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gb590_report.spangaro_printversion
1.
October 24, 2002 ©Spangaro
Systems Pty. Ltd. 1 Student: Supervisor: RMIT BUSINESS The School of Management Justin Spangaro B.Eng (comms.) Student No. 8302946R Phone: (03) 9817 3318 / (0427) 087 313 Email: justin@spangaro.com Address: Unit 3/385 Barkers Road, Kew, VIC., Australia 3101 A report submitted in partial fulfilment of the requirements for the award of Master of Business Administration Master of Business Administration GB590 Field Investigation Tim O’Shannassy RMIT Business, School of Management Phone: (03) 9925 5951 Email: tim.oshannassy@rmit.edu.au Address: Level 16, 239 Bourke St., Melbourne, VIC., Australia, 3000. Final Report A Study of the Relationship Between Strategic Thinking, Strategic Planning and the High Technology Industry In Australia
2.
©Spangaro Systems Pty.
Ltd. 2 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro I declare that • except where due acknowledgement has been made, the work is mine alone • the work has not been submitted previously in whole or in part to qualify for any other academic subject or academic award • the work has been carried out since the official commencement date of the research project and in accordance with the undertakings given in the signed RMIT Business ethics approval Student Signature................................................Date........................
3.
©Spangaro Systems Pty.
Ltd. 3 A STUDY OF THE RELATIONSHIP BETWEEN STRATEGIC PLANNING, STRATEGIC THINKING AND THE HIGH TECHNOLOGY INDUSTRY IN AUSTRALIA. Executive Summary...........................................................................................................7 CHAPTER 1: INTRODUCTION Synopsis...............................................................................................................................9 Research Topic: Definition, Background and Rationale................................................9 Research Aims..................................................................................................................11 Research Questions..........................................................................................................12 CHAPTER 2: LITERATURE REVIEW Synopsis.............................................................................................................................13 Introduction......................................................................................................................13 The Concept of Strategy..................................................................................................14 Strategic Planning............................................................................................................18 Characteristics of strategic planning ......................................................................................................... 19 Analytic .................................................................................................................................................. 19 Formalised ............................................................................................................................................. 19 Detached. ............................................................................................................................................... 20 Convergent. ............................................................................................................................................ 20 Scientific. ............................................................................................................................................... 20 Engages left-brain (or “right-handed planning”). .................................................................................. 20 Strategy formulation .................................................................................................................................. 20 Planning Today .......................................................................................................................................... 21 Strategic Thinking............................................................................................................22 Connecting Planning with Thinking - the Evolution of Strategy ................................25 Single-loop/ double-loop learning ............................................................................................................. 26 Analysis versus intuition ........................................................................................................................... 29 Strategy and High Technology Industries......................................................................29 Conclusion ........................................................................................................................36 CHAPTER 3: FIELD RESEARCH Introduction......................................................................................................................39 Research Design ...............................................................................................................39 Research Methodology ....................................................................................................41 Inductive/Deductive Methodology ............................................................................................................ 41 Hypothesis testing/falsification ................................................................................................................. 41 Time period of research ............................................................................................................................. 41 Quantitative and Qualitative Methods ....................................................................................................... 41 Measurement scales ................................................................................................................................... 42 Data Collection Methods ........................................................................................................................... 42 Sample Design ........................................................................................................................................... 43 Fieldwork ................................................................................................................................................... 44 Data Analysis Methods .............................................................................................................................. 44 Statistical Analysis Methods ..................................................................................................................... 49
4.
©Spangaro Systems Pty.
Ltd. 4 Hypotheses........................................................................................................................51 Hypothesis A ............................................................................................................................................. 51 Hypothesis B ............................................................................................................................................. 51 Hypothesis C ............................................................................................................................................. 51 Hypothesis D ............................................................................................................................................. 51 Operationalisation ...........................................................................................................53 Operationalisation of Primary Constructs....................................................................53 Operationalisation of Strategic Thinking .................................................................................................. 53 A Systems Perspective ........................................................................................................................... 53 Intent focused. ........................................................................................................................................ 54 Intelligently Opportunistic: .................................................................................................................... 54 Thinking in time: ................................................................................................................................... 54 Hypothesis-driven .................................................................................................................................. 54 Operationalisation of Assumptions about strategic thinking versus strategic planning ............................ 55 Operationalisation of Strategic Planning ................................................................................................... 55 Operationalisation of the Criticality of the Impact of Technology on the Organisation ........................... 56 Operationalisation of the Interaction between analysis and formulation (iterative or linear) ................... 56 Operationalisation of Secondary Constructs ................................................................56 Operationalisation of technological inflexibility ....................................................................................... 56 Operationalisation of Management Experience (type of) ......................................................................... 57 Operationalisation of Organisational Complexity and Size ...................................................................... 57 Secondary Constructs not Operationalised for this survey ........................................................................ 57 CHAPTER 4: ANALYSIS Results and Discussion.....................................................................................................59 Hypothesis B ............................................................................................................................................. 61 Hypothesis C ............................................................................................................................................. 61 Hypothesis A ............................................................................................................................................. 62 Hypothesis D ............................................................................................................................................. 62 Secondary Constructs and Spearman Rank-Order Analysis ..................................................................... 63 Factor Analysis .......................................................................................................................................... 64 Component 1 .......................................................................................................................................... 66 Component 2 .......................................................................................................................................... 66 Component 3 .......................................................................................................................................... 67 Regression Analysis of Secondary Constructs .......................................................................................... 68 Regression Curve Fit of CT versus ST/SP ................................................................................................ 68 Summary of Analysis.......................................................................................................70 Research Limitations.......................................................................................................73 Sample Size ............................................................................................................................................... 73 Linear Regression ...................................................................................................................................... 73 Factor Analysis .......................................................................................................................................... 73 Survey Design ........................................................................................................................................... 73 Strategic Thinking Elements ..................................................................................................................... 74 CHAPTER 5: RESEARCH IMPLICATIONS 75 CHAPTER 6: CONCLUSION 79
5.
©Spangaro Systems Pty.
Ltd. 5 REFERENCES 83 APPENDIX A: STRATEGIC MANAGEMENT RESEARCH SURVEY QUESTIONNAIRE .............89 General Instructions........................................................................................................89 Section 1: Strategic Planning ..........................................................................................89 Comments on Strategic Planning .............................................................................................................. 90 Section 2: Strategic Thinking..........................................................................................90 The “Intelligent Opportunism” Scale ............................................................................90 The “Systems Perspective” Scale....................................................................................91 The “Intent Focused” Scale ............................................................................................92 The “Thinking In Time” Scale........................................................................................93 The “Hypothesis-Driven” Scale......................................................................................94 Assumptions about Strategy and the Strategy Process.................................................94 Comments on Strategic Thinking .............................................................................................................. 94 Section 3: Criticality of the Impact of Technology........................................................95 Section 4: Moderating Factors........................................................................................95 Technological Inflexibility ........................................................................................................................ 95 Type of Management experience .............................................................................................................. 96 Organisational Complexity ........................................................................................................................ 96 APPENDIX B: INTERVIEW QUESTIONS FOR STRUCTURED INTERVIEWS ............................99 APPENDIX C: DETAILED ANALYSIS CALCULATIONS ......................................................101 Data Transposition and Interpretation........................................................................101 Strategic Thinking ................................................................................................................................... 101 Strategic Planning .................................................................................................................................... 102 Criticality of Technology ........................................................................................................................ 102 Formulation/Analysis Relationship ......................................................................................................... 102 Inflexibility of Technology ...................................................................................................................... 102 Management Orientation ......................................................................................................................... 103 Organisational Complexity ...................................................................................................................... 103 Question 30: organisational size .......................................................................................................... 103 Question 32: organisational structure .................................................................................................. 104 Spearman Rank-Order Correlation Coefficient.........................................................105 APPENDIX D: RESULTS: DATA TABLES ...........................................................................107 APPENDIX E: SPEARMAN RANK-ORDER CORRELATION COEFFICIENT CALCULATIONS .111 APPENDIX F: SUPPLEMENTARY STATISTICAL ANALYSES ...............................................127 APPENDIX G: REGRESSION CURVE FIT FOR CT V’S ST/SP ............................................131 APPENDIX H: MULTIPLE LINEAR REGRESSION CORRELATION TABLES .........................133 INDEX .............................................................................................................................135
6.
©Spangaro Systems Pty.
Ltd. 6
7.
