The Systems Thinking Approach of the Centre

OverviewThe DNA of Successful Organizations

"Systems Thinking: The natural way the world works"

Systems Thinking is a heavily researched and rigorous macro-scientific theory with its roots in the Universal Laws of Living Systems on Earth and in ecology and biology. It is analogous to DNA in humans; it defines our life-giving characteristics. An Austrian, Ludwig Von Bertalanffy is the father of what he called General Systems Theory when he formed the Society of General Systems Research in 1954 with Margaret Meade and four other superstar Nobel Prize winners from economics, physiology, physics, and Von Bertalanffy in biology. It has been a more recent focus of Dr. Russell Ackoff (renaissance professor emeritus at University of Pennsylvania) and Jay Forrester at MIT in Systems Dynamics, among others. 30 other scientific disciplines are electronics, architecture, complexity and chaos theory, project management, etc. whose leading thinkers and writers are moving in this direction. This is the long-term result of the five superstars above whose goal was finding a unity of science for all complex living things on earth. A "SYSTEM" DEFINED A system is defined as a set of elements or components that work together in relationships for the overall objectives/vision of the whole. The focus of all systems' elements in an organization should be the attainment of an organization-wide shared vision of customer satisfaction within today's complex and changing environment. CONCEPTS AND RESEARCH Thus, these three interrelated concepts below create a more elegant simplicity for ease of use (the KISS method) out of our complex and chaotic world and include: 1. Standard and predictable System/Organizational Dynamicsbased on 12 Characteristics (or DNA Codes) of open/living systems in Systems Thinking from the research of the Society of General Systems Research. These are the 12 Codes or DNA of Successful Organizations along two similar DNA Strands (our Internal and External Strands of Life). This allows us to work in and compare one organization vs. another in different industries, as well as one human being to another. See, we are all quite similar with these 12 predictable human dynamics/DNA Codes split along our internal and external Strands of Life. Further, the Centre recently researched these 12 Codes and Characteristics extensively vs. the other 25 scientific applications above and found them still to be THE complete set of Characteristics on the "natural way the world works". (See Volume IX of the Haines Strategy Library for the complete list). 2. The Seven Levels of Living Systemsthat are in natural hierarchical relationships with each other. We have adapted this to look at the three key levels of living systems in organizations (individualsteamsorganization-wide) and their three levels of collisions (1=1, team-team, organization-environment). This leads to Six Levels of Leadership Readiness and focus for planning, people, and change. These Six Natural Levels of Leadership Competencies are found no-where else but at the Centre. They are the Number One corporate-wide Core Competency of all successful organizations. 3. The Standard Functioning of every Living System world-wide includes a circular input throughputoutputfeedback loop within today's dynamic and ever-changing environment. We copyrighted this as The Five Phases (A-B-C-D-E) of the Strategic and Systems Thinking Framework. We then applied them as a very simple, yet comprehensive set of ABC's of Strategic Management (In addition now, to an integrated suite of over 20+ and growing other seamless daily applications and language). 4. In addition, we use a fourth Systems Thinking Concept and Framework, the natural and historical cycles of change. It is all you need to know from over 20 so-called different change theories to assist senior management and all employees in being proactive, innovative, and more successful with any kind of personal, team, and organizational change. This includes up to the most complex strategic and systematic, transformational change processes world-wide
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as this change cycle is natural, normal, and highly predictable. We copyrighted this fourth Systems Thinking Concept as The Rollercoaster of Change. It has proven to have universal application on how all Seven Levels of Living Systems undergo change naturally with Six Basic Phases of any Change processes (including the one usually ignored. Smart Start). The Systems Thinking Approach is synonymous with Systems Thinking and Strategic Thinking. In essence, Strategic and Systems Thinking view individuals and organizations within the context of their environments. As such, people and an organization do not exist as an island unto themselves, but as part of a larger network, web or matrix of systems that all function, more or less independently, yet interdependently. We, at the Haines Centre for Strategic Management, like to use the analogy of getting a "Helicopter View" of situations, because from a height of 5,000 feet (or more) it is much easier to see the bigger picture. This allows a more effective perspective on defining and achieving the purposes and results that maximize an individual's and an organization's presence and success in the marketplace. Strategic and Systems Thinking is based on the work of Ludwig von Bertalanffy, the father of our Systems Thinking Approach. His pioneering work in forming The Society for General Systems Research conceived the Science of Systems Thinking as a Unity of Sciences. It is directly applicable to the way all human beings, teams and organizations function, much as natural systems do. Underlying these systems are complexities (represented in our studies by the Rubiks Cube) that have, at their heart, simple, fundamental foundations. By grasping the fundamentals and essence of how an organization works, as a system within a set of larger systems, it is possible to work through the complexity and arrive at real, effective solutions to difficult individual, business or organizational problems. In The Systems Thinking Approach, we see this as "Simplicity on the Far Side of Complexity".

