Strategies for a New Millennium

1. Strategies for a New Millennium • The New Environment of Business • Strategic Management Practice • Management Thinking • Knowledge and Learning • New Organizational Forms OUTLINE

2. Directions in Strategic Management Practice • Key trends of the 1990s : • Quest for shareholder value • Adjusting to turbulence • Outcomes : • Cost cutting : Shift to dynamic sources of efficiency • Refocusing on performance management and performance incentives • Major influences on strategy : • Resources, capabilities, and “core competences” • Dynamic aspects of competition ---game theory, Schumpetarian competition • Competitive advantage through networks, standard, & bandwagons • Modern financial analysis---shareholder value, economic profit, option theory

3. New Directions in Strategic Thinking • BEYOND DOWNSIZING • Gains from cost cutting and downsizing largely exhausted • Need to access new sources of profitability • IMPLICATIONS : • Emphasis on more complex sources of competitive advantage requires development of architectural or meta capabilities • Emphasis on learning • Need for new organizational forms e.g. interest in self-organization

4. Knowledge Management and the Knowledge-Based View of the Firm KNOWLEDGE UTILIZATION • Need to identify knowledge with the firm ---- role of knowledge audits, competency modeling, knowledge libraries, identification of best practices • Need to transfer knowledge • Critical distinction between tacit and explicit knowledge • Need to transform tacit into explicit knowledge • Design of organization structure to optimize knowledge use location of knowledge and decision making; knowledge integration through teams; modular structures • KNOWLEDGE CREATION • Traditional view knowledge created through research • Nonaka Knowledge creation through knowledgeconversion (explicit tacit; individual firm

5. New Organizational Forms Process-based organizations Organizing around business processes Recognizing corporate processes - entrepreneurial process - competence building process - renewal process Project-based organization engineering cos., consulting cos., also manufacturing cos. e.g. Oticon Parallel structures separate structures of separate management processes e.g. 3M, TQM, change management process Network and Virtual Organization the boundaryless corporation e.g. Sun Microsystems, Cisco Systems, Italian clothing manufacturers

6. New Models of Leadership • THE LEADERSHIP NEEDS • OF ORGANIZATIONS • The ability to: • build confidence • build enthusiasm • cooperate • deliver results • form networks • influence others • use information • THE REQUIRED • COMPETENCIES OF • BUSINESS LEADERS • business literacy • creativity • cross-cultural • effectiveness • empathy • flexibility • proactivity • problem-solving • relation-building • teamwork • vision

7. New Environment & Strategic Change Why are many companies surprised by changes in their industry environments? • Key premise is that all business environments are in a state of change. • Many managers are unable to see industry changes or to appreciate the impact of those changes on their industry.

8. Factors that Contribute to Lack of Responsiveness • Managerial thinking and environmental change. • Managers fail to anticipate or adequately respond to change for three reasons: • They simply fail to notice the changes. • Managers can be aware of changes, but they fail to interpret these changes correctly. • Even if some managers notice the changes and they interpret them correctly, they might still fail to adopt an appropriate course of action.

9. Factors that Contribute to Lack of Responsiveness • The problem of noticing. • Interpretation of data. • Limits in organizational action.

10. Factors that Contribute to Lack of Responsiveness • Failures in organizational learning also limit organizational adaptation and change. • Firms that only use lower-level learning are vulnerable to being blindsided by new rivals, technologies, and products.

11. Factors that Contribute to Lack of Responsiveness • Lower-level learning • Characterized by improvements in or refinements of existing beliefs, understandings, and organizational processes. • Higher-level learning • Developing totally new beliefs, understandings, and organizational processes.

12. Factors that Contribute to Lack of Responsiveness • Without higher-level learning, firms can fall into “competency traps.” • Unfortunately, most firms allocate more resources to lower-level learning.

13. Factors that Contribute to Lack of Responsiveness • Two factors influence the extent of higher-level learning: • Higher-level learning is most likely to result from problemistic search. • Second factor which is important to success of higher-level learning is absorptive capacity.

14. Factors that Contribute to Lack of Responsiveness • Organizations can overcome the dangers of like-minded thinking in at least two ways. • Give greater attention to “contrarian voices.” • Encourage greater turnover among top management ranks.

15. Factors that Contribute to Lack of Responsiveness • Power of industry influences in limiting organizational change. • Industry norms and standards (the so-called “common body of knowledge”) can blind managers to new opportunities, technologies, and potential competitors.

16. Factors that Contribute to Lack of Responsiveness • Summary: 4 factors can limit responsiveness of managers to industry changes: • Problems associated with noticing, interpreting, and responding to changes. • Tendency for managers to emphasize low-level learning over high-level learning. • Tendency for organizational hiring and promotion practices to foster homogeneity in managerial thinking. • Power of institutionalized industry practices.

17. Strategic Planning Processes • Advantages of strategic planning: • Allow firms to determine what needs to be done now to maximize future performance. • Provide opportunities for managers to question basic assumptions underlying their firms’ strategies.

18. Strategic Planning Processes • Problems or limitations associated with strategic planning. • Planning often fails to acknowledge the emerging nature of much strategic activity. • Too often planning relies on regression-based forecasting procedures which merely extend present trends into the future. • Strategic planning process typically produces “point estimates” rather than a range of possible outcomes.

19. Strategic Planning Processes (cont.) • Planning data are often used -- incorrectly -- for evaluating the performance of management personnel. • Incentives often awarded to executives for “meeting the plan.”

20. Implications and Recommendations • Organizational learning and strategic change. • Organizational learning is essential if firms are going to formulate and implement strategic change successfully. • It’s unlikely that managers will simply embrace or welcome change. • Therefore, managers must institutionalize change.