Managing Strategic Change

“Just as bad money has always driven out good, so the talented general manager, the person who makes a company go — is being overwhelmed by a flood of so-called professionals,’ textbook executives more interested in the form of management than the content, more concerned about defining and categorizing and quantifying the job, than in getting it done. . . . They have created false expectations and wasted untold man-hours by making a religion of formal long-range planning.”1 H. E. Wrapp, New York Times.

But is this truly a process in itself, capable of being managed? Or does it simply amount to applied intuition? Are there some conceptual structures, principles, or paradigms that are generally useful? Wrapp, Normann, Braybrooke, Lindblom, and Bennis have provided some macrostructures incorporating many important elements they have observed in strategic change situations.4 These studies and other contributions cited in this article offer important insights into the management of change in large organizations. But my data suggest that top managers in such enterprises develop their major strategies through processes which neither these studies nor more formal approaches to planning adequately explain. Managers consciously and proactively move forward incrementally:

• To improve the quality of information utilized in corporate strategic decisions.
• To cope with the varying lead times, pacing parameters, and sequencing needs of the “subsystems” through which such decisions tend to be made.
• To deal with the personal resistance and political pressures any important strategic change encounters.
• To build the organizational awareness, understanding, and psychological commitment needed for effective implementation.
• To decrease the uncertainty surrounding such decisions by allowing for interactive learning between the enterprise and its various impinging environments.
• To improve the quality of the strategic decisions themselves by (1) systematically involving those with most specific knowledge, (2) obtaining the participation of those who must carry out the decisions, and (3) avoiding premature momenta or closure which could lead the decision in improper directions.

How does one manage the complex incremental processes which can achieve these goals? The earlier articles structured certain key elements;5 these will not be repeated here. The following is perhaps the most articulate short statement on how executives proactively manage incrementalism in the development of corporate strategies:

Typically you start with general concerns, vaguely felt. Next you roll an issue around in your mind till you think you have a conclusion that makes sense for the company. You then go out and sort of post the idea without being too wedded to its details. You then start hearing the arguments pro and con, and some very good refinements of the idea usually emerge. Then you pull the idea in and put some resources together to study it so it can be put forward as more of a formal presentation. You wait for “stimuli occurrences” or “crises,” and launch pieces of the idea to help in these situations. But they lead toward your ultimate aim. You know where you want to get. You’d like to get there in six months. But it may take three years, or you may not get there. And when you do get there, you don’t know whether it was originally your own idea — or somebody else had reached the same conclusion before you and just got you on board for it. You never know. The president would follow the same basic process, but he could drive it much faster than an executive lower in the organization.6

Because of differences in organizational form, management style, or the content of individual decisions, no single paradigm can hold for all strategic decisions.7 However, very complex strategic decisions in my sample of large organizations tended to evoke certain kinds of broad process steps. These are briefly outlined below. While these process steps occur generally in the order presented, stages are by no means orderly or discrete. Executives do consciously manage individual steps proactively, but it is doubtful that any one person guides a major strategic change sequentially through all the steps. Developing most strategies requires numerous loops back to earlier stages as unexpected issues or new data dictate. Or decision times can become compressed and require short-circuiting leaps forward as crises occur.8 Nevertheless, certain patterns are clearly dominant in the successful management of strategic change in large organizations.

Creating Awareness and Commitment — Incrementally

Although many of the sample companies had elaborate formal environmental scanning procedures, most major strategic issues first emerged in vague or undefined terms, such as “organizational overlap,” “product proliferation,” “excessive exposure in one market,” or “lack of focus and motivation.”9 Some appeared as “inconsistencies” in internal action patterns or “anomalies” between the enterprise’s current posture and some perception of its future environment.10 Early signals may come from anywhere and may be difficult to distinguish from the background “noise” of ordinary communications. Crises, of course, announce themselves with strident urgency in operations control systems. But, if organizations wait until signals reach amplitudes high enough to be sensed by formal measurement systems, smooth, efficient transitions may be impossible.11

