Thursday, July 20, 2006

STRATEGY AND THE CEO

I’ve been reading this book by Henry Mintzberg. It is called, Strategy Safari, A Guided Tour Through The Wilds of Strategic Management. The book is all about how strategies are created within the firm. It lists 10 schools of Strategic Management and how each school crafted strategy. Not only that, the book also define the role of the CEO in each school in relation to the strategy formation process. According to Mintzberg, strategies are crafted either by deliberate action, i.e., through analysis and planning process, by the learning process i.e., understanding that strategies “emerges” as a trend and later adopted, or by maintaining consistency, i.e., strategies as a constant pattern of action or by combining the three. Each of the schools emphasizes one “process” of strategy making over the other with certain modifications for schools with almost similar ideas. The 10 schools according to Mintzberg are:
1. The Design School
2. The Planning School
3. The Positioning School
4. The Entrepreneurial School
5. The Cognitive School
6. The Learning School
7. The Power School
8. The Cultural School
9. The Environmental School
10. The Configuration School
The differentiation of the field of Strategic Management thinking into 10 schools is actually a fine one and probably debatable but Mintzberg made distinction quite clearly. Of the 10 schools, the first 4 emphasize more on deliberate strategies while the remaining schools focuses more on the emergent strategies with varying emphasis on strategies as patterns. The last school though makes use of the 3 types of planning process.
The Design School believes that the strategy formation is a process of conception. Strategies developed here are deliberate through careful analysis of the environment and the opportunity it presents and the threats it posed while at the same understanding the strength and weaknesses of the company in face of such environment. In this school, the task of “conceiving” strategy lies squarely on the CEO, be he the head of a small company or a large organization with global presence. The CEO is the master strategist and it’s chief executor, period. In order for that to happen, the CEO should be an exceptional genius in order to craft such a grand strategy based primarily on their intuitive analysis. This is because of the breadth, size, complexity, and scope of the organization where the strategy would be applied.
The Planning School views strategy making as a formal process. Like the first school, strategies are deliberate and are the outcome of analysis and planning. The difference however is that the Planning School believes that strategy formation should go through a step-by-step procedure of deliberation and analysis. In here, analysis is no longer limited but is pretty much overblown, in – depth, and concise. Because of the requirement of an in depth analysis, CEOs can’t simply do the job, instead a host of analyst does the job for him. In fact, an entire department was created to do precisely that and this unit is usually the Corporate Planning department of a company. Here, the CEO is no longer the “genius” for he is no longer the chief strategist; the Corporate Planner Head now takes that role. The CEO as the title implies (Chief Executive Officer) executes the strategy formulated by the CORPLAN group ensuring that strategies gets implemented as intended. In this school, action is differentiated from thinking while in the Design School, action and thinking is united as one.
The Positioning School on the other hand viewed strategy making as an analytical process. Here, there is no CORPLAN group, instead there is a staff of experts who readily analyzes the impact of environment changes on the company and advises the CEO. The CEO here decides on it en route to crafting a strategy. This school believes that there are only a finite number of viable strategies on the table for the CEO to choose from. In order words, given a set of conditions, only a handful of strategic choices known as positions are available to choose from and most importantly, these positions are generally known to all the industry participants. So much so that companies within the same industries having more or less the same orientation and capabilities adopts the same position. The CEO’s role here although a thinking one is reduce to merely choosing a viable and defensible “position” and not crafting a creatively new strategy. Once a position is chosen, the CEO must pursue it, hence, strategy here though initially deliberate (planned) becomes a pattern over time since “positions” takes time to build.
The Entrepreneurial School of Strategic Management believes that strategy creation as a visionary process. Here, the CEO is both the strategist and the executor but unlike in the Design School wherein the CEO is the master strategist. The Entrepreneur/Visionary is the master. In the words of one CEO, he is the dictator, the king, the emperor, or god whatever you may want to call him because he alone holds the vision and only his interpretation of that vision is legitimate/correct. The CEO of the Design School tries to find a fit between environment and company but for a Visionary, the company/organization is for him to craft and mold to fit his liking. It is in this latter fact that the role of the CEO in this school is one of opportunity seeking. Strategy here though deliberate becomes a pattern for the most part. In fact, strategy as a term is no longer relevant. The more appropriate term more often used here is the business model.
The Cognitive School holds that strategy formation is a mental process, i.e., it exists in the mind of the CEO colored with his own biases and his own interpretations. The CEO’s main role here is a thinker and his approach to strategy hinges less on trying to “cope” with the environment using the company’s capability rather it relies more on “how” the company should be coping. In short, the CEO is more interested in the “paradigm” of the company. An example would be the concept of customer. In the old paradigm, customers are institutions or people that buys the company’s end products. In the new paradigm, customers are not outside the organization but could be anyone down below the supply chain, i.e., the concept of internal customers.
