The Systemic Strategy Process in Dynamic Markets

I

Table of contents

Table of  figures  II

Table of  abbreviations  III

1  Introduction  1

1.1  Background and objectives  1

1.2  Outline and structure of the paper  1

2  The traditional strategy process  2

2.1  Paradigms of the traditional strategy process  2

2.2  Deficiencies of the traditional strategy process  3

3  The systemic strategy process  5

3.1  The systemic strategy paradigm: complexity theory of strategy  5

3.2  General characteristics of the systemic strategy process  6

4  Stages of a systemic strategy process  7

4.1  Business ecosystem interpretation  7

4.2  Business model review  8

4.3  Strategy options review  11

4.4  Strategy implementation  11

4.5  Strategy performance measurement  13

5  Evaluation of the systemic strategy process  14

6  Conclusion and implications for research and management  16

References .................................................................................................................- 18 -

II

Table of figures

Illustration 1: The traditional strategy process

Illustration 2: The systemic strategy process

III

Table of abbreviations

BSC Balanced Scorecard RBV Resource-Based View SP Strategic Positioning SSC Systemic Scorecard

- 1 - 1Introduction

1.1 Background and objectives

Today’s business environment is becoming more complex and unpredictable (D’Aveni, 1994). The economy is becoming intertwined and actions of one organisation can have a significant impact on other organisations, on the industry as a whole and on the organisation itself. Thus the outcomes of an organisation’s strategic behaviour can hardly be foreseen.

Traditionally strategy creation has been built upon economic drivers, past experiences, and behavioural patterns, which all do not have great predictive value in today’s complex economic systems (Voelpel, Leibold & Tekie, 2003). Therefore it is not possible for organisations to generate strategy on a premeditated and deliberate basis of the company and its environment. Environmental and industry changes constantly challenge the validity of existing strategies.

This paper is picking up a combination of three perspectives on strategy that are trying to perform a shift of paradigm towards a new way of strategic thinking. This combination has been termed the complexity theory of strategy by Jason Davis and Kathleen Eisenhardt (2004). This theory is a combination of the dynamic capabilities view which recommends using simple capabilities (Eisenhardt & Sull, 2001) that enable quick, flexible, and creative improvisation, combined with systemic thinking, which perceives organisations and the economy as systems (Gharajedaghi, 1999) and Austrian economics (Kirzner, 1997; Shane, 2000), which perceives markets as a rapid flow of heterogeneous and surprising opportunities that need to be discovered by managers. This way of thinking has proposed several ideas and tools to overcome the shortcomings of traditional strategic thinking. The question this paper is aiming to answer is how systemic elements have to be combined to design a systemic strategy process. This strategy process needs to meet the requirements of today’s dynamic markets and environments in a better way than the traditional strategy process.

1.2 Outline and structure of the paper

This paper is composed of six chapters. Subsequent to this introduction the second chapter will present the traditional strategy process with its underlying strategic paradigms and illustrate the deficiencies this process shows in dynamic markets. Considering these deficiencies the strategic paradigm of the complexity theory of strategy will be introduced in the third chapter. This new paradigm provides the theoretical underpin-

- 2 -ning for a systemic strategy process, whose general characteristics will be described in the second part of the third chapter. The fourth chapter is devoted to the course of the systemic strategy process with its particular stages - namely business ecosystem inter-pretation, business model review, strategy options review, strategy implementation, and strategy performance measurement. In the following chapter differences of the new sys-temic strategy process compared to the traditional strategy process will be pointed out to show whether it is apt to compensate the deficiencies of the traditional strategy process in dynamic markets. The closing chapter presents a summary of the key findings of the paper and the corresponding implications for researchers and managers.

2 The traditional strategy process

2.1 Paradigms of the traditional strategy process

There are two approaches to strategy that have been dominating strategic management processes over the past decades. The first approach is strategic positioning (SP), which is suggesting organisations to strive for a unique fit with the corporate environment. It is mainly concerned with choosing industries and markets, and positioning within them in order to gain a sustainable competitive advantage and superior performance (Porter, 1980; 1990). This approach has proved especially useful in stable markets with certain industry conditions where defensible competitive positions can be clearly recognised and there is sufficient time to build such positions and exploit them (Pisano, 1994). The second approach, the resource-based view of the firm (RBV), centres on how resources can be leveraged effectively to build a sustainable competitive advantage (Barney, 1991a; Grant, 1991). It is supposed that the sources of competitive advantage can be found within the firm and that they are valuable, rare, inimitable and non-substitutable (Peteraf, 1993; Barney, 1991b) enabling superior performance through a strategic fit both in current markets and - via leverage - into new ones (Amit & Shoemaker, 1993). The RBV has proved especially useful in incrementally changing markets. The consequence of these two approaches is a mechanistic strategy process divided into four distinct stages: environmental analysis, strategy choice, strategy implementation and strategic change (Bea & Haas, 2001), that are depicted in the following illustra- tion.

- 3 -

Illustration1: The traditional strategy process, Source: own adaptation according to Bea & Haas, 2001

During the internal and external environmental analysis existing strategies, key success factors, core competencies, resources and capabilities, competitors and environmental forces are examined. Subsequently, strategists determine which strategic options are available to them and decide for one option. On this basis a business vision, mission, goals, values and long-term objectives are elaborated. The selected strategic options are then translated into a number of concrete activities and implemented. Short-term objectives and functional tactics are set, functions are designated, and structures and networks are established. The documented strategy is then periodically reviewed; results are compared and changed if required. The result of this process is mainly one strategy, which is then adopted for the functional, the business, the corporate, and the network level of an enterprise. It assumes that one strategy fits the entire business environment of an organisation and every hierarchical level the same way. Because the process takes place only once and basically progresses in a linear way through its four distinct steps, a strategy remains active once it is implemented and is only changed when efficiency needs to be improved. But a review of the existing strategy and business model does not take place. Only by applying reengineering and restructuring techniques inefficiencies can be abolished and profitability maximized. By this means companies keep applying old solutions to new problems.

2.2 Deficiencies of the traditional strategy process

Strategic positioning and resource-based view are very well suited to understand how competitive advantage is achieved through positioning and leveraging strategic logics in static markets. But it has been shown by Rindova & Kotha (2001) as well as Siggelkow (2001) that neither leveraging resources nor building a defensible industry position is always sufficient to ensure success. The true nature of strategic thinking is now emerging as more holistic and especially dynamic rather than analytical and rational (Voelpel, Leibold & Tekie, 2003). In increasingly dynamic markets this traditional view of the