The strategy formulation process
A recent McKinsey survey of executives (September 2006) on strategic planning, strategy implementation and utilisation identified the following:
- Most companies have a formal strategic planning process, but some don't use it to make their most important decisions
- Fewer than half of respondents were satisfied with their company's approach to making strategic decisions, although senior managers were more satisfied than other levels of management
- Staff would like the opportunity to align their activities more closely to strategic plans and to see their companies invest more in monitoring progress against the plan
Combe (1999) suggests that there are five schools of thought in strategy formulation. These are listed below, with the specific paradigms that fit into these schools, along with a sixth category, identified by Inkpen and Chowdhury in 1995—the absence of strategy.
1. Rational choice; rational planning, modernist, functionalist, holistic
2. Determinism, evolutionary
3. Developmentalism, evolutionary, process, resource-based
4. Probabilism, ecological, process, game theory, behavioural social context
5. Chaos, postmodernist, Chaos theory
6. [Absence of strategy (Inkpen & Chowdhury 1995)]
In addition to these schools of thought regarding strategy, there are also different perspectives on or lenses through which we can view organisational strategy formulation. These lenses may be used individually or together, however, frequently several are required to adequately address the issues an organisation will be facing. These lenses include:
1. Resources, the allocation of resources for maximum effectiveness
2. Financial, the financial perspective on strategy formulation considers revenue and costs, with an emphasis on value generation.
3. Economic, the economic perspective tends to apply to the entire industry (microeconomics) or even whole countries (macroeconomics)
4. Human resource, the human resources perspective focuses on the value the organisation is gaining from its employees.
5. Systems, systems perspective considers: internal factors and the internal processes of the organisation.
6. Technological, a technological perspective considers the competitive advantage that can be achieved through the use of technology to improve the organisation's internal processes.
7. Networks, this perspective considers organisational and industry relationships, supply chains, contacts and industry advisers.
8. Knowledge, finally, the knowledge perspective considers how much the organisation knows about the
implementation of strategy, competitors and current/new markets.
Altogether, we can identify four patterns of, or, what Markides (2000) calls, 'approaches to' strategy formulation. These can be classified as:
4. processual (Markides, 2000).
Viljoen and Dann (2003: 42–44) define these patterns somewhat differently, referring to them as:
1. normative and descriptive approaches
2. formal versus incremental approaches.
A more traditional description of these approaches (and the Markides' equivalent) is:
1. Sequential—formulating strategy is regarded as a sequence of activities (processual)
2. Incremental and interactive—formulating strategy involves an interplay between the activities of analysis, choice and implementation (systematic)
3. Hierarchical—formulating strategy is mainly information-driven by the results of activities performed at different organisational levels (classical)
4. Revolutionary—formulating strategy is organic, innovation-driven, and part planning and part trial and error (emergent).
To achieve its goal and remain competitive, an organisation needs to be creative and difficult to predict, rather than unswervingly pursuing a long-term specified goal. Organisational goals shift as the environment changes. Steadfastly moving in a predictable manner makes the organisation an easy target for competitors.
When using one of the strategy formulation processes we have described, three key determinants are: policies, the strategy itself, and the selection of resources to meet the organisation's objectives.
1. Policies outline the organisation's objectives, thereby prescribing its operational domain.
2. Strategy, in terms of it being a corporate statement of intended action, is a design or plan of how the goals, as articulated by the policy, will be achieved.
3. Resources are needed to implement the plan. Without resources, strategy is nothing more than an intention.