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Strategic Management, Rational Planning

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Category: Business

Autor: anton 27 December 2010

Words: 2061 | Pages: 9

“Although the view of strategy as the product of a rational planning process driven by top management has some basis in reality, it is not the whole story” (Hill, Jones and Galvin, 2004, 6). The purpose of this essay is to verify the truth of the above statement with reference to the theories that argue for or against it by academics as well as the truth behind it in current real world corporate strategic management practices. The argument indicates that, although rational planning does indeed bear realistic importance, it is by far and away detrimental to companies who would solely focus on long-term planning by top management that would leave them inflexible to capitalize or survive on unknown factors. This will be done by first quickly looking at the rational planning process and the failures of poor planning in order to point out the irrationality of applying rational thought to certain aspects. This will then be followed by a look at the concept of emergent strategies and the scenarios under which it would benefit the planning process.

The Rational Planning Process

In Hill, Jones and Galvin (2004) it says that traditional definitions of strategy stress that an organisation’s strategy is the outcome of a rational planning process. It is essential that, before we begin, we should provide a short description of the existing basic rational model. It consists of the overall traditional conception that major decisions in regards to strategy are undertaken by top management with goals being formulated, analyses being undertaken, strategies being chosen for the different functional levels within the organization, and finally the methods by which these strategies would be implemented within the organization. In other words, this is generally done with the implicit belief that the top management of the company is able to appraise and analyse the internal and external environment around them, the company’s performance, and come up with a strategy with the greatest possible success in uncertain future circumstances that are then communicated downwards in the hierarchy. (Mintzberg, 1990) As Mintzberg aptly puts it this is a case of a rational approach to coming up with ‘intended strategies’ that will further down the line become ‘realized strategies’.

Formal strategic planning often have some highly noted problems that we will go into very briefly. These are worth mentioning as it is important to show that the rational planning process can be, at many times, irrational despite the best wishes of the strategists or from the fact that they may be unaware of the presence of such things. To this end Mintzberg (1994) has summarized these fallacies into three distinct groupings.

The Fallacy Of Prediction

“According to the premises of strategic planning, the world is supposed to hold still while a plan is being developed and then stay on the predicted course while that plan is being implemented.” (Mintzberg 1994, p.229)

Rational planning does not allow for effective planning of the future (aside from limited external analysis) aside from certain patterns (such as seasons).

The Fallacy Of Detachment

“Real strategists get their hands dirty digging for ideas and real strategies are built from the occasional nuggets that they uncover.” (Mintzberg, 1994, p.229)

This basically concerns the ‘ivory tower’ problem whereby managers who are removed from the perspectives of the workplace make decisions based on information passed up to them. What happens if the information is wrong or late in verifying? In addition to this, how are they formally program if the process is not fully understood by the managers? (Mintzberg, 1994)

The Fallacy Of Formalization

“Formal systems could certainly process more information, at least hard information. But they could never internalize it, comprehend it, synthesize it. In a literal sense, planning could not learn.” (Mintzberg, 1994, p.230)

He also argues that formalization should play no part in the development of strategy (which should be based upon as a learning process with active planning experiments gradually converging into strategies) but rather be used to formalize the consequences of said strategy.

Emergent Strategies

In Mitzberg’s (1991, p.465) article on his reply to Igor Ansoff he states that:

“Our problem, in practice and academia, has always been one of imbalance, the assumption that planning (or learning) could do it all. As I see things, long ago we may have been weak on rational analysis, but today we have an excess of it.”

In the article he goes on to say that, “…the real danger of the design school may be in providing a seductive model whose superficial ‘rationality’ in the classroom can so easily be proved in the executive suite.” (Mintzberg, 1991, p.465), underlining his stance that the classical model of rationality is too controlled and planned for the rigors of real-world situations. As such, he believed that “…strategies can form as well as be formulated. A realized strategy can emerge in response to an evolving situation, or it can be brought about deliberately, through a process of formulation followed by implementation.” (Mintzberg, 1987, p.68).

Quinn (1980) as cited in Price & Newson (2003, p.187) says that he “…argued that strategic management practice had little resemblance to the frequently documented rational, analytical approach but that the processes used were usually fragmented, evolutionary, and largely intuitive…” and went on to mention that use of such formal approaches would come at the expense of creativity on their part. He proposed that companies should therefore strive to move towards their goals in an incrementally more flexible and adventurous manner and that, “If managed properly, the process can be viewed as a proactive rather than reactive approach.”

Mitzberg’s proposal, as such, was the creation of a new model of strategy development whereby he realized that strategy is partly deliberate and partly unplanned, with the unplanned element being called emergence strategies and the deliberate one being the intended strategy (Hill, Jones and Galvin, 2004). As such, “…intended strategies emerge during the strategic planning process, and realized strategies emerge from these over a period of time” (Price & Newson, 2003, p.188).

In other words, Mintzberg’s model incorporates into the rational planning process an additional factor (emergent strategy) with which to account for the unknown variables that oft happen in real life and to have the planning process account for and take advantage of these or, put in another way, to be able to retain the flexibility to change when an emergent strategy is called for. Hill, Jones and Galvin (2004) have handily divided such opportunities for emergent strategies into three categories:

Reacting to unpredictable events

As was previously mentioned, one of the greatest criticisms of the rational planning model does not take unpredicted events very well. Recklies (2001) states, “This basic model proved to be very worthwhile for decades and has become the dominant pattern of strategic thinking. However, the dynamic developments in recent years taught many businesses that this approach has its limits…”, and goes on to describe how this model assumes, as stated before, a stable, predictable future. With technology and globalization opening up the world at large the ‘bigger picture’ has become much more environmentally turbulent for companies than in previous years.

As such, with the greater vulnerabilities to a plethora of political, economic, and technological risks companies must allow their planning to incorporate much more flexibility than before. Once again, Recklies (2001) succinctly underlines this:

“In this dynamic environment, it is nearly impossible to make meaningful predictions for future developments that could serve as a basis for external analysis. The traditional strategy process is difficult to employ under these conditions. It is too focused so that it cannot enable companies to adjust to unexpected developments. This, however, is more important than ever before, since successful organizations do not react to changes; they act and thus are part of the changes.”

An example of the changes in attitude taking place can be seen in the construction industry. Price & Newson (2003, p.190) highlight this:

“Many authors have characterized the construction industry as highly turbulent, rapidly changing, highly complex, and extremely competitive. The lack of long-term strategic planning in the construction industry may stem from the industry’s reluctance to set long-term targets in such a volatile business environment. Construction organizations need to recognize that strategy - or strategic content! - is the flag that needs to be placed as a future target and aimed toward, in the knowledge that the organization must be nimble enough to change direction as new opportunities arise. Construction organizations must therefore develop an effective strategic planning process that involves monitoring current and emerging situations with sufficient flexibility to permit regular updating of the organization’s strategic direction. This should help construction organizations to develop effective business strategies based on a balanced approach to intended and realized business strategies.”

Role of Lower Level Managers

As touched upon previously under certain aspects of certain types of ‘Ivory Tower’ planning, another problem inherent under rational planning is the ‘top heaviness’ in organizations in regards to formulating strategic planning. As stated in Hill et al (2004) many corporations now have an alternative view that, “…managers deep within an organization can, and often do, exert a profound influence on the evolution of strategy.” By this it is implied that they be given more autonomy to seize opportunities or prevent disaster through quick reasoning on their part, while at the same time allowing them to feel a closer bond with the fate of the company and a sense of having a say in the strategic planning process – which is good for morale.

Branch (2002, p.7) agrees with this, citing Lawler (1993):

“Lawler (1993:174-177) emphasized the strategic benefits of participative management,

arguing that decisions could be made more rapidly and flexibly when power is moved to the lowest possible level and that workers, especially knowledge workers, were empowered and motivated by these changes. Overhead costs can be greatly reduced, increasing the organization’s competitive advantage, and better use can be made of capital-intensive technologies by improved problem solving and adaptive behavior.”

Serendipity

(Hill, Jones and Galvin, 2004) Accidental events or coincidences have, in the past, caused companies to change their entire strategies due to fortuitous (or, at times, unlucky) twists of fate over which they have no control over. Such fortunes have the ability to completely determine the fate of companies from that point on (including industry, products, new markets, etc). This is important as an emergent strategy as careful implementation of the model can allow companies to exploit such opportunities to the hilt.

A great example of this is that of Raytheon and the invention of the microwave. Like any other classic example, the device was originally being tested by the Raytheon company as a radar for the military. Dr. Percy Spencer then noticed that things near the open ended microwave started heating up. He then conducted his famous test, whereby he caused an egg to explode from the heat. Developing from this he managed to figure out how to focus the microwaves in a certain direction and, voila, the microwave was born and Raytheon entered the appliances market for the first time – a classic case of serendipity (Gallawa, 2003).

Synthesis

“…no organization knows enough to work everything out in advance, to ignore learning en route. And no one can be flexible enough to leave everything to happenstance, to give up all control.” (Mintzberg, 1987, p.187)

As a final point it is important to remember that emergent strategies in the course of this essay are not being argued as a complete alternative to rational planning, but rather it was Mintzberg’s design to simultaneously imply the importance of corporations in complying to both formal methods of planning and that of taking into account emergent strategies in the course of said planning. Even Astoff’s critique bears a few points where he (grudgingly) acknowledges that there is a role for emergent strategies – even though most of this is argued as the design school having, in some ways, adapted to this new model (Astoff, 1991).

Conclusion

So, is rational planning process the whole story? No. This report has shown that not all strategies are (or can) be the result of rational planning, no matter how thorough. As this report has shown, due to a combination of factors ranging from the unpredictable, serendipitous opportunities, and localized managerial initiative – coupled with irrational factors within the process – there is still an important place to be held by emergent strategies that, although not resolving, will cater and ensure that the company is ready to take advantage of such situations as and when they arise.

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