2007 Haines Centre for Strategic Mana Systems science Impression of systems thinking about society [1] Systems science is the interdisciplinary field of science, which studies the nature of complex systems in nature, society, and science. It aims to develop interdisciplinary foundations, which are applicable in a variety of areas, such as engineering, biology, medicine and social sciences. Systems sciences have roots in formal sciences like complex systems, cybernetics, dynamical systems theory, and systems theory, and applications in the field of the natural and social sciences and Engineering, such as Control theory, Operations research, Social systems theory, Systems biology, Systems dynamics, Systems ecology. Systems engineering and Systems psychology. Overview Systems science and systemics are names for all research related to systems theory. It is defined as an emerging branch of science that studies holistic systems and tries to develop logical, mathematical, engineering and philosophical paradigms and frameworks in which physical, technological, biological, social, cognitive and metaphysical systems can be studied and developed. Systems science pursues its study from a certain point of view: to understand humans and their environment as part of interacting systems. The aim is to study this interaction from multiple perspectives, holistically. Inherent to this approach is a comprehensive historical, contemporary and futuristic outlook. Systems science, with such an ambition and with its basic systems theory, provides a general language with which to tie together various areas of interdisciplinary communication. As such it automatically strives towards a universal science, i.e. to join together the many splintered disciplines with a "law of laws" applicable to them all and integrating all scientific knowledge.[2] Further characteristics Senge (1990) described systems thinking as comprising five learning disciplines: personal mastery, meta models, shared vision, team learning, and the overarching discipline of systems thinking. Earlier, Capra (1982) identified several key characteristics of systems thinking, including a shift from an emphasis in the parts to the whole; a shift in attending to a single level to going back and forth between systems levels; a shift from analytic thinking to contexual thinking, or explaining things in terms of their context; a shift from seeing objects as being of primary importance to seeing relationships as
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critical component, or network thinking; a shift from the metaphor of knowledge as a building to that of knowledge as a network; and a shift from objective to epistemic science, in which the method of questioning is integral to the scientific theories.[5] More recently Ossimitz (2007) summarized, that four characteristic dimensions can be seen as essential for systems thinking:[6] 1. Thinking in models: explicitly comprehended modeling 2. Thinking in loops: a thinking in interrelated, systemic structures, recognizing causal loops. 3. Dynamic thinking: a thinking in dynamic processes (delays, feedback loops, oscillations). 4. Steering systems: the ability for practical system management and system control History Systems thinking emerged and established itself as a transdiscipline in the in the 1940s and early 1950s.[7] Systems ideas had emerged, stated Hammond (2003), from a broad range of disciplines: biology, ecology, social psychology and technology. These ideas came together in a General Systems movement, that wanted to replace that analytic approach with a more holistic approach. By focusing on the creation of a General Systems Theory they wanted to create a collaboration and integration between different disciplinary perspectives.[8] In the following decades Systems thinking developed in interaction with fields as engineering, management, organismic biology, cybernetics, information, ecology and social theory. Among these theories systems theory was the one metaphor according to Hammond that highlights the relationships and interconnections among the biological, ecological, social, psychological, and technological dimensions of our increasingly complex lives.[8] Early approaches to using systems ideas in an applied manner, such as operation research, systems analysis and systems engineering, were suitable for tackling certain well-defined problems but were found to have limitations when faced with complex problems involving people with a variety of viewpoints and frequently at odds with one anonther. Systems thinkers responded with approaches such as systems dynamics and organizational cybernetics to tackle complexity; soft systems methodology, and interactive planning to handle subjectivity; critical systems heuristics to help the disadvantage in situations involving conflict; and pragmatic pluralism to manage diversity. In theoretical terms, the positivism that had dominated systems thinking until the 1970s, was supplemented, as a source of support for applied work, by structuralism, interpretivism, radicalism and postmodernism.[9] Since the 1970s Peter Checkland witnessed a replacement of the old hard paradigm with a new vigorous soft paradigm. The hard pardigm was unable to deal with the anomalies arising, when applied in complex, human-centred organizational and societal situations. This has given way to a soft paradigm, which both preserves the achievements of the hard in its specialized domain of application and extends the area of successful operations of systems ideas to the behavioral and social arena.[10] According to Olsson (2004) the basic systems concepts and ideas from the founding fathers haven't changed very much over time. There has been a significant new development though since the 1990s in the epistemological "framing" of the established theoretical apparatus and this development constitutes a qualitative improvement of the systems approach in science.[11] The field of systems science Systems thinking concepts System The concept of a system is an integrated composite of people, products, and processes, which provide a capability to satisfy a stated need or objective.[12] Systems approach A systems thinking approach does not view problems as discrete, but sees them as related to all aspects of an organization. Organizations are composed of interrelated systems and processes, and any change in one organizational aspect affects all others. A systems thinker would therefore consider the interrelationship among systems and processes of the organization before implementing the solution. That solution will be evaluated on the basis of all results produced. Further, there is the recognition that not only do circumstances change, requiring new solutions, but solutions require new circumstances.[13] Systems dimensions Gharajedaghi (2005) determined five systems dimensions.[3]
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Throughput, Membership, Conflict management, Decisions Systems, Learning and Control Systems. System elements A system element is a balanced solution to a functional requirement or a set of functional requirements and must satisfy the performance requirements of the associated item. A system element is part of the system [hardware, software, facilities, personnel, data, material, services, and techniques] that, individually or in combination, satisfies a function [task] the system must perform.[12] Systems hierarchy Systems language The systems language by necessity will have two dimensions. The first will be a framework for understanding the nature of the beast, the behavioural characteristics of multiminded systems. The second will be an operational systems methodology, which goes beyond simply declaring the desirability of the systems approach and provides a practical way of defining problems and designing solutions.[3] Systems methods Modelling the behaviour of complex adaptive systems, with the understanding how each component links to the next, for strategic decision-making[14] Systems modelling Systems perspective A systems perspective is a perspective emerging from the application of a system approach. For example in Business & Economics; Family & Relationships; Psychology; Social Science; and Technology.[15] Systems principles Gharajedaghi (2005) determined five systems principles.[3] y Openness, purposefulness, multidimensionality, emergent property, counterintuitiveness System specification A top level set of requirements for a system. A system specification may be a system/subsystem specification, Prime Item Development Specification, or a Critical Item Development Specification.