Current Trends in Strategic ManagementCurrent Trends in Strategic Management

The New Economy

New Directions in Strategic Thinking

Redesigning the Organization

New Modes of Leadership

OUTLINE

The Turbulent 21st CenturyThe Turbulent 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

FluUnstable

CurrenciesUS$ 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

Internationalcompetition intensifies• China as Workshop of the World

• Outsourcing to LDCs

Key Trends of the 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

Future Sources of ProfitLimits of downsizing/cost cutting

Where are future sources of profit?

TechnologyContinued 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

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

• Emerging Developments

ORGANIZATION STRUCTURE• Reconciling flexibility & integration• Modular structures• Multidimensional structures• Informal organization & self-organization

The Need to Redesign 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 structuresDiffused authority, but clear responsibilities

Single performance goal

Multiple performance goals

Organization by design Self organization

Emerging Organizational FormsEmerging Organizational Forms

Process-based Organizing around business processesorganizations Organizing around corporate processes

- entrepreneurial process - competence building process - renewal process

From unitary to parallel Separate coordination structures forstructures 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, alsomanufacturing cos. e.g. Oticon

Network and virtual E.g. electronics in Silicon Valley, clothingorganization and packaging equipment in Italy

Organizing for capability Shifting emphasis of organizationdevelopment design from control to coordination

THE REQUIRED COMPETENCIES OF BUSINESS LEADERS

• 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?

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