Management And Accounting Web

Christensen, C. M. 1997. Making strategy: Learning by doing. Harvard Business Review (November-December): 141-142, 144,146,148, 150-154, 156.

Summary by Jenny Hartman
Master of Accountancy Program
University of South Florida, Summer 2003

Balanced Scorecard Main Page | Strategy Related Main Page

The purpose of this article is to present a methodology executives can use to develop a core competency in strategic thinking. Being good at strategic thinking is like anything else in life, practice is needed in order to get better. Christensen asserts that because of disappointing internally developed strategic plans, senior executives are increasingly outsourcing strategic planning to consulting firms. By outsourcing, rather than performing continual strategic planning themselves, executives will never develop this valuable skill. Throughout the article a case study on Butterfield Fabrics is used to illustrate challenges and methodology.

The Challenge of Redefining and Implementation Strategy

According to Christensen, there are two challenges related to competitive strategy development and implementation. “The first is to ensure that the strategy is not a reflection of the biases of the management team-biases that are likely to be rooted in the organization’s past successes. The second challenge is to ensure that once a company has outlined a viable strategy, it allocates resources in a way that accurately reflects the strategy” (142).

The purpose of a strategy is to define what the company will and will not do. There are three stages in Christensen’s methodology to arrive at a viable strategy.

Stage One: Identify the Driving Forces in Your Company’s Competitive Environment

Defining the problem properly is a critical activity. In the first stage, the driving forces should be identified. These forces are “the economic, demographic, technological, or competitive factors in the company’s environment that either constitute threats or create opportunities” (144).

Identifying these driving forces is a two-step process itself. The first step calls for brainstorming among a team of executives and managers. Each potential factor is nominated and discussed, written on sheets of paper, and then hung on the wall. Next, the factors should be clustered together by topic and teams of the participants should summarize the ideas of each cluster into a single statement. These statements are initial hypotheses about what the driving forces are.

The second step is a more visual tool, mapping, to discover the causes of these issues. The same groups are used that earlier summarized the cluster ideas. This time though, the groups draw maps of the driving forces. These maps include several factors that cause the driving forces and then the factors are plotted on a matrix. Mapping should be done until the teams “understand why the expected result is likely to occur and what could change to produce a different outcome” (144). There are two advantages to mapping. First, no one argues over the exact numbers, but instead there is a focus on the conceptual level of what is happening. The second advantage is that mapping requires assumptions and the implications of those assumptions to be very explicit which causes them to be obvious. There then tends to be a consensus on what the problems are and how they will be solved. See the illustration below for the final iteration of Butterfield's attempt to map the driving forces in the fabric industry.

Final Competitive Driving-Force Map

Stage Two: Formulate Strategy That Addresses the Driving Forces

This stage involves three steps. The first step is brainstorming about strategy. In this step, “teams members should begin with the most important force, brainstorming about what the company might do to protect itself against – or take advantage of - each driving force” (148). These ideas need to be specific and stuck on to the related maps. The maps should again be distributed amongst the groups, and the ideas of each cluster should be summarized into one statement. If there are disagreements about what to do, the driving force has probably not been fully defined and the groups should reevaluate it. The second step of this stage is to create a strategy matrix. This step is necessary to address the contradictions that may be created among the ideas. Driving forces are the column headings, while the functional units of the company are listed for each row. The strategy statements are put into the appropriate cells. After the matrix is filled in and has been discussed and refined, each column and row should be summarized. The row summaries should summarize the functional strategy for each group. The column summaries should summarize the strategies for each driving force.

The driving forces and strategies of the various functions below are from the case study, Butterfield Fabrics’, Strategy Matrix:

Driving force 1 : Butterfield's costs are high relative to competitors because new technologies enable cost-effective manufacturing at low volumes, and because of the complexity of managing our broad product line with our present configuration of plant and equipment.

Manufacturing - Divide plant into three "factories within a factory," each focusing on a few product families. Buy German equipment to reduce set-up and waste costs in low-volume products.

Marketing and Sales - Broaden product line further as soon as process capability and plant configuration are ready. Use ability to produce a broad line and deliver it quickly to expand market share.

Business Development - Where local volumes are sufficient, open small regional plants that are close to the customer.

Finance and Accounting - Implement an activity-based costing system.

Quality and Process Engineering - Develop expertise in fast setup and changeover on existing and new equipment to handle greater variety without suffering cost penalties.

Summary Strategy for Driving force 1 - Develop and exploit the capability to manufacture cost effectively at low volumes.

Driving force 2: Trends toward just-in-time production and just-in-time deliveries will push some customers toward laminating their own fabrics if suppliers are not available.

Manufacturing - Develop ability to manufacture and deliver just in time from plant in southwestern England. Design systems in new Continental plants to facilitate just-in-time scheduling. Develop ability to manufacture and deliver just in time from plant in southwestern England and from new Continental plants.

Marketing and Sales - Use ability to deliver just in time to capture more business.

Business Development - Build two focused plants near auto-manufacturing centers on the Continent. Build two focused plants near auto-manufacturing centers on the Continent.

Summary Strategy for Driving force 2 - Develop and exploit the ability to produce and deliver just in time.

After the matrix is completed, the third step in this stage is to map the functional strategies - what needs to be done rather than how it should be done. Again, teams draw a matrix and identify the “two most important mechanisms that will have to be manipulated to implement the strategy” (152). These first two stages allow the team to visualize internal interactions that are necessary to achieve good strategies and competitive advantages.

Stage Three: Create a Plan for the Projects to Implement the Strategy

This stage involves creating a plan and allocating the resources across all projects in order to execute the plan successfully. This resource allocation is key and the process used for it must mirror the strategy. Christensen writes that “Senior executives do not need to know the detailed requirements for any specific project. But if the management team is serious about implementing the strategy, it needs to reserve the capacity – in terms of people and cash – to execute the stream of projects that will implement each strategic initiative” (156).

Conclusion: Competence in Strategy

Christensen again reiterates that competence in strategy can not be developed if strategic planning is outsourced, but can be achieved through practice and continual strategic planning. One of Christensen’s last comments in the article is “If companies make these tasks an integral part of their annual planning process, their managers will become competent strategic thinkers” (156).

_________________________________________________

Related summaries:

Clinton, B. D. and A. H. Graves. 1999. Product value analysis: Strategic analysis over the entire product life cycle. Journal of Cost Management (May/June): 22-29. (Summary).

De Geus, A. 1999. The living company. Harvard Business Review (March-April): 51-59. (Summary).

Fonvielle, W. and L. P. Carr. 2001. Gaining strategic alignment: Making scorecards work. Management Accounting Quarterly (Fall): 4-14. (Summary).

Gosselin, M. 1997. The effect of strategy and organizational structure on the adoption and implementation of activity-based costing. Accounting, Organizations and Society 22(2): 105-122. (Summary).

Iansiti, M. and R. Levien. 2004. Strategy as ecology. Harvard Business Review (March): 68-78. (Summary).

Kaplan, R. S. and D. P. Norton. 1996. Using the balanced scorecard as a strategic management system. Harvard Business Review (January-February): 75-85. (Summary).

Kaplan, R. S. and D. P. Norton. 2000. Having trouble with your strategy? Then map it. Harvard Business Review (September-October): 167-176. (Summary).

Kaplan, R. S. and D. P. Norton. 2001. Transforming the balanced scorecard from performance measurement to strategic management: Part I. Accounting Horizons (March): 87-104. (Summary).

Kaplan, R. S. and D. P. Norton. 2001. Transforming the balanced scorecard from performance measurement to strategic management: Part II. Accounting Horizons (June): 147-160. (Summary).

Kaplan, R. S. and D. P. Norton. 2004. Measuring the strategic readiness of intangible assets. Harvard Business Review (February): 52-63. (Summary).

Kim, W. C. and R. Mauborgne. 1997. Value innovation: The strategic logic of high growth. Harvard Business Review (January-February): 103-112. (Summary).

Kim, W. C. and R. Mauborgne. 1999. Creating new market space: A systematic approach to value innovation can help companies break free from the competitive pack. Harvard Business Review (January-February): 83-93. (Summary).

Kim, W. C. and R. Mauborgne. 2002. Charting your company's future. Harvard Business Review (June): 77-83. (Summary).

Langfield-Smith, K. 1997. Management control systems and strategy: A critical review. Accounting, Organizations and Society 22(2): 207-232. (Summary).

Luehrman, T. A. 1998. Strategy as a portfolio of real options. Harvard Business Review (September-October): 89-99. (Summary).

O'Clock, P. and K. Devine. 2003. The role of strategy and culture in the performance evaluation of international strategic business units. Management Accounting Quarterly (Winter): 18-26. (Summary).

O'Reilly, C. A. III. and M. L. Tushman. 2004. The ambidextrous organization. Harvard Business Review (April): 74-81. (Summary).

Porter, M. E. 1996. What is a strategy? Harvard Business Review (November-December): 61-78. (Summary).

Porter, M. E. 2001. Strategy and the internet. Harvard Business Review (March): 63-78. (Summary).

Reeves, M., C. Love and P. Tillmanns. 2012. Your strategy needs a strategy. Harvard Business Review (September): 76-83. (Note).

Simons, R. 1995. Control in an age of empowerment. Harvard Business Review (March-April): 80-88. (Summary).