[12] Systems of systems A dimension of the systems language is a framework for understanding the nature and characteristics of systems. To build such a dimension we need to develop a systems of systems concept. In this context Ackoff's On Purposeful systems (1972) is a Herculean work.[3] [edit] Systems thinking theories Since the emerge of the General Systems Research in the 1950s systems thinking has been developed into all kinds of theoretical frameworks. The following overview will only show the most basic types. Systems notes of Henk Bikker, TU Delft, 1991. Systems analysis Systems analysis is the interdisciplinary branch of science, dealing with analysis of systems, often prior to their automation as computer systems, and the interactions within those systems. This field is closely related to operations research. Systems design In computing systems design is the process or art of defining the hardware and software architecture, components, modules, interfaces, and data for a computer system to satisfy specified requirements. One could see it as the application of systems theory to computing. Some overlap with the discipline of systems analysis appears inevitable. System dynamics System dynamics is an approach to understanding the behaviour of complex systems over time. It deals with internal feedback loops and time delays that affect the behaviour of the entire system.[16] What makes using system dynamics different from other approaches to studying complex systems is the use of feedback loops and stocks and flows. These elements help describe how even seemingly simple systems display baffling nonlinearity. Systems engineering
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Systems Engineering (SE) is an interdisciplinary field of engineering, that focuses on the development and organization of complex artificial systems. Systems engineering has emerged into all kinds of sciences, and universities nowadays offer all kinds of specialized academic programs.[17] Systems Methodologies There are several types of Systems Methodologies, that is, disciplines for analysis of systems. For example: y Soft Systems Methodology (SSM) is an approach to organisational process modelling and it can be used both for general problem solving and in the management of change. It was developed in England by academics at the University of Lancaster Systems Department through a ten year Action Research programme. y System Development Methodology (SDM) is a general term applied to a variety of structured, organized processes for developing information technology and embedded software systems. Systems theories Systems theory is an interdisciplinary field of science. It studies the nature of complex systems in nature, society, and science. More specificially, it is a framework by which one can analyze and/or describe any group of objects that work in concert to produce some result. Systems science Systems sciences are scientific disciplines partly based on systems thinking such as Chaos theory, Complex systems, Control theory, Cybernetics, Sociotechnical systems theory, Systems biology, Systems ecology, Systems psychology and the already mentioned Systems dynamics, Systems engineering and Systems theory. Systems scientists Norbert Wiener in the Research Laboratory of Electronics at MIT Notable contributors to the field include Jay Forrester, Humberto Maturana, Stuart Kauffman, Norbert Wiener, William Ross Ashby, Heinz von Foerster and Charles Franois. General systems scientists can be divided into three generations. The founders of the systems movement like Ludwig von Bertalanffy, Kenneth Boulding, Ralph Gerard, James Grier Miller and Anatol Rapoport were all born between 1900 and 1920. They all came from different natural and social science disciplines and joint forces in the 1950s to established the general systems theory paradigm. Along with the organization of their efforts a first generation of systems scientists rose. Among them were other scientists like Ackoff, Ashby and Churchman, who popularized the systems concept in the 1950s and 1960s. These scientists inspired and educated a second generation with more famous scientist like Ervin Laszlo (1932) and Fritjof Capra (1939), who wrote about systems theory in the 1970s and 1980s. Others got acquainted and started studying these works in the 1980s and started writing about it since the 1990s. Debora Hammond can be seen as a typical representative of these third generation of general systems scientists. Conflict management Conflict management refers to the long-term management of intractable conflicts. It is the label for the variety of ways by which people handle grievances standing up for what they consider to be right and against what they consider to be wrong. Those ways include such diverse phenomena as gossip, ridicule, lynching, terrorism, warfare, feuding, genocide, law, mediation, and avoidance. Which forms of conflict management will be used in any given situation can be somewhat predicted and explained by the social structure or social geometry of the case. Conflict management is often considered to be distinct from conflict resolution. The latter refers to resolving the dispute to the approval of one or both parties, whereas the former concerns an ongoing process that may never have a resolution. Neither is it considered the same as conflict transformation, which seeks to reframe the positions of the conflict parties. Scientific studies Scientific study of conflict management (also known as social control) owes its foundations to Donald Black, who typologized its elementary forms and used his strategy of pure sociology to explain several aspects of its variation. Research and theory on conflict management has been further developed by Allan Horwitz, Calvin Morill, James Tucker, Mark Cooney, M.P. Baumgartner, Roberta Senechal de la Roche, Marian Borg, Ellis Godard, Scott Phillips, and Bradley Campbell.
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Utilizing a multidisciplinary approach and avoiding semantic discussions, we could also state that the father of conflict management is Thomas C. Schelling, an American economist and Nobel Prize winner, who authored the Strategy of Conflict in 1960. Schellings main goal was to lay the foundation for a theory of conflict that would include the fields of economics, psychology, sociology and the law. Conflict is an omnipresent trait of human societies since it is almost impossible to find two parties with entirely overlapping interests, thus a general theory for bargaining and negotiation to address conflict is useful not only in the field of international politics or business management, but also at the personal and intimate level. [edit] Counseling When personal conflict leads to frustration and loss of efficiency, counseling may prove to be a helpful antidote. Although few organizations can afford the luxury of having professional counselors on the staff, given some training, managers may be able to perform this function. Nondirective counseling, or "listening with understanding", is little more than being a good listener something every manager should be. [1] Sometimes the simple process of being able to vent one's feelings that is, to express them to a concerned and understanding listener, is enough to relieve frustration and make it possible for the frustrated individual to advance to a problem-solving frame of mind, better able to cope with a personal difficulty that is affecting his work adversely. The nondirective approach is one effective way for managers to deal with frustrated subordinates and co-workers.[2] There are other more direct and more diagnostic ways that might be used in appropriate circumstances. The great strength of the nondirective approach (nondirective counseling is based on the clientcentered therapy of Carl Rogers), however, lies in its simplicity, its effectiveness, and the fact that it deliberately avoids the manager-counselor's diagnosing and interpreting emotional problems, which would call for special psychological training. No one has ever been harmed by being listened to sympathetically and understandingly. On the contrary, this approach has helped many people to cope with problems that were interfering with their effectiveness on the job.[2] Strategic management Strategic management is the art, science and craft of formulating, implementing and evaluating crossfunctional decisions that will enable an organization to achieve its objectives[1]. It is the process of specifying the organization's mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs. Strategic management seeks to coordinate and integrate the activities of the various functional areas of a business in order to achieve organizational objectives. A balanced scorecard is often used to evaluate the overall performance of the business and its progress towards objectives. Strategic management is the highest level of managerial activity. Strategies are typically planned, crafted or guided by the Chief Executive Officer, approved or authorized by the Board of directors, and then implemented under the supervision of the organization's top management team or senior executives. Strategic management provides overall direction to the enterprise and is closely related to the field of Organization Studies. In the field of business administration it is useful to talk about "strategic alignment" between the organization and its environment or "strategic consistency" According to Arieu (2007), "there is strategic consistency when the actions of an organization are consistent with the expectations of management, and these in turn are with the market and the context." Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment. (Lamb, 1984:ix)[2] Processes Strategic management is a combination of three main processes which are as follows (as documented by Lemon Consulting) Strategy formulation y Performing a situation analysis, self-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental.
