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Evolution of strategic management maturity

 

All organizations have some form of strategy, whether implicit or explicit, and the essence of business strategy lies in creating future competitive advantages faster than competitors. Yet, formal strategic planning, as we know it today, is a relatively recent phenomenon and arose as a result of developments in program planning and budgeting developed during World War II. During the 1950s, a second stream of thought, pioneered at the Harvard Business School, highlighted the importance of having an overall corporate strategy to integrate the various functional areas.
Yet, as early as 1976, Ansoff recognized the failure of strategic planning, at that time, to resolve the problems of the firm in the post-industrial era. They suggested strategic management, within which formal planning would be but one component of a much more complex socio- dynamic process that brings about strategic change in an organization.
Exploring the evolution of strategy and strategy planning in organizations, Gluck developed a model to describe its increasing maturity.
Although there have been many changes in the business world, particularly since 1980, the model describes how the core issues have evolved, along with the need for new approaches to developing and implementing strategies.

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In Phase 1, the focus is on cash flow and annual financial planning, and involves relatively simple techniques to develop medium-term budgets. These exercises are usually carried out internally, department by department, and consolidated. The focus of planning is to reduce everything to a single financial issue—meeting the budget.
At Phase 2, the focus is on trying to predict, or forecast, what is likely to happen within, say, a three to five-year planning horizon, usually by reference to historical performance, analysed and projected into the future using internal trends and external parameters such as economic and market research data. It forecasts sales and market growth and predicts the effect on income and expenses and changes to the balance sheet. Plans, though, are still quantitative and internally orientated, focusing on the gap between what is targeted and the resources that are available.
Within Phase 3, the organization, for the first time, considers the external environment to gain a thorough understanding of the nature of competition in its industry, in order to assess and consider potential threats and position itself to gain advantage. The organization might need to revise its product portfolio to match demands in more attractive market sectors, or increase the value-added features of existing products and services, or significantly reduce its unit costs. Each of these situations implies the identification of new product development, sourcing or marketing options and their evaluation to find those that not only suit the organization, but also best satisfy the pressures and demands of the competitive marketplace.

By Phase 4, the organization is driven by innovation and becomes capable of creating its own business environment, at least to some extent. This phase implies that, while products and competitive positioning are clearly important, they are only so at a given point in time.
In today’s dynamic business environment, products quickly become obsolete and the only real source of competitive advantage is the ability to respond consistently to changing markets with new products and ever-improved competitiveness. The organization’s values, culture and structure will reinforce the processes and competencies required to develop and sustain a leading role in the industry thus enabling it to have significant control over its own destiny. Obviously, sustaining this leadership will require continuing innovation.

While some organizations are capable of a truly creative strategy, at least for significant parts of the business, they also have to monitor the competitive environment, forecast effectively and deliver an annual profit. Progressing to Stages 3 and 4 implies that 1 and 2 are handled effectively, so that strategic thinking can be converted to the required financial results. The major step change depicted in the move from Stage 2 to 3 reflects the reorientation to adopt an external perspective and obtain the new knowledge required by the organization, to assess realistically what it does and how well it does it in the context of its competitive environment. The model is not time dependent; unfortunately, some organizations still remain in Phase 1.

 

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