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1 Introduction
1.1 Learning objectives
After completing this chapter you will:
• be able to describe the forces affecting success and failure in today’s commercial world
• be able to locate the salient literature relating to the evolution of business strategy
• appreciate the nuances of strategic planning and implications for organisations seeking competitive advantage
• be familiar with some of the recent thrusts in strategic management and implications for today’s CEO
• comprehend the effect of organisational context on strategy development and organisational success
• be aware of the objectives and structure of the book.
1.2 Introduction
The field of strategy is concerned with formulating, implementing and evaluating effective proactive responses. Academics and consultants advocate a plethora of approaches to develop effective strategies but the media is replete with examples of failed strategies. Problems cited relate to a failure by the CEO to deliver increased value added, or powerful stakeholders may feel that the strategy is being implemented too slowly. After two years in the role of Barclays’ CEO, Anthony Jackson got ousted in July 2015 over “slow pace of growth”. Tellingly, Jackson was appointed with the brief that included reforming the bank’s culture, which had been tarnished by a series of scandals under the previous CEO. In terms of growth the share price rise under Jackson had been a respectable 65 per cent, but for the corresponding period, that of its peer, Lloyds, was 180 per cent. On a broader European dimension other banking CEOs left their posts too. Deutsche Bank’s co-CEOs Anshu Jain and Jurgen Fitschen, Standard Chartered’s Peter Sands, and Credit Suisse’s Brady Dougan were ousted as investors lost patience with the rate of recovery. The banking industry went through regulatory changes and together with the duality of economic and market cycles led to the need for new growth oriented business models. Figure 1.1 illustrates the frustration with strategic planning efforts.
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In contrast, if we adopt a longitudinal perspective, some companies have appointed a series of CEOs who collectively have failed to compete effectively in their marketplaces. Organisations such as Marks and Spencer, and HP, have made a series of bold statements highlighting their new strategies with varying attempts to be innovative and customer oriented. But they still lag behind their respective peer groups. Marks and Spencer suffered 14 consecutive quarters of declining growth before there was an upturn for the quarter to 28 March 2015. The then CEO, Marc Bolland, had spent billions of pounds investing in the redesign of new products, stores, and logistics. Moreover, its general merchandising poor performance was unaltered during declining sales, and despite hyped new fashion teams and a new website, customers were being lured to other organisations.
The world advances in terms of scope, scale and speed (see Figure 1.2). The information technology industry is fast-paced and demanding. Firms competing in this industry have to be continually making growth announcements to satisfy shareholders. HP has had a turbulent past and since the beginning of the third millennium has made three significant acquisitions: Compaq (in 2001), Palm (in 2010) and Autonomy (in 2011). All three have been arguably an error of strategy. Meg Whitman became CEO of HP in 2011, after her predecessor Leo Apotheker got rid of the HP PC business and spent US$7bn in acquiring Autonomy to focus on software. The Autonomy debacle led to HP making an $8.8bn write-down in its books. As part of its turnaround plan, on 1 November 2015, HP split itself into two publicly traded businesses, HP Enterprises providing technology infrastructure, software and services for corporate IT, and HP Inc. focusing on personal systems and printing markets.
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The UK public sector too has a litany of failures. Mergers within the National Health Service (NHS) have cost billions, but according to leading health think tank, The King’s Fund (Collins, 2015) they do not solve the issues that they were formed to address. Similar to its private sector counterparts, mergers are proposed to help reduce debt-ridden trusts with the process taking up to five years. Collins states that “senior management can be over confident about their ability to lead major projects, while systematically overestimating the benefits and underestimating the risks”. The NHS has to deliver its mandate from government and fulfil its duty to enhance outcomes for people. Charities can also be casualties of the current economic climate. Kids Company, a charity founded in 1996 by Camila Batmanghelidjh provided practical, emotional and educational support to inner-city children and young people in the cities of London, Bristol and Liverpool. Despite its high profile, Kids Company suffered from funding difficulties and closed in August 2015, causing the government to find alternative support for 6,000 vulnerable children. In the case of the public sector, failure ultimately reinforces the importance of the business–society relationship. These examples highlight a waste of healthcare resources, and vulnerable children having to find other interventions for their problems. Both represent high social costs to vulnerable members of society.
Big brands too have had notable product failures such as Nike, Mercedes, and Home Depot in China. Nike’s design of white sneakers created for the year of the monkey, incorporated special Chinese characters printed on both heels. The sneakers looked smart but the character on the left shoe, Fa, means good fortune and the character on the right shoe, Fu, symbolises wealth. Unfortunately, when both characters are combined the meaning changes to become fat. Mercedes Benz, too, suffered from a phonetic nightmare. The company chose the name Ben Si, which sounds like Benz, but actually means rushing to die. This is somewhat worrying for a motor vehicle. Home Depot is a market-leading American firm that provides supplies for Do It Yourself (DIY) work at home. The firm was excited by the size of the commercial opportunity in China. Sales never took off in China. On reflection, management realised that the majority of potential customers in the major cities lived in modern buildings, which did not need the attention of DIY. Also, in the Chinese culture, DIY is perceived as a sign of poverty. Collectively, these examples show that having a large budget cannot prevent causing major organisational trauma from mistakes. Some of the key trends shaping the business context are shown in Figure 1.3.
