28 The conceptual framework of strategic HRM strategic management'is a mixed,impure,interactive process,fraught with difficulties,both intellectually and politically Strategic goals Strategic goals define where the organization wants to be.They may be spec- ified in terms of actions,quantified in terms of growth,or expressed in general terms as aspirations rather than specifics. Strategic plans Strategic plans are formal expressions of how an organization intends to attain its strategic goals.Boxall and Purcell(2003)make the point that'We should not make the mistake of equating the strategies of a firm with formal strategic plans.It is better if we understand the strategies of firms strategic choices,some of which may stem from planning exercises and set piece debates in senior management,and some of which emerge in a stream of action.' THE FORMULATION OF STRATEGY The formulation of corporate strategy is best described as a process for developing a sense of direction and ensuring strategic fit.It has often been described as a logical,step-by-step affair,the outcome of which is a formal written statement that provides a definitive guide to the organization's intentions.Many people still believe and act as if this were the case,but it is a misrepresentation of reality.This is not to dismiss completely the ideal of and a reference point for monitoring the implementation of strategy.But in practice,and for reasons also explained below,the formulation of strategy can never be as rational and linear a process as some writers describe it or as some managers attempt to make it. Approaches to strategy formulation Whittington(1993)has identified four approaches to the formulation of strategy: 1.Classical-strategy formulation as a rational process of deliberate calcu- lation.The process of strategy formulation is seen as being separate from the process of implementation
strategic management ‘is a mixed, impure, interactive process, fraught with difficulties, both intellectually and politically’. Strategic goals Strategic goals define where the organization wants to be. They may be specified in terms of actions, quantified in terms of growth, or expressed in general terms as aspirations rather than specifics. Strategic plans Strategic plans are formal expressions of how an organization intends to attain its strategic goals. Boxall and Purcell (2003) make the point that ‘We should not make the mistake of equating the strategies of a firm with formal strategic plans. It is better if we understand the strategies of firms as sets of strategic choices, some of which may stem from planning exercises and set piece debates in senior management, and some of which emerge in a stream of action.’ THE FORMULATION OF STRATEGY The formulation of corporate strategy is best described as a process for developing a sense of direction and ensuring strategic fit. It has often been described as a logical, step-by-step affair, the outcome of which is a formal written statement that provides a definitive guide to the organization’s intentions. Many people still believe and act as if this were the case, but it is a misrepresentation of reality. This is not to dismiss completely the ideal of adopting a systematic approach as described below – it has its uses as a means of providing an analytical framework for strategic decision making and a reference point for monitoring the implementation of strategy. But in practice, and for reasons also explained below, the formulation of strategy can never be as rational and linear a process as some writers describe it or as some managers attempt to make it. Approaches to strategy formulation Whittington (1993) has identified four approaches to the formulation of strategy: 1. Classical – strategy formulation as a rational process of deliberate calculation. The process of strategy formulation is seen as being separate from the process of implementation. 28 l The conceptual framework of strategic HRM
The concept of strategy29 2.Evolutionary-strategy formulation as an evolutionary process that is a product of market forces in which the most efficient and productive 3. organizations win through rocess strategy formulation as an incremental proce ss that evolves through discussion and disagreement.It may be impossible to specify what the strategy is until after the event. 4.Systemic-strategy is shaped by the social system in which it is embedded.Choices are constrained by the cultural and institutional interests of a broader society rather than the limitations of those attempting to formulate corporate strategy. The classical approach to formulating strategy Conceptually,the classical approach as described by Whittington involves the following steps(implementation and monitoring steps have been added to the Whittington model): 1.Define the mission 2.Set obiectives. 3.Conduct internal and external environmental scans to assess internal strengths and weaknesses and external opportunities and threats(a SWOT analysis). 4.Analyse existing strategies to determine their relevance in the light of the interal and external appraisal.This may include gap analysis,which will establish the extent to which environmental factors might lead to gaps between what could be achieved if no changes were made and what eds to be achieved.The analysis will also cover resource capability answering the question:'Have we sufficient human or financia resources available now or that can readily be made available in the future to enable us to achieve our objectives? 5.Define in the light of this analysis the distinctive capabilities of the organization. 6.Define the key strategic issues emerging from the previous analysis. These will be concerned with such matters asp product-market scope enhancing shareholder value and resource capability. 7.Determine corporate and functional strategies for achieving goals and broad generic strategies for innovation,quality or cost leadership;or they could take the form of specific corporate/functional strategies concerned with product-market scope,technological development or human resource development. 8.Prepare integrated strategic plans for implementing strategies
