B 300 TUTORIAL WEEK FIVE 1 B 300

B 300 TUTORIAL WEEK FIVE 1

B 300: Overview Business behaviour in a changing world Decision making Strategy Organisation Policy 2

THIS TUTORIAL…. Section 3 Introduction – Thinking in Organizations CHAPTER 9 – Strategic Management in an Enacted World by Smircich and Stubbart. CHAPTER 10 The Role of Managerial Learning and Interpretation in Strategic Persistence and Reorientation: An Empirical Exploration by Lant, Milliken and Batra. 3

CHAPTER 9 Strategic Management in an Enacted World by Smircich and Stubbart. Definitions: Strategic management as a field of study has evolved as branch of management which started with policy as a focus; then turned to strategy formulation; and today is concerned with implementations. Environment are enacted through the social construction and interaction processes of organised actors. Enactment implies distinctive strategic management models, new research questions, and different prescriptions for practitioners. An organisation is an open system that exists within an independent external environment. 4

In this chapter… The task of strategic managers is to maintain congruence between environmental constraints and organisational needs. Organisation members actively form their environments through social interaction. A pattern of enactment establishes the foundation of organisational reality, and also has effects in shaping the future enactments. Then the task of strategic management is to create maintain systems of shared meaning and to facilitate action. 5

Three Models for Knowing the Environment Research has produced the three basic explanations of how organisations know their environment: the objective environment perspective, the perceived environment perspective, and the enacted environment perspective. Each of these perspectives offers value to strategists creating environment-strategystructure fits. The following slides will explain these perspectives. 6

The Objective Environment Perspective This marks the beginning of a view of the external environment as a source of uncertainty because it constitutes some set of forces impinging on the organisation. The organisation is embedded inside an external environment which exists independently from the organisation. There is an assumption that the organisation and environment are real and separate. Therefore, strategists must conduct an environmental analysis by scanning the objective, existing environment for opportunities and threats. 7

The Objective Environment Perspective ctd… Child and Simon generally suggest that external analysis is combined with the results of an internal environmental audit of the organisation's strengths and weaknesses to form the base for strategic decisions. The combination of these analyses is often referred to as SWOT analysis (if you do not know this model from B 200 your tutor will explain it to you). Its results are used to define the mission, set objectives and design strategies, and is the core of the strategy formulation phase of the strategic management process. In this way, the organisation would adjust/adapt to the environment by adopting appropriate courses of action. If this strategic fit is not accomplished, the organisation may not succeed. 8

The Perceived Environment Perspective The difference between objective environments and perceived environments is not attributable to changes in the concept of environment which remains real, material, and external. But the difference between them involves only a distinction about strategists. The perceived environments perspective also considers the environment to be external, real, and material. However, uncertainty is a product of strategists imperfect & incomplete knowledge of the objective environment. Organisations which incorrectly perceive the objective environment will be less effective organizations. 9

The Perceived Environment Perspective Ctd… Strategists must create a fit given their flawed perceptions. So firstly strategists must minimise the gap between their flawed perceptions and the objective environment and then use the analysis to identify any perceived opportunities and threats. The perceived environment perspective suggests uncertainty is internal. An analysts perception is influenced by incomplete information, cognitive process and experience, and also the organisation. This view implies that each strategist is an imperfect mediator between the environment and the organisation. 10

The enacted environment perspective suggests separate objective environments do not exist. Rather, the organisation and its environment are enacted through interaction of principal participants. Organisations and environments are convenient “labels” for patterns of activity and what people refer to their environments is created by human actions and the related efforts to make sense of these actions. In an enacted environment model the world is essentially an ambiguous field of experience. There are no threats or opportunities out there in an environment, just material and symbolic records of action. Strategists determined to find meaning make relationships by bringing connections and patterns to the action. 11

The Enacted Environment Perspective Ctd… Enactment implies a combination of attention and action on the part of organisational members. Processes of action and attention differentiate the organisation from the environment. The action component often is poorly appreciated by theorists who discuss sense making processes. An enactment model implies that an environment of which strategists can make sense has been put there by strategists’ patterns of action, not as a process of perceiving the environment, but by a process of making the environment. 12

