THE EVOLUTION OF THE STRATEGIC THINKING

By: Shahab Sabahi, Policy Analyst in Energy Security and Policy Research Group

This short theme is an attempt to introduce the evolution of the strategy paradigm to provide input for encouraging further discussion to better understanding the concept of strategic thinking and strategy.

 Phase -1

The first phase in the evolution of the strategy paradigm involved “basic financial planning” in the 1950s where the typical planning focus for the firm was the preparation of the financial budget with a time horizon barely beyond 12 months. These organisations tended to exhibit strong strategies however these strategies were rarely documented. The success of the organisation was dependent on the quality of the CEO and the top management team and their knowledge of products, markets and rivals (Gluck et al, 1980). In the literature Drucker (1954, p. 77) drew attention to this issue arguing that it is the role of top management to address the key questions with respect to strategy: “What is our business and what should it be?”

Phase - 2

The second phase of “forecast-based planning” in the 1960s resulted in organisations embracing a longer time horizon, environmental analysis, multi-year forecasts and a static resource allocation as the firm responded to the demands of growth (Gluck et al, 1980). Important contributions to the evolution of the strategy literature were offered in this period by Chandler (1962), Andrews (1965) and Ansoff (1965). In particular Andrews (1965) and Ansoff (1965) were the first writers to address explicitly strategy content and process. Chandler’s (1962) contribution from an historian’s perspective explained the development of large corporations and the way their administrative structures changed to accommodate the demands thrust upon management as a result of business growth. Chandler (1962, p. 13) offered a broad definition of strategy which did not distinguish between strategy formulation and content noting: “Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.”

 

Phase - 3

In the 1970s there was a move to the third phase of “externally oriented planning” in response to markets and competition as strategic planning enjoyed the peak of its popularity. Planning in this form included a thorough situation analysis and review of competition, an evaluation of alternative strategies and dynamic resource allocation (Gluck et al, 1980). Prescriptive techniques for strategy were at their peak at this time with the planning school dominant (Mintzberg, Ahlstrand and Lampel, 1998) and numerous simplified frameworks for strategic analysis were put forward mainly by industry consultants. These frameworks included the Experience Curve, the Boston Consulting Group’s (BCG) portfolio matrix and the Profit Impact of Marketing Strategies (PIMS) empirical project.

 

Phase - 4

In the 1980s firm’s embraced what became known as the strategic management phase - the fourth phase - being the combination of the firm’s resources to achieve competitive advantage. This phase included:

1.      A planning framework that cuts across organizational boundaries and facilitates strategic decision making about customer groups and resources.

2.      A planning process that stimulates entrepreneurial thinking.

3.      A corporate values system that reinforces managers’ commitment to the company strategy (Gluck et al, 1980, p. 158).

The strategy process came to be increasingly performed by line managers with occasional assistance from internal strategy experts operating in fewer numbers compared with the past. Initiatives in the field were driven by unprecedented levels of change and complexity confronting organisations (Prahalad and Hamel, 1994) as firms endeavoured to keep pace with environmental developments. At this time there was also a shift from quantitative forecasting to greater use of qualitative analysis (Stacey, 1993). The focus became establishing the firm’s mission and vision for the future, analysis of customers, markets, and the firm’s capabilities (Wilson, 1994).

 Phase - 5

By the mid-1980s it was evident that the changes in the evolution of strategic planning into strategic management were not leading to significant improvements in strategy implementation. In addition, at this time there was apparent a greater sense of the importance of organisational culture and internal politics in the strategic management process (Wilson, 1994; Bonn and Christodolou, 1996). The ineffectiveness of the strategic management process led many experts in the field to emphasise the need for strategic thinking - the fifth phase in the evolution of the paradigm. In this context Stacey (1993, p. 18) observes: “…that although the procedures and analytical techniques of modern strategic management may not be of much direct practical use, they do create a framework for strategic thinking and, it is assumed, managers who think strategically are bound to act more effectively in dealing with the future." That the strategic management process provides a framework for strategic thinking is an important foundation in attempting to conceptualise strategic thinking.”

The evolution of the paradigm from strategic planning to strategic management into strategic thinking reflects the economic, technological and social changes that have taken place since its inception in the mid 1950s, especially since 1984 (Aggarwal, 1987; Prahalad and Hamel, 1994) with higher levels of environmental uncertainty evident placing greater demands on the strategy process in organisations. Indeed, the day-to-day challenges of management bring forth issues that test established frameworks, policies and procedures within organisations designed to deal with them. The major task of managers is to determine when to apply these established frameworks, policies and procedures and when to ignore them and develop new solutions. Strategic thinking facilitates this process (Stacey, 1993).