Ten schools of strategy formulation, implementation, evaluation and control – by Henry Mintzberg

1. The Design school

In this thought process of strategy formulation, the focus is on conception of ideas and to
design new ideas.
The design school proposes a model of strategy making: it looks at strategy formation as a
process of conception.

• informal design

• originated in the 1960s

• basis for the following two

2. The Planning school

In this case, the thought process runs towards planning the entire strategy in a rigorous
manner, so that the firm advances forward.
Here, strategy formation is considered a formal process.

• systematic process of formal planning

• originated in the 1970s

3. The Positioning school

In this process of strategy formulation, the management decides that they want to position
the product at the top of the mind and makes decisions accordingly.
Here the entire focus is on strategy content.

• selection of strategic positions

• originated in the 1980s

4. The Entrepreneurial school

This school of thought puts all the focus on the CEO of the company.
This school of thought considers strategy formation as visionary process.

• creation of vision by leaders

5. The Cognitive school

In this thought process, people’s perception and information is studied.
Under this school of thought, organizations give lot of importance to people’s perception
and their behavior.

• enter into the strategists mind

6. The Learning school

In this thought process, the management keeps a watch over what has already happened
and then forms the future strategy looking at the past.
Organizations which follow this thought process, depend a lot on their experiences and
market happenings.

• strategies must emerge in small steps

7. The Power school

In this school of thought, the people who are in power take the decisions.
 This school of thought is power centred.

• a process of negotiations

8. The Cultural school

The cultural school of thought says that the company has a fantastic capital in terms of its
human capital as well as its social capital.
The cultural school of thought says that human capital is most important in organizations.

• strategy rooted in the culture of an organization

9. The Environmental school

More of a situational school of thought, the environmental school gives most of the
importance to the environment.
The environmental school of thought is more of situationally related.

• strategy is a reactive process to the firm’s external context

10. The Configurational School

One of the most preferred amongst the 10 School of thoughts is the configuration school. It
basically says, that the strategy needs to be configured.
The strategy allows the firm to move from one position to another, hence simple set of
values will not help this movement.
As per the configuration school, strategy needs to consider a lot of facts and cannot be
derived from simple statistical data and values.

• Combines all the above schools

Positioning-based View (1980s)

• Michael Porter, ‘Competitive Strategy’ (1980), (1985); put forth the concepts of five forces
analysis, the value chain, diamond model of competitive advantage; the field moved from
planning to positioning.

Resource-based View (1990s)

• Prahalad and Hamel, ‘The theory of competence-based strategy’, and ‘The core competence
of the corporation’ (1990) suggested companies compete on capabilities as much as on
positioning.

Defining Strategic Management

 • Strategic management can be defined as the art and science of formulating, implementing,
and evaluating cross-functional decisions that enable an organization to achieve its
objectives

• Strategic management generally refers to strategy formulation, implementation, and

evaluation and control

Strategic management is primarily concerned with the actions organizations take to achieve
competitive advantage and create value for the organization and its stakeholders

Five Stages or Elements

• The five stages of the strategic management process are:

1. Goal setting – vision, mission

2. Analysis – external, internal

3. Strategy formulation

4. Strategy implementation

5. Strategy evaluation and control

Defining Strategy

• A strategy is a coherent mix of diagnosis of a challenge, a guiding policy, and coherent

action that executes the guiding policy designed to surmount a difficult or high-stakes
challenge

Difference between Strategic Goals and Strategic Objectives

• A strategic goal is usually part of the strategy formulation process, and is a stated
component in the strategic plan

• It is non-measurable; description of a destination

• A strategic objective is usually part of the strategy implementation process, and is a stated
component in the strategic plan

• It is measurable; targeted progress to reach the destination

Strategy Management Pyramid (going up from the last element #5)

1. Vision
2. Mission
3. Objectives and Goals
4. Strategies
5. Tactics

Strategy Planning

• The basic purpose of strategic planning is to determine where the firm is, where it wants to
go, and how it will get there with an objective of gaining a sustainable competitive
advantage

Scenario Planning

• Scenario planning involves formulating plans that are based on what-if scenarios about the
future

• In the typical scenario planning exercise, some scenarios are optimistic and some are
pessimistic

Teams of managers are asked to develop specific strategies to cope with each scenario

Operational Planning

• Basically, the Operational Plan is a plan for the implementation of strategies contained
within the Strategic Plan

