History and Future of Strategic Management

History and Future of Strategic management
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Abstract
The term strategy started out by being used as a military approach in its operations. As from 1940, it started being used in other areas as well. It has been noted to have developed through five phases over the years. The phases are; basic financial planning, long-range planning, strategic planning, strategic management and the complex systems. The complex system’s strategy consists of the complex dynamic systems and the complex static systems. This essay covers the evolution of strategy, all the way up to strategic management in the business environment. It discusses all the five major phases of development individually as well as other minor phases. The works of notable scholars, theorists, and organizations that made a significant contribution to strategic management have also been discussed. Numerous ways of conceptualizing effective strategic management have been discussed as well as their application. This essay shows that the success and profitability of business are linked to the ability of its strategists to not only develop a sustainable plan but also implement it. Development of such plans requires taking into account the dynamics and complexity of the business environment. By understanding the history and future of strategic management, strategists are able to conceptualize external and internal business environment and make viable business plans.
It wasn’t until 1940, that strategy started being viewed as an aspect that can be used in different areas other than in military operations.

The strategy has developed through five phases over the years. These have been identified as; the basic financial planning, long-range planning, strategic planning, strategic management and the complex systems. The complex system’s strategy consists of the complex dynamic systems and the complex static systems (Freeman, 2010; McKiernan, 2017). 
The genesis of the basic financial planning can be traced back to the publication of budgetary control in 1922 by James McKinsey. This publication has been quoted to be the beginning of the modern budgetary monitoring. Early corporate strategy efforts were limited to budget development. Managers realized that planning for funds allocation was essential. During the 1900s, strategic changes and budgeting were incorporated into the long-term budgeting process. This way, the budget was supportive of the firm objectives (Golsorkhi et al., 2010).
The long-range planning referred to the changes introduced on the length of the period of financial planning. The length of budgeting was changed from one year to five years. This change was also introduced on the operating plans, and it proceeded with the assumption that there would be stability in the markets. With time, it developed to involve issues such as diversification and growth. The concept of long-range planning was strengthened by George Steiner in the 1960s (McKiernan, 2017). He collected information from different companies on how the use of long-range planning helped in diversification, growth plans and resources allocation. Linear approaches such as the operations research and the game theory were developed during this time period (Thompson & Martin, 2010)
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Strategic planning stemmed from the need for managers to discuss strategic options before drawing up the budget. In this case, the strategy focused on business units rather than organization center. The business strategy concept developed from the business policy. Managers discovered that external events played a major role in corporate performance in the mid-1900s. Based on this, they started examining external drivers in order to incorporate discontinuities in their plans. This went on into the 1970s (Golsorkhi et al., 2010).
The strategic business units concept was started out in the 1950s by the General Electric company. It later became widely accepted that individual businesses with specific products and markets needed to set and determine their own strategy under guidance from the headquarters. This way, they would be individually responsible not only for their development but profits as well (McKiernan, 2017).
Strategic planning had its own shortcomings. This is because it was closely associated with the analysis. Managers had the assumption that only the things that could be analyzed were manageable. They believed that more analysis would lead to safer decisions. The view then was that concerned strategy predictions that were based on the analysis (Nickols, 2011). The major factor considered in this line of thinking was survival rather than growth, profitability or expansion. They assumed that the rest would automatically follow. It was all about getting it right or in other words winning. This was problematic because it was possible for one to win a battle and eventually lose the war (Thompson & Martin, 2010).
During the 1960s and 1970s, strategies and predictions were made confidently and optimistically. The environment of business seemed to be stable. Once objectives were set, strategies would be made to meet them. Management by Objectives (MBO) was the name given to this type of approach. Under this form of management, strategy formulation was considered the most rational process. The process was very logical and backed by data. It was later realized that the MBO process required a lot of data. In order to predict the future, there was the heavy reliance on the past, and this made the process very complex. The system was also noted to be ineffective at adapting to change (Golsorkhi et al., 2010).
The MBO was all about getting from point A to B as fast as possible. In this case, the end justified the means. In 1994, Henry Mintzberg published a book entitled, “The Rise and Fall of Strategic Planning.” He pointed out that the direct route processes were likely to encounter hindrances. He also noted that the destination was likely to change during the journey. During this era, a transition from strategic planning to strategic management began (Freeman, 2010). Even though strategic planning was partly a success, its failures necessitated an improvement in strategy. In minor firms, profitability was restored by strategic planning (Nickols, 2011). However, many other firms encountered a challenge which was later termed as the “paralysis by analysis.” In such cases, though there were strategic plans in place, they ended up not being implemented. Complains were raised in the academic community as well as the business community that strategic planning failed to increase profits in a firm (Wheelen & Hunger, 2011).