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Concurrent with this assessment, objectives are set. These objectives should be parallel to a timeline; some are in the short-term and others on the long-term. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives. y These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives. This three-step strategy formulation process is sometimes referred to as determining where you are now, determining where you want to go, and then determining how to get there. These three questions are the essence of strategic planning. SWOT Analysis: I/O Economics for the external factors and RBV for the internal factors. implementation y Allocation and management of sufficient resources (financial, personnel, time, technology support) y Establishing a chain of command or some alternative structure (such as cross functional teams) y Assigning responsibility of specific tasks or processes to specific individuals or groups y It also involves managing the process. This includes monitoring results, comparing to benchmarks and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary. y When implementing specific programs, this involves acquiring the requisite resources, developing the process, training, process testing, documentation, and integration with (and/or conversion from) legacy processes. Thus this type of problem can occur in strategy In order for a policy to work, there must be a level of consistency from every person in an organization, including from the management. This is what needs to occur on the tactical level of management as well as strategic. Strategy evaluation y Measuring the effectiveness of the organizational strategy. It's extremely important to conduct a SWOT analysis to figure out the strengths, weaknesses, opportunities and threats (both internal and external) of the entity in question. This may require to take certain precautionary measures or even to change the entire strategy. In corporate strategy, Johnson and Scholes present a model in which strategic options are evaluated against three key success criteria: y Suitability (would it work?) y Feasibility (can it be made to work?) y Acceptability (will they work it?) Suitability Suitability deals with the overall rationale of the strategy. The key point to consider is whether the strategy would address the key strategic issues underlined by the organisation's strategic position. y Does it make economic sense? y Would the organisation obtain economies of scale, economies of scope or experience economy? y Would it be suitable in terms of environment and capabilities? Tools that can be used to evaluate suitability include: y SWOT Analysis y Ranking strategic options y Decision trees y What-if analysis [edit] Feasibility Feasibility is concerned with the resources required to implement the strategy are available, can be developed or obtained. Resources include funding, people, time and information. Tools that can be used to evaluate feasibility include: y cash flow analysis and forecasting y break-even analysis y resource deployment analysis
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Acceptability Acceptability is concerned with the expectations of the identified stakeholders (mainly shareholders, employees and customers) with the expected performance outcomes, which can be return, risk and stakeholder reactions. y Return deals with the benefits expected by the stakeholders (financial and non-financial). For example, shareholders would expect the increase of their wealth, employees would expect improvement in their careers and customers would expect better value for money. y Risk deals with the probability and consequences of failure of a strategy (financial and nonfinancial). y Stakeholder reactions deals with anticipating the likely reaction of stakeholders. Shareholders could oppose the issuing of new shares, employees and unions could oppose outsourcing for fear of loosing their jobs, customers could have concerns over a merger with regards to quality and support. Tools that can be used to evaluate acceptability include: y what-if analysis y stakeholder mapping General approaches In general terms, there are two main approaches, which are opposite but complement each other in some ways, to strategic management: y The Industrial Organizational Approach o based on economic theory deals with issues like competitive rivalry, resource allocation, economies of scale o assumptions rationality, self discipline behaviour, profit maximization y The Sociological Approach o deals primarily with human interactions o assumptions bounded rationality, satisfying behaviour, profit sub-optimality. An example of a company that currently operates this way is Google Strategic management techniques can be viewed as bottom-up, top-down, or collaborative processes. In the bottom-up approach, employees submit proposals to their managers who, in turn, funnel the best ideas further up the organization. This is often accomplished by a capital budgeting process. Proposals are assessed using financial criteria such as return on investment or cost-benefit analysis. Cost underestimation and benefit overestimation are major sources of error. The proposals that are approved form the substance of a new strategy, all of which is done without a grand strategic design or a strategic architect. The top-down approach is the most common by far. In it, the CEO, possibly with the assistance of a strategic planning team, decides on the overall direction the company should take. Some organizations are starting to experiment with collaborative strategic planning techniques that recognize the emergent nature of strategic decisions. The strategy hierarchy In most (large) corporations there are several levels of strategy. Strategic management is the highest in the sense that it is the broadest, applying to all parts of the firm. It gives direction to corporate values, corporate culture, corporate goals, and corporate missions. Under this broad corporate strategy there are often functional or business unit strategies. Functional strategies include marketing strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, supply-chain strategies, and information technology management strategies. The emphasis is on short and medium term plans and is limited to the domain of each departments functional responsibility. Each functional department attempts to do its part in meeting overall corporate objectives, and hence to some extent their strategies are derived from broader corporate strategies. Many companies feel that a functional organizational structure is not an efficient way to organize activities so they have reengineered according to processes or strategic business units (called SBUs). A strategic business unit is a semi-autonomous unit within an organization. It is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting. An SBU is treated as an internal profit centre by corporate headquarters. Each SBU is responsible for developing its business strategies, strategies that must be in tune with broader corporate strategies.