• It is a management tool that facilitates the co-ordination of the organisation's resources

(human, financial, and physical) so that goals and objectives in the strategic plan can be
achieved

The operational plan provides the what, who, when and how much:
 What – the strategies and tasks that must be undertaken

Who – the persons who have responsibility of each of the strategies/tasks

When – the timelines in which strategies/tasks must be completed

How – much financial resources must be provided to complete each strategy/task

Difference between Strategic Planning and Operational Planning

Strategic Plan

1. General plan relating to vision and mission

2. Strategies for organizational goals

3. Long-term 3-5 years

4. Formulated to include operational plan

5. Does not change significantly year-to-year

6. Developed with a view of various stakeholders by the CEO and executive team

Operational Plan

1. Specific plan

2. Activities to implement strategies

3. Annual

4. Formulated with reference to strategic plan

5. May differ significantly year-to-year

6. Monitored by the CEO, executive team, and developed by line-managers

Types of Strategies

• Alternative strategies that any firm can pursue can be categorized into:
1. Integration Strategies

a. Forward integration

b. Backward integration

c. Horizontal integration

2. Intensive Strategies

a. Market penetration

b. Market development

c. Product development

3. Diversification Strategies

a. Related diversification

b. Unrelated diversification

4. Defensive Strategies

a. Retrenchment

b. Divestiture

c. Liquidation

d. Turnaround

5. Offensive Strategies

a. Research and Development

b. Mergers and Acquisitions

c. Intensive Strategies

Strategy as an Emergent Process

• Henry Mintzberg’s model of strategy development provides a more encompassing view of

what strategy actually is

• According to this model, a firm’s realized strategy is the product of whatever planned
strategies are actually put into action (the firm’s deliberate strategies) and of any
unplanned, or emergent strategies
 • Many planned strategies are not implemented because of unpredicted changes in the
environment (they are unrealized)

• Emergent strategies are the unplanned responses to unforeseen circumstances

• Many planned strategies are not implemented because of unpredicted changes in the
environment (they are unrealized)

• Emergent strategies are the unplanned responses to unforeseen circumstances

• They arise from autonomous action by individual managers, chance discoveries or events,
or an unplanned strategic shift by top-level managers in response to changed circumstances

• They are not the product of formal top-down planning mechanisms

Henry Mintzberg’s 5Ps of Strategy

• The 5Ps of strategy proposed by Henry Mintzberg are as follows (1987):

1. Plan

2. Ploy

3. Pattern

4. Position

5. Perspective

Agency Problem

• Agency problem refers to conflict of interest between a firm’s management (agent) and the
shareholders (principal)

• Top-management may make decisions to benefit their own future rather than maximize the
wealth of the shareholders

• Also, termed as principal-agent problem

• This problem also occurs between an advertising agency and the advertiser (client)

• The conflict arises when people (agents) entrusted to serve the interest of others
(principals) use the authority or power for their own benefits
 • A dilemma can arise when the agents are motivated to serve their own best interest rather
than that of the principles

• This dilemma is also termed as a moral hazard

Stuck In the Middle

Porter argued that there is fourth state of affairs in business-level competitive strategy; he labelled it
"stuck in the middle" It is not a deliberate strategy per se. Rather, it is the result of not being able to
successfully pursue any of the three generic strategies. The result of not having the lowest costs, not
being really differentiated in the minds of the consumer, or not successfully targeting a market
segment results in a weak profitability and market picture. The firm stuck in the middle is almost
always associated with lower profitability and mediocre market share. The firm stuck in the middle
must make a fundamental strategic decision.

Hierarchy of Strategies

• Strategy hierarchy consists of four levels:

1. Corporate level strategy

2. Divisional or Business unit level strategy

3. Functional or Departmental level strategy

4. Operational level strategy

1. Corporate level strategy

Corporate strategy is led by the CEO and other senior executives to establish an overall
strategy for managing a set of businesses in a diversified, or multi-business, or multinational
firm.

2. Divisional or Business Unit level strategy

• Business strategy is concerned with building a competitive advantage in the business unit
of a diversified or non-diversified firm

3. Functional or Departmental level strategy

• Functional strategy relates to decisions-making within functions of business units like

finance, marketing, manufacturing, R&D, HR, IT, etc.

4. Operational level strategy

 • It is related to strategies of operating units like plants, distribution centers, purchasing and
procurement, sales, customer service, accounting, etc.