Need Sensing: Leading the Formal Information System

Effective change managers actively develop informal networks to get objective information — from other staff and line executives, workers, customers, board members, suppliers, politicians, technologists, educators, outside professionals, government groups, and so on — to sense possible needs for change. They purposely use these networks to short-circuit all the careful screens12 their organizations build up to “tell the top only what it wants to hear.” For example:

Peter McColough, chairman and CEO of Xerox, was active in many high-level political and charitable activities — from treasurer of the Democratic National Committee to chairman of the Urban League. In addition, he said, “I’ve tried to decentralize decision making. If something bothers me, I don’t rely on reports or what other executives may want to tell me. I’ll go down very deep into the organization, to certain issues and people, so I’ll have a feeling for what they think.” He refused to let his life be run by letters and memos. “Because I came up by that route, I know what a salesman can say. I also know that before I see [memos] they go through fifteen hands, and I know what that can do to them.”13

To avoid undercutting intermediate managers, such bypassing has to be limited to information gathering, with no implication that orders or approvals are given to lower levels. Properly handled, this practice actually improves formal communications and motivational systems as well. Line managers are less tempted to screen information and lower levels are flattered to be able “to talk to the very top.” Since people sift signals about threats and opportunities through perceptual screens defined by their own values, careful executives make sure their sensing networks include people who look at the world very differently than do those in the enterprise’s dominating culture. Effective executives consciously seek options and threat signals beyond the status quo. “If I’m not two to three years ahead of my organization, I’m not doing my job” was a common comment of such executives in the sample.

Amplifying Understanding and Awareness

In some cases executives quickly perceive the broad dimensions of needed change. But they still may seek amplifying data, wider executive understanding of issues, or greater organizational support before initiating action. Far from accepting the first satisfactory (satisficing) solution — as some have suggested they do — successful managers seem to consciously generate and consider a broad array of alternatives.14 Why? They want to stimulate and choose from the most creative solutions offered by the best minds in their organizations. They wish to have colleagues knowledgeable enough about issues to help them think through all the ramifications. They seek data and arguments sufficiently strong to dislodge preconceived ideas or blindly followed past practices. They do not want to be the prime supporters of losing ideas or to have their organizations slavishly adopt “the boss’s solution.” Nor do they want — through announcing decisions too early — to prematurely threaten existing power centers which could kill any changes aborning.

Even when executives do not have in mind specific solutions to emerging problems, they can still proactively guide actions in intuitively desired directions — by defining what issues staffs should investigate, by selecting principal investigators, and by controlling reporting processes. They can selectively “tap the collective wit” of their organizations, generating more awareness of critical issues and forcing initial thinking down to lower levels to achieve greater involvement. Yet they can also avoid irreconcilable opposition, emotional overcommitment,15 or organizational momenta beyond their control by regarding all proposals as “strictly advisory” at this early stage.

As issues are clarified and options are narrowed, executives may systematically alert ever wider audiences. They may first “shop” key ideas among trusted colleagues to test responses. Then they may commission a few studies to illuminate emerging alternatives, contingencies, or opportunities. But key players might still not be ready to change their past action patterns or even be able to investigate options creatively. Only when persuasive data are in hand and enough people are alerted and “on board” to make a particular solution work, might key executives finally commit themselves to it. Building awareness, concern, and interest to attention-getting levels is often a vital — and slowly achieved — step in the process of managing basic changes. For example:

In the early 1970s there was still a glut in world oil supplies. Nevertheless, analysts in the General Motors Chief Economist’s Office began to project a developing U.S. dependency on foreign oil and the likelihood of higher future oil prices. These concerns led the board in 1972 to create an ad hoc energy task force headed by David C. Collier, then treasurer, later head of GM of Canada and then of the Buick Division. Collier’s group included people from manufacturing, research, design, finance, industry-government relations, and the economics staff. After six months of research, in May of 1973 the task force went to the board with three conclusions: (1) there was a developing energy problem, (2) the government had no particular plan to deal with it, (3) energy costs would have a profound effect on GM’s business. Collier’s report created a good deal of discussion around the company in the ensuing months. “We were trying to get other people to think about the issue,” said Richard C. Gerstenberg, then chairman of GM.16