The opening to this chapter uses practical examples to illustrate failure at the corporate and product level. We also reiterate the fact that strategic management outcomes are not always the same as we teach in universities. Following a precise set of instructions does not always translate into success. By reviewing the evolution of strategy theory over the last five decades and comparing this with managerial practice, we briefly draw attention to strategic planning. The salient strategic planning literature is highlighted, and observations suggest that much of the prior strategic management literature is replete with rigorous quantitative and qualitative empirical studies, but currently lacks behavioural rigor and practical relevance. While an abundance of textbooks consider the general nature of strategic management, few texts really focus on how organisations create value in today’s business environment. Next, we consider the new thrusts of the strategic management literature. Organisational success through a theoretical lens is briefly explored. Then, the chapter overviews the remaining chapters of the textbook, which seek not to necessarily advocate a single solution or approach, but to introduce the reader to a variety of insights to allow them to make up their own mind. The chapter summary reinforces the salient messages, and then concludes with self-reflection questions.
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Strategy nugget
Sir Alex Ferguson
Sir Alex Ferguson was born on 31 December 1941 in Glasgow, Scotland. He made his first team football debut for Queen’s Park FC (1957–60), and moved on to St. Johnstone FC (1960–64). Sir Alex turned professional after joining Dunfermline Athletic FC (1964–67). In 1967, he was transferred to Rangers FC for a Scottish record fee of £65,000, which ended abruptly in 1969. Sir Alex joined Falkirk FC in 1969 and spent four years with the club, and spent one season with Ayr United FC. In 1974, Sir Alex Ferguson retired as a player after scoring 167 goals in 327 appearances.
At the age of 32, Sir Alex entered football as a manager on a part-time basis with the East Stirlingshire FC. After a few months, he joined St. Mirren FC and won the Scottish First Division in 1976–77. Sir Alex quickly progressed to Aberdeen Football Club and as a young manager won the respect of the club. This led to him gaining a reputation as a strict disciplinarian with superb man-management skills. This culminated in Aberdeen clinching the Scottish Premier Division title in 1979–1980. By the end of his managing career he won two more premier titles, four Scottish cups, a league cup, super cup and a European Cup Winners’ Cup in eight seasons.
After not winning the Football League since 1967, Manchester United appointed Sir Alex on 6 November 1986. Unfortunately, success was not immediate and there was much media speculation that Sir Alex was at one stage only one game from getting the sack. Manchester United’s first success was the League Cup during 1991–92, and the all important Premier League* in 1993–94. Much success continued and culminated in the famous quadruple in the unforgettable 1998–99 season: FA Cup, Premier League, UEFA Champions League, and Intercontinental Cup.
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In terms of non-football honours, Sir Alex Ferguson received the Order of the British Empire (OBE) in 1983, for his services to football. The Commander of the Order of the British Empire (CBE) which he received in 1995 was well deserved. Sir Alex Ferguson was inducted into the English Football Hall of Fame in 2002 and was made Knight Bachelor in 1999 for Manchester United’s spectacular efforts in the 1998–99 season.
The 2011 season was a pivotal moment in the history of Manchester United, as the team moved ahead of Liverpool on the all-time championship list. By winning the Premier League, Manchester had won 19 League title trophies compared to Liverpool’s 18. Sir Alex had transformed Manchester United into the most successful club in the country and he himself was the most successful football manager of his generation.
In his last season (2012–13), Manchester United won the Premier League title by an 11-point margin. After 27 years of Sir Alex in charge in the role of manager, Manchester United had overtaken Liverpool for winning the Football League Championship/Premier League with 19 wins. Manchester United won the Premiership title three years in succession (2006/7; 2007/8; 2008/9). Under Sir Alex’s reign Manchester United won the Premier League (13 times), the FA Cup (5 times), the League Cup (4 times) the FA Charity/Community Shield (10 times), the UEFA Champions League twice, UEFA Cup Winners’ Cup and UEFA Super Cup once each.
*The Premier League commenced in the 1992/3 season, and became the top division of English football. Prior to this it was the Football League Championship.
Questions:
1 Define what is meant by the term organisational success. How did Sir Alex Ferguson achieve so much success during his 27-year reign as manager of Manchester United?
2 Discuss ways in which Sir Alex Ferguson managed to maintain his team’s success for nearly three decades?
1.3 Evolution of business strategy theory
The first book of strategy emanates from the works of Sun Tzu. His book The Art of War was written more than 2,500 years ago and a number of Sun Tzu’...
