Our Lady of the Pillar College – San Manuel, Inc.

District 3, San Manuel, Isabela

COLLEGE OF ACCOUNTANCY

HISTORY OF STRATEGIC MANAGEMENT

Strategic Management
MGT – 07

Evolution of Strategic Management

 Strategic management originated sometime in 1950s and 1960s.
 Alfred Chandler recognized the importance of coordinating the various aspects of management under one umbrella
strategy, which is strategic management today. In 1962, he made Strategy and Structure, which showed that a long-
term coordinated strategy is important to give a company the needed structure, direction and focus.
 In 1957, Philip Selznick introduced the matching of the organization’s internal factors and the external environment
circumstances. This is the prelude to what is now called SWOT analysis by Learned, Andrews, et al. from Harvard
Business School.
 Igor Ansoff came up with a new vocabulary pertaining to strategic management. In his book Corporate Strategy
published in 1965, he developed the concept of gap analysis which is now translated into mission/vision statements.
He also conceptualized a strategy grid which illustrated market penetration strategies, product development
strategies, market development strategies and diversification strategies.
 Peter Drucker emphasized the importance of objectives which was developed in 1954 and has evolved in a well-
known theory of Management by Objectives (MBO). He also introduced the intellectual capital theory in which a
task is assigned in teams and a leader heads the group.
 In 1985, Ellen-Earle Chaffee Summarized her thoughts on strategic management theory. She stressed that strategic
management should be aligned with the business environment.

Growth and Portfolio Theory

 The Profit Impact of Marketing Strategies (PIMS) was a continuing study on strategies that started in 1960.
 The growing interest on profitability, market share and strategy led to the awareness in growth strategies.
 While a bigger market share led to higher profits, Schumacher (1973), Woo and Cooper (1982) and Levenson (1984)
proved otherwise and later Traverso (2002) with what is now called niche marketing. Creating a niche can result in
very high returns.
 In the early 1980s, there were also paradoxical conclusions that high market share and low market share were often
very profitable but those in between were not. This seeming irony was explained by Michael Porter.
 More and more diversified companies required new techniques in management. One of the CEOs to address this
problem is Alfred Sloan of General Motors. GM was decentralized into strategic business units, all semi-autonomous
but with centralized support functions.
 Another valuable concept in strategic management is the portfolio theory which was developed by Harry
Markowitz. This propagated the concept that a broad portfolio of financial assets could reduce risk exposure of
companies.
 Another strategy is the Boston Consulting Group (BCG) in the early 1970s. BCG examines how a business unit
performs and what it contributes to the organization in terms of revenues.

The Rise of Marketing Management

 Production orientation started at the height of capitalism. The key requirement is a product of high quality. A
product is produced then sold to consumers. In the 1950s and 1960s, sales orientation was conceptualized.
 In the 1970s, Theodore Levitt theorized that business should start with the customers instead of producing the
product first before selling it. A company should find out what they want and produce it for them. This is now called
marketing orientation.

The Rise of Japanese-Oriented Management Style

 Japanese firms surpassed American and European companies including steel, watches, cameras, automobiles and
electronics.
 The success of the Japanese was explained in these practices by W. Edwards Deming:
- There was high employee morale, dedication and loyalty.
- Costs were lower including labor costs.
- Government policies favor businesses.
- After the Second World War, Japan became a highly productive and capital intensive organization.
- Exports prevailed.
- There was superior quality control.
 In 1981, Richard Pascale and Anthony Athos proved that despite the success of the Japanese, there was still
something missing. In their book, The Art of Management, they claimed that the reason for the success of the
Japanese was their superior management techniques.

