Rational Vs Irrational School of Thought Approach Toward Strategic Management

Rational Vs Irrational School of Thought Approach Toward Strategic Management

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Rational Vs Irrational School of Thought Approach Toward Strategic Management

Introduction

Managers face no greater challenge than that of strategic management, guiding a complex organisation through a dynamic; rapidly changing environment requires the best judgment.
Strategic management are invariably ambiguous and unstructured, and the way in which management respond to them determines whether the organisation will succeed or fail.

What is a Strategy?
Strategy refers to top management’s plan to obtain outcome consistent with the organisation mission and goals.

Strategic Management is a broader term that encompasses managing not only the stages already identified but also the earlier stages of determining the mission and goals of an organisation within the context of external and internal environment, hence strategic management can be viewed as series of steps in which top management should accomplish.

Analysis

This report will evaluate the practice of strategic management in organisation, in view of different nature of organisational forces that influence strategic decision process.
Case studies will be used to weigh up the strength, limitations and implication of strategic management in organisational setting.

Analysis of the strategic management role will be conducted in views of arguments of rational school of Thought as opposed by irrational school of thought advocated by different authors and practitioners.

Schools of Thought
Rational school of thought advocates the strategic management in organisation is conduct in a formal process, it is linear process and efficient.

Irrational school of thought advocates that organisation are not rational, there are a lot of dynamic factors that affect the strategic management processes like chaos, politics, culture, psychology, etc.

(Cyert and March, 1963) tried to counter more rational models depicting organisations as profit entities operating under perfect knowledge. Instead organisation is constructed as coalition of participants, with differing motives who choose organisational goals through a process of continual bargaining.

Several arguments have highlighted the inherent limitations of rational model and support political view of strategic change, cultural view, psychological view, etc.

The rational school of thought appreciates the need of cultural change in organisation when desired, and prescribe that step by step approach toward cultural change.
The approach is explained by the Dynamic of Paradigm change in Jenson and Scholes literature. The Paradigm comprises of stories, symbols, rituals, control system, organisational strategies, etc.

It starts with a given organisational paradigm, where it has to develop deliberate strategies and implement. Implementation will result in to a certain corporate performance that can be measured by various techniques like Returns on capital employed or Returns on investment.

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An unsatisfactory performance leads to the next step to squeeze or tight up the controls (budget) and reconstruct a new strategy. A poor performance now will necessitate abandoning the paradigm and adopting a new strategy.

However the formalised steps prescribed by the rational school might not be applicable in real world because organisations are so dynamic as described below
Case study: The greatest challenge when PepsiCo acquired KFC in 1986 was how to mold the two distinct cultures because they knew very little about fast food business.
PepsiCo to pursue strategic change following the acquisition, however the strategy of replacing KFC with PepsiCo managers brought conflicts between managers in both companies, who were accustomed to different operating procedures and working conditions. PepsiCo corporate culture has long been based heavily on a fast-track New York approach to management, which hires business and engineering graduates and if one fails, there is always another waiting in the wing.
The corporate culture of KFC contrasted sharply with that of PepsiCo, it was built largely on Colonel Sander’s laid-back style.
This case study shows that organisational culture differ, and changes sometimes can not be introduced easily in formalised manner as prescribed by the Paradigm of change, because as J. Cranor the new president of KFC addressed the details of new contract to the attending franchisees, they all to their foot to protest the changes. This was because they were not accustomed with the culture of interference by mangers in day to day operations.

Also rational school of thought prescribe useful models that organisation should deploy to analyse its External environment.
Theorists use models like PESTEL in analysing the general environment affecting an organisation, of which it does not have control over them.
Porter’s Five forces model can be used to analyse the industrial environment or competitive environment facing an organisation. The essence of this model is to determine industrial profitability or attractiveness given organisational resources capability.
However the model has been criticise of been to static to cope with today’s turbulence environment, also Richard D’aveni argues that the model should be extended to cope with today’s hyper competition by including networks and Game theory.
In determining who are the most direct competitors of an organisation, theorist developed a model to analyse them called Strategic Group analysis, the model can assess the opportunities and strategic space of a firm, along side threat of different mobility barriers.