2. Evolutionary – strategy formulation as an evolutionary process that is a product of market forces in which the most efficient and productive organizations win through. 3. Processual – strategy formulation as an incremental process that evolves through discussion and disagreement. It may be impossible to specify what the strategy is until after the event. 4. Systemic – strategy is shaped by the social system in which it is embedded. Choices are constrained by the cultural and institutional interests of a broader society rather than the limitations of those attempting to formulate corporate strategy. The classical approach to formulating strategy Conceptually, the classical approach as described by Whittington involves the following steps (implementation and monitoring steps have been added to the Whittington model): 1. Define the mission. 2. Set objectives. 3. Conduct internal and external environmental scans to assess internal strengths and weaknesses and external opportunities and threats (a SWOT analysis). 4. Analyse existing strategies to determine their relevance in the light of the internal and external appraisal. This may include gap analysis, which will establish the extent to which environmental factors might lead to gaps between what could be achieved if no changes were made and what needs to be achieved. The analysis will also cover resource capability, answering the question: ‘Have we sufficient human or financial resources available now or that can readily be made available in the future to enable us to achieve our objectives?’ 5. Define in the light of this analysis the distinctive capabilities of the organization. 6. Define the key strategic issues emerging from the previous analysis. These will be concerned with such matters as product-market scope, enhancing shareholder value and resource capability. 7. Determine corporate and functional strategies for achieving goals and competitive advantage, taking into account the key strategic issues. These may include business strategies for growth or diversification, or broad generic strategies for innovation, quality or cost leadership; or they could take the form of specific corporate/functional strategies concerned with product-market scope, technological development or human resource development. 8. Prepare integrated strategic plans for implementing strategies. The concept of strategy l 29
30 The conceptual framework of strategic HRM 9.Implement the strategies 10.Monitor implementation and revise existing strategies or develop new strategies as necessary. hs model of the process of strategy formulation should allow scope ation and feedback,and the activities incorporated in the mo appropriate in any process of strategy formulation.But the model is essen tially linear and deterministic-each step logically follows the earlier one and is conditioned entirely by the preceding sequence of events.This is not what happens in real life,where the formulation process is likely to correspond more closely to Whittington's evolutionary and 'processual'models. The reality of strategy formulation y is everything not well defined or can best be described as 'problem solving in unstructured situations' (Digman,1990),and strategies will always be formed under conditions of pa orance The difficulty is that strategies are often based on the questionable assumption that the future will resemble the past.Some years ago,Robert Heller(1972)had a go at the cult of long-range planning:'What goes wrong' he wrote,'is that sensible anticipation gets converted into foolish numbers: and their validity always hinges on large loose assumptions.' More recently,Faulkner and Johnson(1992)have said of long-range planning that it: was inclined to take a definitive view of the future,and to extrapolate trend lines for the key business variables in order to arrive at this view.Economic turbulence was insufficiently considered,and the reality that much strategy is formulated and implemented in the act of managing the enterprise was ignored.Precise forecasts ending with derived financials were constructed, the only weakness of which was that the future almost invariably turned out differently. Strategy formulation is not necessarily a deterministic,rational and continuous process,as was pointed out by Mintzberg (1987).He believes that,rather than being consciously and systematically developed,strategy reorientation happens in what he calls brief'quantum loops'.A strategy, according to Mintzberg,can be deliberate-it can realize the intentions of senior management for example to attack and conquer a new market.but this is not always the case.In theory,hesays,strategy is a systematic process first we think and then we act;we formulate and then we implement.But we also 'act in order to think'.In practice,'a realized strategy can emerge in