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  Kenichi Ohmae, head of McKinsey and Co., Tokyo Office released the book, The Mind of the Strategist in America
which was originally published in Japan in 1975. He reiterated that a strategy should not be too analytical but should
be more of a creative art. It is a combination of intuition and flexibility.
 In 1982, Tom Peters and Robert Waterman released in Search of Excellence, which was a response to Ohmae’s
book. They studied 62 companies and rated them in a six-performance criteria – must be above 50% in four out of
the six criteria performance metrics for 20 years. Based on this study, 43 companies passed the test and came up
with eight keys to succeed:
- Customer focus. The company should know and understand the customers.
- Action-oriented. The company should implement the strategies not just mere paperwork and plans without
action.
- Entrepreneurship. The company should exclude an entrepreneurial spirit: innovate and create.
- Simplicity. Managers should be simple and should not make things too complex.
- Stick to what the company knows best. The company should continue in the field where it excels.
- Value-oriented management. Management advocates corporate values throughout the organization.
- People-oriented. The company should respect and motivate its people and in turn, they will be productive at
work.
- Centralize and decentralize. The company centralizes its control but also allows autonomy in each business
unit.
 J. Rehfeld discussed the importance of transformation of knowledge from various cultures to a management style to
compete globally.

The Competitive Edge

 Gary Hamel and C.K. Prahalad introduced the strategic architecture concept. Part of this theory is core competency.
It is a detail of what the company has or can do better that its competitors.
 Dave Packard and Bill Hewlett conceptualized Management by Walking Around (MBWA). They visited not only
customers but also employees and supervisors who can be a source of viable strategies for the company.
 Japanese managers retaliated with a similar concept which originated in Honda, called 3Gs: Genba, Genbutsu and
Genjitsu which are translated to: actual place, actual thing and actual situation.
 Michael Porter introduced several concepts: the five forces analysis, generic strategies, the value chain and many
more.
 In 1993, John Kay improved the value chain concept by putting a financial touch. He claimed that a company should
have three capabilities: innovation, reputation and organizational structure.
 The positioning theory was popularized by Al Ries and Jack Trout. This means crafting a strategy that would make
the brand/product in the minds of the consumers.
 In 1992, Jay Barney discussed that a strategy is a product of resources such as human, technology and suppliers and
combined in unique way.
 Michael Hammer and James Champy championed reengineering which involves the organization of a firm’s assets
around whole processes rather than tasks.
 In 1989, Richard Lester identified seven best practices that a company need to adapt:
- Continuous improvements in cost, quality, service and product innovation done on a simultaneous basis;
- Breaking down on organizational barriers between departments;
- Eliminating the layers of management to make it leaner and simpler;
- Closer relationships with customers and suppliers;
- Intelligent use of new technology;
- Global focus; and
- Improving human resource skills.
 Theorists like W. Edwards Deming, Joseph Juran, A. Kearney, Philip Crosby and Armand Feignbaum developed
quality improvement techniques like Total Quality Management, Continuous Improvement, Lean Manufacturing,
Six Sigma and Return on Quality.
 James Heskett, Earl Sasser, William Davidow, Len Schlesinger, A. Paraugman, Len Berry, Jane Kingman-
Brundage, Christopher Hart and Christopher Lovelock advocated customer service as the key to an organization’s
success.
 Carl Sewell, Frederick Reicheld, C. Gronros and Earl Sasser believed in the loyalty effect among customers which
include employee loyalty, supplier loyalty, distributor loyalty and shareholder loyalty. They also developed the
customer lifetime value.
 James Gilmore and Joseph Pine had mass customization concept in which a company individualizes a product for
each customer without losing economies of scale. Bernd Schmitt expanded it further to customer experience
management.
 James Collins and Jerry Porras believed in core values that would make the company last. These core values are
seen in the employees who will help build a great company.
 Arie de Geus identified four key traits of companies that have survived for the last 50 years:
- Sensitivity to the business environment. It is the ability to be attuned with the forces in the environment.
- Cohesion and identity. It is the ability to build a company with shared vision and purpose.
- Tolerance and decentralization. It is the ability to build relationships among the employees and strategic
business units.
- Conservative financing. It is the ability to handle financial matters well.
 Jordan Lewis used the term alliance strategies. He considered distributors, suppliers, firms in related industries and
even competitors as a strategic partners.

Military Theorists

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  Sun Tzu, Von Clausewitz and Mao Tse Tung theorized tactical strategies needed to survive and topple the enemy
(competitor).
 Philip Kotler, a marketing guru, is a well-known proponent of marketing warfare strategy with his books in
marketing management.
 In 1993, Moore developed an ecological model of competition, a Darwinian-inspired strategy wherein strategies
coincide with ecological stability.