The Learning School of Strategic Management considers strategy making as an emergent process. Strategy formation here follows the dictum “learning as we go”. CEOs of this school believes that strategy is a complex undertaking and that people at the center abrogating all the decision making powers are insulated from the outside environment and hence, couldn’t possibly appreciate the intricacies of the “outside world” much like the frontline people. Hence, CEOs of this school favors decentralization and are obsessed with creating a “learning” organization, i.e., an organization that learns as it goes and react automatically without the CEOs intervention, which may come too late. The CEOs role in school functions not as a strategy maker but as a “controller” and ‘overseer” of the entire strategy making process, i.e., others makes the strategy, the CEO just ensures that the strategies are in the right path. However, the CEO of this school varies in the “looseness” of control exerted over strategy making. Some CEOs prefer to put up an umbrella strategy, imposing constraints and limits, communicating rather clearly their preferences but leaves the content and execution of the strategy to the “frontline”. Other CEOs prefer to control the processing side of strategy by providing support services like HR, Finance, etc in order to make the strategy work. The frontline unit handles the content of strategy as well as the execution but the resources required for implementation comes from the center. Still, another variation would be to form a consensus strategy wherein each autonomous unit plan and direct their own strategy and the CEO’s role here is to prevent friction and conflict among the various units with overlapping interest by “balancing” each other through consensus. Picture that of a newspaper publishing with many egoistic reporters vying for the same story but with different angle.
The Power School views the entire strategy making process as a process of negotiation. The CEO in this school is the ultimate deal maker for he has to consider the demands of the various stakeholders, which includes among others employees, shareholder, government regulator, community, customers, interest/pressure group, etc. Each stakeholder has a legitimate claim on the company and their demand is many and varied. The CEO doesn’t try to satisfy all the demands of the all stakeholders for that is impossible neither does he tries to maximize the satisfaction of a particular stakeholder for that would be difficult and risky if not unwise. Instead, the CEO “satisfice” the various stakeholders by meeting their minimum demands. Hence, the CEO negotiates. Strategy here is crafted not only based on the exigencies of the market but also on the imperatives of the deal (and therefore, it is largely emergent). In the end, after this entire balancing act, the CEO must be able to enhance his power, prestige, and influence. In this case, a Power School CEO should be a superb politician.
The Cultural School is different from the Power School in that this school believes that strategy formation is a process of social interaction based upon the shared beliefs and understanding of the members of the organization. Here, strategy is collectively developed and the CEOs role is that of a team leader. He not only defends the company values vigorously but also epitomizes the company spirit. However, once the organization is faced with a crisis that threatens its survival, the CEO also plays the role of “rule breaker”, one that tries to recast the mold of the company hopefully for the better.
The Environmental School holds that strategy formation is a reactive process, one in which the environment plays a very active role. The CEO merely reacts to the environmental forces, i.e., he doesn’t have the initiative. His role is that of a contingency planner or a crisis manager, not a strategist in full control of the situation. In fact, I surmised, strategy doesn’t exist at this school, instead, a set of logical common sense rules are in place, heuristic rules. Heuristic rules are those kind of rules that contains a pre - condition and an established response as in “If this happens, we should do this” rules.
The last school of thought in Strategic Management is the Configuration School. This school believes that strategy formation is a process of transformation. It view strategy as changing through the entire life cycle of the organization. During start – up, strategy tends to reflect the entrepreneurial school of thinking; while growing, strategy formation tends to mimic a learning process; on maturity, strategy tends to follow the planning school of formalize planning process; and in it’s decline, strategy reflects that of environmental school of reactive process. The role of CEO also changes along the life cycle path of the company. In short, each situation dictates a different kind of leadership approach. Hence, the CEO’s role is situational.
As I said, the differentiation of the various school of though is a fine one and one that probably exist in the mind of an academician for in real life experience, a CEO would probably play all the roles of the different school of thought. He could be a visionary and also a master deal maker. He could be a team player but also a mere executor relying on a think tank rather than a thinker. However, the difference for each CEOs and CEOs do differ from one another is in their emphasis of what role they assume. In fact, one could gather much by simply understanding how do CEOs “see” themselves. A CEO maybe both a visionary and a deal maker but he is more of a deal maker if he sees himself in such light. Hence, I believe that any deserving CEO should be able to grasp their conception of their role in the organization and understand how the grand strategy flows from such self – conceptualization in order to improve their leadership capability and that of their organization’s performance as well.

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