Beyond Finger Pointing - Explaining Strategic Disappointment

The key to success in medicine is to provide the right cure for the right ailment. Too often, however, the prescription is made without enough understanding of the patient. Similarly, a strategic business initiative is only as good as its appropriateness to the landscape into which it is introduced.

by Steven White
Last Updated: 23 Jul 2013

So why do so many business initiatives fail? According to Professor Steven White, too many initiatives are launched without an adequate understanding of this landscape. He proposes a framework for describing this landscape in order to understand the complex interactions that give rise to the problems, solutions and outcomes that we observe. He applies this framework to the case of a disappointing enterprise reform in China to show how the “right” reforms actually exacerbated the problems they were intended to resolve.

In business we often see the “right” measures introduced to the “wrong” landscape. This can explain, says Steven White, Professor of Asian Business and Comparative Management, why so many strategic initiatives fail. He introduces a framework for describing this landscape in order to understand the complex interactions that give rise to the problems, solutions and outcomes that we observe.

He then uses the framework to analyze the disappointing outcomes of enterprise reform at Ma’Anshan Iron and Steel in China, and shows how the “right” reforms actually exacerbated the problems they were intended to resolve.

White’s thesis is that we must look at both strategy and organizational behavior <i>together</i> in order to understand 1) how strategic initiatives emerge and 2) how their outcomes can differ so much from those that motivated the initiative in the first place. Rather than a simplistic linear cause-and-effect process (stimulus-response-outcome), he asserts that we must recognize the complex web of players (stakeholders) and structural elements that interact over time. This web is formed by the interactions of politics (stakeholders’ interests and power), external structures (regulations, laws, routines, procedures) and cognitive structures (values, beliefs, assumptions, identity).

The framework he proposes for studying phenomena related to reforms and other types of organizational or system-level change has four basic features:<OL>

<LI>It is an open systems model,

<LI>The system is comprised of stakeholders and structural elements (external and cognitive),

<LI>The interactions among stakeholders and structural elements generate system-level characteristics, and

<LI>System-level outcomes emerge from the complex interactions among stakeholders and structural elements.</LI></OL>

The case of Ma’Anshan Iron and Steel (“Magang”) is a cautionary tale illustrating that the results of a seemingly well-founded reform measure can fall far short of expectations. An abbreviated look at the situation finds that the stimulus for change is poor performance, the “textbook” response is to restructure and list Magang, and the unexpected outcome is further value destruction, with share price dropping to 10% of listing price.

Applying White’s construct to the scenario, we find a number of stakeholders with varying interests and levels of power. They include the radical reformers (within China and externally, i.e., IMF, World Bank) whose interest is to promote changes that move China closer to privatisation, but whose power is limited to influencing policy; the state-owned banks, which want to extend loans to low-risk enterprises and have control over release of loans subject to central government interventions; and the Magang employees, who wish to maintain their jobs and benefits and who have the right to demand employment and benefits based on socialist ideology.

Into this mix of stakeholders, says White, are the external structural elements (the fact that the enterprise is overstaffed, that there are no rules limiting government bureaucracies from levying fees and taxes on Magang, and that the enterprise has conflicting roles as manufacturer, profit-maker, employment agency, and welfare benefits provider) and cognitive elements (stock ownership must be reconciled with socialist ideals, the move from central planning requires a freeing of enterprise manager from constraints and government intervention in decision-making).

As White explains, the picture gets even more complex as the stakeholders and structural elements continually change throughout the “stimulus – response – outcome” continuum. Unfortunately, this complexity makes it difficult to manage or predict outcomes, says White, but the framework can be used as a basis for understanding why reform outcomes do not match intentions. It can also be used strategically by a particular stakeholder to identify key elements on which their interests depend.

INSEAD 2003

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