Twenty-First-Century Challenges in Strategic Management

Three particular challenges or decisions that face all strategists today are (1) deciding whether the process should be more an art or a science, (2) deciding whether strategies should be visible or hidden from stakeholders, and (3) deciding whether the process should be more top-down or bottom-up in their firm.¹⁵

1. The Art or Science Issue

This book is consistent with most of the strategy literature in advocating that strategic manage­ment be viewed more as a science than an art. This perspective contends that firms need to systematically assess their external and internal environments, conduct research, carefully evalu­ate the pros and cons of various alternatives, perform analyses, and then decide on a particular course of action. In contrast, Mintzberg’s notion of “crafting” strategies embodies the artistic model, which suggests that strategic decision making be based primarily on holistic thinking, intuition, creativity, and imagination.¹⁶ Mintzberg and his followers reject strategies that result from objective analysis, preferring instead subjective imagination. “Strategy scientists” reject strategies that emerge from emotion, hunch, creativity, and politics. Proponents of the artistic view often consider strategic planning exercises to be time poorly spent. The Mintzberg philoso­phy insists on informality, whereas strategy scientists (and this text) insist on more formality.

Mintzberg refers to strategic planning as an “emergent” process, whereas strategy scientists use the term deliberate process.¹⁷

The answer to the art-versus-science question is one that strategists must decide for them­selves, and certainly the two approaches are not mutually exclusive. the CEo of Williams- Sonoma, Laura Alber, recently stated, “I’ve found that the very best solutions arise from a will­ingness to blend art with science, ideas with data, and instinct with analysis.” In deciding which approach is more effective, however, consider that the business world today has become increas­ingly complex and more intensely competitive. There is less room for error in strategic plan­ning. Recall that Chapter 1 discussed the importance of intuition, experience, and subjectivity in strategic planning, and even the weights and ratings discussed in Chapters 3, 4, and 6 certainly require good judgment. But the idea of deciding on strategies for any firm without thorough research and analysis, at least in the mind of these authors, is unwise. Certainly, in smaller firms there can be more informality in the process compared to larger firms, but even for smaller firms, a wealth of competitive information is available on the Internet and elsewhere and should be collected, assimilated, and evaluated before deciding on a course of action on which survival of the firm may hinge. The livelihood of countless employees and shareholders may hinge on the effectiveness of strategies selected. Too much is at stake to be less than thorough in formulating strategies. It is not wise for a strategist to rely too heavily on gut feeling and opinion instead of research data, competitive intelligence, and analysis in formulating strategies.

2. The Visible or Hidden Issue

An interesting aspect of any competitive analysis discussion is whether strategies themselves should be secret or open within firms. The mini-case near the end of this chapter examines this issue for TJX Companies, a secretive company. The Chinese warrior Sun Tzu and military lead­ers today strive to keep strategies secret, because war is based on deception. But for business organizations, secrecy may not be best. Keeping strategies secret from employees and stake­holders at large could severely inhibit employee and stakeholder communication, understand­ing, and commitment, as well as forgo valuable input that these persons could have regarding formulation or implementation of that strategy. Thus, strategists in a particular firm must decide for themselves whether the risk of rival firms easily knowing and exploiting a firm’s strategies is worth the benefit of improved employee and stakeholder motivation and input. Most execu­tives agree that some strategic information should remain confidential to top managers, and that steps should be taken to ensure that such information is not disseminated beyond the inner circle. For a firm that you may own or manage, would you advocate openness or secrecy in regard to strategies being formulated and implemented?

There are certainly good reasons to keep the strategy process and strategies themselves vis­ible and open rather than hidden and secret. There are also good reasons to keep strategies hidden from all but top-level executives. Strategists must decide for themselves what is best for their firms. This text comes down largely on the side of being visible and open, but certainly this may not be best for all strategists and all firms. As pointed out in Chapter 1, Sun Tzu argued that all war is based on deception and that the best maneuvers are those not easily predicted by rivals. Business and war are analogous in many respects.

Four reasons to be completely open with the strategy process and resultant decisions are these:

1. Managers, employees, and other stakeholders can readily contribute to the process. They often have excellent ideas. Secrecy would forgo many excellent ideas.
2. Investors, creditors, and other stakeholders have greater basis for supporting a firm when they know what the firm is doing and where the firm is going.
3. Visibility promotes democracy, whereas secrecy promotes autocracy. Domestic firms and most foreign firms prefer democracy over autocracy as a management style.
4. Participation and openness enhance understanding, commitment, and communication within the firm.

However, four reasons why some firms prefer to conduct strategic planning in secret and keep strategies hidden from all but the highest-level executives are as follows:

1. Free dissemination of a firm’s strategies may easily translate into competitive intelligence for rival firms who could exploit the firm given that information.
2. Secrecy limits criticism, second guessing, and hindsight.
3. Participants in a visible strategy process become more attractive to rival firms who may lure them away.
4. Secrecy limits rival firms from imitating or duplicating the firm’s strategies and undermin­ing the firm.

The obvious benefits of the visible versus hidden extremes suggest that a working balance must be sought between the apparent contradictions. Parnell says that in a perfect world all key individuals both inside and outside the firm should be involved in strategic planning, but in prac­tice, particularly sensitive and confidential information should always remain strictly confiden­tial to top managers.¹⁸ This balancing act is difficult but essential for survival of the firm.

3. The Top-Down or Bottom-Up Approach

Proponents of the top-down approach contend that top executives are the only persons in the firm with the collective experience, acumen, and fiduciary responsibility to make key strategy decisions. In contrast, bottom-up advocates argue that lower- and middle-level managers and employees who will be implementing the strategies need to be actively involved in the process of formulating the strategies to ensure their support and commitment. Recent strategy research and this text emphasize the bottom-up approach, but earlier work by Schendel and Hofer stressed the need for firms to rely on perceptions of their top managers in strategic planning.¹⁹ Strategists must reach a working balance of the two approaches in a manner deemed best for their firms at a particular time, while being cognizant of the fact that current research supports the bottom-up approach, at least among U.S. firms. Increased education and diversity of the workforce at all levels are reasons why middle- and lower-level managers—and even nonmanagers—should be invited to participate in the firm’s strategic planning process, at least to the extent that they are willing and able to contribute.

Source: David Fred, David Forest (2016), Strategic Management: A Competitive Advantage Approach, Concepts and Cases, Pearson (16th Edition).