Strategic Planning: Friend or Foe?
Misti Walker
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Strategic Planning: Friend or Foe? In 1993, Henry Mintzberg, widely recognized in the field of strategic management, published The Pitfalls of Strategic Planning, in which he shares the inherent and realized shortcomings of strategic planning. Three years later, in 1996, Michael Porter published one of several articles on the topic, entitled What is Strategy? Both men are widely respected in the field and while some of their ideas are in congruence, many are at odds. In this paper, I will discuss the similarities and differences among their views of strategic management. Benefits of Planning Strategic planning has been in the business literature since the 196 0’s and, as Mintzberg points out, has enjoyed popularity at times when the marketplace was relatively stable, or experiencing continuous growth. After all, planning is simply extrapolating past results, or an educated guess, if you will. Planning is not strongly suited to instability or rapid changes in the marketplace, he maintains. However, planning scholars have deemed every generation since WWII to be the most turbulent. Yet, this fact has has not affected the popularity of strategic planning. Mintzberg contends that turbulence is the buzzword used by planners to describe environmental changes that even the best laid plans cannot effectively deal with. with. In essence, although plans are ill prepared to tackle big changes in the marketplace, they are precisely what companies cling to in uncertain times. Companies continue to plan for several reasons, such as to increase confidence, guide employees, boost productivity, attain capital, and to acquiesce external shareholders.
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This view directly conflicts with Porter’s competitive strategy theory wherein he claims that a unique positioning strategy is necessary for a firm’s sustainability. While Porter agrees that operational effectiveness (OE) is also needed for sustainability, he rejects the notion that it is sufficient by itself. For a company to prosper, it must have a unique strategic position coupled with superior OE. In the absence of of competitive strategy, firms must compete with one another on OE. While this strategy may work in the short term, eventually it will lead to competitive convergence and stagnant profits. Strategy Defined? Porter and Mintzberg diverge on the topic of strategy. While Porter sees strategy as an analytical process, Mintzberg views it as a visionary visionary or learning process. In fact, Mintzberg contends that all three processes - that is, visionary, planning, and learning must work in harmony for a business to be effective. Mintzberg is emphatic that planning alone will only set a company back because strategies begin to emerge through these processes. and to force a business to develop a plan before its time leads to a loss of productivity and can ultimately endanger the emerging strategy. Porter, on the other hand, believes that strategic positions come from three sources and often overlap. The first source is variety-based variety-bas ed positioning because it is based on the variety of goods or services offered by the firm. The second type of positioning is called needs-based positioning, or an attempt to meet all or most of one group’s needs. The third third positioning, access -based positioning, focuses on the means
by which customers are served. This can be geographical or any method by which which a firm accesses customers.
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Mintzberg created the 10 schools of thought framework to aid in the confusion surrounding the field of strategic management. Porter belongs to the positioning school, an analytical school of thought with beginnings in the military. Mintzberg belongs to the learning school of thought where it is believed that strategies emerge as part of the learning process. This school of thought found its basis in education and learning theory. Both schools of thought have important aspects to take away and key ideas are summarized below. As companies companies near what Porter Porter calls the productivity productivity frontier, incremental incremental improvements in processes can no longer sustain competitive advantage. As rivals quickly adopt best practices in the industry, homogeneity occurs. To combat this trend, companies must identify their strategy - that is companies must decide what to do and what not to do. Porter suggests that trade-offs are necessary to maintain a sustainable strategic position. Simply put, by making trade-offs, trade-off s, companies decide to compete in certain areas and not to compete in others. Consider the alternative, by trying to be all things to all consumers, companies risk losing their unique position and, ultimately, customers. Why? When a company has distinguished itself as a low cost provider, for instance, it has chosen not to compete on quality. In other words, some strategies are complementary while others detract detract from one another. Another point about trade-offs is that the longer a company competes in any given industry, the more necessary tradeoffs are to maintaining competitive edge. This is true because as the external environment goes through changes over time, new opportunities will emerge within the industry. Industry incumbents will face trade-offs, such as whether to to continue with the current strategy or shift focus in response to the changes. The failure to choose
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eventually erodes a company's competitive advantage and causes flat returns. Both men agree that incumbent firms in mature industries are at a disadvantage because as changes occur, newcomers will have an easier time exploiting opportunities because they face no trade-offs and do not have to deal with rich histories or complex business realignments. Examples Kodak, in the late 1990’s, repre sented an excellent example of active inertia. Kodak was a technologically innovative company that made the bulk of its profits from film. With the proliferation and commoditization of digital technology, Kodak began to see its cash cow crumble. While Kodak was at the front of the digital revolution, it was unable or unwilling to change course, perhaps not ready to admit to the slow death of its number one business. Because Kodak did not respond rapidly or effectively to changes in the environment, it forfeited much of the early digital camera sales to Asian competitors. As a result, by the time Kodak entered entered the digital camera arena, profit margins had been squeezed by early competitors. The mistake made by Kodak was an unwillingness to choose. Because film had been such a success in the past, the leaders of the company didn’t want to make the hard choice to go exclusively digital. Instead, the company combined its digital division with the film division, in an attempt to introduce its digital line faster and more efficiently. However, these two strategies were not complementary and success in one area most likely would mean failure in the other. Another factor working against Kodak at the time was its rich hierarchical culture left over from Mr. Kodak’s time at the company. This
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way of doing business was a huge impediment to the company when it most needed to be flexible and innovative in order to adapt to changing market conditions. Threats to Strategy While it may seem that market forces pose the greatest threat to a firm’s
strategy, Porter asserts that more commonly it is internal struggles that pose the greatest risk to strategies. Specifically, “(a) sound strategy is undermined by a misguided view of competition, by organizational failures, and especially by the desire to grow” (Porter, 1996). Take Kodak for instance. Technological advances threatened threatened its
livelihood, but instead of capitalizing on the changes, Kodak simply wanted to wait for the digital trend to run its course. It is easy to see why the company wanted to continue along the same course. That course was familiar, comfortable comfortabl e and, at one time, very successful. This is the effect that Donald Sull calls active inertia, or contentment with the status quo (Sull, 1999) . Successful companies are more prone to this because past policies and practices have contributed to their success, making it more difficult for these companies to face trade-offs. Porter suggests that for this very reason, companies should have a clear strategic position that changes only once a decade or so. The tool to use to respond to market changes, changes, Porter contends, is the operational agenda, as it should be dynamic, flexible, and constantly striving for best practices. Fittingly, even companies with good strategies will suffer if operational effectiveness is not up to par. Mintzberg states that companies infatuated with planning are, indeed, flirting with dangerous behaviors in the workplace. The first of these behaviors is an aversion to risk. The Kodak example highlights the fact that even industry leaders must embrace
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