Strategic Decisions of Business

Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Chapter 6 History and culture Part I The strategic position Exploring Strategy Twelfth Edition Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Learning outcomes • Analyse how history influences the strategic position of an organisation, especially via path dependence. • Distinguish different kinds of cultures, national- geographical, field-level and organisational. • Analyse the influence of an organisation’s culture on its strategy using the cultural web . • Identify organisations which may be experiencing the symptoms of strategic drift . Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The influence of history and culture Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Historical relationships (1 of 2) There are four kinds of relationships between the past and the present in strategy: • Historical continuity due to either inherited resources (e.g. customer data in social media) or ‘path dependencies’, early events and decisions that establish ‘policy paths’ with lasting effects on subsequent events and decisions (e.g. aircraft choice for airlines) • Historical selection , where managers deliberately select useful elements for preservation from the past, for example, historical learning from past experiences and successes or historical legitimacy and reputation Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Historical relationships (2 of 2) There are four kinds of relationships between the past and the present in strategy: • Historical rediscovery involves returning (wholly or partly) to past strategies, typically due to the failure of more recent ones • Historical rupture involves a complete break with the past, typically following a technological disruption or organisational crises Four relationships between strategy and history Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Methods of historical analysis Chronological analysis Cyclical influences Key events and decisions Historical story-telling Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Organisational culture Organisational culture is the taken-for-granted assumptions and behaviours that are shared within a particular group and help to make sense of the organisational context. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Cultural frames of reference Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Geographically based cultures • Different countries may have different cultures. • Such cultures may mean attitudes to work, risk- taking, authority, equality, ethics and behaviours differ between countries/regions. • Subnational cultures may also differ within a country, for example, Northern and Southern Italy. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Geographically based cultures Hofstede suggests that there are at least four key dimensions upon which national cultures tend to differ: • Power distance. • Individualism-collectivism. • Long-term orientation. • Uncertainty avoidance. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The organisational field An organisational field is a community of organisations that interact more frequently with one another than with those outside the field and that have developed a shared culture. Examples might include: • Justice – law firms, police forces, courts, prisons and probation services. • Accountancy – accountants, auditors and tax inspectors. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Categorisation • The ways in which members of an organisational field categorise (or label) themselves and their activities has significant implications for what they do. • Over time, members of an organisational field tend to converge on dominant categorisation schemes. • Example – the use of the ‘tablet’ as a category in the computing industry. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Recipes A recipe is a set of assumptions, norms and routines held in common within an organisational field about the appropriate purposes and strategies of field members. For example, the shared understanding and behaviours of health professionals – doctors, nurses, pharmacists, ambulance service. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Legitimacy Legitimacy is concerned with meeting the expectations within an organisational field in terms of assumptions, behaviours and strategies. Strategies can be shaped by the need for legitimacy in several ways: • Regulation. • Normative expectations. • The recipe. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Culture in four layers Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The paradigm The paradigm is the set of assumptions held in common and taken for granted in an organisation. The paradigm: • is likely to be about basic but fundamental assumptions about the organisation (e.g. policing is about ‘thief taking’). • informs what people in the organisation do. • influences how organisations respond to change . Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Organisational subcultures There are often subcultures in organisations : • Differences between geographical divisions in a multinational company. • Differences between functional groups such as finance, marketing and operations. • Different nature of work in different functions – for example, in an oil company differences between those functions engaged in ‘upstream’ exploration and those concerned with ‘downstream’ retailing. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Organisational identity Organisational identity refers to what members believe and understand about who they specifically are as an organisation. Managers and entrepreneurs often try to manipulate organisational identity because it is important for recruiting and guiding employees, interacting with customers and dealing with regulators (e.g. Carslberg wanted to redefine itself as a fast-moving consumer goods business rather than a brewer). Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Culture’s influence on strategy Culture may have a major influence on strategy: • ‘Cultural glue’ – employees often cohere around the founding principles and values of an organisation (e.g. IKEA). • Captured by culture – faced with changes in the environment, people may cling to solutions within the existing culture. • Managing culture – culture change is difficult to manage. Culture’s influence on strategy Source : Adapted from P. Gringer and J.