October 24, 2002 ©Spangaro
Systems Pty. Ltd. 7 A Study of the Relationship between Strategic Planning, Strategic Thinking and the High Technology Industry in Australia. Justin Spangaro GB590 Field Investigation, Final Report Executive Summary This study investigates the nature of strategic management processes in the high technology industry in Australia. The investigation reveals that the field of strategic management is in a state of confusion over how to find a balance between strategic planning and strategic thinking, and even what is strategic thinking. This research measures the emphasis on strategic thinking and strategic planning and the criticality of technology to the organisations studied. The proposition made is that high technology companies will need to place greater emphasis on strategic thinking, according to contemporary management theory on strategic thinking. Also, the research explores the nature of the strategy formulation process and the role of analysis, to attempt to resolve the debate about how new strategies are actually formed. The study shows that the proposition that high technology industries will need to place a greater emphasis on strategic thinking is valid. Further-
8.
Executive Summary ©Spangaro Systems
Pty. Ltd. 8 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro more, this emphasis is found to be at the cost of strategic planning, which tends to be less emphasised. It shows that formulation and analysis in this situation are more intertwined and interactive, resolving the debate about the use of analysis in an integrated thinking/planning process. The impli- cation for management in traditional industries is that strategic thinking should be more emphasised when they are subjected to forces of change and increasing complexity similar to high technology industries.
9.
October 24, 2002 ©Spangaro
Systems Pty. Ltd. 9 Chapter 1: Introduction Synopsis This final report presents the findings of a study of the strategic manage- ment process in the high technology industry in Australia. The research was conducted by Justin Spangaro in 1999/2000 as the final field research dissertation for a Masters of Business Administration award at RMIT University, Melbourne, Australia. Research Topic: Definition, Background and Rationale This research project is a study of the relationship between strategic thinking, strategic planning and the high technology industry in Austra- lia. The terms “strategic thinking” and “strategic planning” are commonly used in the literature on strategic management to describe opposite extremes of a continuum defining the concept of the strategic manage- ment process (O’Shannasy 1999a). At the strategic thinking end of the continuum, the strategy process is an intuitive, incremental, informal, emergent, divergent process. Conversely, at the strategic planning end the process is an analytical, planning oriented, formalised, deliberate, con- vergent process. However, the definition of strategic thinking is highly contentious; this research attempts to resolve this confusion. Debate and controversy in the field about strategic management pro- cesses often centres on the tensions between the strategic thinking and
10.
Research Topic: Definition,
Background and Rationale Introduction ©Spangaro Systems Pty. Ltd. 10 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro strategic planning perspectives (Heracleous, 1998). Contemporary man- agement literature has been seeking to reconcile and integrate these per- spectives into a more holistic understanding of the strategy process (Heracleous, 1998; Liedtka, 1998a; 1998b; Mintzberg 1994a; Mintzberg, Ahlstrand & Lampel, 1999). Reconciling these opposing perspectives offers the hope of resolving the dilemma apparent for practitioners of strategy, that is, how to create an effective strategic management process that attracts the benefits of both strategic thinking and strategic planning while avoiding their respective shortcomings. This study makes a constructive contribution to this debate by investigat- ing the relationship between strategic thinking and strategic planning in the high technology industry environment. High technology industries routinely face turbulent and uncertain envi- ronments, highly complex products and markets, an unpredictable future, widespread dissemination of critical competitive knowledge and high rates of growth, and rely upon constant innovation and creativity to sur- vive. The high-tech environment offers an ideal setting for a study of strategic thinking. Furthermore, many of these problems are the same as those being faced for the first time by organisations faced with unprece- dented forces of technology-driven change. A competitive local high technology industry has been recognised as crit- ical to the long term economic well-being of Australia (Brain, 2000; Semple, 2000), and effective strategic management is key to this success. To contribute to resolving the debate over the nature of the strategic man- agement process, this research specifically examines the relative empha- ses on strategic thinking and strategic planning in the high technology sector. The study also explores the nature of the strategy formulation pro- cess, particularly the often contentious role of analysis in strategy formu-
11.
Research Aims Introduction ©Spangaro
Systems Pty. Ltd. 11 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro lation (Porter, 1979 pp21-22; Heracleous 1998; Mintzberg 1994a; Mintzberg, Ahlstrand & Lampel 1999, p77). Research Aims The aim of this project is to explore and examine the nature of the strat- egy process, in the context of the high technology industry in Australia. The relationship between the impact of technology on organisations and the relative emphasis placed on strategic thinking and strategic planning are examined. In doing so, the validity of the definitions of strategic thinking (Liedtka, 1998a) and strategic planning (Boyd & Reuning- Elliott, 1998) are tested and the two concepts contrasted. In comparing strategic thinking with strategic planning, this research makes a contribution by clarifying an important and contentious issue in the strategy field, that is, how are the apparent incompatibilities between strategic thinking and strategic planning resolved in practice, and what are their respective roles? In particular, this research uncovers and explains strategic management processes in the Australian high technology sector. These results may provide the basis for further comparative studies with similar sectors in other countries, or with other industries within Australia. The results presented of an analysis of strategy processes for the high- tech sector could also have implications for the making of strategy in other sectors that are now facing unprecedented technological change, for example the banking and finance sector in an internet-based economy. Finally, inferences are drawn from this research for the likely evolution of the practice of strategy-making for industrialised economies as the
12.
Research Questions Introduction ©Spangaro
Systems Pty. Ltd. 12 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro prevalence of the knowledge worker increases and internal and external environments continue to become more complex. Research Questions This research aims to answer the following research questions: 1. How much emphasis is placed on “strategic planning” in high technol- ogy organisations, relative to other types of organisations? 2. How much emphasis is placed on “strategic thinking” in high technol- ogy organisations, relative to other types of organisations? 3. Does the criticality of technology to an organisation’s business influ- ence the balance between strategic planning and strategic thinking in the strategic management process? 4. In high technology industries are analysis, strategy formulation and hypothesis testing through implementation iterative and intertwined processes or do they tend to be linearly and sequentially related pro- cesses.
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October 24, 2002 ©Spangaro
Systems Pty. Ltd. 13 Chapter 2: Literature Review Synopsis This chapter examines the academic literature concerning the concepts of Strategic Planning and Strategic Thinking, and their relationship to each other and the strategy process. It also reviews, in this context, strat- egy in the high technology industry. Introduction The field of strategy has evolved over the last 35 years or so (O’Shan- nassy 1999a). Over time, the emphasis has shifted from strategic plan- ning to the more contemporary concept of strategic thinking (Mintzberg 1994a; 1994b). However, as Heracleous (1998) states: “The relationship between the two ideas of strategic planning and stra- tegic thinking is by no means clear in the literature, which is in a state of confusion over the issue. Strategic planning is often used to refer to a programmatic, analytical thought process and strategic thinking to refer to a creative, divergent thought process.” It is argued that strategic planning and strategic thinking both have their place in the strategy process (Mintzberg 1994a; Heracleous 1998; Liedtka 1998a), and that both are necessary for effective strategy (Hera- cleous 1998; Liedtka 1998a). This literature review explores the relationship between strategic plan- ning and strategic thinking as these two concepts appear in the academic literature on the subject. Attempts to reconcile these seemingly contra-
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The Concept of
Strategy Literature Review ©Spangaro Systems Pty. Ltd. 14 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro dictory ideas are examined, revealing a holistic view of strategy that includes both concepts, and that strategic planning can be seen as single- loop organisational learning and strategic thinking as double-loop learn- ing. In this view, both analysis and intuition are used in a balanced way. Still, contention remains over how strategic planning and strategic think- ing relate to the strategy process, particularly which concept is most rele- vant to the creation of new, innovative and by implication more successful strategies. Reviewing literature on strategy in the high technology industry, it is similarly found that there are opposing forces of alignment and disrup- tion, of analysis and intuition and deliberateness versus emergence at work. The nature of the strategy process is found to be dependent on a complex range of contextual factors such as internal and external com- plexity, environmental turbulence, organisational size and technological flexibility. Within this contextual framework, there appears to be scope to reconcile strategic thinking with strategic planning by appropriate bal- ancing of the emphasis on each process. The Concept of Strategy The historical origin of the concept of “strategy” is generally based in the use of strategy in the military domain as a means to victory in times of conflict. The writings of Sun Tsu’s “The Art of War” (1971) circa 400 B.C. are often quoted in business strategy literature as one of the earliest works on strategy (Mintzberg 1994b, p6). Turning to more “peaceful” applications of strategy in the business world, the meaning of “strategy” can be taken in a variety of contexts. Ansoff (1965), one of the earlier significant authors on corporate strategy defined strategy as a “concept of the firm’s business” that has a “common
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The Concept of
Strategy Literature Review ©Spangaro Systems Pty. Ltd. 15 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro thread” that pervades the business. This common thread is “a relationship between present and future product-markets which would enable outsid- ers to perceive where the firm is heading, and the inside management to give it guidance”. Compare Ansoff’s views with Andrews (1980b, pp43-44), who suggests that corporate strategy is “the pattern of company purposes and goals - and the major policies for achieving those goals - that defines the busi- ness or businesses the company is to be involved with and the kind of company it is to be”. He goes on to then also explain that strategy is an organisation process, which is “in many ways inseparable from the struc- ture”, and can be distinctly divided into formulation and implementation. The various views defining strategy are integrated by Mintzberg (1987; 1994b; Mintzberg, Ahlstrand & Lampel 1999, pp9-15) into a “five P’s” view of strategy, not as components but as five discrete concepts on the nature of strategy. Strategy can be a plan, a consciously intended course of action, or a pattern, seen as consistency in behaviour, intended or not. Strategy can mean an aspect relative to the environment, or a position. Strategy can be the set of views and beliefs held about the organisation and the world around it, providing a perspective. Or, finally, strategy can be a deliberate maneuver intended to outwit an opponent, thus a ploy. Perhaps in this “five P’s” representation of strategy, we can recognise the dimensions of strategy identified by Andrews: “pattern of . . . purposes” and “process” (pattern), “defines the business” (perspective), “policies for achieving . . . goals” (plan). Ansoff’s earlier definition can similarly be reconciled with the five P’s: “concept of the firm’s business” (seems like perspective), “common thread” (pattern), “where the firm is heading” (plan). Interestingly, Mint- zberg (1994b, p43) describes Ansoff’s views of strategy as pattern and plan, “but not perspective”.