Strategic Change
 Alvin Toffler, Watts Wacker, Jim Taylor and Jeremy Rifkin believed in the power of making the change in order to
survive. He did not succumb to complacency and instead explained what change can do to a company to survive.
 Peter Drucker in 1968 coined the Age of Discontinuity and in 2000, Gary Hamel discussed strategic decay which
believed that changes are needed no matter how powerful existing strategies are.
 In 1978, Dereck Abell described strategic windows, stressing the importance of time in both the start an end of a
particular strategy.
 In 1989, Charles Handy had strategic drift which is a gradual and transformational change which is a sudden shift
caused by unforeseen changes in the environment.
 Andy Grove conceptualized the strategic inflection point. It is where a new trend is indicated.
 In 2000, Malcolm Gladwell discussed the tipping point where a trend takes off.
 In 1983, Noel Tichy and Richard Pascale in 1990 propagated the importance of a company to reinvent itself.
 In 1996, Art Kleimer claimed that a company needs to foster a corporate culture to initiate the change.
 Adam Slywotsky theorized a strategic anticipation to spot emerging patterns of changes in the industry and in the
environment.
 In 1998, Henry Mintzberg developed strategic planning with five types of strategies:
- Strategy as a plan. Direction, guide, course of action.
- Strategy as play. A maneuver intended to outdo a competitor.
- Strategy as pattern. A consistent pattern of past behavior.
- Strategy as position. Location of brands, products or companies with the boundaries of consumers.
- Strategy as perspective. Determined by a master strategist.
 In 1999, Constantinos Markides discussed strategy formation and implementation as continuous.
 J. Moncrieff stressed strategy dynamins, a combination of planned and unplanned strategies.
 Chaos theory deals with turbulent systems. R. Axelrod, J. Holland, S. Kelly and M.A. Allisson call these systems of
multiple actions complex adaptive systems.

Information Technology-Oriented Strategy

 Daniel Bell examined the sociological consequences of information technology. Gloria Schuck and Shozana Zuboff
identified the psychological facets.
 In 1990, Peter Senge collaborated with Arie de Geus and theorized the importance of the use of information in the
success of the organization. He identified five components of a learning organization.
- Personal responsibility, self-reliance and mastery. It is always crucial to face problems and make decisions or
take advantage of opportunities based in the organization’s capabilities.
- Mental models. There is a need to explore the individual mental capacities of each one in the organization.
- Shared vision. The visions are cascaded and communicated to all the employees in the organization.
- Team learning. Employees learn through teams.
- Systems thinking. It is also called synergy. It is looking at the organization as a whole rather than per individual
employee.
 Thomas Stewart uses the term intellectual capital to describe the investment of the organization in knowledge. This
comprises of human capital, customer capital and structural capital.
 Evans and Wurslet described how industries with a high information component are transformed because of the
information provided in the internet.
 Access to the information systems allowed senior managers to take a look on various strategies to keep up with the
competition. The most notable of these strategies are the balanced scorecard developed by Robert S. Kaplan and
David P. Norton.

Psychology on Strategic Management

 Henry Mintzberg realized that senior managers deal with unpredictable situations in 1973.
 John Kotter studied the activities of 15 executives and studied how they work and make strategic decisions.
 Daniel Isenberg in his study of senior managers found that their decisions are mostly based on intuition.
 In 1977, Abraham Zaleznik identified the difference between managers and leaders. Leaders are considered as
visionaries, those who inspire. Managers are concerned with processes, plans and forms.

CASE ANALYSIS #1
Management Style

STRATEGIC MANAGEMENT 3
Make an extensive research on the Japanese style and compare it to the American style of management. The class will be
divided into two groups: one for pro-American style and the other, for Japanese style. Each group will present the pros and
cons of each style. The research should also include the following: people management skills, leadership styles, planning and
communication, organization and control.

CASE ANALYSIS #2
Management Guru
Make a term paper on the following theorists. Discuss their lives, theories, books and management principles.

1. Alfred Chandler
2. Philip Selznick
3. Igor Ansoff
4. Peter Drucker
5. Ellen-Earle Chaffee
6. Michael Porter
7. Henry Mintzberg
8. Kenichi Ohmae
9. Peter Senge
10. Philip Kotler
11. Theodore Levitt
12. Abraham Zaleznik

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