Where Does Strategy Come From?Learning ObjectivesShow you the difference between intended and realized strategyGive you an understanding of how strategy is madeUnderstand the need for a balance between strategic design and emergenceHow do the strategies we see in organizations come into being? In this section you will learn about intended and realized strategies. The section concludes with discussion of how strategies are made.Intended and Realized StrategiesThe best-laid plans of mice and men often go awry.Robert Burns, “To a Mouse,” 1785The opening quote from English poet Robert Burns is especially applicable to strategy. While we have been discussing strategy and strategizing as if they were the outcome of a rational, predictable, analytical process, your own experience should tell you that a fine plan does not guarantee a fine outcome. There are many things that can happen in between the development of the plan and its realization, including (but not limited to): (1) the plan is poorly constructed, (2) competitors undermine the advantages envisioned by the plan or, (3) the plan was good, but poorly executed. You can probably imagine a number of other factors that might undermine a strategic plan, and the results that follow.How organizations make strategy has emerged as an area of intense debate within the strategy field. Henry Mintzberg and his colleagues at McGill University distinguish intended, deliberate, realized, and emergent strategies.Mintzberg, H. (1987), “Crafting strategy”, Harvard Business Review, July-August, pp. 66-75; Mintzberg, H. (1996), “The entrepreneurial organization”, in Mintzberg, H. and Quinn, J. B. (Eds), The Strategy Process, 3rd ed., Prentice-Hall, Englewood Cliffs, NJ; Mintzberg, H. and Waters, J. A. (1985), “Of strategies, deliberate and emergent”, Strategic Management Journal, Vol. 6, pp. 257-72. These four different aspects of strategy are summarized in . Intended strategyintended strategyThe strategy conceived of by managers and the impetus for initial attempts at strategy implementation. is strategy as conceived of by the top management team. Even here, rationality is limited and the intended strategy is the result of a process of negotiation, bargaining, and compromise, involving many individuals and groups within the organization. However, realized strategyrealized strategyThe actual strategy that is implemented and comes to fruition as a consequence of implementation and other internal and external factors.—the actual strategy that is implemented—is only partly related to that which was intended (Mintzberg suggests only 10–30 percent of intended strategy is realized).The primary determinant of realized strategy is what Mintzberg terms emergent strategyemergent strategyA pattern of action that develops over time in an organization in the absence of vision, mission and goals, or despite missions and goals, or in addition to what was conceived of in the intended and deliberate strategies.—the decisions that emerge from the complex processes in which individual managers interpret the intended strategy and adapt to changing external circumstances.See Henry Mintzberg, “Patterns of Strategy Formulation,” Management Science 24 (1978): 934–48; “Of Strategies: Deliberate and Emergent,” Strategic Management Journal 6 (1985): 257–72; and Mintzberg on Management: Inside Our Strange World of Organizations (New York: Free Press, 1988). Thus, the realized strategy is a consequence of deliberatedeliberate strategyA plan of action, flowing from the intended strategy, that an organization chooses and implements to support its vision, mission and goals. and emerging factors. Analysis of Honda’s successful entry into the US motorcycle market has provided a battleground for the debate between those who view strategy making as primarily a rational, analytical process of deliberate planning (the design school) and those that envisage strategy as emerging from a complex process of organizational decision making (the emergence or learning school) of strategy.The two views of Honda are captured in two Harvard cases: Honda [A] (Boston: Harvard Business School, Case 384049, 1989) and Honda [B] (Boston: Harvard Business School, Case 384050, 1989).Although the debate between the two schools continues,For further debate of the Honda case, see: Henry Mintzberg, Richard T. Pascale, M. Goold, and Richard P. Rumelt, “The Honda Effect Revisited,” CaliforniaManagement Review 38 (Summer 1996): 78–117. we hope that it is apparent to you that the central issue is not “Which school is right?” but, “How can the two views complement one another to give us a richer understanding of strategy making?” Let us explore these complementarities in relation to the factual question of how strategies are made and the normative question of how strategies should be made. Robert Grant, author of Contemporary Strategy Analysis (2002), shares his view of how strategy is made as follows:Robert M. Grant, Contemporary Strategy Analysis, 4th edition (Blackwell, 2002), pp. 25-26.The Making of StrategyHow Is Strategy Made?For most organizations, strategy making is a combination of design and emergence. The deliberate design of strategy (through formal processes such as board meetings and strategic planning) has been characterized as a primarily top-down process. Emergence has been viewed as the result of multiple decisions at many levels, particularly within middle management, and has been viewed as a bottom-up process. These processes may interact in interesting ways. At Intel the key historic decision to abandon memory chips and concentrate upon microprocessors was the result of a host of decentralized decisions taken at divisional and plant level that were subsequently acknowledged by top management and promulgated as strategy.R. A. Burgelman and A. Grove, “Strategic Dissonance,” California Management Review 38 (Winter 1996): 8–28.In practice, both design and emergence occur at all levels of the organization. The strategic planning systems of large companies involve top management passing directives and guidelines down the organization and the businesses passing their draft plans up to corporate. Similarly, emergence occurs throughout the organization—opportunism by CEOs is probably the single most important reason why realized strategies deviate from intended strategies. What we can say for sure is that the role of emergence relative to design increases as the business environment becomes increasingly volatile and unpredictable.Organizations that inhabit relatively stable environments—the Roman Catholic Church and national postal services—can plan their strategies in some detail. Organizations whose environments cannot be forecast with any degree of certainty—a gang of car thieves or a construction company located in the Gaza Strip—can establish only a few strategic principles and guidelines; the rest must emerge as circumstances unfold.What’s the Best Way to Make Strategy?Mintzberg’s advocacy of strategy making as an iterative process involving experimentation and feedback is not necessarily an argument against the rational, systematic design of strategy. The critical issues are, first, determining the balance of design and emergence and, second, how to guide the process of emergence. The strategic planning systems of most companies involve a combination of design and emergence. Thus, headquarters sets guidelines in the form of vision and mission statements, business principles, performance targets, and capital expenditure budgets. However, within the strategic plans that are decided, divisional and business unit managers have considerable freedom to adjust, adapt, and experiment.Key TakeawaysYou learned about the processes surrounding strategy development. Specifically, you saw the difference between intended and realized strategy, where intended strategy is essentially the desired strategy, and realized strategy is what is actually put in place. You also learned how strategy is ultimately made. Ultimately, the best strategies come about when managers are able to balance the needs for design (planning) with being flexible enough to capitalize on the benefits of emergence.ExercisesWhat is an intended strategy?What is a realized strategy?Why is it important to understand the difference between intended and realized strategies?Why is there not a perfect match-up between realized and intended strategies?What might interfere with the realization of an intended strategy?How might you manage the balance between design and emergence strategizing processes in an organization?