GE-McKinsey Matrix

• The GE-McKinsey nine-box matrix is a portfolio strategy tool that offers a systematic
approach for the multi business corporation to prioritize its investments among its divisions
or strategic business units (SBUs)

• Rather than rely on each business unit's projections of its future prospects, the firm can
judge a unit by two factors that will determine whether it is going to do well in the future:

1. The attractiveness of the relevant industry, and

2. The unit’s competitive strength within that industry

Industry Attractiveness

• Industry attractiveness consists of many factors that collectively determine the competition
level:

• Long run growth rate

• Industry size

• Industry profitability – entry barriers, exit barriers, supplier power, buyer power, threat of
substitutes and available complements (Porter’s Five-Forces)

• Industry structure

• Product life cycle changes

• Changes in demand

• Trend of prices

• Macro environment factor (PESTEL)

• Seasonality

• Availability of labor

• Market segmentation

Competitive Strength of a Business Unit or Product

• Factors that determine the competitive strength of a business unit or product:

• Total market share

 • Market share growth compared to rivals

• Brand strength (use brand value for this)

• Profitability of the SBU or firm

• Customer loyalty

• VRIO resources or capabilities (VRIO framework – valuable, rare, inimitable, organization

capability)

• Business unit strength in meeting industry’s critical success factors (CPM)

• Strength of a value chain (VCA)

• Level of product differentiation

• Production flexibility

Advantages of GE-McKinsey Matrix

• Helps to prioritize the limited resources to achieve the best returns

• Managers become more aware of how their products or business units perform

• It is a more sophisticated business portfolio framework than the BCG matrix

• Identifies the strategic steps the firm needs to make to improve the performance of its
business portfolio

Disadvantages of GE-McKinsey Matrix

• Requires a consultant or a highly experienced person to determine industry’s attractiveness

and business unit strength as accurately as possible

• It is costly to conduct

• It does not take into account the synergies that could exist between two or more business
units

Difference between GE-McKinsey and BCG Matrices

• GE McKinsey matrix is a very similar portfolio evaluation framework to BCG matrix

• Both matrices are used to analyze company’s product or business unit portfolio and
facilitate the investment decisions

• The Main differences are:

1. Visual difference – BCG is only a four cell matrix, while GE McKinsey is a nine cell matrix

• Nine cells provide better visual portrait of where business units stand in the matrix

• It also separates the invest/grow cells from harvest/divest cells

2. Comprehensiveness – in BCG matrix, the GE-McKinsey competitive strength of a business unit
equates to relative market share

• Larger the market share the better it is positioned to compete in the market

• This is too simplistic

• Other factors also affect competition in the market

There are three groups of cells:

1. Invest/grow cells

2. Selectivity/earnings cells or Selective Investment, and

3. Harvest/divest cells

McKinsey 7 S Model

• The McKinsey 7 S Model is a tool to analyse a firms organizational design by looking at

seven key internal elements:

1. Strategy

2. Structure

3. Systems

4. Shared values

5. Styles

6. Staff, and

7. Skills

The model emphasizes soft (human resources related) elements as opposed to just the hard
(capital, infrastructure) production related elements needed for success

Ansoff Matrix

• Is a Portfolio Matrix or Model

• Also called Product-Market Matrix

• Or Ansoff’s Growth Matrix

• The Ansoff Matrix provides a growth strategy for a firm

 • There are four growth strategies recommended based on internal firm and external market
conditions

• A firm may hold, grow, or shrink its position in a market for any product

• The Ansoff Matrix is a four quadrant matrix

• Two dimensions of Product and Market

• Four strategic options are available

• The firm’s risk increases as it moves from one quadrant to another

The matrix cells are based on:

1. Market Penetration – increase market share in existing markets with existing products

2. Market Development – enter new markets with existing products

3. Product development – develop new or modified products for sale in existing markets

4. Diversification – develop new products to serve new markets

Porter’s Diamond Model

• A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade

• Four attributes of a nation that help a firm to gain competitive advantage:

1. Factor Conditions – the nation’s position in factors of production, such as skilled labor or
infrastructure, necessary to compete in a given industry

2. Demand Conditions – the nature of home-

• market demand for the industry’s product or

• service

3. Related and Supporting Industries – the

• presence or absence in the nation of supplier

• industries and other related industries that

• are internationally competitive

4. Firm Strategy, Structure, and Rivalry – the

• conditions in the nation governing how

• companies are created, organized, and

 • managed, as well as the nature of domestic

• Rivalry

These attributes can be placed in a diamond formation

Transforming Value-Chain Activities into Sustained Competitive Advantage

1. Value-Chain Activities are Identified and Assessed

2. Core Competencies Arise in Some Activities
3. Some Core Competencies Evolve into Distinctive Competencies
4. Some Distinctive Competencies Yield Sustained Competitive Advantages

Achieving Strategic Capability (moving up the pyramid from the last element, #5)

1. Strategic Capability
2. Competitive Advantage
3. Firm’s Strategy
4. Distinctive Competencies, Core Competences
5. Resources and Capabilities

Four Actions to Create a Blue Ocean to generate New Value

1. Raise – What factors should be raised beyond Industry standards?

2. Create – What factors should be created that Industry never offered?
3. Reduce – What factors should be reduced below Industry standards?
4. Eliminate – What factors should be eliminated that Industry has taken for granted?

Strategy Mapping and Balanced Score Card

• Strategy Mapping is creating a map of the firm’s strategy

• This map is often depicted on a single page

• It helps quickly communicate the most important objectives that a firm is strategically
engaged in

• Every employee knows the firm’s overall strategy and where they fit in with respect to the
implementation
 • It allows the employees to see how their jobs will affect the firm’s strategic goals

A Strategy Map is built on the basis of the strategic objectives in the Balanced Score Card

• The objectives are, generally, grouped alongside four strategic perspectives for any firm

• Strategic perspectives may be similar for firms, but strategic objectives are not

• The balanced scorecard (BSC) helps to layout the overall strategy of a firm in a graphic way

• This is done with the help of a strategy map

• The process of creating a strategy map is called strategy mapping

These strategic perspectives are:

1. Financial

2. Customer

3. Internal Business Processes

4. Learning & Growth (Organizational Capacity or Capability)

The Balanced Scorecard is an important strategy evaluation tool

• It is used to:

1. Communicate the objectives, goals, and strategies

2. Align the day-to-day work

3. Prioritize the projects, products, services

4. Measure and monitor progress towards targets

• The BSC suggests:

1. View the firm from four perspectives

2. Develop objectives

3. Measure (key performance indicators, KPIs)

4. Set targets, and

5. Implement initiatives (actions) relative to each of these four points of view

The compilation of a balanced scorecard (BSC), therefore, involves the following steps:
 1. Determine the Strategic Perspectives – four perspectives

2. Formulate Strategic Objectives – for each perspective

3. Create a Strategy Map – graphic showing relationships

4. Set the Measures and Targets – one or two benchmarks

Levels of Strategic Control

• Strategic control systems are developed to measure performance at four levels in a firm:

1. Corporate

2. Divisional

3. Functional, and

4. Group, Team, and Individual

Strategy Evaluation and Control

There are two broad types of control:

1. Strategic Control
2. Operational Control

There are four basic types of strategic control:

1. Premise Control – management process systematically and continuously checking to

determine whether premises upon which the strategy is based are still valid

Premise control is the systematic recognition and analysis of predictions upon which a
strategic plan is based, to determine if those assumptions remain valid in changing
circumstance and in light of new information

2. Strategic Surveillance – management efforts to monitor a broad range of events inside and
often outside the firm that are likely to affect the course of its strategy over time

Strategic surveillance is designed to monitor a broad range of events inside and outside the
firm that are likely to affect the course of its strategy
 3. Special Alert Control – management actions undertaken to thoroughly, and often very
rapidly, reconsider a firm’s strategy because of a sudden, unexpected event

Special alert control is the thorough, and often rapid, reconsideration of the firm’s strategy
because of a sudden, unexpected event

4. Implementation Control – management efforts designed to assess whether the overall

strategy should be changed in light of results associated with the incremental actions that
implement the overall strategy

These are usually associated with specific strategic thrusts or projects and with
predetermined milestone reviews

The operational control system involves:

1. Establishing criteria and standards

2. Measuring and comparing performance
3. Performance gap analysis
4. Taking corrective measures

Types of operational control:

1. Budgeting – is an important tool to implement strategic plans

2. Scheduling – helps to optimize utilization of resources
3. Key Success Factors – helps to focus on critical factors that contribute to success, such as,
productivity, quality, employee, market share, etc.