TEN SCHOOL OF THOUGHTS

• "Strategy can be defined as the determination of the basic long-term goals and objectives of
an enterprise, and the adoption of courses of action and the allocation of resources
necessary for carrying out these goals." Alfred Chandler
• “Strategy is a unified, comprehensive, and integrated plan […] designed to ensure that the basic
objectives of the enterprise are achieved.” William Glueck
• “Economic strategy will be seen as the match between qualifications and opportunity that
positions a firm in its environment.” Porter
• “Strategy in general and realized strategy in particular, will be defined as a pattern in a stream
of decisions. When a sequence of decisions in some area exhibits a consistency over time,
a strategy will be considered to have formed.” Henry Mintzberg
Thus, Strategy definitions are greatly influenced by different perspectives on the organization
and the strategy formation process. The organizational aspects which influence strategy
formation are:
Individual (strategist)
• Strategy formation greatly influenced by cognitive barriers of the strategist
• Vision of the CEO as a driving factor for strategy and performance
Organisation
• Resources and capabilities as bases for competitive advantage
• Consideration of organisation’s ability to learn and transform in strategy formation
• Consideration of power structures in strategy formation
External Environment
• Strategy as a differentiated positioning in a competitive market
• Strategy as a mechanistic reactive process determined by external conditions (evolutionary
theory)
Apart from Organizational aspects, Static and dynamic aspects mentioned below also influence
the strategy formation.
Static – deliberate strategy
• Planned strategic behaviour
• Strategy carefully formulated by key strategists after profound external and internal analysis
• Separation of strategic analysis, strategy formation and implementation
Dynamic – emergent strategy
• Unplanned strategic behaviour of the organization
• Strategy as the convergence of decisions and actions from multiple sources into an integrated
strategic pattern
• On-going process of requiring continuous reassessment and reformation
To develop an understanding about the strategy and its formulation we need to understand
the "10 schools of strategic thought" and there clustering.
1 Design school (Strategy as a designed set of decisions)Deliberate Strategy
2 Planning school (Strategy as the process of planning) Deliberate Strategy
3 Positioning school (Strategy as a position in the market)Deliberate Strategy
4 Learning School (Strategy as a result of organizational learning) Emergent Strategy
5 Cultural school (Strategy as a result of culture and capabilities) Emergent
Strategy
6 Power School (Strategy as a result of power play) Emergent Strategy
7 Cognitive School (Strategy as a result of strategic interpretation) Individual Focus Strategy
8 Entre-preneurial School (Strategy as the vision of the leader)Individual Focus Strategy
9 Environmental School (Strategy as a reaction to the market) External Focus Strategy
10 Configuration School (Mintzberg‘s attempt to create a synthesis between the deliberate
and emergent schools)
11 Critique of 10 School
The design school proposes a model of strategy making that seeks to attain a fit between internal
capabilities and external possibilities. Strategy formulation is a deliberate process of
conscious thought. The CEO is the key strategist who devises the strategy and controls its
execution. The process of strategy formulation must be kept simple and formal. Formulated
strategies should be explicit and must be kept simple. The strategy design process is complete
once a strategy is formulated. Strategies can only be implemented once they are
fully formulated. The design school laid the foundation for strategic planning in companies. The
design school laid the foundation for strategic thinking by:
• Defining strategy formulation as a deliberate, conscious process
• Stating the need for both external and internal analysis
• Differentiating between strategy formulation and implementation
• The design school model is applicable in situations where
• One brain can, in principle, handle all of the information relevant to strategy formulation
• That brain is able to have full, detailed knowledge of the situation
• The situation is relatively stable and predictable
• A centralized top-down strategy can be rolled out in an organisation
Shortcomings of design school:
• The key strategist is limited in his ability to assess internal and external conditions; a solely top-
down driven strategy formulation process can fail to tap the organisation’s knowledge
• Formulated strategies are inflexible to change; both external changes in the environment and
internal changes in the organization cannot be taken into account until a new round of
strategy formulation begins
• Separation of strategy formulation from strategy execution lessens the ability to learn from
one’s own mistakes
The planning school formalizes the strategy formulation process into distinct process steps with
timelines. Strategies result from a controlled, conscious process of formal planning, decomposed
into distinct steps, each delineated by checklists and supported by techniques.Responsibility for
that overall process rests with the chief executive in principle; responsibility for its execution
rests with staff planners in practice. Strategies appear from this process finished and ready for
implementation, to be made explicit so that they can then be implemented through detailed
attention to objectives, budgets, programs, and operating plans of various kinds. Some of the
Implications of planning school:
• Companies establish elaborated planning processes with defined tasks and timelines.