-C. Spender, Turnaround: Managerial Recipes for Strategic Success, Associated Business Press, 1979, p. 203. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The cultural web (1 of 7) The cultural web shows the behavioural, physical and symbolic manifestations of a culture that inform and are informed by the taken-for-granted assumptions, or paradigm, of an organisation. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The Cultural web of an organisation Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The cultural web (2 of 7) • Which are embedded in history? • What behaviour do routines encourage? • What are the key rituals? • What assumptions and core beliefs do rituals reflect? • What do training programmes emphasise? • How easy are routines/rituals to change? Rituals and routines Paradigm Rituals/ routines Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The cultural web (3 of 7) • Tend to be about heroes, villains, mavericks, successes and disasters. • What core beliefs do the stories reflect? • What stories are commonly told, for example, to newcomers? • How do stories reflect core assumptions and beliefs? • What norms do mavericks deviate from? Stories Paradigm Stories Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The cultural web (4 of 7) • Symbols are objects, events, acts or people that convey meaning over and above their functional purpose. • What objects, people or events do people in the organisation particularly identify with? • What are these symbols related to in the history of the organisation? • What aspects of strategy are highlighted in publicity? Symbols Symbols Paradigm Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The cultural web (5 of 7) • Where does power reside? • Who makes things happen? • Who stops things happening? • Indicators include: – Status. – Claim on resources. – Symbols of power. Power structures Paradigm Power structures Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The cultural web (6 of 7) • What are the formal but also informal organisational structures? • Do structures encourage collaboration or competition? • What types of power structure do they support? Organisational structures Paradigm Organisation Structure Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The cultural web (7 of 7) • What is closely monitored/controlled? ‒ Formally. ‒ Informally (e.g. social control). • Is emphasis on reward or punishment? • Are controls rooted in history or current strategies? • Are there many/few controls? Paradigm Control Systems Control systems Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Undertaking cultural analysis When conducting cultural analysis: • The cultural web – working through all seven elements can help build an understanding of a culture. • Statements of cultural values – be aware that statements in company reports (e.g. values statements) can be misleading about the actual culture. • Pulling it together – a cultural web can be quite detailed so it can be useful to summarise the essence of a culture in a few brief statements. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Strategic drift (1 of 2) Strategic drift is the tendency for strategies to develop incrementally on the basis of historical and cultural influences, but fail to keep pace with a changing environment. Strategic drift (2 of 2) Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Incremental strategic change • Gradual change in alignment with environmental change. • Building on successful strategies used in the past. • In successful businesses, there are usually quite long periods of continuity where strategies are largely unchanged or change incrementally. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The tendency towards strategic drift (1 of 2) Strategies fail to keep pace with environmental change because: • Steady as you go – reluctance to accept that change may require moving away from strategies that have been successful. • Building on the familiar – uncertainty of change is met with a tendency to stick to the familiar. • Core rigidities – capabilities that are taken for granted and deeply embedded are difficult to change. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The tendency towards strategic drift (2 of 2) • Relationships become shackles – organisations be reluctant to disturb relationships with customers, suppliers or the workforce. • Lagged performance effects – the financial performance of the organisation may hold up initially (e.g. due to loyal customers or cost cutting) masking the need for change. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved A period of flux As performance declines and the organisation becomes out of touch with its environment, a period of flux may occur typified by: • Strategic change, but in no clear direction. • Top management conflict and managerial changes. • Internal disagreement on the ‘right’ strategies. • Declining performance and morale. • Customers becoming alienated . Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Transformational change or death As performance continues to deteriorate the outcome is likely to be: • The organisation dies (e.g. goes bankrupt or into receivership). • The organisation is taken over (and perhaps radically changed by new owners). • The organisation implements transformational change – multiple, rapid and fundamental changes. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Summary (1 of 2) • Historical relationships may play a significant part in the success or failure of an organisation and can be used by managers to support their strategies. There are historical analyses that can be conducted to help uncover these influences. • Cultural and institutional influences both inform and constrain the strategic development of organisations . • Organisational culture is the basic taken-for-granted assumptions, beliefs and behaviours shared by members of an organisation . Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Summary (2 of 2) • The seven elements of the cultural web are useful for analysing organisational cultures and their relationships to strategy. • Historic and cultural influences may give rise to strategic drift as strategy develops incrementally on the basis of such influences and fails to keep pace with a changing environment. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Commentary on Part I The strategy lenses Exploring Strategy Twelfth Edition Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The strategy lenses (1 of 3) The strategy lenses are ways of looking at strategy issues differently in order to generate many insights. Looking at problems in different ways will raise new issues and new solutions. Strategy can be seen as: • Design • Experience • Variety • Discourse Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The strategy lenses (2 of 3) The design lens views strategy development as a logical process of analysis and evaluation. The most common view of strategy is as an objective and formal process. The experience lens views strategy development as the outcome of people’s taken- for-granted assumptions and ways of doing things. This view emphasises the roles of people, history and culture in strategy. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved The strategy lenses (3 of 3) The variety lens views strategy as the bubbling up of new ideas from the variety of people in and around organisations. Strategic ideas can emerge from the bottom of an organisation or from outside organisations. The discourse lens views language as important both for understanding and changing strategy and for managerial power and identity. This view exposes the hidden meanings in manager’s language and in their political interests. Strategy as design (1 of 3) Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Strategy as design (2 of 3) Key assumptions: • Systematic analysis is the key to developing ‘good’ strategies. • Analysis precedes action in a linear process. • Objectives should be clear and precise . • Organisations are hierarchies where top managers develop the strategy for the organisation. • Organisations work mechanically – pulling the right ‘levers’ produces predictable results. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Strategy as design (3 of 3) Key implications: • It helps in dealing with complexity and uncertainty . The rational, logical and structured approach makes the point that strategy is more than guesswork. • Meeting stakeholder expectations . Rational procedures and analysis meets the expectations of important stakeholders (e.g. banks, Investors). It is re- assuring and legitimises the strategy process. Strategy as experience (1 of 3) Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Strategy as experience (2 of 3) Based on insights from ‘The Behavioural Theory of the Firm’ ( H.Simon ), it highlights problems of rational analysis: • External constraints on rationality. It is impossible to obtain all the information needed for a comprehensive analysis. Forecasts can never be 100% accurate. • Internal psychological limitations. Managers tend to suffer from two problems – ‘bounded rationality’ and ‘cognitive bias’. This bias results from the manager’s individual experience and collective experience. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Strategy as experience (3 of 3) Key implications: • Analysis is typically biased to some extent. Managers bring their experience to bear on every strategy issue – complete objectivity is impossible. • Watch out for undue conservatism. Experience leads to routine responses and the ‘tried and tested’. • Analysis can cost more than it’s worth. Too much analysis is very costly and can lead to ‘paralysis’. • Experience may provide a good enough guide. Rules of thumb and instinct can be effective . • Challenge the consensus. Outside views can be useful and organisations should avoid ‘groupthink’. Strategy as variety (1 of 3) Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Strategy as variety (2 of 3) The variety lens builds on insights from evolutionary theory and complexity theory. Key elements are: • Variety of ideas . Organisations and players in their environments are a rich source of new ideas, for example, sales staff interacting with customers. Even mistakes can generate new strategies (e.g. Post-it notes). • Selection . Ideas may be adopted simply because they fit the existing selection criteria (‘internal fit’) or get ‘positive feedback’ from stakeholders and the market place. • Retention . Particular policies and procedures become embedded – they become ‘routines’ within the culture of an organisation. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Strategy as variety (3 of 3) Key implications: • Allow for emergence . Rather than being deliberately designed, strategies can emerge from outside the top management. • Encourage interaction, experiment and change . Some potentially disruptive interactions can generate a variety of new ideas – cross departmental initiatives and communication with outside players. • Attend to the rules . Managers should pay attention to the ‘context of strategy’. Organisations can adopt ‘simple rules’ for strategy selection and retention. Strategy as discourse (1 of 3) Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Strategy as discourse (2 of 3) Strategy involves a high level of discourse – in both spoken and written communications (e.g. in meetings, plans, reports press releases, etc.) Discourse has three important effects on strategy: • Shaping understanding . The language used can be convincing and motivating. Using strategic jargon and techniques can add legitimacy and be used to convince stakeholders to adopt particular strategies. • Defining identities . How managers talk about strategy can lead to the adoption of a particular identity (either by choice or others’ perceptions). For example, managers can become ‘strategists’, ‘heroes’, ‘leaders’, ‘entrepreneurs’ or ‘competitors’. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Strategy as discourse (3 of 3) • Instrument of power . Understanding the concepts and language of strategy gives managers power. They can exert this power over those who do not have it and it can attract followers. Key implications: • Use strategy discourse skillfully . Choosing appropriate language can add legitimacy to particular strategies or the individuals using it. • Treat strategy discourse sceptically. Discourse can also be used as a ‘smokescreen’ to advance the power and influence of managers. It is important to question the rhetoric and not accept everything at face value. Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved Video • https://www.youtube.com/watch?v=XDNyi S7zORI 56 The strategy lenses summary Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved