1.1 Learning objectives
After completing this chapter you will:
• be able to describe the forces affecting success and failure in today’s commercial world
• be able to locate the salient literature relating to the evolution of business strategy
• appreciate the nuances of strategic planning and implications for organisations seeking
• be familiar with some of the recent thrusts in strategic management and implications for
• comprehend the effect of organisational context on strategy development and organisa-
• be aware of the objectives and structure of the book.
The field of strategy is concerned with formulating, implementing and evaluating effective proactive responses. Academics and consultants advocate a plethora of approaches to develop effective strategies but the media is replete with examples of failed strategies. Problems cited relate to a failure by the CEO to deliver increased value added, or powerful stakehold-ers may feel that the strategy is being implemented too slowly. After two years in the role of Barclays’ CEO, Anthony Jackson got ousted in July 2015 over “slow pace of growth”. Tellingly, Jackson was appointed with the brief that included reforming the bank’s culture, which had been tarnished by a series of scandals under the previous CEO. In terms of growth the share price rise under Jackson had been a respectable 65 per cent, but for the correspond- ing period, that of its peer, Lloyds, was 180 per cent. On a broader European dimension other banking CEOs left their posts too. Deutsche Bank’s co-CEOs Anshu Jain and Jurgen Fitschen, Standard Chartered’s Peter Sands, and Credit Suisse’s Brady Dougan were ousted as investors lost patience with the rate of recovery. The banking industry went through regu-latory changes and together with the duality of economic and market cycles led to the need for new growth oriented business models. Figure 1.1 illustrates the frustration with strategic planning efforts.
In contrast, if we adopt a longitudinal perspective, some companies have appointed a series of CEOs who collectively have failed to compete effectively in their marketplaces. Organisations such as Marks and Spencer, and HP, have made a series of bold statements highlighting their new strategies with varying attempts to be innovative and customer oriented. But they still lag behind their respective peer groups. Marks and Spencer suffered 14 consecu-tive quarters of declining growth before there was an upturn for the quarter to 28 March 2015.
The then CEO, Marc Bolland, had spent billions of pounds investing in the redesign of new
products, stores, and logistics. Moreover, its general merchandising poor performance was unaltered during declining sales, and despite hyped new fashion teams and a new website, customers were being lured to other organisations. The world advances in terms of scope, scale and speed (see Figure 1.2). The information technology industry is fast-paced and demanding. Firms competing in this industry have to be continually making growth announcements to satisfy shareholders. HP has had a turbulent past and since the beginning of the third millennium has made three significant acquisitions: Compaq (in 2001), Palm (in 2010) and Autonomy (in 2011). All three have been arguably an error of strategy. Meg Whitman became CEO of HP in 2011, after her predecessor Leo Apotheker got rid of the HP PC business and spent US$7bn in acquiring Autonomy to focus on software. The Autonomy debacle led to HP making an $8.8bn write-down in its books. As part of its turnaround plan, on 1 November 2015, HP split itself into two publicly traded businesses, HP Enterprises providing technology infrastructure, software and services for corporate IT, and HP Inc. focusing on personal systems and printing markets.
The UK public sector too has a litany of failures. Mergers within the National Health Service (NHS) have cost billions, but according to leading health think tank, The King’s Fund (Collins, 2015) they do not solve the issues that they were formed to address. Similar to its private sector counterparts, mergers are proposed to help reduce debt-ridden trusts with the process taking up to five years. Collins states that “senior management can be over confident about their ability to lead major projects, while systematically overestimating the benefits and underestimating the risks”. The NHS has to deliver its mandate from government and fulfil its duty to enhance outcomes for people. Charities can also be casualties of the current economic climate. Kids Company, a charity founded in 1996 by Camila Batmanghelidjh provided practical, emotional and educational support to inner-city children and young people in the cities of London, Bristol and Liverpool. Despite its high profile, Kids Company suffered from funding difficulties and closed in August 2015, causing the government to find alternative support for 6,000 vulnerable children. In the case of the public sector, failure ultimatelyreinforces the importance of the business–society relationship. These examples highlight a waste of healthcare resources, and vulnerable children having to find other interventions for their problems. Both represent high social costs to vulnerable members of society.
Big brands too have had notable product failures such as Nike, Mercedes, and Home Depot in China. Nike’s design of white sneakers created for the year of the monkey, incorporated special Chinese characters printed on both heels. The sneakers looked smart but the character on the left shoe, Fa, means good fortune and the character on the right shoe, Fu, symbolises wealth. Unfortunately, when both characters are combined the meaning changes to become fat. Mercedes Benz, too, suffered from a phonetic nightmare. The company chose the name Ben Si, which sounds like Benz, but actually means rushing to die. This is some-what worrying for a motor vehicle. Home Depot is a market-leading American firm that provides supplies for Do It Yourself (DIY) work at home. The firm was excited by the size of the commercial opportunity in China. Sales never took off in China. On reflection, management realised that the majority of potential customers in the major cities lived in modern buildings, which did not need the attention of DIY. Also, in the Chinese culture, DIY is perceived as a sign of poverty. Collectively, these examples show that having a large budget cannot prevent causing major organisational trauma from mistakes. Some of the key trends shaping the business context are shown in Figure 1.3.
The opening to this chapter uses practical examples to illustrate failure at the corporate and product level. We also reiterate the fact that strategic management outcomes are not always the same as we teach in universities. Following a precise set of instructions does not always translate into success. By reviewing the evolution of strategy theory over the last five decades and comparing this with managerial practice, we briefly draw attention to strategic planning. The salient strategic planning literature is highlighted, and observations suggest that much of the prior strategic management literature is replete with rigorous quantitative and qualitative empirical studies, but currently lacks behavioural rigor and practical relevance. While an abundance of textbooks consider the general nature of strategic management, few texts really focus on how organisations create value in today’s business environment. Next, we consider the new thrusts of the strategic management literature. Organisational success through a theoretical lens is briefly explored. Then, the chapter overviews the remaining chapters of the textbook, which seek not to necessarily advocate a
List of figures ix
List of tables xii
1 Introduction 1
Strategic management primer 23
2 Strategy 25
3 Strategic analysis 46
4 Case study analysis 80
5 Creating the global organisation 101
6 Creating value in a global context 118
7 Emerging economies 143
Contemporary themes 157
8 Strategic agility and design 159
9 Business ethics 178
10 Digital strategy 195
11 Small and medium-sized enterprises 210
PAUL PHILLIPS AND SIMON RABY
12 Strategic performance measurement 228
Radical/futures themes 249
13 Strategic thinking 251
14 The future of the future 268