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Current Trends in Strategic Management OUTLINE • The New Economy • New Directions in Strategic Thinking • Redesigning the Organization • New Modes of Leadership
The Turbulent 21 st Century Collapse of New Economy Corporate Scandals • Enron, World. Com, Parmalat • Jack Welch’s retirement package • Dot. com bubble bursts • TMT recession International competition intensifies • China as Workshop of the World • Outsourcing to LDCs The Curse of Terrorism • Sept. 11, 2001 • Suicide bombings in Israel, Iraq, Saudi Arabia, Turkey, Afghanistan War • Invasion of Afghanistan & Iraq • Civil wars in Congo, Liberia, Sudan, Somalia Decline of Multilateralism • Collapse of Doha round • Trade wars between US, EU, China • Weakening of UN Unstable Currencies US$ declines by >50% against Euro 2002 -04 Age of Disbelief Fear of Disease • SARS, Mad Cow, Bird Flu
Directions in Strategic Management Practice—Trends of the 1990 s Key Trends of the 1990 s: • 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 reengineering, increasing labor productivity • Outsourcing/refocusing/ divestment • Performance management and incentive alignment
Forces Shaping Company Strategies 2001 -04 Future Sources of Profit Limits of downsizing/cost cutting Where are future sources of profit? Concepts & Theories The Business Environment • Uncertainty • Stalling of economic liberalization • Intense competition Technology • Resources & capabilities as Continued advances in ICT basis for competitive advantage • Knowledge-based theory of the firm Demands of society • Option theory • Social & environmental responsibility • Complexity theory • Ethics & fairness • Quest for meaning
Emerging Developments STRATEGY • Multiple competitive advantages/multiple capabilities • 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 ORGANIZATION STRUCTURE • Reconciling flexibility & integration • Modular structures • Multidimensional structures • Informal organization & self-organization
The Need to Redesign Organizations THE PAST Emphasis on control THE FUTURE Emphasis on co-ordination Single performance goal Multiple performance goals Decisions located centrally Decisions located where relevant knowledge exists Simple structures, unified line of command Multidimensional structures Diffused authority, but clear responsibilities Organization by design Self organization
Emerging Organizational Forms Organizing for capability development Shifting emphasis of organization design from control to coordination From unitary to parallel structures Separate coordination structures for different processes. E. g. 3 M’s product development structure; separate structures for TQM and change management Process-based organizations Organizing around business processes Organizing around corporate processes - entrepreneurial process - competence building process - renewal process Project-based organization E. g. engineering cos. , consulting firms, also manufacturing cos. e. g. Oticon Network and virtual organization E. g. electronics in Silicon Valley, clothing and packaging equipment in Italy
New Models of Leadership: What Competencies do Top Managers Need? THE LEADERSHIP NEEDS OF ORGANIZATIONS The ability to: • • build confidence build enthusiasm cooperate deliver results form networks influence others use information THE REQUIRED COMPETENCIES OF BUSINESS LEADERS • business literacy • creativity • cross-cultural effectiveness • empathy • flexibility • proactivity • problem-solving • relation-building • teamwork • vision
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.
What is complexity theory? • 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.
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’
Key Result Areas • Some key results in complexity theory have proved 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 as simple rules” – How-to, boundary, priority, timing, exit rules
Agent-Based Search • Exploring a 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”
Patches • Stu Kauffman found 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
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…
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)
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?
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 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?
Conclusion • Strategy of the future: – Complexity theory – Dynamic capabilities – Blue ocean – Strategic options – Efficient design – people, decisions, rewards, structure, process