Dozens of schools of thought claim to have the most widely applicable and useful framework for strategy development and implementation. The purpose of the table below is to show how an organization can choose the most appropriate fine-tuning school of thought in order to make for a compelling argument to proceed in one direction versus another. A single strategy school or framework is not universally applicable. Organizational managers usually make choices as to how to fine-tune their strategies to match the situations in which an organization finds itself.
The table shows two major dimensions for identifying these fine-tuning choices. First, determine the company’s desires, needs, and abilities. This company analysis takes into account a set of information relevant to what the company does well (core competencies) and what the company wants to achieve. This information is summarized on a continuum of shaping the industry or adapting to it. The next step is to do an analysis of the predictability of the industry and markets in which the company operates. This information is summarized in terms of high to low predictability. The two analyses together help to define ways to fine-tune an organizational strategy.
An example might help to clarify this approach. Many organizations move into international markets after domestic markets become mature. In this case, assume an organization is dominant in its domestic market. This movement globally means the organization will face new market conditions and new competitors. The industry boundaries expand and the industry behavior often becomes less certain. Thus, the fine-tuning approach prior to moving internationally was more certain and an organization could shape industry outcomes given its domestic dominance. Moving internationally changes the game. The organization is in a less certain territory and management finds that its organization needs new skills and information. Prior to the move internationally, organizations would use more tactics of consolidation or re-configuring value chains or developing the core business. The new situation calls for more of an evolutionary process with experimentation to learn about these new markets. Organizations would tend to use real options or scenarios to understand their situation and to guide their behavior. This geographic change can cause some anxious moments as the strategic thinking approach has changed and is less in line with the organization’s history.
Blockchains are decentralized transaction ledgers across a peer-to-peer network. This technology helps participants confirm transactions without a central authority. Blockchains have the potential to disrupt every industry. Individual information, such as healthcare records or bank accounts, would no longer need a central authority to control the information. Blockchains could mean that individuals own their own identities and data.
What would happen to a business such as Facebook or Google when consumers discover that information is more secure in a distributed blockchain than behind elaborate firewalls?
Wal-Mart simulated a recall under a blockchain system tracing a bag of sliced mangoes in 2.2 seconds; 18 hours, 25 minutes and 57.8 seconds faster than Wal-Mart’s other tracking system.
Change the Lens
Strategic lenses are not monolithic. A strategic lens is a dominant logic that guides overall strategic thinking. I’ll outline six lenses. These dominant logics can be used to find new and innovative ways to design a strategy and to stimulate discussions about important strategic issues.
Market-inspired: This lens directs strategists to see the environment as full of customers whose wants and needs should be fulfilled. Strategists using this lens find ways to design the firm to meet as many of these needs and wants as possible.
This lens inspired a functional area within organizations (the marketing organization) and has been a dominant logic or lens for strategy work. This view means that organizations compete for market share of product markets. The firm’s strategy process is focused on decision-making and organizational design and is about gathering and processing information on customers and product markets. Value-Price relationships define a firm’s market positioning– low price; no frills; differentiation, or niche.
Industrial Organization: This lens focuses on the industry dynamics in which a firm competes and the value chain of which it is a part. An industry is a group of firms producing products that are close substitutes. This view emphasizes the boundaries of the firm, the players that impact the industry, and the relationship among the players. This lens’s underlying assumption is that industry structure dynamics determine industry performance. This logic extends to firms that can and will act differently within a given industry structure. This lens suggests that firms pursue one of three strategies: cost leadership; differentiation; focus. Each strategy accomplishes competitive advantage outcomes in different ways. The often cited Five Forces model describes industries in terms of the threat of new entrants, the bargaining power of the suppliers and customers, threats of substitutes, and the competitive dynamics of the existing competitors. This lens also suggests that the firm can be divided into various value activities. The primary activities are inbound logistics, operations, outbound logistics, marketing and sales, and service. Support activities include such activities as human resource management, infrastructure, and technology. The strategist looks inside the firm to determine if and how these activities add-value within the chosen strategy. This view has little to say about who structures change or how forces become stronger or weaker.
Resource-Based View takes the firm as a starting point for strategic thinking. The resource-based view complements the marketing-inspired lens and the industrial organization lens. The firm is viewed as a production function in which the output of a firm is determined by what is put in. These inputs are resources. Firm differences are explained by the differences in each firm’s resources. The more resources are valuable, rare, not easily copied, and cannot be substituted the more they will create competitive advantage outcomes. This view suggests that the resources and their use help to determine competitive outcomes. The skills and technologies that the firm uses will dictate how successful the firm will be. The essence of the firm is not the static resources but the way resources are developed and used. If these resources and their use are adaptable (called dynamic in the strategy literature) they can be applied to adjacent businesses or to handle volatility.
Some of these resources and their use are special– they confer unusual amounts of value on the firm. Firms often refer to their core competencies which are cumulative learnings about how to combine and coordinate diverse skills and technologies. Sometimes this is what firms mean by “focusing on the core.”
Stakeholder: This lens points to a wider organizational purpose, i.e., satisfying various people, or collectives of people, who have some stake in the firm. Organizations are political entities where conflicts of interests are resolved. The different interests are material to the firm’s functioning and the firm resolves these differences to create more organizational value. Organizations using this lens tend to value corporate social responsibility. Shareholders are but one stakeholder. This lens complements the next lens, the institutional lens, which emphasizes the firm’s legitimacy. This generalized perception is a determination of where the firm’s actions are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and regulations. Some authors view organizations as a nexus of formal and informal contracts. One complicated relationship is the owner and management which forms a classic agency challenge. Resolutions to the agency challenges include incentives, norms, culture, contracts, and power.
Institutional: This lens focuses on taken-for-granted repetitive social behaviors that are supported by normative systems and cognitive understanding that give meaning to social exchange and enable successful actions to be self-reproducing.
Organizations are viewed as institutions and rely on institutions. For example, several successful organizations copy the behaviors of competitors. This interaction among organizations can be formal or informal.
One can see institutions using several tactics while using this lens. Institutions look alike. Companies in a mature industry tend to be similar in many ways creating little strategic differentiation. Some force others to act such as larger organizations exercise power over suppliers. Sometimes organizations purposely mimic behaviors. Entrepreneurial companies that look like successful larger organizations tend to be rewarded by customers and capital markets. Sometimes regulation, such as bank regulators, force certain behaviors on banks that may be detrimental to the bank’s strategy.
The outcome of these tactics is legitimacy– organizations are viewed as legitimate by its stakeholders. The next table shows some examples of common U.S. institutions that interact with business organizations. These institutions influence organizations and vice versa. The more an organization can adhere to the norms and cognitive understanding of these institutions, the more it looks legitimate.
Sustainability: The sustainability lens emphasizes nature as a resource, showing ways that organizations can move beyond compliance and cost-cutting and use sustainability as a source of competitiveness. The sustainability concept is approached in three ways. It includes how we use the planet’s resources, incorporates a history of human behavior, explores existing unsustainable practices, and develops a vision and means to change these practices. The sustainability field of study is then defined as satisfying current needs without sacrificing future well-being through the balanced pursuit of ecological health, economic welfare, and social welfare. These two foci culminate in a set of likely outcomes, which includes the attainment of a sustainable world with resilient economies, societies and natural environments.