Organisation and Environment from an Interpretive Perspective Smircich and Stubbart's interpretive perspective suggests that the terms organisation and environment are convenient, arbitrary labels that provide meaning to patterns of activity in a socially created symbolic world. Definitions: Organisation: “the degree to which a set of people share many beliefs values, and assumptions that encourage them to make mutuallyreinforcing interpretations of their own acts and the acts of others. ” Environment: ". . . a specific set of events and relationships noticed and made meaningful by a specific set of strategists. . . refers to the ecological context of thought and action, which is not independent of the observeractor's theories, experiences, and tastes. Multiple groups of people enact the ecological context. . From the standpoint of strategic management, strategists' social knowledge constitutes their environment. " 13

Implications of an Interpretive Perspective The clear implication of the interpretive view is strategists create both their environment and their organisation. Neither is concrete. This means that, as artists, strategists create any environment they desire, subject only to their limitations and experiences. Jauch and Kraft (1986) suggest: "These perceptual and cognitive processes of understanding and sense making do affect strategic decisions and, hence, performance. But that part of the environment which is not perceived or enacted may also influence performance. Indeed, the collective actions of others is the social ecological context which constitutes an influence on the objective environment and that counter pressures from reality. ” 14

Implications of an Interpretive Perspective While the external environment may be primarily enacted by social actors, it is enacted by all social actors, many of whom are beyond the control of a strategist's organisation. In addition, some elements of the environment, such as earthquakes, are beyond the control of all social actors and entities. Pfeffer and Salancik state that the objective environment plays a significant role affecting organisational performance. Jauch and Kraft add "through proactive attempts to influence the environment, the objective environment can be changed. " Filley, House, and Kerr suggest organisations seek to increase their power to control some segments of the environment. The enacted environment perspective suggests organisational strategists create their organisation and substantially contribute to the creation of their environment. 15

Managing in an Enacted World Managerial analysis means challenging the assumption on which managers act and improving managers’ capacity for self-reflection- seeing themselves as enactors of their world. Consultants are sometimes called upon to help organisations get a different perspective on what their members (staff) are doing. Consultants state the obvious, ask “foolish” questions, and introduce doubt –all of which helps the organisation start thinking outside of themselves. Management groups can institutionalise the role of ‘wise fool’ in order to provoke the capacity for critical self-examination which is necessary. 16

Managing in an Enacted World Ctd… Encouraging multiple realities - an interpretive perspective urges the consideration of multiple interpretations. In strategic management, multiple inter-operations are often viewed as communications problems to be overcome by an increase in information, rather than as a natural state of affairs. Successful strategists have often contemplated the same facts that everyone knows and they have invented startling insights. Interesting enactments blossom when strategists draw out new interpretations from prosaic facts. Quite often newl interpretations occur when companies enter an industry for which they have no specific experience, they try out strategies that run counter to the convention. These new strategies lead to testing and experimenting. All industries have a long list of do’s and don’ts. These limits should be tested periodically. Enactment means activity as well as thought. 17

Managing in an Enacted World Continued Ctd… Can any reality be enacted? People can enact any symbolic reality that they choose. Individual people occupy personal, subjective space- space in which intentions, meaning, and sensibility often are quite idiosyncratic. 1. Organised people often struggle within the confines of their own prior enactment. Patterns of enactment rooted in prior personal, organisational, and cultural experiences powerfully shape ongoing organisational and cultural options. 2. Enactment means thinking and acting, enactments test one’s physical, informational, imaginative, and emotional resources. Without sufficient resources, one simply can support many conceivable enactments. 3. Enactments may compete with each other. In an election, for example, candidates may struggle to discredit each other. 18

Conclusion This chapter presented the Objective-Environment Perception and Enactment Model (OEPE) to provide a conceptual view of a generic relationship between an organisation, its individual and collective boundary spanners and decision makers, and its external environment. 19

CHAPTER 10 The Role of Managerial Learning and Interpretation in Strategic Persistence and Reorientation: An Empirical Exploration by Lant, Milliken and Batra. 20

In this chapter… We look at how managers have the difficult task of navigating their organisations through an uncertain and changing environment. One of the most basic strategic decisions top-level managers make is whether to persist with their current strategic orientation or to alter their organisation’s strategic course. This chapter examines the role of past performances and managerial interpretations in influencing the likelihood of strategic re-orientations. It applies a managerial learning frame working to build and test a model of the decision-making process that drives strategic transformation. 21