Limitations

The strategic manager inability to analyse properly the external invironment might have negative impact to organisational performance as substantiated below:
Case study: Coca Cola has stood adamantly against consumer buying water, in USA the company even ran a campaign called Just say no to H2O.
In time, Changes in market conditions necessitated Coca Cola also to startproducing bottle water called DISANI. The brand became the biggest selling bottled water in USA.
It was publicised as spring water that undergoes a series of purification stages.
The product was also launched in UK spending £7 million and a blaze of publicity as one of the purest water around. Sales were expected to reach £35 million in the first year.
Disani publicity and claims arose concern from the UK water industry because it was marketed in such a way that tape water was not pure and should be avoided.
Surprisingly, illegal large quantities of Bromate which can cause cancer were found in Disani, and allegation that it was just tap water added with a minute of mineral instead of spring water. This had damaged the image of Coca Cola company and it had to recall 500,00 bottle within a day.
How and Why Coca Cola got it so wrong?
The case study shows that Disani performed well in USA market; however inability of the Managers to assess difference in the UK General environment facing the company like political, economic, social, technological, ethical and legal brought the unceremoniously killer blow of Dissan in UK market.
It is evident that Coca Cola did not make good analysis of the external environment facing Disani in UK before launching it, strategies used in USA were quite successful and were replicated in UK .

The Psychological Dynamic also challenge the rational school of thought with models like Personal and Shadow.

Persona is the individual or organisation. Wears, that is the impression it attempts to make through advertisement and advertisement and public relation shadow model that challenge the rational school of thought, shadow represent those things that an individual or organisation wishes to avoid knowing about them selves e.g. Greed, Nastiness, Rage, self interest, Aggression etc.

Case study showing Psychological Dynamics. Honson corporation is a UK company that produces cigarette, cement, bricks, stones and Eveready batteries.
The organisation shadow in Hanson corporation can be traced in the following areas.

Hanson invested in Panama because it was a mean of avoiding Tax, however this taxes that were avoiding were not maintained in the company accounts.

Hanson corporation engaged in practice of hiding accounting information or creative accounting by profit smoothing. Profits were improved from one period to another by playing with numbers only.
Hanson was also had business dealings with south Africa Apethy which was against the British regulation and no one know it. He was also engaged in Asset Stripping activities and sold all business which required investment in research and development like Eveready batteries and remained with Tobacco and Brick business.

Most of the activities were not for the shareholder Interest, purely for his own interest because he was the major shareholder. Finally the shadow took over and Hanson’s Organisation suffered the consequences.


Case study: In 1998, Mark and Spencer (M&S) Sales figure were stagnated at £8224 million while profit before tax £1155 million to £546million. The company share prices collapsed too, falling 50% to £2.30 - £2.40. This his review of the years trading the company chairman Sir Richard Greenburg argues that a cyclical downturn in house wares, overseas economic turmoil (e.g. riots in Indonesia, currency problem in Thailand, Malaysia and Indonesia.) Adverse trading condition in far East, together with strength of the pound sterling

What is wrong?

The company fail to keep pace with the tremendous changes taking place in the retail market.
M&S seem to be losing touch with both of its general microenvironment and specifically microenvironment .
On the microenvironment side M&S was not able to cope with technology as it refused to accept credit cards which is convenient customer paying method, also it was not able to cope in time with the emerging shopping over the internet and investing in IT which is costly.
In the economic environment facing M&S, it did not properly assess the impact of recession in Far East, the strength of the pound working to the disadvantage of those UK retails.
Political environment was not well assessed as the political and planning constraints on out - of - town shopping development and encouragement of the use of Brownfield as compared to green field.
Social environment of an ageing UK population often with high disposal income was not assessed.

In deed improper assessment of Industrial Environment Contributed to most of the problem faced by M&S.

This include :-
-The higher price charged for food especially the value added items were then other retails.
Competition from specialist, trend, niche retailers e.g. Next, Gap, Benetton.

A general strengthening of M&S mainstream competition in food with Tesco and J Sainsbury’s.

The relative over-reliance compare to its to competitors on high-cost UK based suppliers.
The case study shows how strategic management is important for organisation to keep pace with turbulence in the general environment and changes industrial environment as M & S.

Conclusion

After looking the implementation of the strategic management in different situation it was evident that in certain situation it was an asset and in other instances it was a liability to the organisation
The main role of strategic management is to chart the course of an organisation in order for it to sail cohesively through its environment.
Strategic management promotes coordination of activities, without strategy to focus on the effort , chaos can ensue as people pull in different direction.
It helps to people to understand their organisation and distinguish it from others and provide meaning and a way to comprehend what organisation does. Strategy helps to reduce ambiguity and provide order, in a sense that it is like a theory .
Contrary, defining an organisation too sharply may also mean defining it too simple, some times to the point of stereotyping
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