Strategy in Emerging Markets

Telecommunications Establishments in Europe

Anders Pehrsson

• Publisher: Routledge
• Year: 2013
• Topic: Business
• eBook ISBN:
  9781134698257
• Subtopic: Business General
• Index: Business

Markets which have been previously out-of-reach for companies other than monopolies or other protected firms, are increasingly being opened up to new entrants. Greater competitive pressure implies that more sophisticated business strategies must be formulated by all companies cooperating in emerging markets.
This book focuses on strategy in emerging telecommunications markets in a liberalized Europe, particularly in the UK and Sweden. The book provides:
* a literature review and applications of strategy concepts and key correlations
* applications of a market establishment model and the strategic states model
* a description of competition amongst telecom operators in the UK and Sweden
* detailed case-studies of strategies of telecom operators in Europe
* the identification of patterns and processes valid for emerging markets in general.
Whilst the industry focus in the book is telecommunications, the framework and the models explored and developed provide guides to strategy formulation irrespective of the market under consideration.
Strategy in Emerging Markets will make valuable reading for strategy researchers, students and for corporate strategists. It will be of particular interest to those wishing to plot recent developments in the telecommunications industry.

PART I

Theoretical Considerations

INTRODUCTION

This part of the book considers theoretical concepts and models cmcial to the study of strategy in emerging markets. Chapter 2 comprises a review of the literature on strategy and some key correlates: the strategy process, structure, company integration, and performance. I also develop my own thoughts on these important issues.

Based on the introduced theory framework, Chapter 3 presents two models for the study of strategy in emerging markets. One model treats the establishment process, while the other concerns current strategy in emerging markets.

TWO

Strategy and Some Key Correlates

This chapter gives an account of discussions on the strategy concept and on key correlates that are essential within the context of strategy in emerging markets: the strategy process, structure, integration, and performance. To begin, we need to know what strategy means and how it develops. Second, as strategy is formulated for organizations, we need to consider key organizational features, such as structure and company integration. Finally, as every strategy has to be financially defensible in the long term, it is important to be aware of general relationships between strategy and performance.

Regarding strategy and the strategy process, I make the following arguments:

• The strategy concept should include a definition of a product and market scope of a company or individual businesses and of the direction one wishes to follow given a long-term perspective.
• A strategy frequently develops not in a straight line but through a series of complicated variations.
• Retrospective strategy analyses can be very valuable in formulating alternatives for the future in order to delineate the emerging limits for freedom of action.
• In practice, any company needs an explicitly planned strategy in order to survive under profitability constraints in competitive environments.
• For research purposes, descriptive data on strategy development needs to be classified in accordance with a framework.

When it comes to strategy and stmcture, I suggest that core competencies should generally be the responsibility of the corporate level in an organizational structure consisting of strategic business units. Further, the strategy and integration discussion leads to two conclusions: (1) core competencies, core products, end products, core values, and brand identity constitute the “product” dimension of strategy, and (2) in general, company integration facilitates the exploitation of core competencies and their outgrowths, as well as the marketing of consistent offerings. Finally, I come to the conclusion that it is possible to establish relationships between strategy and performance; that is, strategy differences may lead to performance consequences.

STRATEGY AND THE STRATEGY PROCESS

While the need for strategy concepts has developed from management practice, much of the elaboration and refinement of these concepts has occurred in the management literature. Drucker (1954) was among the first to address the strategy issue, although he did so only implicitly. To him, an organization's strategy was the answer to the dual question: “What is our business? What should it be?”

After Druckers initial statement, little attention was given to the concept of strategy in management literature until Chandler, a business historian, published his seminal work in which he defined strategy as

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 carrying out these goals.(Chandler. 1962)

It is clear from this definition that Chandler did not differentiate between the process used to formulate the strategy and the concept itself. This was not a major problem for him, however, since his main interest was in studying the relationships between the way firms grew (their strategies) and the pattern of organization (their structures) devised to manage such growth.

