LEADERSHIP
“They started as gradual deviations and minor alterations to the business model, but what we found is that the risks of gradual devi- ations from normal practices can often be ignored, or pass below the radar. Little by little managers start making more aggressive choices, eventually leading organisations to a crisis. “The conclusion here is that gradual deviations from procedures can easily be ignored, and this can be dangerous,” cautions Sonpar.
Cognitive barriers Finally, Sonpar refers to the ideas developed in the third thesis within the project, that of David Motherway, Resistance to deinstitutional- ization of aggressive banking practices (2004–2009). “Here we asked why did Irish banks resist changes in their aggres-
sive banking practices, despite warnings and concerns being expressed from as early as 2000 by the Central Bank of Ireland and the European Central Bank?” “This study introduced the concept of ‘impermeability’, so as to
explain resistance to ‘deinstitutionalisation’. The empirical context here is the field of banking in Ireland in the period 2004–2009, which rejected the initial efforts of the regulatory authorities to shift away from speculative practices. “Here impermeability is shown to be a consequence of cognitive barriers which cause organisations to rely on internal frames of rea- soning, and to commit to practices that delivered success in the past, thereby isolating them from deinstitutionalisation efforts. “Furthermore, organisations may remain impermeable to deinsti- tutionalisation, even when this is driven by powerful actors such as regulatory authorities, if the risks of extant practices are not cogently theorised and power is not used. There is a salutary lesson here for all organisations, says Sonpar. “Organisations must continue to challenge assumptions on which their past success is based, and must not excessively focus on inter- nal developments while formulating their strategy.”
Karan Sonpar lectures at UCD School of Business in the areas of behavioural strategy and leadership.
Strategy development - design options
In a business environment that is dynamic, does it make sense for firms to develop strategic plans? If so, how should firms think about the design of their strategy development and implementation process? This was the premise for Pat Gibbon’s presentation on Strategy Development. In this session, Gibbons examined the key design variables that managers must consider if they are to conceive, develop and imple- ment adaptive business strategies. He focused in particular on the roles of CEO and staff managers in the development of strategy. The talk emphasised the design options that firms have in develop-
ing a process for their strategy development or formulation activities. “As firms get larger, the process typically becomes more elaborate and complex,” Gibbons says. “And it is because of this thatmanagers need to think through issues such as who is to be involved, what activities
28 UCD BUSINESS CONNECTIONS
and analyses need to be carried out, what horizon time should we use, how long will the process take and what outputs do we need?
Key errors made When it comes to developing strategy, there are some key errors that firms make, according to Gibbons. “To me the key problem can be diagnosed as: being unclear as to what outcome firms want to achieve from a strategy development exercise. “I’ve seen firms commit a lot of time to strategy development activ-
ities but then spend far too much time and focus on developing the annual budget. In others, managers engage in an annual ritual reaf- firming of what they are doing, without any real analysis or rationale as to why the status quo is the best option. “Finally, I regularly see managers opting for the first alternative
strategy that they think about – again, without any real interrogation of other alternatives.” Gibbons looked too at the whole question of the five-year plan, and
asked if in these fast moving times it still has a place. “Whatever the horizon time of the plan, it is vital in a fast-changing
environment that executives are clear about the strategy that their firm is pursuing and have an opportunity to evaluate the appropri- ateness of that strategy in the face of an increasingly hostile and, what some call, a hyper-competitive environment. “One of the best vehicles to do this is to regularly review the assumptions and resultant opportunities and threats that confront the firm,” says Gibbons. “A regularly scheduled strategy development process should facilitate strategic thinking rather than driving it out.” The determination of strategy cannot fall uniquely to the CEO,
argues Gibbons. “While I am in agreement that the strategy should be driven by the CEO, I also think that the CEO needs to involve oth- ers in its development – to exploit the insights of other executives, to build commitment to the implementation of the strategy and, fina- lly, to ensure that executives not only understand the strategy, but also are clear about the thought process that developed the strategy. “It is this thought process that may prove fallible as the environ-
ment changes, so that enhanced sensitivity to the thought process underlying the strategy is vital.” Out of this strategy development process should emerge some key outputs, says Gibbons. “And here I would differentiate between tan- gible outputs and intangible outputs,” he says. “In terms of tangible outputs, a clear statement of strategy and a clarification of the assumptions upon which the strategy is based is a vital output. That strategy statement should clearly identify areas of focus for the firm, its basis of advantage, the business model and a growth path. “In terms of intangible outputs, a level of consensus about the
strategy among the management team is vital,” he says. “Moreover, practice in thinking about strategy and asking the hard questions is a further intangible output and is key to the development of man- agers who aspire to CEO positions.”
Patrick Gibbons is Jefferson Smurfit Professor of Strategic Management at UCD School of Business.
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