Managerial Learning Managerial learning is a managers attempt to develop an understanding of the connections between the manager’s actions and an organisation’s outcomes, as well as the role that an organisation’s environmental context plays in influencing these action-outcome linkages. Models of Organisational Learning generally have these common characteristics: Managers are assumed to set concrete performance goals to which they compare performance outcomes, (these goals are a function of past performance and competitor performance). The discrepancy between goals and performance provides a signal of success or failure to which managers attend in an attempt to simplify the task of interpreting their experience and to guide future behaviour. Performance relative to goals and managerial interpretations of their experiences influence the likelihood of organisational change. 22

Patterns of Strategic Reorientation Organisations experience long periods of strategic persistence punctuated by short periods in which major changes occur in strategic direction, and supporting structures and systems. Reorientations are ‘simultaneous and discontinuous shifts in strategy, the distribution of power, the firms core structure, and the nature and permissiveness of control systems’ (Tushman 1985). 23

The influence of managerial learning on the likelihood of strategic persistence and reorientation Historically, the organisational learning literature emphasised the process of trial-and-error learning, where actions associated with positive outcomes are repeated, and actions associated with negative outcomes are not repeated. Managerial leaning is a more complex process than that of simple trial -and-error learning. There are many factors in an organisation setting that make accurate learning difficult. Environmental change and uncertainty make it difficult for managers to accurately interpret their past performance outcomes and to predict the effects of environmental changes on an organisation. Managers have a limited capacity to process information and they operate in organisational context that are often characterised by organisational and psychological pressures to persist with previously agreed strategies. 24

A Managerial Learning Model of Strategic Reorientation (see page 59 of decision making reader). Turbulence of Environment Context Environmental Awareness CEO Turnover Past Performance Strategic Reorientation Top Management Team Turnover Management Team Heterogeneity External Attributions for Negative Outcomes 25

121. Hypotheses Organisations are more likely to converge or persist with their 2. 3. 4. 5. 6. strategic direction than to undergo strategic reorientations. Organisations in volatile or turbulent environments are more likely to exhibit reorientation than organisations in stable environments. An organisation’s past performance relative to the industry average will be inversely related to the likelihood of strategic reorientation. The more aware managers are of environmental changes, the greater the likelihood of strategic reorientation. The more managers make external attributions for poor performance outcomes, the lower the likelihood of strategic reorientation. The greater the heterogeneity of a top management team with respect to functional backgrounds, the higher the likelihood of strategic reorientation. 26

12 Hypotheses Ctd… 7. 8. 9. 10. CEO and top management turnover will be associated with an increased likelihood of strategic orientation. Past performance will be inversely associated with CEO turnover; high past performance will decrease the likelihood of CEO turnover, and low past performance will increase the likelihood of CEO turnover. Past performance will be inversely associated with top management team turnover; high past performance will decrease the likelihood of top management team turnover, and low past performance will increase the likelihood of top management team turnover. Past performance will be inversely associated with top management heterogeneity; high past performance will be associated with low levels of top management team heterogeneity, and low past performance will be associated with high levels of top management team heterogeneity. 27

12 Hypotheses Ctd… 11. 12. Past performance will be positively associated with managers’ environmental awareness. Past performance will be inversely associated with the likelihood that managers will make external attributions for any negative performance outcomes an organisation has experienced; low past performance outcomes will increase the likelihood that managers will make external attributions for negative performance outcomes, and high past performance will decrease the likelihood that managers will make external contributions for negative performance outcomes. 28

The empirical study Your tutor will discuss the study (from pages 164 – 175 of the Decision Making text book) with you, and will explain the analytical tools used. 29

WEEK 7 ACTIVITIES Please select from the following activities which could be undertaken by students at this stage: Activity Nine (page 46 of the Decision Making Study Guide) Activity Ten (page 46 of the Decision Making Study Guide) 30

READING TO BE COMPLETED BY NEXT WEEK Please re-read pages 42 -52 of the Decision Making Study Guide to refresh your study of Chapters nine and ten. Please read pages 179 - 207 (Chapters 11 and 12) of Decision Making for Business Text Book. If you have time, read pages 52 - 56 of the Decision Making Study Guide to prepare you for next week. 31