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The Concept of
Strategy Literature Review ©Spangaro Systems Pty. Ltd. 16 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Key to the definition of strategy and particularly strategy formulation is the tension between the incrementalist perspective and the planning per- spective of strategy. The planning perspective takes the view that strate- gies should be deliberately planned and executed, whereas the incrementalist perspective sees strategy formulation more as a process of experimentation, innovation, learning and organisational development (De Wit and Meyer 1998). The planning perspective favours the view that a “realised strategy” can and should be a “deliberate strategy”, whereas the incrementalist view accepts that a strategy may be “emergent”, that is, arises from forces and causes outside the control of the would-be planners, and also that some strategies may never be realised (“unrealised strategies”). Mintzberg and Waters (1985) introduced this concept of “emergent strategy”, as shown in Figure 1 on page 16. FIGURE 1. Forms of Strategy (Mintzberg and Waters 1985) intended strategy deliberate strategyunrealised strategy Emergent Strategy realised strategy
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The Concept of
Strategy Literature Review ©Spangaro Systems Pty. Ltd. 17 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro A further important contribution by Mintzberg, Ahlstrand and Lampel (1999) to the understanding of the many dimensions of strategy has been the classification of our understanding of strategy into ten ‘schools of thought’. The first three schools are prescriptive, about how strategies should be formulated: the Design School, where strategy formation is a process of conception; the Planning School, strategy formation being a formal process; the Positioning School, strategy formation as an analyti- cal process. Another six schools describe how strategies really do get made: the Entrepreneurial School, where strategy formation is a vision- ary process; the Cognitive School - strategy formation as a mental pro- cess; in the Learning School strategy formation is an emergent process; in the Power School strategy formation is a process of negotiation; the Cultural School where strategy formation is a collective process; and the Environmental School where strategy formation is a reactive process. Finally the Configuration School stands alone with strategy formation as a process of transformation, somewhat integrating aspects of the other schools into regarding strategy as a process of change of state. These ten schools provide a valuable framework for managing and understanding the complexities of strategy1 . The “five P’s” of strategy are complementary to these ten schools in providing an overall structure for making sense of a definition of strategy. As can be seen, the definition of strategy itself is complex, multidimen- sional and often contentious. To plan strategy, to think about strategy, to understand strategy requires an appreciation of the nature of strategy itself. Any attempt to define “strategic planning” and “strategic thinking” must be made within this context. 1. Crouch and Basch (1997) conducted a study examining the lexical and content analysis of the cognitive process of strategic thinking. The results indicated that there was no evidence of rep- resentation of the planning, cultural or environmental schools in the process of strategic think- ing.
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Strategic Planning Literature Review
©Spangaro Systems Pty. Ltd. 18 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Strategic Planning Strategic planning in the commercial world evolved since the late 1800’s in five principal stages identified by Hax and Majluf (1984) as: 1. Budgeting and financial control (1890 - 1930) 2. Long range planning (1930 - mid 1950’s) 3. Business strategic planning (mid 1950’s - late 1960’s) 4. Corporate strategic planning (1970’s) 5. Strategic management (1980’s). (Pfeiffer 1984, pp371-380) In strategic planning’s heyday, centralised strategic planning departments were heavily staffed with armies of planners who developed grand strate- gies for the masses to implement. However, in the mid 1980’s, Pfeiffer (1984, p377) noted a strong trend towards reintegrating planning with execution and increasing the involvement of operations in the planning function, a separation between formulation and implementation that had existed since the turn of the century. Strategic planning, such as it was, gradually fell from favour beginning in the early 1970’s. Much of the evidence suggested that planning either was ineffective or did not consistently produce improved performance. In many cases planning was simply not done, as it had been found to pro- duce poor results. In one study by Jacques Sarrazin (1975; 1977/78), planning was found to be an ineffective process for making strategic decisions; output information was not available on time, planning could not handle the complexities of the environment, and it merely served to enhance conflict within the organisation. The main benefit of planning seemed in this study to be for management to attempt to regain control over the decision making process (Mintzberg, 1994b, pp 92-107). Despite the mixed success of planning sorties, Andrews (1980a) provides insight into the actors involved in the planning process, prescribing the appropriate role for the board in the making of strategy. He sees planning
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Strategic Planning Literature Review
©Spangaro Systems Pty. Ltd. 19 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro as a formal, centralised process for the benefit of the board, and involving senior management and the board. He suggests conducting the typical formal annual strategy review as the fabled “executive retreat”, making only passing reference to the need to encourage creativity. He recom- mends the use of Corporate Strategy Committees, comprised mostly of board members with one-way input from business segments, as a meth- odology to make strategy formulation better informed and relevant. Prahalad and Hamel (1990) introduced the concept of “core competen- cies” of the corporation, which “should constitute the focus for strategy at the corporate level” (p299). This view integrates markets, products and the organisation into a single combined perspective about what the organ- isation does particularly well. In this sense, planning revolves around making sure that you exploit your Strengths and shore up your Weak- nesses to be able to capitalise on Opportunities and defend against Threats. Considering strategy as Position, the planning strategist navi- gates the core competence of the organisation to profitable waters. The responsibility for identifying and developing the required core compe- tence still sits in this view with the top level corporate planners. Mintz- berg, Ahlstrand and Lampel (1999, p218) assign this core competence notion of strategy to the Learning School. Characteristics of strategic planning The nature of strategic planning can be described in terms of the follow- ing characteristics: Analytic. Planning is a process of analysis, number crunching, evaluation. (Porter 1979) Formalised. Planning is a formal, mechanistic process to which tools may be applied to improve the quality of the result (Ansoff 1965; Porter 1979; 1985; 1990)
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Strategic Planning Literature Review
©Spangaro Systems Pty. Ltd. 20 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Detached. Planning separates formulation from implementation, and the planners from those implementing (Andrews 1980a; 1980b) (also Ohmae (1982, p206) laments this detachment as separation of the “brains” from the “muscle”). Convergent. Planning narrows down, systematically eliminates alterna- tives (Mintzberg, Ahlstrand & Lampel 1999). Scientific. Planning can be applied as a scientific method (O’Shannassy 1999b). Engages left-brain (or “right-handed planning”). Planning favours analytic cognitive processes associated with the functioning of the left hemi- sphere of the brain (Mintzberg 1994b, pp393-396). Critics of traditional strategic planning (Mintzberg 1994a; 1994b, p60, pp92-97; Mintzberg, Ahlstrand & Lampel 1999; Ohmae 1982; Stacey 1996) claim that strategic planning fails to lead to formulation of winning strategies, and that strategic planning is really best conceived as “strate- gic programming” (the implementation of already formulated strategies) (Mintzberg 1994b, p415). Strategy formulation Such criticism generally centres around the lack of opportunity for cre- ativity, innovation, questioning of paradigms or the use of intuition in the planning process. Consider Porter’s (1979, pp21-22) description of the process under the heading “Formulation of Strategy”: “Once having assessed the forces affecting competition in an industry and their underlying causes, the corporate strategist can identify the companies strengths and weaknesses . . . Then the strategist can devise a plan of action that may include (1) positioning the company so that its capabilities provide the best defense against the competitive force; and/ or (2) influencing the balance of forces through strategic moves, thereby improving the companies position; and/or (3) anticipating shifts in the factors underlying the forces and responding to them with the hope of exploiting change by choosing a strategy appropriate for the new competitive balance before opponents recognise it.”
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Strategic Planning Literature Review
©Spangaro Systems Pty. Ltd. 21 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro It may be argued that “influencing the balance” is the chief aim of cre- ative strategy making (and apparently where planning has failed to deliver). In this view, analysis clearly precedes strategy formulation. Mintzberg, Ahlstrand and Lampel (1999, pp 66-79) claim that the con- cept that strategic planning may be used to formulate strategy is falla- cious. They identify these “fallacies of strategic planning”: the fallacy of predetermination (the environment is sufficiently predictable as is required by planning), the fallacy of detachment (that strategists can purely rely on hard data to remain separate from the objects of their strat- egies to remain detached from operations) and the fallacy of formalisa- tion (that internalisation, comprehension, synthesis, insight and intuition can be systematised and formalised to produce strategic thinking). The sum of these misconceptions comprises the “grand fallacy” of strate- gic planning: “Because analysis is not synthesis, strategic planning has never been strategy making” (p77). Planning Today Recent evidence (Glaister & Falshaw 1999) suggests that strategic plan- ning is still used by most large companies. The strategies realised are more deliberate rather than emergent, and formulation of strategy stems from a deliberate process. Most plans address a time horizon of less than five years. The tools used in the planning process are predominantly sim- ple spread sheet “what if” analyses, analysis of critical success factors, financial competitor analysis and SWOT analysis; relatively unsophisti- cated methods. Planning emphasizes closely related markets over totally new markets. Strategic planning is seen as important and an effective way to achieve improved performance. Despite the chequered history of strategic business planning, the basic premise that good strategy can lead to better outcomes is well rooted in
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Strategic Thinking Literature Review
©Spangaro Systems Pty. Ltd. 22 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro human history, and strategic planning has been an important feature of business management for over forty years. Strategic Thinking The definition of “strategic thinking” is contentious in the academic liter- ature (O’Shannassy 1999b; Heracleous 1998). There are schools of thought about strategic thought, if you like. The strategy paradigm has evolved in the 1990’s (O’Shannassy 1999a); the modern concept of strategy, strategic thinking, sees strategy making itself as a creative, intuitive, non-linear process, not able to be formalised or mechanised by a typical strategic planning approach (O’Shannassy 1999a; 1999b; Ohmae 1982; Mintzberg 1994b, pp381; Mintzberg, Ahl- strand & Lampel 1999, p72) and that attempting to formalise the process actually critically inhibits the organisation’s ability to think strategically (Stacey 1996, pp412-414). Strategic thinking is then central to the strategy process, whereas strate- gic planning applies around the process (Mintzberg 1994b, p331; 1994a, p108). In another view, Porter (1991) and others see strategic thinking as a con- vergent and analytical process, and consider that such analysis is central to the strategy making process (Heracleous 1998). Ohmae (1982) integrates analysis ideally as part of the creative strategic thinking process, as shown in Figure 2 on page 23. There are similarities between this view and Mintzberg’s (1994b) view that planing and analy- sis support the strategic thinking process (also Mintzberg, Ahlstrand & Lampel 1999). The use of non-linear brain-power remains the essence of strategic thinking (Ohmae 1982, p13).
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Strategic Thinking Literature Review
©Spangaro Systems Pty. Ltd. 23 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro FIGURE 2. Stages of strategic thinking (Ohmae 1982, p20) Liedtka (1998a; 1998b) attempts to resolve this analytic/intuitive debate over the nature of strategic thinking, claiming that in fact strategic think- ing is both. She proposes a model of the elements of strategic thinking (see Figure 3 on page 24). Being hypothesis-driven, strategic thinking iterates hypothesis generation (creative) and testing (analytical). Similar- ities are apparent between this conceptualisation of hypothesis-driven strategic thinking and that of Ohmae (1982). Phenomena Grouping Abstraction Determination of approach Provisional formulation of Validation or rebuttal of hypothetical solutions by in-depth analysis hypothetical solutions Emergence of conclusion Giving concrete form to conclusions Draft plan of actions Implementation by line managers solvingtheproblem planningforimplementation typical short circuit
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Strategic Thinking Literature Review
©Spangaro Systems Pty. Ltd. 24 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro FIGURE 3. The elements of strategic thinking (Liedtka 1998b, p122) This model also recognizes strategic intent (Hamel & Prahalad 1989; Prahalad & Hamel 1990); that strategy creates and depends on tension between current circumstances and a desired future. It integrates the understanding that strategic thinking connects the past, present and future (thinking in time), that strategies can be emergent as well as deliberate (Mintzberg 1987) (intelligent opportunism), and that, as in the traditional planning literature, strategy is about a holistic view of the organisation and its environment (systems perspective). In contrast to Porter’s (1979) strategic planning based view, in the strate- gic thinking paradigm analysis supports formulation, but does not strictly precede it. If strategic thinking were observed, analysis would be at least partly driven by attempts at formulation in iterative hypothesis-testing cycles (Ohmae 1982; Liedtka 1998). Strategic Thinking systems perspective intent focused intelligent opportunism thinking in time hypothesis- driven
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Connecting Planning with
Thinking - the Evolution of Strategy Literature Review ©Spangaro Systems Pty. Ltd. 25 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Connecting Planning with Thinking - the Evolution of Strategy Several authors (Heracleous 1998, Mintzberg 1994a; 1994b; Mintzberg, Ahlstrand & Lampel 1999; Liedtka 1998a; 1998b) have attempted to integrate the seemingly opposite concepts of strategic planning with stra- tegic thinking without “throwing the (strategic planning) baby out with the bathwater” (Liedtka 1998a). Generally these authors agree that both planning and thinking are needed for effective strategy. Wilson (1994) suggests that strategic planning has evolved to strategic management (or thinking). He states that “harnessing the power of oppo- sites” is necessary to be able to apply both strategic planning and strate- gic thinking to the problems of management (Wilson 1998), in particular being able to balance analysis with intuition, and between holding to a strategic vision and having flexibility in tactical action. In a similar vein, Butler et al. (1998) describe the need to balance tensions between “errors of tightness” and “errors of looseness” in decision making and control of organisations. “Strategic conversations” are suggested to be one means of integrating the planning process with thinking activities (also Taylor 1997): “The most valuable role strategic planning processes play is to legiti- mize a developmental dialogue around strategic issues, the outcome of which is both better strategy for an organisation and better developed strategic thinking capabilities in its members” (Liedtka, 1998b, p124). Combining strategic thinking and strategic planning can also be viewed as having complementary impacts on McKinsey 7S alignment/disruption (see Figure 4 on page 26): “A broadened view of the strategy making process . . . would incorpo- rate both strategic thinking and strategic planning as related activities . . . in an ongoing process of creating and disrupting the alignment between an organisation’s present and its future” (Liedtka 1998a, p33)
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Connecting Planning with
Thinking - the Evolution of Strategy Literature Review ©Spangaro Systems Pty. Ltd. 26 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro FIGURE 4. Strategy Making as Creating and Disrupting Alignment (Liedtka, 1998a) This relationship between strategic thinking and strategic planning may be explained in part by the view of the strategy process on which they focus. Strategic planning focuses on the cross-sectional problem (perfor- mance at a point in time) whereas strategic thinking focuses on the longi- tudinal problem (how strategies are arrived at) (Heracleous 1998). Single-loop/ double-loop learning Heracleous (1998) proposes a dialectic view of strategy, where thinking and planning are seen as different forms of organisational learning, based on established learning models (Argyris 1977; Senge 1990; Bateson 1972). Strategic planning can be viewed as simple, or single-loop learn- ing, whereas strategic thinking is complex or double-loop learning. Similar ideas are presented by Stacey (1996). “Single-loop” (simple) learning occurs where the organisation uses a fixed mental model (or plan) and adjusts within a given set of action alternatives, as shown in Figure 5 on page 27. S tra te g ic T h in k in g D is ru p tin g A lig n m e n t S tra te g ic P la n n in g C re a tin g A lig n m e n t C u rre n t R e a lity D e s ire d F u tu re
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Connecting Planning with
Thinking - the Evolution of Strategy Literature Review ©Spangaro Systems Pty. Ltd. 27 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro FIGURE 5. Simple single-loop learning model (Stacey 1996, p63) “Double-loop” learning, however, is where the mental models, assump- tions and choice of action alternatives themselves are adjusted to adapt to the results, as shown in Figure 6 on page 27. “Complex learning is the shifting, breaking and creating of paradigms” (Stacey 1996, p65) FIGURE 6. Complex Double-loop learning model (Stacey 1996, p64) This single-loop/double-loop representation of strategy captures both the creative and the convergent aspects of strategy. Strategy as organisational learning fits into the learning school, and can be a “messy” process, but still requires a great deal of sophistication (Mintzberg, Ahlstrand & Lampel 1999, p230). Consequences and other changes Discovering Choosing Acting Consequences and other changes Discovering Choosing Acting New Mental Model Previous Mental Model
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Connecting Planning with
Thinking - the Evolution of Strategy Literature Review ©Spangaro Systems Pty. Ltd. 28 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro In this dialectic view, the strategist uses both synthetic and analytical, divergent and convergent processes for making strategy. This enables the strategist “to go up and down the ladder of abstraction . . . being able to see both the big picture and the operational implications” (Heracleous 1998). This process is represented by Figure 7 on page 28. FIGURE 7. Strategic thinking and strategic planning (Heracleous 1998, p485) This learning model of strategy is particularly applicable to the high tech- nology organisation in a turbulent environment: “Some organisations face perpetual novelty. . . their environments are dynamic and unpredictable, which makes it difficult to converge on a clear strategy at all. In this case, the structure tends to take the form of adhocracy, or project organisation, and the learning approach becomes almost mandatory - the means to work things out in a flexible manner. At the very least, it allows the organisation to do something to respond to an evolving reality in individual steps instead of having to wait for a fully determined strategy” (Mintzberg, Ahlstrand & Lampel 1999, p229). strategic management Strategic Thinking Strategic Planning Thought process: synthetic divergent creative Thought process: analytical convergent conventional The purpose of strategic thinking is to discover novel, imaginative strategies which can rewrite the rules of the competitive game; and to envision potential futures significantly different from the present The purpose of strategic planning is to operationalise the strategies developed through strategic thinking, and to support the strategic thinking process.
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Strategy and High
Technology Industries Literature Review ©Spangaro Systems Pty. Ltd. 29 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Analysis versus intuition An effective balance between the use analysis or intuition is necessary; an excess of either in decision making leads to dysfunction and either “paralysis by analysis” or “extinction by instinct” (Langley 1995). This tension between analysis and intuition is often recognised: “Innova- tive strategies do not emerge from sterile analysis and number-crunching: they come from new insights and intuitive hunches” (Wilson 1994). Such comments are reactions to the inability of traditional strategic planning to stimulate creativity in strategy making. Integrative authors (Heracleous 1998; Mintzberg 1994b, p324-330; Mintzberg, Ahlstrand & Lampel 1999; Liedtka 1998) argue that rather than an either/or proposition, both analysis and intuition are necessary, in the right contexts, for successful strategy making. Strategy and High Technology Industries The contextual focus for an examination of the strategy process for this study is the high technology industry sector. Strategic planning for technology products is the leading unresolved technology management problem faced by the high technology industry in new product development (Scott, 1999) and high technology industries have unique characteristics that make an examination of strategic think- ing particularly interesting, in particular with respect to environmental turbulence or uncertainty, market dynamism and organisational, product and environmental complexity. In the high technology sector, the internal and external environments are increasingly complex, and strategies are usually incremental and emer- gent (Lowendahl & Revang 1998). Innovation and organisational learn- ing are critical factors to success (Mintzberg, Ahlstrand & Lampel 1999, Claver et al., 1998 p56). Creative new strategies are required to deal with
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Strategy and High
Technology Industries Literature Review ©Spangaro Systems Pty. Ltd. 30 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro significant changes to the competitive landscape and to capitalise on opportunities offered by the emergence of new technologies. The unpre- dictability of the future may make traditional long range planning diffi- cult and somewhat futile (Franko, 1989 in Diaz and Gomez-Mejia, 1997 p303). The complexity of products, technologies and markets makes it additionally difficult for planners to remain detached from those who must implement. Specifically, the flexibility of an organisation’s core technologies impacts the relationship between organisational complexity and the degree of for- malisation of the strategy process (Yasai-Ardekani and Haug, 1997). It was found in their study of contextual determinants of the strategy pro- cess that technological flexibility moderated the impact of organisational complexity on the degree of formalisation of the strategy process. They found that the more complex the organisation, the more formal the plan- ning process became when core technologies were inflexible, but that the process actually became less formal with increasing organisational com- plexity when the core technologies were flexible. They also found that top management’s involvement decreased under competitive pressure and when core technologies were inflexible, suggesting that “top man- agement may (consequently) restrict its role in planning to review, choice and authorisation of strategic proposals and plans.” (p738). We may perhaps draw some inferences from Yasai-Ardekani and Haug’s (1997) study. More flexible technologies may also produce greater rates of technological change and uncertainty. Strategic moves by (equally flexible) competitors may be harder to predict. There may also be a wider real choice of potential opportunities to choose from that are based on emerging technological and marketplace changes. To cope with this situ- ation, as organisations become more complex planning gives way to less formal strategic thinking, engaging in double-loop organisational learn- ing by relying on proposals from within the organisation to provide
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Strategy and High
Technology Industries Literature Review ©Spangaro Systems Pty. Ltd. 31 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro options and ideas rather than relying on their own limited mental models of the competitive landscape. In another study, Drago (1999) found that different types of organisa- tional complexity affected strategic complexity. He examined product diversity, vertical integration and international scope. Vertical integration increased strategic complexity, while increased product diversity actually led to a simplification of strategic complexity, or a focus on fewer com- petencies. It is suggested that this simplification is a result of focusing towards areas of synergy. In high technology industries the competitive environment is characteris- tically turbulent. Hodgekinson (1997) conducted a study that examined “cognitive inertia” in turbulent markets (in real estate, in his study), revealing that mental models of the competitive landscape can tend to remain stuck in the face of obvious changes (hence cognitive inertia). Such failure to adapt probably leads to poor strategy formulation and strategic failure (p940). Apparent in this image is the single-loop versus double-loop learning discussed previously. He concluded that “within volatile business environments changes in mental models of competitive space significantly lag behind the changes in the material conditions of the marketplace” implying that “actors should periodically engage in a period of individual and collective reflection in order to reconsider anew the extent to which their assumptions and beliefs about the external envi- ronment provide a viable basis on which to build effective strategies for competitive success” (Hodgekinson, 1997 p940). If we accept that high technology industries operate in turbulent environments, and that nar- rowing this gap or lag between mental models and the changes in the marketplace leads to better strategy formulation, this conclusion adds weight to the argument that strategic thinking as double-loop learning is critical for strategic success.
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Strategy and High
Technology Industries Literature Review ©Spangaro Systems Pty. Ltd. 32 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Examining the prescriptive literature on strategy formation in a high technology environment, much of the literature proposes methods for alignment of the technology strategy with the objectives of the corporate strategy (e.g. Barker and Smith 1995; Adler, McDonald and McDonald 1992). Such alignment processes are primarily strategic programming functions. However, in line with the trend away from top down planning, some authors emphasise the influence technical strategy and technical issues may have on corporate strategy (e.g. Schroederer, Congden and Gopi- nath, 1995; McGrath, 1995). As Schroederer, Congden and Gopinath (1995, p185) state: “Although a new technology is generally adopted to support a given strategy, the technology’s full capabilities are often unknown prior to their use. Consequently, exploiting the technology’s complete competitive advantages requires adjustment in the firm’s strat- egy”. The tension is apparent between creating alignment of technology strat- egy with the corporate strategy, and the disruptive, misalignment provok- ing effects of the introduction of new technologies and the creation of new possible futures and consequent revision of the original strategy. This process of alignment and misalignment, convergence and diver- gence parallels Heracleous’ (1998) and Leidtka’s (1998a) description of an integrated strategy making process that combines both strategic plan- ning and strategic thinking. This process can also be seen as double-loop organisational learning, redefining understanding of the firm’s view of the competitive space as new possibilities or realities emerge. Organisational processes for technology strategic management vary. In a study of 95 large firms worldwide Roberts (1995) noted significant dif- ferences in the role technology played in corporate strategy formulation between U.S., Japanese and European firms. Notably, Japanese compa-
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Strategy and High
Technology Industries Literature Review ©Spangaro Systems Pty. Ltd. 33 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro nies have more chief technologists on company boards, more thoroughly link technology strategies to overall corporate strategies and they have a greater upward influence on overall corporate strategy than their U.S. counterparts, suggesting that Japanese firms are structured to better facil- itate the dialectic alignment/disruption process. Despite the apparently emergent and unpredictable nature of strategy in the high-tech environment, engaging in appropriate formal planning is effective to improve performance. Covin and Slevin (1998) examined the effects of risk taking and adherence to plans as predictors of firm sales growth, and found that “adhering to (formal) plans has a particularly pos- itive effect on firm sales growth in technologically sophisticated environ- ments”, and also that minimising unnecessary risk taking was also an effective measure to obtain growth. They suggest that “strategic flexibil- ity . . . will most effectively occur within the context of a broadly defined plan (or) ‘umbrella strategy’“ (p231). Suggesting that both formal plan- ning and maintaining strategic intent are important elements of an effec- tive strategy process. Roberts (1991), one of the most widely published authors on technology management, also found that “formal strategic planning” and market research correlates with success in high-technology companies, adding to the evidence that traditional strategic planning is an important element of the strategy process. Berry (1998) conducted a study of the existence of formalised strategic planning in 257 small high technology companies in the U.K. She observed “levels” of planning formalisation, ranging from non-planners to formal financial, non-strategic planners then formal financial, informal strategic planners and finally formal strategic planners. She concluded that the degree of formalisation of planning was princi- pally a function of the size and complexity of the firm and the business/
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Strategy and High
Technology Industries Literature Review ©Spangaro Systems Pty. Ltd. 34 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro technical experience mix of management. The more complex (larger) the firm the more formal the planning process becomes. She concludes that formalised strategic planning is unnecessary in the early stages of a high- tech companies life, but is important to long term growth and develop- ment. Interestingly, the “formal financial, informal strategic” planner type characterises a strategic thinker, whereas the “formal strategic plan- ner” is more like a strategic planner, suggesting that the relative depen- dence on either strategic thinking or strategic planning varies depending on organisational context and management experience. In addition, she concludes that “whether formal or informal strategic planning is carried out, managers should emphasize the substantive ana- lytical elements of the process” (p463), suggesting that strategic thinking alone is not seen as delivering sufficient analytical rigour. Berry’s (1998) conclusions appear to contradict the findings of Lowendahl and Revang (1998). They found that as the internal environ- ment of the organisation becomes more complex (while in a complex external environment), strategy becomes more emergent and incremental and structure becomes more fluid. These views may perhaps be recon- ciled: If the critical dependence on innovation diminishes as companies mature, then the use of more formal systems and structures for strategy development may be feasible (Lowendahl & Revang 1998; Butler et al, 1998). In high technology companies R&D is often the core function of the firm (Diaz and Gomez-Mejia, 1197 p302). Particularly in firms with less prod- uct diversification, product strategy has elevated significance, and a dis- cussion of high technology strategy would not be complete without some reference to product strategy. McGrath (1995) identifies the elements of product strategy, represented by Figure 8 on page 35). However, he
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Strategy and High
Technology Industries Literature Review ©Spangaro Systems Pty. Ltd. 35 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro makes an important distinction between “corporate strategy” and “prod- uct strategy”: “Real product strategy differs from other management activities that sometimes masquerade as product strategy (such as annual planning). These activities have a useful purpose in the management of an enter- prise but should not be confused with product strategy . . . in fact it is entirely different than planning. . . Product strategy is not the responsi- bility of strategic planners” (McGrath 1995, pp259-261 in ch14 “Strate- gic Thinking”). FIGURE 8. Overview of the Product Strategy Process. Illustrates the primary elements along with their relationships (McGrath 1995, p248). It can be seen that strategy in high technology industries is both formal and informal, deliberate and emergent, aligning and disruptive. The exact nature of the strategy process varies between organisations, and can strategic vision expansion strategy innovation strategy platform strategy product-line strategy strategic balance resources competitive strategy differentiation strategy price-based strategy supporting strategies: - time-based strategy - cannibalisation - global product strategy core competencies
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Conclusion Literature Review ©Spangaro
Systems Pty. Ltd. 36 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro depend on a wide range of factors including technological flexibility, organisational, environmental and product complexity, environmental turbulence, management experience, organisational size and risk orienta- tion. Differences in approach can lead to impacts on organisational per- formance. Both strategic thinking and strategic planning are evident in the literature, and it may be argued that both are necessary for strategic success, although this claim is highly dependent on many contextual fac- tors. Conclusion This literature review has examined three principle issues: strategic plan- ning, strategic thinking and strategy in the high-technology industry. The definitions of strategic thinking and strategic planning are highly contentious, and a range of views on definition have been presented. Strategic planning is generally considered to be an analytical, formal, convergent process, whereas strategic thinking is a creative, divergent, intuitive process of strategy development. Both appear to be important for effective strategy. Contention exists around how successful, ground breaking strategies are formulated, with some authors claiming that plan- ning creates strategies, while others insist that strategic thinking does. Some authors have attempted to resolve this dilemma by integrating the two processes into a dialectic or holistic view, balancing intuition and analysis, and regarding strategic planning as single-loop organisational learning, whereas strategic thinking is double-loop learning. In literature on strategy in the high technology sector evidence of both strategic thinking and strategic planning may be found. The nature and likely effectiveness of the process employed is dependent on a wide range of contextual factors. Balancing the tensions between strategic
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Conclusion Literature Review ©Spangaro
Systems Pty. Ltd. 37 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro thinking and strategic planning with consideration of these complex con- textual factors is the art of strategic management in high technology industries.
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Conclusion Literature Review ©Spangaro
Systems Pty. Ltd. 38 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro
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Introduction Field Research ©Spangaro
Systems Pty. Ltd. 39 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Chapter 3: Field Research Introduction This chapter describes the design of the research project, the research hypotheses tested and the operationalisation of the research constructs. Research Design Two research models were constructed to describe the relationships between phenomena being investigated. Research Model 1 is designed to primarily investigate the relationship between the criticality of technol- ogy on an organisation and the balance between strategic thinking and strategic planning employed in the organisation. Secondly, moderating factors or control variables are measured to deter- mine the influence that these factors may have on the relationship between the criticality of technology and the strategic thinking/strategic planning balance. Research Model 1 is depicted in Figure 9 on page 39. FIGURE 9. Research Model 1 criticality of impact of technology balance between strategic thinking and strategic planning emphasis technological inflexibility organisational complexity and size environmental hostility need for innovation environmental turbulence product diversity management experience
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Research Design Field Research
©Spangaro Systems Pty. Ltd. 40 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Research Model 2 is designed to empirically test the thesis that strategic thinking and strategic planning occur in iterative, hypothesis generation - hypothesis testing cycles as suggested by Mintzberg (1994a, 1994b), Liedtka (1998a; 1998b) and Heracleous (1998), rather than in a linear, single pass of analysis then formulation in line with the views expressed by Porter (1979). Research Model 2 is shown in Figure 10 on page 40. Research Model 2 evaluates whether there is a relationship between the criticality of technology and the iterative/linear nature of the relationship between formulation and analysis processes. As with Research Model 1, moderating factors or control variables are measured to determine the influence that these factors may have on the relationship between the crit- icality of technology and the relationship between formulation/analysis processes. FIGURE 10. Research Model 2 criticality of impact of technology technological inflexibility organisational complexity and size environmental hostility need for innovation environmental turbulence product diversity management experience formulation and analysis are iterative or linear processes
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Research Methodology Field Research
©Spangaro Systems Pty. Ltd. 41 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Research Methodology This research employed a hypothetico-deductive research methodology. Inductive/Deductive Methodology Seth and Zinkhan (1990) identify that approaches anywhere on the con- tinuum of research methods from the inductive to the deductive can be valid for the study of strategy. In this case, a deductive methodology is preferred. It is noted, however, that given the complexity of the phenom- ena being examined, scope remains for inductive analysis particularly in regard to the phenomena of strategic thinking and the nature of the rela- tionship to strategic planning. Hypothesis testing/ falsification Seth and Zinkhan (1990) further address falsification versus testing in strategy research. In consideration of their view presented that Popperian falsification is an inferior theory validation method than hypothesis test- ing, the research hypotheses are subjected to empirical testing. Time period of research The study was cross-sectional (taken at a single point in time); no longi- tudinal (over time) research was conducted. Quantitative and Qualitative Methods Data was obtained by means of a formal written survey. A combination of quantitative and qualitative methods were used to investigate the phe- nomena being examined by the research questions. The process of strategic planning, is an overt, typically formalised, exter- nalised and deliberate process. As such, this phenomena lends itself to positivist/quantitative approaches for identification and analysis. A mul- tiple indicator measure of strategic planning was used to improve the measurement reliability (Boyd & Reuning-Elliott, 1998). Conversely, strategic thinking, the intuitive, possibly covert, informal, internalised and often emergent process is more difficult to quantify. Artifacts of strategic thinking are not so readily available. To study this
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Research Methodology Field Research
©Spangaro Systems Pty. Ltd. 42 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro phenomena, five sub-constructs and three underlying assumptions were measured on a quantitative scale, then combined to form an overall mea- sure of strategic thinking. In general the questions required subjective evaluations about the organisation. Both the planning and thinking measures were supported by qualitative data gathered by written comments volunteered on the survey by partici- pants, and also through a small number of structured and unstructured interviews with participants to add depth and insight to the interpretation of the survey data. The research also investigated process sequences, that is, whether formu- lation and analysis are sequential and discrete or iterative and intertwined processes. The nature of the process sequence was measured quantita- tively by participants’ responses to subjective likert scale survey ques- tions. Measurement scales Likert scales were generally used to measure survey quantitative data. A combination of five-point and seven-point scales were used. Five-point scales are generally likely to provide the optimum data reliability where the respondent is not highly trained in the area, and seven point scales where the subject is more knowledgeable (Van de Ven & Ferry, 1980, pp63-65). Generally the choice on number of scale points (five or seven) was made based on prior research the operationalisation of the research variable was derived from and for consistency with other items in the construct. The survey instrument used is provided in “Appendix A:” on page 89. A brief summary of the questions from this survey is also provided in Table 2 on page 48. Data Collection Methods The majority of data gathered for this survey research was obtained by means of a written quantitative survey, generally either sent and returned
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Research Methodology Field Research
©Spangaro Systems Pty. Ltd. 43 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro by post, but occasionally surveys were returned in person. In several of the cases where the surveys were returned, respondents were invited to make any additional comments on the issues raised in the survey. This verbal feedback was useful in general to aid interpretation of the survey results, and to gain more qualitative insights into the matters under study and qualification of the responses. Care was taken to avoid detailed dis- cussion of the survey prior to the participant completing the question- naire to avoid unintentionally biasing the results; all participants were provided exactly the same preliminary information and survey question- naire. Space was also provided for respondents to volunteer additional written comments on the subjects investigated by the survey if they wished. These comments provided valuable qualitative information to assist in interpretation of the results. Sample Design Thirty-three surveys were sent to participants, from which twenty-one responses were received, giving a response rate of 64%. The initial batch of surveys were targeted specifically at companies in the high technology industry. Later surveys were targeted at senior management in more tra- ditional industries. “Lower-tech” industries were included in order to increase the reliability of measurement of the association between criti- cality of dependence on technology and dependent planning variables. The survey included responses from ten different companies, all based in and around Melbourne, Victoria. While surveys were also sent to compa- nies outside Victoria (e.g. Sydney), no responses from interstate were received. However, as it is known that many of the respondents managed operations that spanned both interstate and international borders, it is expected that the results can reasonably be generalised across Australia. Participants were targeted by a variety of methods. In most cases, partici- pants were identified through the researcher’s personal business network, and referrals within that network. While not strictly random, this method
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Research Methodology Field Research
©Spangaro Systems Pty. Ltd. 44 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro was very effective at locating and targeting respondents who were most qualified to respond to the survey and to obtain a high response rate. Generally, the closer to the personal network the invited participant was the more likely that a well considered response would be received. Par- ticipants were offered a copy of the research findings to add incentive to complete the survey and to give adequate consideration to their responses. In other cases, specific companies with a profile of success in the high technology industry in Australia were selected based on general industry knowledge. Contact was made by phone to request participation, and fol- lowed up with a mailed survey package. In some cases this was success- ful in obtaining a response and several participants were kind enough to consent to an interview as well. The structured interview questions used are provided in “Appendix B:” on page 99. The types and size of companies surveyed ranged from mid sized local companies to divisions of large multinationals and Australian based pub- lic companies with substantial international operations. Organisational complexity was measured by the survey as an independent variable. Fieldwork All research activities including participant selection, survey handling, responding to queries, gathering of feedback on the survey, keying of sur- vey data and structured interviews were performed by the principle researcher (Justin Spangaro). A database was maintained of participants and results catalogued to facilitate double-checking of responses for recording accuracy. Data Analysis Methods From the literature and the research aims, a set of independent variables and a set of dependent variables were identified as shown in Research
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Research Methodology Field Research
©Spangaro Systems Pty. Ltd. 45 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Models 1 and 2. The variables used in the research are summarised in Table 2 on page 48. Table 1 on page 45 shows that SP, ST, ST/SP, FAR and CT are primary constructs, that is the research is designed to directly investigate relation- ships between these variables. On the other hand, MO, OC and TI are secondary constructs, that is we are interested in the moderating effects of these variables on relationships between the primary constructs. Table 1 on page 45 also shows that SP, ST, ST/SP and FAR are dependent variables, while CT, MO, OC and TI are being treated as independent variables. The research principally examines the effects of the indepen- dent variables on the dependent variables, and therefore a cause/effect relationship is assumed. While noted in the literature review as possible moderators, the variables Need for Innovation, Environmental Turbu- lence, Environmental Hostility and Product Diversity were not operation- alised to limit the scope of the research within manageable limits. The survey was designed and administered to enable the measurement of the constructs described above. Survey responses were tabulated then TABLE 1. Research Variables/Constructs used in the research analysis Type of variable dependency Variable Abbreviation Type of research construct Dependent variables Emphasis placed on Strategic Planning SP Primary ConstructsEmphasis placed on Strategic Thinking ST Relative Emphasis between Strategic Thinking and Strategic Planning ST/SP or STvSP Nature of the relationship between formu- lation and analysis (iterative or linear) FAR Independent variables Criticality of Technology to the organisa- tion CT Management orientation (business or technology) MO Secondary Constructs Organisational Complexity OC Technological Inflexibility TI
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Research Methodology Field Research
©Spangaro Systems Pty. Ltd. 46 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro adjusted responses were generated by compensating for reverse scored items by reversing the item score. For example, for question 10, the raw score was subtracted from eight to provide the adjusted score. Resultant values for the constructs (or indices) above were constructed from the summated measurement of several associated scale items, divided by the number of items (or questions) to normalise the score, effectively giving the arithmetic mean of adjusted responses. A summary of the question items and the constructs they are associated with is pro- vided by Table 2 on page 48. For example, measurement of the strategic planing construct was formed from the summation of responses to survey questions 1 through 7, then divided by 7, as specified in Appendix C: on page 101. Strictly speaking, each scale item is measured on an ordinal scale, and an appropriate aver- aging method for ordinal scales would usually be calculated from the median (not the arithmetic mean). However, as described by Zikmund (1994, p303, p469), the appropriate method for combining multi-item Likert scales to measure a combination index or construct is the summa- tion of the individual item scores. Dividing the sum by the number of items (or questions) simply scales the response, and effectively produces the arithmetic mean. Finally, missing items are included by counting them as neutral scores (the scale midpoint) to avoid unwanted bias of the construct. The strategic thinking (ST) construct was derived from the summation of the mean scores for each of the “elements” or sub-constructs, namely Intelligent Opportunism (IO), Systems Perspective (SYSP), Intent Focused (IF), Thinking in Time (TT) and Hypothesis Driven (HD), plus the mean of responses to the three “assumptions” measures A1, A2 and A3 (refer Table 2 on page 48). The calculations for the overall strategic thinking (ST) construct are provided in Appendix C: on page 101.
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Research Methodology Field Research
©Spangaro Systems Pty. Ltd. 47 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Furthermore, three other independent variables were measured: Techno- logical Inflexibility (TI), Organisational Complexity (OC) and Manage- ment Orientation (MO). These measures were derived from likert scale and some numerical response questions. Calculations are shown in Appendix C: on page 101.
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Research Methodology Field Research
©Spangaro Systems Pty. Ltd. 48 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro TABLE 2. Summary of survey questions and associated constructs Question Construct Focus of question reverse scored? no. of points 1 SP mission statement 5 2 SP trend analysis 5 3 SP competitor analysis 5 4 SP long term plans 5 5 SP annual goals 5 6 SP short term action plans 5 7 SP ongoing evaluation 5 8 ST:IO adherence to intended plans RS 7 9 ST:IO modifications to intended plans RS 7 10 ST:IO effectiveness at implementing intended plans RS 7 11 ST:IO ability to implement intended plans RS 7 12 ST:SYSP mental model of value creation system RS 7 13 ST:SYSP thinking about the external business ecosystem RS 7 14 ST:SYSP effects of actions on other parts of the business RS 7 15 ST:IF long term view of direction RS 7 16 ST:IF competitively unique view of the future RS 7 17 ST:IF worthwhile organisation goals RS 7 18 ST:TT past history predicts effectiveness of future actions RS 7 19 ST:TT concentrating on the gap between the past and a desired future RS 7 20 ST:HD formulation is an iterative or linear process RS 7 21 A1 future is unpredictable 7 22 A2 concurrency of formulation and implementation RS 7 23 A3 levels of management which are concerned with strategy 7 24 CT percentage of expenses spent on R&D 5 25 CT technological sophistication 7 26 CT industry level of R&D 7 27 TI time to set up a new facility linear 28 TI adaptability of core technology 5 29 MO management technical-business orientation 5 30 OC number of employees linear 31 OC level of diversification 7 32 OC divisional structure 6 SP = strategic planning; CT = criticality of technology; TI = technological inflexibility; OC = organisational complexity; A1-A3 = assumptions about strategic thinking; RS = reverse scored. ST = strategic thinking, with sub-element constructs: IO = intelligent opportunism, SYSP = system perspective, IF = intent focused, TT = thinking in time, HD = hypothesis driven.
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Research Methodology Field Research
©Spangaro Systems Pty. Ltd. 49 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Statistical Analysis Methods Four different statistical analysis techniques were used to interpret the survey data: Spearman Rank-Order Correlation Coefficient Analysis; Varimax Rotated Factor Analysis; Multiple Linear Regression Analysis; and Bivariate Regression Curve Fit Analysis. Spearman Rank-Order Correlation Coefficient Analysis was used to measure the degree of correlation between data sets of two variables. Using the procedure suggested by Siegel and Castellan (1988, pp235- 244), each variable has its data samples assigned numerical rankings based on the each sample’s value. The two sets of rankings are compared to detect correlations between the variables. This method is appropriate for small ordinal data sets where normality of the data is not assumed, and provides a relatively powerful test for correlation. The calculations for rs are given in Appendix C: on page 101. Using this method, correlations were measured between each of the inde- pendent research variables CT, OC, MO and TI, and the dependent vari- ables ST, SP, FAR and the ratio of ST/SP. The direct measurement of ST and SP allowed direct relative comparisons to be made of the emphasis on one construct between high- and low-tech organisations. The ST/SP ratio provided an indication of the thinking-planning orientation of the organisation in relative terms, and effectively eliminates differences in strategic orientation when measuring the relative planning/thinking emphasis in different types of organisations. The results of this correla- tion analysis was used as the principal means to verify the research hypotheses. Varimax rotated principal component factor analysis was used to exam- ine the complex, multi-dimensional relationships between all of the research variables. Varimax factor rotation reduced the number of highly loaded factors to enable more meaningful component interpretation. The factor analysis correlation tables and factor scores were interpreted to
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Research Methodology Field Research
©Spangaro Systems Pty. Ltd. 50 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro explore relationships revealed by the data not apparent through simple correlation analysis. The findings were used to gain greater insight into the research data and to determine if further support for the research hypotheses could be found. Multiple linear regression analysis was performed between the set of dependent variables (CT, OC, TI and OC) and the each of the four depen- dent variables (SP, ST, FAR and ST/SP), resulting in four sets of regres- sion results (one for each dependent variable). The aim of this analysis was to explore the relative degrees of dependency between the research variables, and to find any simple linear relationships that may explain the relationships being studied. Bivariate regression curve fit analysis was performed using a range of curve fitting algorithms, including linear, quadratic, logarithmic, expo- nential, inverse and cubic. Only the relationship between criticality of technology and the ST/SP ratio was reported on. Quadratic curve fitting provided the best fit, and the differences between quadratic and linear curve fits are discussed. This analysis was conducted in order to explain the apparent failure of the multiple regression analysis to find any signif- icant correlations in the data. The results of these analyses are discussed in Chapter 4: on page 59, and detailed statistical data is provided in the Appendices.
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Hypotheses ©Spangaro Systems Pty.
Ltd. 51 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Hypotheses Following from the research questions on page 12, the following research hypotheses are proposed: Hypothesis A H1: The more critical the impact of technology on the organisation, the greater the probability that analysis, strategy formulation and hypothe- sis testing are iterative and intertwined rather than linearly and sequen- tially related processes. H0: Whether analysis, strategy formulation and hypothesis testing are iterative and intertwined or linearly and sequentially related processes is unrelated to the criticality of the impact of technology on the organi- sation. Hypothesis B H1: The more critical the impact of technology on the organisation, the greater the probability that strategic thinking will be more emphasised than strategic planning. H0: The relative emphasis between strategic thinking and strategic plan- ning is independent of the criticality of technology to the organisation. Hypothesis C H1: The more critical the impact of technology on the organisation, the greater will be the emphasis on strategic thinking. H0: The emphasis placed on strategic thinking is independent of the criticality of technology to the organisation. Hypothesis D H1: The more critical the impact of technology on the organisation, the less will be the emphasis on strategic planning. H0: The emphasis placed on strategic planning is independent of the criticality of technology to the organisation.
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Hypotheses ©Spangaro Systems Pty.
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Operationalisation ©Spangaro Systems Pty.
Ltd. 53 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Operationalisation This section discusses how the concepts studied are operationalised. The primary constructs of this study are 1. Strategic Thinking (emphasis on) 2. Strategic Planning (emphasis on) 3. The criticality of the impact of technology on the business 4. Interaction between analysis, formulation and hypothesis testing (iterative or linear) The secondary constructs that have been identified as moderating factors to the relationship under investigation are: 5. technological inflexibility 6. management experience (type of) 7. organisational complexity and size 8. environmental hostility (omitted from survey) 9. need to support innovation (omitted from survey) 10. environmental turbulence (omitted from survey) 11. product diversity (omitted from survey) Only moderating factors 5-7 were considered in the research. Operationalisation of Primary Constructs Operationalisation of Strategic Thinking Strategic thinking is operationalised by measurement of each of the five elements of strategic thinking identified by Liedtka (1998a; 1998b), namely having a systems perspective, being intent focused, thinking in time, being intelligently opportunistic, and being hypothesis driven. A Systems Perspective. The “systems perspective” element is measured by considering the following aspects: Do the strategy makers have a mental model of the complete end-to-end system of value creation and the interdependencies within it? Do they think strategically about the external business ecosystem within which the organisation operates, or is thinking related just to the industry itself?
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Operationalisation of Primary
Constructs ©Spangaro Systems Pty. Ltd. 54 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Do they understand and think about the effects of their behaviour on other parts of the internal business system? Intent focused. Being intent focused is measured by considering the fol- lowing factors: Does the organisation have a particular point of view or sense of direc- tion about the long term market or competitive position that the organi- sation hopes to build over the coming decade or so? Does the organisation have a competitively unique point of view about the future which could lead the organisation to explore new competitive territory? Does the organisation have a goal or goals that are perceived as inher- ently worthwhile by its employees? Intelligently Opportunistic: The intelligent opportunism element is opera- tionalised by taking the view that intelligent opportunism, the process of unplanned adaptation, can be equated to the antithesis of “adherence to plans” (Covin and Slevin, 1998), They suggest that “absence of adher- ence to plans necessarily entails unplanned strategic change/adaptation” (p211). The operationalisation of adherence to plans is derived directly from their survey, and is adapted for this research as shown in “The “Intelligent Opportunism” Scale” on page 90. Thinking in time: The Thinking in Time element is operationalised by examining the degree to which the past and the future are considered when formulating and implementing strategy. The following questions are posed: To what degree is an awareness about the past history of the organisa- tion and/or other organisations used to predict what courses of action might be effective in designing and implementing new strategies? When planning and striving towards the future of the organisation, to what degree is the gap between the way things were in the past and the way things need to be in the future considered? Hypothesis-driven. The Hypothesis-Driven element is operationalised by measuring responses to the following questions:
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Operationalisation of Primary
Constructs ©Spangaro Systems Pty. Ltd. 55 Strategic Thinking, Strategic Planning and High-Technology Industries Justin Spangaro Which statement best describes the strategy formulation process in your organisation? In my organisation the process of developing a new strategy is an itera- tive process where new strategy ideas are repeatedly generated then their usefulness is tested by a process of analysis. versus In my organisation the process of developing a new strategy is a linear process where analysis is first conducted then new strategy ideas are generated based on insights gained from the analysis. A Likert scale is used to measure where between the extremes the respondent’s answer lies. Operationalisation of Assumptions about strategic thinking versus strategic planning Assumptions identified by Liedtka (1998a) as underlying strategic think- ing are operationalised by investigating the nature of the relationship between formulation and implementation, and asking the following ques- tions: “Is the future predictable and specifiable in detail, or can we just predict the shape of it?” Compare: “First we formulate, then we implement” versus “Formula- tion and implementation are interactive and intertwined or concurrent activities”. “Is thinking about strategy the responsibility of the senior executives or the lower level managers (or somewhere in between)?” Operationalisation of Strategic Planning Strategic planning was operationalised using the multi-variate measure- ment model of strategic planning characterised by Boyd and Reuning- Elliott (1998), which measures the strategic planning construct in terms of the combined emphases on mission statement, trend analysis, compet- itor analysis, long term plans, annual goals, short term action plans and ongoing evaluation.
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