The Planning Approach to Strategy (reader p1-4)

Today I have been... Reading about The Development of Strategic Management Thought.
Why?

It's required reading (Reader p1-13)

So What?

Strategy has been around a while. Think ancient greece. Sun Tzu. Machiavelli.

Previously there was "business policy". "Strategic Management" was popularised in the 60's in Harvard, Yale etc.

But it has really changed since then. We've gone from "planning" to "chaos and complexity" in 50 years!

Chandler (business historian), Ansoff (management theorist), Andrews (Harvard), Sloan (founder of GM) kicked it all off.

In the 60's and 70s the proper "management consultancy" was born, eg McKinsey and BCG. In 1965 Ansoff's "Coroporate Strategy" arrived on the scene. Ansoff, Chandler and Sloan could be thought of as the Classical school of strategic thinking, (Whittington, 2001) or the "planning" approach to management.

Very "military" style of leadership - hierarchical with direction from the top! Later examples include Ohmae and Porter. 

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 those goals (1962:13) - Chandler on Strategy. Reader p2.

Clearly a view of strategy as planning. Chandler's focus was that the right structure allows an efficient management hierarchy to work.Orgs were seen as efficient and rational resource-allocating mechanisms - reminds me of Rational, Unified and Goal-seeking from B713.  Therefore the "planning" classical view of strategy is seen as a rational analytical process designed to achieve Porter's famous "competitive advantage".

Although thought of as old-fashioned, it seems to me that many organisations still work this way.


Pioneered in the US, Chandler's "M-form organisations" (multi-business/multi-divisional) began to appear in the late 19th century. They invested in economies of scale and scope as the new industrialised (and industrialising) nations nurtured the first mass-markets.

Senior managers in these organisations saw the need for a formal approach to strategy, and Chandler described the professional managers at these organisations as the "visible hand".

M-forms invested too in manufacturing and marketing and designed their hierarchies of control to co-ordinate across these functions.

Management was...a co-ordinated functional hierarchy steered by the "visible hand" of a cadre of professional managers who controlled, but did not own, the organisations they managed. Reader p2.

 every business organisation, every sub-unit of organisation, and even every individual ought to have a clearly defined set of purposes or goals which keeps it moving in a deliberately chosen direction and prevents it drifting in undesired directions. (1971:23) Andrews, Reader p3

Pyramid of purposes, anyone?

By the 1960s, the precursors to the SWOT framework was appearing on the scene, pioneered by Andrews at Harvard. Andrew and Chandler both considered that strategy relates to the long-term development of the enterprise. There was and is a view that orgs need to figure out which are their distinctive competencies (strengths) which can go the long term, and which may need to change with the market. This is still one of the most difficult strategic judgements.

In answering this, Ansoff looks first to see if new products have a fit, a "common thread" with existing products. This reduces risk and allows building on the distinctive competences. Ansoff suggests that the common thread derives from market position and mission and following this technique allows retention of strategic focus.

This is where the "Ansoff Matrix" (product/mission) originated, and it is an attempt to translate SWOT into a basis for strategy development.

Planning departments in orgs made use of the academic ideas & frameworks but began in the 60's to utilise management consultants. During the 60s and 70s firms such as BCG and McKinsey made huge strides in the development of strategic thinking.

BCG developed the Experience Curve (learning curve) and its application gave them great success. Double experience and see costs decline by 20-30%. With this knowledge the value of market share and market share growth could be calculated, and hence the effect of growth rates. From this was developed the Growth-Share matrix from which portfolio analysis derives. BCG made heavy use of the four-box matrix.

McKinsey developed a 9-box matrix with GE as an attempt to overcome shortcomings of the BCG four-box matrix.

To use either relied on the separation of diversified corporations into Strategic Business Units, allowing performance analysis and appraisal of each SBU.

This is all part of the planning approach to strategic management, largely overtaken by later writers and ideas.

How will I use it?

This is all useful background knowledge, as these frameworks are part of almost any standard strategy textbook.