As a rule of thumb, any startup business needs to express its own strategy in order to set its objectives and inspirations for the future both internally and externally. To accomplish such objectives, the company needs to set a strategy that reflects its different logistics and tactics. According to Porter, strategic decision making process is the basis of the company strategy that focus on reaching better competitive position while still sustaining implemented performance. In our current paper, we will focus our attention towards the four strategic theories and how far they are relevant to the contemporary business environment by making a comparison between similarities and differences between these theories.
Q1: Characteristics of strategic theories
Strategic theories or approaches are distinguished by different features; they include four basic approaches, processual perspective theory, classical perspective theory, evolutionary perspective theory, and systemic theory. Each theory is distinguished by its own features which can be helpful to strategic decision makers or the top management to use as a reference in business strategy formulation.
Beginning with the classic theory, top management try to set a rational strategy that sounds logical in terms of the defined objectives. They tend to see the future logically by reviewing all potential situations that may affect their decisions. This perspective is not applicable to small businesses or startups. Let's have an example of the American economy in the last few decades of the twentieth century; it was then known with the strongest and most stable marketing environment that supported huge companies in taking decisions appropriate to the lack of competing challenges. Moreover, stability extended to specific industries, such as the automotive industry that flourished to a large extent in this era. Profit maximization was then the main objective that large companies working in the field of vehicle production, like General Motors, sought to achieve; this perhaps uncover the first characteristics of this classical theory which is the focus on internal procedures performed by decision makers or top management. In this later example of General Motors, the company had a target of maximizing profit by gaining a competitive advantage over other competitors in the same market. Let's have another example from the Middle East, we will find that some companies working in the telecommunication market, like Zain for instance, adopt the classical perspective by having the objective of obtaining a competitive advantage involved in implementing its telecommunication services provided to both current and potential customers, by providing lower price offers or service packages from time to time, to gain the loyalty of its current customers and attract the attention of other prospects.
The second theory is processual perspective which decision makers depend on adopting crafted strategies to handle market fluctuations. This perspective was first adopted in 1970s to handle oil crisis which in turn, participated in raising fuel price. Negotiations and policies are the tools used in this theory to deal with market challenges and fluctuations, which requires immediate modification in business policy. All startup companies adopt this theory at the beginning of their activity, as the theory implies the dependence on taking decisions that support later experiences. Decision makers in small companies tend to apply this perspective because they still need time to understand the marketing environment. They tend to set a strategy that can help them achieve their successful accomplishment in the middle of a new business environment which is not completely obvious for them.
The third perspective is the evolutionary perspective; it was first adopted in the United Kingdom in the eighties of the last century. Business survival is the main target of this theory, which implies the focus on performance enhancement. For instance, the UK government desired to invade the social economy so it adopted system privatization. Strong entities took this chance to show up, locally and internationally, due to advanced technology in telecommunication. Telecommunication companies began to open new branches for itself everywhere, so they can better survive. External investing became the target of decision makers who desired to stay in competition in different markets. This perspective resembles the Darwinian Theory as it is based on looking for investment chance everywhere for the purpose of business survival. No matter where to invest, no matter how many branches we will posses, the main and most important objective is to be able to survive. This, therefore, let to a strategy that tends to orienting investments in different fields in order to gain a strong trademark and a better reputation. Example from Kuwait is Kuwait Finance House (KFH) which is a bank that invests in different areas, such as Kuwait, Saudi Arabia, UAE, Bahrain, Malaysia, the Cayman Islands and Turkey. Investments include market shares and other types of securities that the business tends to incorporate in order to enlarge its marketing capabilities, and so it can posses a better position in the area.
The fourth and last theory is the systemic theory which considers the firm strategy as a part of its objectives, this makes this perspectives based mainly on embedded strategies that can be run in local environment. It focuses mainly on community and society, which makes it appropriate to social corporations, not-for-profit organization and educational organizations, such as schools and universities, like Kuwait University (KU) for instance. This type of organization focuses mainly on the purpose of its existence. Companies and organizations that tend to adopt this perspective use it for the purpose of supporting their local position in the market among different competitors, while maintaining customer satisfaction. Nokia Company, for instance, tends to produce mobile appliances at lower price and medium quality so it can make a large scale of population satisfied to the product it offer to them, in terms of both quality and price. Customer satisfaction is not an easy equation to solve; lower prices however are not always the best choice for each customer, when a customer take the decision to purchase certain product, each one sets his/her own preferences which are not always based on prices and/or quality only. In this perspective, the norms that guide company strategy are based on cultural rules in the local community.