• Strategic planning departments take over the tasks of assessing internal and external
environments and creating plans; CEO only reviews and approves formulated strategies.
• Scenario planning is increasingly used as a tool to account for unpredictability of future events
in strategic plans.
• The formulated strategy is not left to itself but is rather translated into concrete actions plans
and budgets.
• Strategy execution is ensured through deliberate controlling mechanisms, such as balanced
score cards.
• The planning process is receiving a greater focus than strategy content, leading to an
substantial increase in management tools and strategy process frameworks, mostly
developed by strategy consulting firms.
The positioning school focuses on strategy content and prescribes the use of analytical
frameworks for strategic decision making. Strategies are generic, identifiable positions in a
competitive marketplace. The strategy formation process is therefore one of selection of these
generic positions based on analytical calculation. Analysts play a major role in this process,
feeding the results of their calculations to managers who officially control the choices. Market
structure drives deliberate positional strategies that drive organizational structure.
• The question of “what makes firms successful” was attempted to be answered in various ways,
leading to a multitude of frameworks that may guide management in strategic analysis of
markets and firms
• Frameworks define strategic choices along simple and concrete analytical dimensions
• Content of competitive strategy is defined along comprehensible dimensions, i.e.
breadth of product portfolio and relative pricing
• The attractiveness of a given market is defined along the dimensions of pressures from
competitors, suppliers, customers, substitutes and new entrants
• Broad avenues of empirical research opened up as a result of competitive frameworks that
attempt to explain why companies succeed and fail
Shortcomings of positioning school:
• Narrow focus on specific strategic variables such as market share (BCG matrix) can bias
strategies into particular directions without taking into account the bigger picture
• Example: In 1977 external conditions of Honda suggested it should not enter the automobile
business
• Markets were saturated
• Efficient competitors existed in Japan, USA and Europe
• Honda had close to no experience in automobiles
• Honda had no distribution system for automobiles
• A bias towards external conditions may lead to disregard internal capabilities of firms
• Relatively static view of strategy that does not take into account dynamic aspects of
transformation
“The dirty little secret of the strategy industry is that it doesn’t have any theory of strategy
creation”- Gary Hamel
The learning school states that strategy is a result of learning that occurs at all levels throughout
the organization. The complex and unpredictable nature of an organisation’s environment,
coupled with a decentralized distribution of knowledge inside the organisation, rules out
deliberate control. Strategy making is a process of learning over time, occurring throughout the
entire organisation. As learning occurs continuously, strategy formulation and implementation
become indistinguishable. Learning happens in an emergent fashion, through behavior that
stimulates thinking retrospectively, so that sense can be made of action. The role of leadership
is to manage the process of learning, whereby new strategies can emerge. Also, highlighting and
describing a bottom-up driven strategy formation process that is driven through an incremental
process of learning from within the organization, which was previously not described by the
prescriptive schools of strategy. It is a highly relevant theory that is empirically proven in the
context of product diversification and internationalization of companies. Descriptive theory that
is especially relevant for companies that operate in highly complex environments with
decentralized knowledge in innovation-driven markets. Through the lens of core competences,
strategy is not about a position in the market but rather about the ability to build and leverage
resources. Learning school excursus the theory of core competences and much like the concept
of core competences, the resource-based view emphasizes a firm’s capabilities as the key
building blocks of strategy. The learning school describes previously disregarded bottom-up
driven elements in the strategy formation process.
Critique of the learning school:
• No description of external factors in the process of strategy formation
• Potential risks that can occur in an organization that over-emphasizes the learning school as a
primary methodology for strategy creation
• Instead of formulating and following a vision and a strategy, the organization falls into
short-term tactical maneuvering.
• Good strategies, once formulated, may be unlearned as the organization drifts away
into many different directions at the same time (‘strategic drift’).
• The learning process may fall victim to collective cognitive fallacies such as group-think
and escalating commitment.
In the cultural school strategy formation is subject to a company’s unique values, subjective
perspectives and styles of decision-making. Strategy formation is a process of social interaction
that is based on the beliefs and understandings shared by the members of an organization. An
individual acquires these beliefs through a process of socialization within the organization.
Strategy takes the form of perspective, rooted in collective intentions and reflected in the
patterns by which the embedded resources, or capabilities, of the organization are protected and
used for competitive advantage. Culture and especially ideology do not encourage strategic
change; they tend to promote shifts in position within the organization's overall strategic
perspective. Against previous schools, the cultural school introduces a collectivist dimension of
social process in strategy formation. The cultural school offers an integrated perspective on the
organization and regards interactions between individual players. The cultural school brings to
light how strategic change is always a change in culture; as a result when addressing strategy one
must necessarily also address culture. A link between culture and strategy are evident firstly in
Decision-making style --- Much like it is taught by the cognitive school, culture acts as a
perceptual filter or lens that establishes a person‘s decision premises. Also by influencing ways
of perception, analyses and thinking, culture becomes a fundamental element of strategy
formation. Secondly, Resistance to strategic change --- Before strategic learning can occur, the
old dominant logic must be unlearned by the organization. Thirdly, Dominant values ---
Successful companies are said to organize around key values (e.g. innovation, quality, service)
rather than following strategies and finally in Culture clash --- M&A strategies are bound to be
confronted with cultural clashes between two inherently different corporate cultures.
Critique of the cultural school:
• There lies a danger in equating organizational uniqueness with strategic competitive
advantage; being different is not always good and may result in arrogance that is not
based on actual advantages
• Potentially the cultural school focuses too much on internal capabilities while disregarding
external conditions
The power school views strategy creation as a political process of negotiating, forming coalitions
and promoting one’s own interests. Strategy formation is shaped by power and politics, as a
process inside the organization or as the behavior of the organization in its external environment.
Strategies that may result from such a process tend to be emergent. Micro power sees strategy
making as the interplay of stakeholders through persuasion, bargaining, and sometimes direct
confrontation, in the form of political games, among interests and shifting coalitions. Macro
power sees the organization as promoting its own welfare by controlling or cooperating with
other organizations through the use of strategic maneuvering as well as collective strategies in
various kinds of networks and alliances. Politics are a system of influence can act in a Darwinian
way to ensure that the strongest members of an organization are brought into positions of
leadership. Politics can ensure that all sides of an issue are fully debated, whereas the other
systems of influence may promote only one. Politics may be required to stimulate necessary
change that is blocked by the more legitimate systems of influence. Politics can ease the path for
the execution of change. There are various political tools which can be applied in strategy
negotiation. Some of those tools are mentioned subsequently i.e. Equifinality: very often it is
possible to achieve similar results using different means or paths; management can choose
different means that achieve similar results rather than imposing one method for achieving them.
Satisfying: in politics it is common to strive for satisfactory results and ensuring their
achievement rather than striving for optimal, yet unrealistic, results. Focus on higher-order
issues: by raising discussions to a higher order level many of shorter term interests can be
postponed in favor of more fundamental longer term interests (e.g. survival of company vs. wage
increases). Anticipate coalition behavior: in organizations coalitions of people formed around
certain interests; anticipating coalition behavior, identifying core participants in coalitions and
analyzing reasons for joining a coalition can help managers to be better prepared for
organizational politics.
The entrepreneurial school focuses on the CEO’s vision as the key determinant of strategy.
Strategy exists in the mind of the leader as a perspective, specifically a sense of long-term
direction, a vision of the organization's future. The process of strategy formation occurs in a
rather unconscious way, rooted in the experience and intuition of the leader. The leader
promotes the vision single-minded, maintaining close personal control of the implementation in
order to be able to reformulate specific aspects when necessary. The organization is a simple
structure responsive to the leader's directives, whose procedures and power relationships allow
the visionary leader considerable space for maneuvering. The entrepreneurial school enjoys
relatively high relevance in North America where investors put high hopes into the ability of
individual managers. Strategy formulation is focused on tapping opportunities rather than on
solving problems. Personal power is centralized within the leading individual; the organization is
weak in plan and structure; rather plans are replaced by the vision of the leader. In face of high
uncertainty, strategy formation is characterized by large, bold decisions forward. The dominant
goal of the entrepreneurial organization is growth rather than efficiency and cost-cutting. The
cognitive school views the strategy formation process under the constraint of bounded
rationality. Strategy formation is a cognitive process that takes place in the mind of the strategist,
these inputs flow through all sorts of distorting filters in the perception of the strategist before
they are decoded by cognitive maps, or else are merely interpretations of a world that exists only
in terms of how it is perceived. “Bounded rationality limits CEO s in their perception of external
conditions and interpretation of strategic options”
• Companies have no inherent choice; they only react to external conditions in a pre-
programmed manner. Environment school strategy formation is a reactive process. The
environment, presenting itself to the organization as a set of general forces, is the central
actor in the strategy making process. The organization must respond to these forces, or
else be "selected out”. Leadership thus becomes a passive element for purposes of
reading the environment and ensuring proper adaptation by the organization.
Organizations end up clustering together in distinct ecological type niches, positions
where they remain until resources become scarce or conditions too hostile. Critique of
the environmental school:
• Failure to explain why companies in very similar environments perform very differently as a
result of their unique competitive positioning.
• Vast generalization of company’s environments that often does not match the complexity of
the real external conditions companies face; generally companies face many different
types of environments at the same time.
• The egg and chicken question: do certain environments bring about certain organizations or
do organizations shape their environments?
The configuration school attempts to find a synthesis of all aspects of the nine other strategy
schools. An organization can be described in terms of some kind of stable configuration of its
characteristics: for a distinguishable period of time, it adopts a particular form of structure
matched to a particular type of context. These periods of stability are interrupted abruptly by
transformation. During transformation periods the organization leaps to a new type of
configuration that better fits into the changed environment. These successive states of
configuration and periods of transformation may order themselves over time into patterned
sequences. Organizations undergo cycles of stable phases interrupted by phases of transition.
The key to strategic management is to sustain stability or at least adaptable strategic change,
while periodically recognizing the need for transformation and being able to manage the
disruptive process of transformation effectively without harming the organization. The process
of strategy making can be one of conceptual designing or formal planning, systematic analysis or
leadership visioning, cooperative learning or competitive politicking, focusing on individual
cognition, collective socialization, or simple response to the forces of the environment (any of
the previously mentioned schools); but each must be found at its own time and in its own context.
The resulting strategies take the form of plans or patterns, positions or perspectives, or else
ploys, but again, whether a deliberate or an emergent strategy configuration is applied by the
organization depends on its unique context in which it finds itself.
The configuration school partially resolves the conflict between emergent and deliberate
strategy schools by incorporating both aspects of strategy formation. The Emergent strategy is
formed from within the organisation during periods of stability. Deliberate strategy is formed
from management and consultants during periods of transition. It states that deliberate and
emergent strategy both have their place in organizations, but their applicability varies depending
on the context of the organization, culture and the environment. The configuration school is
criticized as being too rigid in its distinction between phases of stability and transition phases.
Critique of the configuration school:
• Criticized as relatively simplistic and mechanistic view of the firm / general classifications of
companies that often only represent extreme cases (e.g. simple structures, machine
bureaucracies, innovating adhocracies).
• Rigid differentiation between periods of stability, and quantum changes during transition
phases often do not reflect strategy formation in reality where companies continuously
transition some departments or parts of the entire organisation incrementally.
• Lack of explanation of how firms manage transition.