becomes easier to ignore the rules of implicit agreements with employees. Recent
studies have shown that downsizing is the main way to add value for shareholders and
expropriate employees. Those who stay have to take over the tasks of those who leave,
as well as new ones. Those who lose their jobs can rarely equivalent positions in other
companies.
Thus, the most pressing challenge facing the company is the twenty-first century
corporate responsibility, because it is there that changes the orientation of short term for
a long-term perspective. Gradually comes to forming a consensus that the survival of
the company in the long run depends on building a more balanced relationship with its
various stakeholders. Perhaps the most effective of this involvement in decisions that
affect them will be the effective way to control the excesses of the emphasis on value
creation, which certainly can contribute to building an environment of greater trust in
organizations.
* Alcoforado, Fernando, engineer and doctor of Territorial Planning and Regional Development from the
University of Barcelona, a university professor and consultant in strategic planning, business planning,
regional planning and planning of energy systems, is the author of Globalização (Editora Nobel, São
Paulo, 1997), De Collor a FHC- O Brasil e a Nova (Des)ordem Mundial (Editora Nobel, São Paulo,
1998), Um Projeto para o Brasil (Editora Nobel, São Paulo, 2000), Os condicionantes do
desenvolvimento do Estado da Bahia (Tese de doutorado. Universidade de Barcelona,
http://www.tesisenred.net/handle/10803/1944, 2003), Globalização e Desenvolvimento (Editora Nobel,
São Paulo, 2006), Bahia- Desenvolvimento do Século XVI ao Século XX e Objetivos Estratégicos na Era
Contemporânea (EGBA, Salvador, 2008), The Necessary Conditions of the Economic and Social
Development-The Case of the State of Bahia (VDM Verlag Dr. Muller Aktiengesellschaft & Co. KG,
Saarbrücken, Germany, 2010), Aquecimento Global e Catástrofe Planetária (P&A Gráfica e Editora,
Salvador, 2010), Amazônia Sustentável- Para o progresso do Brasil e combate ao aquecimento global
(Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, São Paulo, 2011) and Os Fatores Condicionantes do
Desenvolvimento Econômico e Social (Editora CRV, Curitiba, 2012), among others.