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The lowest level of strategy is operational strategy. It is very narrow in focus and deals with dayto-day operational activities such as scheduling criteria. It must operate within a budget but is not at liberty to adjust or create that budget. Operational level strategy was encouraged by Peter Drucker in his theory of management by objectives (MBO). Operational level strategies are informed by business level strategies which, in turn, are informed by corporate level strategies. Business strategy, which refers to the aggregated operational strategies of single business firm or that of an SBU in a diversified corporation refers to the way in which a firm competes in its chosen arenas. Corporate strategy, then, refers to the overarching strategy of the diversified firm. Such corporate strategy answers the questions of "in which businesses should we compete?" and "how does being in one business add to the competitive advantage of another portfolio firm, as well as the competitive advantage of the corporation as a whole?" Since the turn of the millennium, there has been a tendency in some firms to revert to a simpler strategic structure. This is being driven by information technology. It is felt that knowledge management systems should be used to share information and create common goals. Strategic divisions are thought to hamper this process. Most recently, this notion of strategy has been captured under the rubric of dynamic strategy, popularized by the strategic management textbook authored by Carpenter and Sanders [1]. This work builds on that of Brown and Eisenhart as well as Christensen and portrays firm strategy, both business and corporate, as necessarily embracing ongoing strategic change, and the seamless integration of strategy formulation and implementation. Such change and implementation are usually built into the strategy through the staging and pacing facets. Historical development of strategic management Birth of strategic management Strategic management as a discipline originated in the 1950s and 60s. Although there were numerous early contributors to the literature, the most influential pioneers were Alfred D. Chandler, Jr., Philip Selznick, Igor Ansoff, and Peter Drucker. Alfred Chandler recognized the importance of coordinating the various aspects of management under one all-encompassing strategy. Prior to this time the various functions of management were separate with little overall coordination or strategy. Interactions between functions or between departments were typically handled by a boundary position, that is, there were one or two managers that relayed information back and forth between two departments. Chandler also stressed the importance of taking a long term perspective when looking to the future. In his 1962 groundbreaking work Strategy and Structure, Chandler showed that a long-term coordinated strategy was necessary to give a company structure, direction, and focus. He says it concisely, structure follows strategy.[3] In 1957, Philip Selznick introduced the idea of matching the organization's internal factors with external environmental circumstances.[4] This core idea was developed into what we now call SWOT analysis by Learned, Andrews, and others at the Harvard Business School General Management Group. Strengths and weaknesses of the firm are assessed in light of the opportunities and threats from the business environment. Igor Ansoff built on Chandler's work by adding a range of strategic concepts and inventing a whole new vocabulary. He developed a strategy grid that compared market penetration strategies, product development strategies, market development strategies and horizontal and vertical integration and diversification strategies. He felt that management could use these strategies to systematically prepare for future opportunities and challenges. In his 1965 classic Corporate Strategy, he developed the gap analysis still used today in which we must understand the gap between where we are currently and where we would like to be, then develop what he called gap reducing actions.[5] Peter Drucker was a prolific strategy theorist, author of dozens of management books, with a career spanning five decades. His contributions to strategic management were many but two are most important. Firstly, he stressed the importance of objectives. An organization without clear objectives is like a ship without a rudder. As early as 1954 he was developing a theory of management based on objectives.[6] This evolved into his theory of management by objectives (MBO). According to Drucker, the procedure of setting objectives and monitoring your progress towards them should permeate the entire organization, top to bottom. His other seminal contribution was in predicting the importance of what today we would call intellectual capital. He predicted the rise of what he called the knowledge worker and explained the consequences of this for management. He said that knowledge
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work is non-hierarchical. Work would be carried out in teams with the person most knowledgeable in the task at hand being the temporary leader. In 1985, Ellen-Earle Chaffee summarized what she thought were the main elements of strategic management theory by the 1970s:[7] y Strategic management involves adapting the organization to its business environment. y Strategic management is fluid and complex. Change creates novel combinations of circumstances requiring unstructured non-repetitive responses. y Strategic management affects the entire organization by providing direction. y Strategic management involves both strategy formation (she called it content) and also strategy implementation (she called it process). y Strategic management is partially planned and partially unplanned. y Strategic management is done at several levels: overall corporate strategy, and individual business strategies. y Strategic management involves both conceptual and analytical thought processes. Growth and portfolio theory In the 1970s much of strategic management dealt with size, growth, and portfolio theory. The PIMS study was a long term study, started in the 1960s and lasted for 19 years, that attempted to understand the Profit Impact of Marketing Strategies (PIMS), particularly the effect of market share. Started at General Electric, moved to Harvard in the early 1970s, and then moved to the Strategic Planning Institute in the late 1970s, it now contains decades of information on the relationship between profitability and strategy. Their initial conclusion was unambiguous: The greater a company's market share, the greater will be their rate of profit. The high market share provides volume and economies of scale. It also provides experience and learning curve advantages. The combined effect is increased profits.[8] The studies conclusions continue to be drawn on by academics and companies today: "PIMS provides compelling quantitative evidence as to which business strategies work and don't work" - Tom Peters. The benefits of high market share naturally lead to an interest in growth strategies. The relative advantages of horizontal integration, vertical integration, diversification, franchises, mergers and acquisitions, joint ventures, and organic growth were discussed. The most appropriate market dominance strategies were assessed given the competitive and regulatory environment. There was also research that indicated that a low market share strategy could also be very profitable. Schumacher (1973),[9] Woo and Cooper (1982),[10] Levenson (1984),[11] and later Traverso (2002)[12] showed how smaller niche players obtained very high returns. By the early 1980s the paradoxical conclusion was that high market share and low market share companies were often very profitable but most of the companies in between were not. This was sometimes called the hole in the middle problem. This anomaly would be explained by Michael Porter in the 1980s. The management of diversified organizations required new techniques and new ways of thinking. The first CEO to address the problem of a multi-divisional company was Alfred Sloan at General Motors. GM was decentralized into semi-autonomous strategic business units (SBU's), but with centralized support functions. One of the most valuable concepts in the strategic management of multi-divisional companies was portfolio theory. In the previous decade Harry Markowitz and other financial theorists developed the theory of portfolio analysis. It was concluded that a broad portfolio of financial assets could reduce specific risk. In the 1970s marketers extended the theory to product portfolio decisions and managerial strategists extended it to operating division portfolios. Each of a companys operating divisions were seen as an element in the corporate portfolio. Each operating division (also called strategic business units) was treated as a semi-independent profit center with its own revenues, costs, objectives, and strategies. Several techniques were developed to analyze the relationships between elements in a portfolio. B.C.G. Analysis, for example, was developed by the Boston Consulting Group in the early 1970s. This was the theory that gave us the wonderful image of a CEO sitting on a stool milking a cash cow. Shortly after that the G.E. multi factoral model was developed by General Electric. Companies continued to diversify until the 1980s when it was realized that in many cases a portfolio of operating divisions was worth more as separate completely independent companies. The psychology of strategic management