Hofer and Schendel (1978) state that the first two authors who focused explicitly and exclusively on the concept of strategy and on the process by which it should be developed were Andrews (1965) and Ansoff (1965). Andrews combined both Drucker's and Chandler's ideas in his definition of strategy. For him,

strategy is the pattern of objectives, purposes or goals and major policies and plans for achieving these goals, stated in such a way as to define what business the company is in, or is to be in, and the kind of company it is, or is to be.(Andrews, 1965)

Ansoff, in contrast, viewed strategy as the “common thread” among a company's activities that defines the essential nature of its business, both in the present and in the future. Ansoff then went on to identify four components that such a common thread would possess. These are:

• A product and market scope (the products offered by the company and the markets the company is in, that is, the company's entire business).
• A growth vector (the changes the company plans to make in its product and market scope: concentration, differentiation, diversification, and/or integration of resources).
• Competitive advantages (those particular properties of individual businesses that give the company a strong competitive position).
• Synergy (measures of joint effects between individual businesses).

Andrew's and Ansoff s discussions of strategy and the strategy formulation process, Hofer and Schendel continue, differed in three major points:

• The breadth of the strategy concept.

Here, the question was whether the concept included both the goals and the objectives the company wishes to achieve and the means that will be used to achieve them (Andrew's view), or whether it included only the means (Ansoff's view). In other words, the broad versus the narrow concept of strategy.

• The components of strategy, if any.

Here, the question was whether the narrow concept of strategy has components (Ansoff said yes, Andrews no), and if so, what they were.

• The inclusiveness of the strategic planning process.

Here, the question was whether goal setting is a part of the strategic planning process (Andrews said yes), or whether it is a separate process (Ansoff's view).

In the years since Andrews and Ansoff presented their initial concepts of strategy and models of the strategic planning process, numerous authors have written on the topic, including Andrews (1987), Barnett and Burgelman (1996), Chakravarthy and Lorange (1991), Hamel and Prahalad (1993), Hofer and Schendel (1978), Lorange (1984), Mintzberg (1990a), Mintzberg and Waters (1985) and Porter (1980 and 1985).

The prescriptive design of strategies suggested by authors such as Andrews (1965 and 1987), Ansoff (1965), Chakravarthy and Lorange (199D Hofer and Schendel (1978), Lorange (1984) and Porter (1980 and 1985) is the dominant view of strategy. Here, strategy formulation is essentially treated as a process of conceptual design, formal planning, and analytical positioning.

Another major treatment of strategy and the strategy process is the descriptive school, in which Chandler (1962) pioneered by studying relationships between strategy and structure over long time periods. Later, Mintzberg (1990a) and Mintzberg and Waters (1985) took the view that strategy formation is an emergent process. Further, the evolutionary perspective is based on descriptions, and the aim here is to develop dynamic path-dependent models that allow for possible random variation and selection within and among organizations (Barnett and Burgelman, 1996).

Andrews' view of strategy clearly belongs to the prescriptive school. In 1987, he developed his position and made the following argument:

Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities.(Andrews, 1987)

Andrews went on to say that in an organization of any size or diversity, corporate strategy usually applies to the whole enterprise, while business strategy, which is less comprehensive, defines the choice of product or service and market of individual businesses within the firm. That is, business strategy is the determination of how a company will compete in a given business and position itself among its competitors. Corporate strategy defines the businesses in which a company will compete, preferably in a way that focuses resources to convert distinctive competence into competitive advantage. Both are outcomes of a continuous process of strategic management.

The strategic decision contributing to this pattern is one that is effective over long periods of time, affects the company in many different ways, and focuses and commits a significant portion of its resources to the expected outcomes. The pattern resulting from a series of such decisions will probably define the central character and image of a company, the individuality it has for its members and various publics, and the position it will occupy in its industry and markets. It will permit the specification of particular objectives to be attained through a timed sequence of investment and implementation decisions and will govern directly the deployment or redeployment of resources to make these decisions effective.

Some aspects of such a pattern of decisions may be seen in the ways an established corporation remains unchanged over long periods of time, such as in a commitment to quality, to high technology, to certain raw materials, or to good labor relations. Other aspects of a strategy must change as or before the world changes, such as a product line manufacturing process or merchandising and styling practices. The basic determinants of company character, if purposefully institutionalized, are likely to persist through time and to shape the nature of substantial changes in product-market choices and in allocation of resources.

