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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