Q2: Four theories of strategy are relevant to 21st century
Some researchers believe that the four theories or perspectives mentioned above are not the best choice to be used in the twenty first century. However, most or perhaps all businesses and organizations all over the world adopt these four perspectives in their process of strategy formation. These four approaches may be used separately by different companies or can be used all at the same time by one organization in setting its different strategies and policies. This is not a declaration that any company can use to inform the community of its perspective, we can find out which theory used, instead, by analyzing different decisions and policies the company issued. Work and environment differences can be the reason of using different approaches by various companies, which is affected mostly by the market nature and work environment.
If we take the example of Kuwait Finance House, we will notice that this bank follows the evolutionary perspective in defining its marketing strategies, with an objective of raising shares sales and increase profits. Top management in this bank decided to run researches and surveys in order to learn about different ways they can adopt to achieve the company objective. They went through deep marketing researching and analysis to learn every detail pertaining to customers' preferences and market environment. They became capable using the information received from these researches to set definite strategies that tend to raise profit and shares sale inside and outside Kuwait. Enhanced relationships between this company and other external factors, such as market suppliers and bargainers, were good factors that helped the company achieve its goals and objectives. The company relied on its good relations to maximize profit so it can guarantee a more stable position in the money market among other competitors. This example gives us a clear idea about how important to maintain better relationships with suppliers and other external factors, in some industries it is a good way to secure perpetual source of raw material. A matter of question for different companies in this regard focuses on the availability of raw materials or supplies source and how important would it be to locate it near the manufacturing facility. Power stations, for instance, need to be build near coal mines and other fossil energy sources as a manner to reduce transportation costs. Semi-processed food factories also must be built near farmlands so we can get fresh vegetables and fruits from the farmland to the manufacturing facility directly. So, it is better to keep distribution and supplies channels close to factories to lower costs and raise quality which in turns raise profitability.
In some national companies in Kuwait, top management focus on adopting evolutionary theory to be able to survive while still preserving their trademarks and maintain the stability of its market position among other competitors of Kuwait or outside it. They tend to adopt a strategy that is based on the evolutionary perspective; they tend to enlarge the scale of their business in different marketing fields and areas, such as vehicle sales, advertising, real estate, and security trading, like the example we mentioned above of Kuwait Finance House. Some other companies tend to focus its activities towards transportations and logistics, industrial production, nutrition processing, and tourism sector. The company strategy is the denominator of all these companies, whatever the activity it excel; the chosen strategy should seek to hunt different opportunities in order to achieve company stability and business survival within an extremely complex marketing environment.
Furthermore, mobile phone businesses, such as Nokia, adopt the evolutionary theory in setting its strategies and policies. Nokia, for instance, tend to make product updates frequently based on analyzing customer needs and expectation, which in turns will enhance its market position that will help it achieve the survival objective. Facing strong competitors, like Sony, in the mobile phone market sounds like a challenge in itself that Nokia need to take different precautions in order to be ready to deal with perpetually. Other competitors like Samsung and Panasonic are strong enough to work as a challenge for Nokia. If any one of these companies develops a new cell phone appliance the other competitors will tend to follow the same pathway in order to save its position in the market. A good example is the Galaxy series of Samsung which was a natural reaction to the IPhone series of Apple. To maintain your position you need to keep an eye on other competitors and their activities, to finally be able to survive. For Samsung products, we may notice that they target middle-aged ABC1 business men and women, features like hand free, speaker, touch screen and other hundreds of cell phone appliances features can be targeted to specific population segment. This is called product differentiation according to different market segmentations. In this regards, appears the role of R&D department in any company to exploit every new technology to enhance products and services provided by the company, so it appears like Research and Development department in any company plays a key role in adopting evolutionary strategy of the company; this department gives the company the chance to launch new products or product updates which can enhance its position in the market.
For the Processual perspective, different businesses adopt it everywhere in the globe. By adopting this perspective, top management tries to use different available scenarios that can be a tool for a successful future for the company. The company learns from past experiences and this will help decision makers to take the most favorable decisions. At time of world crisis, like in 2009, in the Middle East unplanned decisions may be taken as a result of unstable economic conditions; this may lead small businesses to fold and small entrepreneurs to leave the market in a specific country based on their fears from potential losses. Some other investors may decide to take the risk and try to modify the current strategies and implementations. Costs reduction is an example of strategy modification as a way to decrease potential losses and raise profits slightly. In 2009 crisis, many strong businesses working in the automotive industry, like General Motors, adopted the processual theory to face the financial crisis that they were an integral part of it. There is a strong point of views that support the adoption of the processual perspective by small businesses and startups in taking strategic decisions, because they still experience the business life and learn from the market fluctuations and from their own mistakes. They can set their internal strategies aiming to make frequent modifications of both decisions and internal policies in a way that can cut out large portion of costs and expenses. The target will be focused towards reducing operational expenses dramatically, so many companies during the 2009 crisis adopted the costs downsizing approach by retiring a large portion of labor to reduce wages and training costs. Another approach proposes to fold some branches in remote areas. This other solution will reduce different kinds of costs, like transportation, wages and training, raw materials, and other similar costs and expenses. These proposed solutions or approaches can help a company, like General Motors, in time of financial crisis to better handle economic disappointments and market fluctuations.
Some other companies tend to adopt the systemic theory or perspective. Educational and social organizations are the obvious examples of companies following systemic approach. For profit educational institutions, like universities, AUC for instance, are business entities that have for objective to raise its funds and cut costs to its minimal. They focus their strategic objectives towards educational inspirations and students culturing. Top management, therefore, is mostly interested in achieving satisfaction of social needs of parents and other elements in society interested in education and how far it is beneficial to students. This will imply the necessity that these organizations need to follow the systemic perspective in setting up their strategies and in taking different strategic decisions, either internally or externally. There are other types of organizations that tend to adopt this systemic approach, such as banks that tend to serve the society locally by fulfilling local social needs of the community. Examples of these banks in Kuwait are NBK bank and KFH bank; there is a long list of similar powerful banks and institutions that tend to follow the same scenario of these banks in the area. They have a purpose of supporting society needs by supporting the performance of its members, which in turns can be a good tool towards future success of this bank or organization, or an incentive to community members to turn their attention towards this bank or organization.
Q3: Comparing two strategic theories
In order to define the aspects of differences and similarities between these theories, we need to run a comparison between two of them. We will choose the classic and evolutionary perspectives for this comparison. Both of them have aspects of differences and aspects of similarities. Beginning with the classic approach, in determining its policies and objectives, it tends to set a formal strategy. On the other hand, the evolutionary perspective the strategy needs to be good enough to handle market fluctuations. Another characteristic that is obvious for the classic theory is its rationality; the decision maker follows logic in the process of strategy formulation. Contrarily, rationality is not a clear characteristic for the evolutionary theory, because it targets the enhancement of a better position in the market perpetually, which is the pathway for survival. Speaking about goals setting in both theories, we find that the main goal of the top management that adopts the classic approach of strategic planning is to maximize profit to highest levels while minimizing costs to its lowest levels. This goal can be achieved by maintaining a better competitive advantage in terms of quality, price or any other similar factor, such as using the latest technology to update the product or create a new product line. These ways can lead to ameliorate the product quality which in turns raises sales of the product or service provided. For the evolutionary approach, decision makers focus on the external market environment in the process of strategy formulation. This implies that enhancing the company position in the market implies the sophisticated search for potential market opportunities and threats. Top management will decide then to make benefit of the available opportunities, such as the lack of strong competitors or the low quality of the competing products, and/or to handle potential threats, such as the increasing numbers of entrants or governmental limitations and regulations. These steps will lead decision makers to achieve survival as the targeted goal of the organization. Some large scale organizations solve the question of survival by being existent in different markets and opening branches in different areas all over the world. However, according to the classic perspective, the top management tends to make extensive analysis of the market believing that this will affect how the strategy will be formulated. Decision makers, in this scenario, set objectives aiming at enhancing organizational performance as a pathway to support the company marketing position. Making the strategy according to this evolutionary approach resembles the Darwinian Theory as a way of investment that depends on catching and hunting any possible chance in the market. According to this strategic thinking, the organization needs to be ready to catch any available opportunity in the market. This can be obvious in the organizations that tend to invest in different areas and have more than one product line in different areas; this can also be related to the distribution map of the organization that can be extended locally and internationally. The evolutionary approach refers to the possibility to modify the working manner the company follows and extend to the business nature as a way to have a better position among other competitors in the market.
In summary, it is a rule of thumb that any organization needs to formulate a good strategy as a way to ameliorate and maintain its position in the market, and be capable of dealing with different challenges that may face it. It is helpful for any company to adopt a specific perspective or theory in its preparation of the strategy, in order to be able to understand it. In this paper we discussed the four strategic theories and how far they can be valuable to businesses and market environment in the 21st century, by running a comparison between tow of them that revealed the aspects of similarities and differences between them.
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