During this time, a researcher by the name Ansoff from Vanderbilt University carried out studies aimed at discovering whether profits would increase by overcoming paralysis by analysis. The logic behind his theory was that either strategic planning was not working, or it was part of a concept that was not being fully implemented. Ansoff realized that strategic planning was not a sufficient instrument to manage change. In the year 1972, he published a paper by the name “The concept of strategic management.” The paper claimed that strategic planning was part of strategic management. He also included in the publication another concept of the firm’s capability to convert plans into the reality of the market (Nickols, 2011). A third concept was introduced in the 1980s which were about “managing resistance to change.” The strategic management concept was composed of planning for organizational capability, resistance to change management and strategic planning. Strategic management was aimed at giving people all the necessary support in order to manage change. It no longer focused on externally but also internally (Freeman, 2010).
With the increase in the complexity and change of environment in the 1980s, the concept of self-confirming theories was developed. In this theory, the concept was that what was sometimes done in the past will most likely be done again in the future. There were terms that were directly related to such theories which were a mission, competitive advantage, and core competencies. Many books were written on equilibrium-based strategy. This model referred to the succession of steps meant to maintain the firm’s focus on its competencies. It is from this model that the SWOT analysis and the five forces idea was developed (Wheelen & Hunger, 2011).
The complex system’s strategy was introduced after the failure of the equilibrium approaches. Complex systems based thinkers fell into different categories. Most were of the belief that in order understand the environment; one had to consider its chaos, complexity and ecological constructs. This type of thinkers subscribed to the hypotheses by Darwin “upward evolution of a system” as a business environment metaphor. This way of thinking led to the theory of self-organizing companies. Two categories are majorly identified for the complexity group. The first one is the pure complexity-based group and the second one is the hybrid complexity-based group. In the first category, theorists apply the idea of emergence in every situation. This group was of the belief that due to the chaotic environment, predictive modeling is not applicable. This means that it is pointless to make future plans (Hill et al., 2014).
The Darwinian hypothesis is also subscribed to by the hybrid group. This group believes that a firm may compete despite the chaotic environment. There is a combination of the emergent approach and the extrapolation approach in this group. The emergence believers have three groups. The emergence theorists stem from the chaos theory and complex systems idea. Some state that it is not possible to understand futuristic systems while others claim that some of its aspects can be understood. The third group includes presumptions of naturalistic ecology in its theory (Hill et al., 2014).
Henry Mintzberg and Ralph Stacey were of the view that it is impossible to put future complex environments into consideration. They suggested that a strategist had to wait for the occurrence of events before developing a strategy. This form of approach involved an after the fact form of strategy development in discontinuous events. Other theorists held a different view. Peter Senge for example, advanced the systems thinking concept. He claimed that complex systems could be observed and reliable inferences could be made on them (Keupp et al., 2012).
The theory of chaos and complexity was introduced in the 1950s when the investigations into the cybernetics idea were ongoing. During the 1990s, the “Systems Thinking Idea” was popularized majorly in the book “The fifth discipline” by Peter Senge. By then, the chaos and complexity theory was an independent theory in its own path. During this period, there was a lot of discipline blending ranging from business, social science and natural sciences (McKiernan, 2017).
A different approach used to deal with complex environments was known as systems thinking. Proponents of this approach believed it was possible to make reasonable inferences on complex systems. Though systems thinking approach, was widely discussed in the corporate world, only a few firms utilized it. The leaders with the ability to think on the basis of complex systems have been and will be very successful (McKiernan, 2017).
The use was Darwinian evolution theory as a metaphor in complex systems was developed alongside the hypothesis on complexity. The Darwinian Theory was based on two ideas. The first was on “survival of the fittest” while the second was on evolution. The evolution concept was that there was a constant change in matter from lower level complexity to higher level complexity. The proponents of the Darwinian metaphorical idea in business were of the view that similar changes occurred in business. From lower to higher complexity levels. Theorists on complexity management suggest that managers should allow businesses to emulate nature through self-organizing (Thompson & Martin, 2010).
Complexity-based theorists adopt the Darwinian hypotheses metaphor for strategy theory and management. This is what led to the development of self-organization. The complex dynamic systems idea was also supported as a theory for developing management, strategy theory and describing the natural environment (Keupp et al., 2012). The adoption of Darwinian Theory of complexity led to the use an alternative to the complex adaptive systems theory. This theory also suggested that economic systems were characterized by a progressive upward evolution. The advantage of this theory is that managers were thinking in line with complex systems. It was doubtless that linear thinking would probably damage a company. Nevertheless, the lack of scientific support in the adaptive systems theory was also a challenge, especially when building a corporate strategy (Wheelen & Hunger, 2011).