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Several psychologists have conducted studies to determine the psychological patterns involved in strategic management. Typically senior managers have been asked how they go about making strategic decisions. A 1938 treatise by Chester Barnard, that was based on his own experience as a business executive, sees the process as informal, intuitive, non-routinized, and involving primarily oral, 2-way communications. Bernard says The process is the sensing of the organization as a whole and the total situation relevant to it. It transcends the capacity of merely intellectual methods, and the techniques of discriminating the factors of the situation. The terms pertinent to it are feeling, judgement, sense, proportion, balance, appropriateness. It is a matter of art rather than science.[86] In 1973, Henry Mintzberg found that senior managers typically deal with unpredictable situations so they strategize in ad hoc, flexible, dynamic, and implicit ways. He says, The job breeds adaptive information-manipulators who prefer the live concrete situation. The manager works in an environment of stimulous-response, and he develops in his work a clear preference for live action.[87] In 1982, John Kotter studied the daily activities of 15 executives and concluded that they spent most of their time developing and working a network of relationships from which they gained general insights and specific details to be used in making strategic decisions. They tended to use mental road maps rather than systematic planning techniques.[88] Daniel Isenberg's 1984 study of senior managers found that their decisions were highly intuitive. Executives often sensed what they were going to do before they could explain why.[89] He claimed in 1986 that one of the reasons for this is the complexity of strategic decisions and the resultant information uncertainty.[90] Shoshana Zuboff (1988) claims that information technology is widening the divide between senior managers (who typically make strategic decisions) and operational level managers (who typically make routine decisions). She claims that prior to the widespread use of computer systems, managers, even at the most senior level, engaged in both strategic decisions and routine administration, but as computers facilitated (She called it deskilled) routine processes, these activities were moved further down the hierarchy, leaving senior management free for strategic decions making. In 1977, Abraham Zaleznik identified a difference between leaders and managers. He describes leadershipleaders as visionaries who inspire. They care about substance. Whereas managers are claimed to care about process, plans, and form.[91] He also claimed in 1989 that the rise of the manager was the main factor that caused the decline of American business in the 1970s and 80s. Lack of leadership is most damaging at the level of strategic management where it can paralyze an entire organization.[92] According to Corner, Kinichi, and Keats,[93] strategic decision making in organizations occurs at two levels: individual and aggregate. They have developed a model of parallel strategic decision making. The model identifies two parallel processes both of which involve getting attention, encoding information, storage and retrieval of information, strategic choice, strategic outcome, and feedback. The individual and organizational processes are not independent however. They interact at each stage of the process. Reasons why strategic plans fail There are many reasons why strategic plans fail, especially: y Failure to understand the customer o Why do they buy o Is there a real need for the product o inadequate or incorrect marketing research y Inability to predict environmental reaction o What will competitors do  Fighting brands  Price wars o Will government intervene y Over-estimation of resource competence o Can the staff, equipment, and processes handle the new strategy o Failure to develop new employee and management skills y Failure to coordinate o Reporting and control relationships not adequate o Organizational structure not flexible enough
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Failure to obtain senior management commitment o Failure to get management involved right from the start o Failure to obtain sufficient company resources to accomplish task y Failure to obtain employee commitment o New strategy not well explained to employees o No incentives given to workers to embrace the new strategy y Under-estimation of time requirements o No critical path analysis done y Failure to follow the plan o No follow through after initial planning o No tracking of progress against plan o No consequences for above y Failure to manage change o Inadequate understanding of the internal resistance to change o Lack of vision on the relationships between processes, technology and organization y Poor communications o Insufficient information sharing among stakeholders o Exclusion of stakeholders and delegates Limitations of strategic management Although a sense of direction is important, it can also stifle creativity, especially if it is rigidly enforced. In an uncertain and ambiguous world, fluidity can be more important than a finely tuned strategic compass. When a strategy becomes internalized into a corporate culture, it can lead to group think. It can also cause an organization to define itself too narrowly. An example of this is marketing myopia. Many theories of strategic management tend to undergo only brief periods of popularity. A summary of these theories thus inevitably exhibits survivorship bias (itself an area of research in strategic management). Many theories tend either to be too narrow in focus to build a complete corporate strategy on, or too general and abstract to be applicable to specific situations. Populism or faddishness can have an impact on a particular theory's life cycle and may see application in inappropriate circumstances. See business philosophies and popular management theories for a more critical view of management theories. In 2000, Gary Hamel coined the term strategic convergence to explain the limited scope of the strategies being used by rivals in greatly differing circumstances. He lamented that strategies converge more than they should, because the more successful ones get imitated by firms that do not understand that the strategic process involves designing a custom strategy for the specifics of each situation.[94] Ram Charan, aligning with a popular marketing tagline, believes that strategic planning must not dominate action. "Just do it!", while not quite what he meant, is a phrase that nevertheless comes to mind when combatting analysis paralysis. The Linearity Trap It is tempting to think that the elements of strategic management (i) reaching consensus on corporate objectives; (ii) developing a plan for achieving the objectives; and (iii) marshalling and allocating the resources required to implement the plan can be approached sequentially. It would be convenient, in other words, if one could deal first with the noble question of ends, and then address the mundane question of means. But in the world in which strategies have to be implemented, the three elements are interdependent. Means are as likely to determine ends as ends are to determine means.[95] The objectives that an organization might wish to pursue are limited by the range of feasible approaches to implementation. (There will usually be only a small number of approaches that will not only be technically and administratively possible, but also satisfactory to the full range of organizational stakeholders.) In turn, the range of feasible implementation approaches is determined by the availability of resources. And so, although participants in a typical strategy session may be asked to do blue sky thinking where they pretend that the usual constraints resources, acceptability to stakeholders , administrative feasibility have been lifted, the fact is that it rarely makes sense to divorce oneself from the environment in which a strategy will have to be implemented. Its probably impossible to think in any meaningful way about strategy in an unconstrained environment. Our brains cant process boundless
y

