Eddielogic

– Thoughts on Strategy and Management

Strategy in dynamic times

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OliverA couple of days ago I was involved in a discussion concerning the sense of strategy in the times of financial crisis. I think that is a very interesting question, whether organizations should “think strategically” in a situation with a very dynamic and unstable environment (e.g. like the current financial crisis and global economic recession). If you cannot predict the future (what nobody can basically, even not in dynamic times), is it really appropriate to spend resources on strategic thinking?

First of all I would like to reconsider the basic principles of strategy. A situation (e.g. the financial crisis) when the corporate environment can be described as very unstable, is not that new. During the so called “New economy” (do you remember?) the concepts and ideas of strategy it its broadest sense including strategic planning were treated as less important. There seem to be no time for strategic thinking; “business operations were started with an experimental approach in order to adapt them later on market conditions”. Another reason was that experience for such a situation of technological changes did not exist and therefore organizations did not know how to consider them. At first sight there seems to be some kind of conflict between strategic thinking and dynamic environments (?). But: The learning effects were that the future is still unpredictable – but a “try and error approach” did not fulfil the expectations as well. The loss of significance of experience in times of large changes does not mean that strategy is less important – indeed strategy has to be considered more seriously. Hence an analyzing walkthrough and long term planning are still worth to be considered.

Hence we have to understand the basic ideas of strategy. Since there is a number of definitions available, I selected one for the purpose of this post. There is a famous statement – some would argue it is one of the oldest statements in terms of strategy:

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” (chapter 3, axiom 18 (c. 490 B.C.). Sun Tzu (ca. 6th century BCE) Chinese general)

Taken into account this old military explanation of a strategy one can basically identify two modules for analyzing: the own organisation and the organisation of the others in the market place. The first module should be considered to recognize the internal resources and capabilities of the organisation. The latter focus can be extended into the environment, hence the competitors and other external factors are considered. Only after these analyses it becomes clear what level and type of competition exists and which general options for achieving a better position might exist. In principle the distinction of these two modules for analyzing can be found in modern definitions of strategy. Do you see any reason why this concept should not be valid in a dynamic environment?

 

Of course it is not recommended to tackle strategic planning without considering the (market) dynamics. Hence I would recommend considering a specific issue to improve your strategic planning process. In order to develop a successful and sustainable strategy, organizations should also apply an approach that considers the impact of so called secondary effects. Furthermore planned systems and structures should also be in place for tomorrow’s environment. AVILA et al (1995) recommend taking a dynamic view of the marketplace. Therefore organizations should anticipate competitive reactions and explicitly incorporate them into their strategic analysis. This dynamic view is in line with the recommendations by FARRELL and ASSOCIATES (1995) who stress that organizations’ strategy analysis should include products, markets and channels of both today and tomorrow.

Having this in mind I have to recommend to “think strategically” – in particular in those dynamic times.

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