The essence of the definition of strategy I have just recorded is pattern. The interdependence of purposes. policies. and organized action is crucial to the particularity of an individual strategy and its opportunity to identify competitive advantage. It is the unity, coherence, and internal consistency of a company's strategic decisions that position the company in its environment and give the firm its identity, its power to mobilize its strengths, and its likelihood of success in the marketplace. It is the interrelationship of a set of goals and policies that crystallizes from the formless reality of a company's environment a set of problems an organization can seize upon and solve.(Andrews. 1987)

Porter (1980) also takes a prescriptive view of strategy and talks about two main directions for strategies: a search for integration to achieve cost-leadership and a search for differentiation. Each of these directions may be valid for a broad market or for a specific part of the relevant market. At any rate, a commercial organization must face a combination of these strategic features in any given situation (Lorange, 1984). The relative importance of each feature will be dictated by the environmental setting at hand and will tend to differ from business to business and from company to company. It is likely to change over time as well.

As Andrews is one of the leaders of the prescriptive design school, he receives some criticism:

Andrews thought it sufficient to delineate one model and then add qualifications to it. The impression left was that this was the way to make strategy, although with nuance, sometimes more, sometimes less. But that had the effect of associating strategy making with deliberate, centralized behavior and of slighting the equally important needs for emergent behavior and organizational learning. Another extreme, the ‘grassroots model,” makes no more sense, since it overstates equally. But by positioning these two at ends of a continuum, we can begin to consider real-world needs along it.(Mintzberg, 1990b)

As the citation above indicates, Mintzberg rejects prescriptions and instead suggests that strategy should be viewed as a pattern in a stream of decisions taken in the strategy formation process. Thus, Mintzberg represents the descriptive way of viewing strategy.

Mintzberg and Waters (1985) have been researching the process of strategy formation based on the definition of strategy as a pattern in a stream of decisions. They argue that streams of behavior could be isolated and strategies identified as patterns or consistencies in such streams. The origins of these strategies could then be investigated, with particular attention paid to exploring the relationship between leadership plans and intentions (“intended strategy”) and what the organizations actually did (“realized strategy”). Comparing intended strategy with realized strategy allowed Mintzberg and Waters to distinguish deliberate strategies, realized as intended, from emergent strategies (that is, patterns or consistencies realized despite, or in the absence of, intentions).

The fundamental difference between deliberate and emergent strategy is that, whereas the former focuses on direction and control, the latter opens up the notion of strategic learning. Defining strategy as intended and conceiving it as deliberate, as has traditionally been done, effectively precludes the notion of strategic learning.

Emerging strategy itself implies learning what works, taking one action at a time in search for that viable pattern or consistency. It is often through the identification of emergent strategies that managers come to change intentions. Whereas more deliberate strategies tend to emphasize central direction and hierarchy, the more emergent ones open the way for collective action and convergent behavior.

The conclusion of Mintzberg and Waters is that strategy formation walks on two feet, one deliberate, the other emergent. Managing requires a light, deft touch to direct in order to realize intentions while at the same time responding to an unfolding pattern of action. The relative emphasis may shift from time to time but not the requirement to attend to both sides of the phenomenon.

Ansoff (1991) criticizes the strategy view of Mintzberg and Waters along the following lines. First, Ansoff mentions the self-denial of a chance to study the business environment:

In turbulent environments, the speed at which changes develop is such that firms which use the emerging strategy formation advocated by Mintzberg endanger their own survival. When they arrive on a market with a new product or service, such firms find the market preempted by more foresightful competitors who plan their strategic moves in advance.(Ansoff, 1991)

Ansoff then distinguishes between different definitions of strategy:

Mintzberg's strategy definition is descriptive, since in order to identify the strategy it is necessary to wait until a series of strategic moves has been completed. But the concept used in practice is prescriptive and stipulates that strategy should be formulated in advance of the events that make it necessary. Mintzberg fails to differentiate between descriptive and pr...

Table of contents

• Cover
• Half Title
• Full Title
• Copyright
• Contents
• Figures
• Tables
• Preface
• Glossary
• ONE Introduction
• PART I Theoretical Considerations
• PART II Telecom Operators in the UK and Sweden: Industry Overview
• PART III Strategy Cases of Telecom Operators in Europe
• PART IV Discussion of Empirical Findings: Patterns and Processes
• References
• Index