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possibilities, and the very idea of strategy only has meaning in the context of challenges or obstacles to be overcome. Its at least as plausible to argue that acute awareness of constraints is the very thing that stimulates creativity by forcing us to constantly reassess both means and ends in light of circumstances. The key question, then, is, "How can individuals, organizations and societies cope as well as possible with ... issues too complex to be fully understood, given the fact that actions initiated on the basis of inadequate understanding may lead to significant regret?"[96] The answer is that the process of developing organizational strategy must be iterative. It involves toggling back and forth between questions about objectives, implementation planning and resources. An initial idea about corporate objectives may have to be altered if there is no feasible implementation plan that will meet with a sufficient level of acceptance among the full range of stakeholders, or because the necessary resources are not available, or both. Even the most talented manager would no doubt agree that "comprehensive analysis is impossible" for complex problems[97]. Formulation and implementation of strategy must thus occur side-by-side rather than sequentially, because strategies are built on assumptions which, in the absence of perfect knowledge, will never be perfectly correct. Strategic management is necessarily a "repetitive learning cycle [rather than] a linear progression towards a clearly defined final destination."[98] While assumptions can and should be tested in advance, the ultimate test is implementation. You will inevitably need to adjust corporate objectives and/or your approach to pursuing outcomes and/or assumptions about required resources. Thus a strategy will get remade during implementation because "humans rarely can proceed satisfactorily except by learning from experience; and modest probes, serially modified on the basis of feedback, usually are the best method for such learning."[99] It serves little purpose (other than to provide a false aura of certainty sometimes demanded by corporate strategists and planners) to pretend to anticipate every possible consequence of a corporate decision, every possible constraining or enabling factor, and every possible point of view. At the end of the day, what matters for the purposes of strategic management is having a clear view based on the best available evidence and on defensible assumptions of what it seems possible to accomplish within the constraints of a given set of circumstances. As the situation changes, some opportunities for pursuing objectives will disappear and others arise. Some implementation approaches will become impossible, while others, previously impossible or unimagined, will become viable. The essence of being strategic thus lies in a capacity for "intelligent trial-and error"[100] rather than linear adherence to finally honed and detailed strategic plans. Strategic management will add little value -- indeed, it may well do harm -- if organizational strategies are designed to be used as a detailed blueprints for managers. Strategy should be seen, rather, as laying out the general path - but not the precise steps - by which an organization intends to create value.[101]Strategic management is a question of interpreting, and continuously reinterpreting, the possibilities presented by shifting circumstances for advancing an organization's objectives. Doing so requires strategists to think simultaneously about desired objectives, the best approach for achieving them, and the resources implied by the chosen approach. It requires a frame of mind that admits of no boundary between means and ends. Strategic thinking vs. strategic planning According to Liedtka (98) strategic thinking differs from strategic planning along the following dimensions of strategic management:

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Vision of the Future Strategic Formulation and Implementation Managerial Role in Strategy Making

Strategic Thinking Only the shape of the future can be predicted. Formulation and implementation are interactive rather than sequential and discrete. Lower-level managers have a voice in strategy-making, as well as greater latitude to respond opportunistically to developing conditions. Relies on self-reference a sense of strategic intent and purpose embedded in the minds of managers throughout the organization that guides their choices on a daily basis in a process that is often difficult to measure and monitor from above. All managers understand the larger system, the connection between their roles and the functioning of that system, as well as the interdependence between the various roles that comprise the system. Sees strategy and change as inescapably linked and assumes that finding new strategic options and implementing them successfully is harder and more important than evaluating them. Sees the planning process itself as a critical value-adding element.

Strategic Planning A future that is predictable and specifiable in detail. The roles of formulation and implementation can be neatly divided. Senior executives obtain the needed information from lower-level managers, and then use it to create a plan which is, in turn, disseminated to managers for implementation. Asserts control through measurement systems, assuming that organizations can measure and monitor important variables both accurately and quickly.

Control

Managerial Role in Implementation

Lower-level managers need only know his or her own role well and can be expected to defend only his or her own turf.

Strategy Making

The challenge of setting strategic direction is primarily analytic.

Process Outcome

and

Focus is on the creation of the plan as the ultimate objective.

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