A lot of people now use the complex dynamic systems idea when thinking about a competitive environment. The shift from the metaphorical idea of evolution to the appreciation of the complexity of environment presented an improved opportunity for strategists. The trend currently in towards a complexity-based strategy (Keupp et al., 2012). Contemporary research supports the shift from a linear model to a complex mental model that is non-linear as a way of increasing profits (Martin, 2014).
A book entitled “Competing for the future” by Gary Hamel and C.K Prahalad went through a number of changes with respect to failures of different strategies. At the start, it was focused on the self-confirming theories. With the failure of such theories, the subsequent works focused on the anticipation of future environments and their complex nature. A notable aspect in this book was the emphasis made on the proactive strategies when dealing with uncertainties of the future (McKiernan, 2017).
The term “core competencies” is now adopted in the management language. It refers to what an organization excels at. C.K Prahalad and Gary Hamel defined the term as “the skills that enable a firm to develop a fundamental customer benefit.” They were of the opinion that strategic planning was not sufficiently long-term. They advocated for the crafting of strategic architecture. This meant that organizations were supposed to focus on rewriting the industry rules and the creation of new competitive industries (Nickols, 2011).
“Hybrid systems” was the term given to theories that were a combination of equilibrium-based and adaptive systems theories. The theorists suggested that strategists were supposed to use complex adaptive systems in their strategies while simultaneously developing new or even historic competencies. This combination presented challenges. When observing the environment globally, there was a general acceptance that there were two environmental issues to be addressed. The first was the rate of change and the second was complexity. It was accepted that organizations were changing continuously in nonlinear forms. This change applied to both complexity and speed (Martin, 2014).
The useful idea by Rosabeth Moss Kanter on contingency theory suggested that organizations were supposed to respond contingently to the anticipated future environmental changes. Another hybrid was the model by Ansoff. It took the complex dynamic systems approach as well as the emergence approach. The emergence approach, in this case, was considered as the ability of the firm to react to discontinuous events. Another theorist from Havard Business School by the name Rosabeth Moss Kanter also preferred the contingency design and rejected the self-confirming approach in her work. She was of the belief that strategist should start by understanding the future environment and then design a contingency plan based on that understanding (Martin, 2014). She wrote a book entitled “When Giants Learn to Dance” in 1990. In this book, she introduced seven ideas describing managers that are bound to be successful (Elms et al., 2010). These are;
They work without the use of power from the hierarchy behind.
They are able to compete effectively even in the presence of competition
Their ethical standards are high
They have humility
The possess a process focus
They are multifaceted and flexible
They are able to link their rewards to performance
The strategic renaissance concept as posited by Evan Dudik in 2000 took a strategic approach that was based on complex systems. In this approach, it was imperative for the strategist to understand the uncertainty level of the environment and the firm to develop a complex adaptive system meant to deal with the uncertainty. This was an excellent way of applying the contingency theory. Dudik’s book covered all the advantages of developing a complex mental model, and its application was effective in corporate strategy development (McKiernan, 2017).
The predictive modeling method involved a futuristic strategic frame and a complex mental model. Because complex-futuristic approaches consisted of complexity, there were many such approaches including hybrids. While some approaches concerned complexity, others tended to be less holistic (Poister, 2010). The first approach known as Artificial Intelligence Simulation (AIS) involved the development of computer-based models where key variables were capable of being manipulated. In this case, research could identify about ten independent variables that appeared to be the drivers of particular outcomes. It was also possible to attribute certain variable behaviors on statistically constructed relationships. This added more power to such models. By manipulation of variables, a researcher could increase the amount of certainty in predicting the future. AIS models can be attributed to wargaming. In complex environments, Scenarios and wargaming could be very helpful (Poister, 2010).
The oil giant organization known as shell pioneered the scenario planning concept. The creation of a single strategic plan supposed to be adhered to with military precision was not practical and failed to work (Poister, 2010). With a change in circumstances, the need for change in the strategic plan also developed and executives were forced to try and push through a doomed plan or either go back to the drawing board. The longer they took to draft a new plan, the worse their problem became. Shell was able to sort this problem by making a number of assumptions with regard to the future environment (Highsmith, 2013). A simple such set of assumption would be a straight line, optimistic and pessimistic. Since any one of the scenarios could happen, managers made plans following the most likely event to happen. When creating such plans, they set various points of evaluation where an alternative scenario happen. The basic idea here was to consider the repercussions of possible deviations from the plan and accommodate them so that they would be implemented at the least effort and cost (Highsmith, 2013).
Scenarios are categorized as complex-future models, and they are used in long-term strategy development in complex environments. They can extend for a number of years. Since they consider a long range of possibilities in the outcome, they analyze the future driving forces. They focus on the driving forces that might impact a specific area under study. Two main purposes of scenarios have been identified. The first is that they are able to create an overview of a particular issue, secondly, is that they help as driving forces in organizational learning (Highsmith, 2013).
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