9. Implement the strategies. 10. Monitor implementation and revise existing strategies or develop new strategies as necessary. This model of the process of strategy formulation should allow scope for iteration and feedback, and the activities incorporated in the model are all appropriate in any process of strategy formulation. But the model is essentially linear and deterministic – each step logically follows the earlier one and is conditioned entirely by the preceding sequence of events. This is not what happens in real life, where the formulation process is likely to correspond more closely to Whittington’s evolutionary and ‘processual’ models. The reality of strategy formulation It has been said (Bower, 1982) that ‘strategy is everything not well defined or understood’. This may be going too far but, in reality, strategy formulation can best be described as ‘problem solving in unstructured situations’ (Digman, 1990), and strategies will always be formed under conditions of partial ignorance. The difficulty is that strategies are often based on the questionable assumption that the future will resemble the past. Some years ago, Robert Heller (1972) had a go at the cult of long-range planning: ‘What goes wrong’, he wrote, ‘is that sensible anticipation gets converted into foolish numbers: and their validity always hinges on large loose assumptions.’ More recently, Faulkner and Johnson (1992) have said of long-range planning that it: was inclined to take a definitive view of the future, and to extrapolate trend lines for the key business variables in order to arrive at this view. Economic turbulence was insufficiently considered, and the reality that much strategy is formulated and implemented in the act of managing the enterprise was ignored. Precise forecasts ending with derived financials were constructed, the only weakness of which was that the future almost invariably turned out differently. Strategy formulation is not necessarily a deterministic, rational and continuous process, as was pointed out by Mintzberg (1987). He believes that, rather than being consciously and systematically developed, strategy reorientation happens in what he calls brief ‘quantum loops’. A strategy, according to Mintzberg, can be deliberate – it can realize the intentions of senior management, for example to attack and conquer a new market. But this is not always the case. In theory, he says, strategy is a systematic process: first we think and then we act; we formulate and then we implement. But we also ‘act in order to think’. In practice, ‘a realized strategy can emerge in 30 l The conceptual framework of strategic HRM
The concept of strategy31 response to an evolving situation',and the strategic planner is often 'a pattern organizer,a learner if you like,who manages a process in which strategies and visions can emerge as well as be deliberately conceived'.This concept of' mergent strategy conveys the essence of how in practice organ- izations develop their business and HR strategies. Mintzberg was even more scathing about the weaknesses of strategic planning in his 1994 article in the Harvard Business Review on The rise and fall of strategic planning'.He contends that 'the failure of systematic planning is the failure of systems to do better than,or nearly as well as human beings'.He went on to say that,Far from providing strategies planning could not proceed without their prior existence.real strategists get their hands dirty digging for ideas,and real strategies are built from the nuggets they discover.'And 'sometimes strategies must be left as broad visions,not p cisely articulated,to adapt toa changing environment.He emphasized that strategic management is a learning process as managers of firms find out what works well in practice for them. Other writers have criticized the deterministic concept of strategy.For example Business strategy,far from being a straightforward,rational phenomenon,is in mation (Pettigrew and Whipp,1991) Although excellent for some purposes,the formal planning approach empha- sizesmeasurable quantitative forcesat the expense of the qualitative zational and power-behavioural factors that so often determine stra success'.Large organizations which are'fragmente evolutionary,and largely intuitive (Quinn,1980) The most effective decision-makers are usually creative,intuitive people employing an adaptive,flexible processMoreover,since most strategic deci- sions are ent-driven n rather than pre-programmed,they are unplanne (Digman,1990) Goold and Campbell(1986)also emphasize the variety and ambiguity of influences that shape strategy:Inform ned understandings work alongside more formal processes and analyses.The headquarters agenda becomes entwined with the business unit agenda,and both are interpreted in the light of personal interests.The sequence of events from decision to action can often be reversed,so that"decisions"get made retrospectively to justify actions that have already taken place
response to an evolving situation’, and the strategic planner is often ‘a pattern organizer, a learner if you like, who manages a process in which strategies and visions can emerge as well as be deliberately conceived’. This concept of ‘emergent strategy’ conveys the essence of how in practice organizations develop their business and HR strategies. Mintzberg was even more scathing about the weaknesses of strategic planning in his 1994 article in the Harvard Business Review on ‘The rise and fall of strategic planning’. He contends that ‘the failure of systematic planning is the failure of systems to do better than, or nearly as well as, human beings’. He went on to say that, ‘Far from providing strategies, planning could not proceed without their prior existence. real strategists get their hands dirty digging for ideas, and real strategies are built from the nuggets they discover.’ And ‘sometimes strategies must be left as broad visions, not precisely articulated, to adapt to a changing environment’. He emphasized that strategic management is a learning process as managers of firms find out what works well in practice for them. Other writers have criticized the deterministic concept of strategy. For example: Business strategy, far from being a straightforward, rational phenomenon, is in fact interpreted by managers according to their own frame of reference, their particular motivations and information. (Pettigrew and Whipp, 1991) Although excellent for some purposes, the formal planning approach emphasizes ‘measurable quantitative forces’ at the expense of the ‘qualitative, organizational and power-behavioural factors that so often determine strategic success’. Large organizations typically construct their strategies with processes which are ‘fragmented, evolutionary, and largely intuitive’. (Quinn, 1980) The most effective decision-makers are usually creative, intuitive people ‘employing an adaptive, flexible process’. Moreover, since most strategic decisions are event-driven rather than pre-programmed, they are unplanned. (Digman, 1990) Goold and Campbell (1986) also emphasize the variety and ambiguity of influences that shape strategy: ‘Informed understandings work alongside more formal processes and analyses. The headquarters agenda becomes entwined with the business unit agenda, and both are interpreted in the light of personal interests. The sequence of events from decision to action can often be reversed, so that “decisions” get made retrospectively to justify actions that have already taken place.’ The concept of strategy l 31
32 The conceptual framework of strategic HRM Mintzberg (1978.1987.1994)summarizes the non-deterministic view of strategy admirably.He perceives strategy as a'pattern in a stream of activ. ities'and highlights the importance of the interactive process between key plavers.He has emphasized the concept of 'emergent strategies'and a key aspect of this pro cess is the production of something that is new to the organ ization even if this is not developed as logically as the traditional corporate planners believed was appropriate. Kay(1999)also refers the evolutio ary nature of strategy.He comm that there is often little'intentionality'in firms and that it is frequently the market rather than the visionary executive that chose the strategic match that was most effective.Quinn(1980)has produced the concept of 'logical incre- mentalism'which suggests that strategy evolves in several steps rather than being conceived as a whole. The reality of strategic management Tyson(1997)points out that,realistically,strategy has always been emergent and flexible-it is always 'about to be'and it never exists at the present time; is not only realized by formal statements but also comes about by actions and reactions; ■ is a description of a future-orientated action that is always directed towards change: is conditioned by the management process itself The reality of strategic management is that managers attempt to behave strategically in conditions of uncertainty,change and turbulence e,even chaos The phenomenon of bounded rationality as described by Miller et al(1999) applies-while people by their own lights are reasoned in their own behaviour,the reasoning behind their behaviour is influenced by human frailties and demands from both within and outside the organizati The strategic management approach is as difficult as it is desirable,and this has to be borne in mind when consideration is given to the concept of strategic HRM as described in Chapter 3
Mintzberg (1978, 1987, 1994) summarizes the non-deterministic view of strategy admirably. He perceives strategy as a ‘pattern in a stream of activities’ and highlights the importance of the interactive process between key players. He has emphasized the concept of ‘emergent strategies’, and a key aspect of this process is the production of something that is new to the organization even if this is not developed as logically as the traditional corporate planners believed was appropriate. Kay (1999) also refers to the evolutionary nature of strategy. He comments that there is often little ‘intentionality’ in firms and that it is frequently the market rather than the visionary executive that chose the strategic match that was most effective. Quinn (1980) has produced the concept of ‘logical incrementalism’, which suggests that strategy evolves in several steps rather than being conceived as a whole. The reality of strategic management Tyson (1997) points out that, realistically, strategy: l has always been emergent and flexible – it is always ‘about to be’ and it never exists at the present time; l is not only realized by formal statements but also comes about by actions and reactions; l is a description of a future-orientated action that is always directed towards change; l is conditioned by the management process itself. The reality of strategic management is that managers attempt to behave strategically in conditions of uncertainty, change and turbulence, even chaos. The phenomenon of bounded rationality as described by Miller et al (1999) applies – while people by their own lights are reasoned in their own behaviour, the reasoning behind their behaviour is influenced by ‘human frailties and demands from both within and outside the organization’. The strategic management approach is as difficult as it is desirable, and this has to be borne in mind when consideration is given to the concept of strategic HRM as described in Chapter 3. 32 l The conceptual framework of strategic HRM