Changing Symbols: Building Credibility

As awareness of the need for change grows, managers often want to signal the organization that certain types of changes are coming, even if specific solutions are not in hand. Knowing they cannot communicate directly with the thousands who would carry out the strategy, some executives purposely undertake highly visible actions which wordlessly convey complex messages that could never be communicated as well — or as credibly — in verbal terms.17 Some use symbolic moves to preview or verify intended changes in direction. At other times, such moves confirm the intention of top management to back a thrust already partially begun — as Mr. McColough’s relocation of Xerox headquarters to Connecticut (away from the company’s Rochester reprographics base) underscored that company’s developing commitment to product diversification, organizational decentralization, and international operations. Organizations often need such symbolic moves — or decisions they regard as symbolic — to build credibility behind a new strategy. Without such actions even forceful verbiage might be interpreted as mere rhetoric. For example:

In GM’s downsizing decision engineers said that one of top management’s early decisions affected the credibility of the whole weight-reduction program. “Initially, we proposed a program using a lot of aluminum and substitute materials to meet the new ‘mass’ targets. But this would have meant a very high cost, and would have strained the suppliers’ aluminum capacity. However, when we presented this program to management, they said, ‘Okay, if necessary, we’ll do it.’ They didn’t back down. We began to understand then that they were dead serious. Feeling that the company would spend the money was critical to the success of the entire mass reduction effort.”18

Legitimizing New Viewpoints

Often before reaching specific strategic decisions, it is necessary to legitimize new options which have been acknowledged as possibilities, but which still entail an undue aura of uncertainty or concern. Because of their familiarity, older options are usually perceived as having lower risks (or potential costs) than newer alternatives. Therefore, top managers seeking change often consciously create forums and allow slack time for their organizations to talk through threatening issues, work out the implications of new solutions, or gain an improved information base that will permit new options to be evaluated objectively in comparison with more familiar alternatives.19 In many cases, strategic concepts which are at first strongly resisted gain acceptance and support simply by the passage of time, if executives do not exacerbate hostility by pushing them too fast from the top. For example:

When Joe Wilson thought Haloid Corporation should change its name to include Xerox, he first submitted a memorandum asking colleagues what they thought of the idea. They rejected it. Wilson then explained his concerns more fully, and his executives rejected the idea again. Finally Wilson formed a committee headed by Sol Linowitz, who had thought a separate Xerox subsidiary might be the best solution. As this committee deliberated, negotiations were under way with the Rank Organization and the term Rank-Xerox was commonly heard and Haloid-Xerox no longer seemed so strange. “And so,” according to John Dessauer, “a six-month delay having diluted most opposition, we of the committee agreed that the change to Haloid-Xerox might in the long run produce sound advantages.”20

Many top executives consciously plan for such “gestation periods” and often find that the strategic concept itself is made more effective by the resulting feedback.

Tactical Shifts and Partial Solutions

At this stage in the process guiding executives might share a fairly clear vision of the general directions for movement. But rarely does a total new corporate posture emerge full grown — like Minerva from the brow of Jupiter — from any one source. Instead, early resolutions are likely to be partial, tentative, or experimental.21 Beginning moves often appear as mere tactical adjustments in the enterprise’s existing posture. As such, they encounter little opposition, yet each partial solution adds momentum in new directions. Guiding executives try carefully to maintain the enterprise’s ongoing strengths while shifting its total posture incrementally — at the margin — toward new needs. Such executives themselves might not yet perceive the full nature of the strategic shifts they have begun. They can still experiment with partial new approaches and learn without risking the viability of the total enterprise. Their broad early steps can still legitimately lead to a variety of different success scenarios. Yet logic might dictate that they wait before committing themselves to a total new strategy22 As events unfurl, solutions to several interrelated problems might well flow together in a not-yet-perceived synthesis. For example:

In the early 1970s at General Motors there was a distinct awareness of a developing fuel economy ethic. General Motors executives said, “Our conclusions were really at the conversational level — that the big car trend was at an end. But we were not at all sure sufficient numbers of large car buyers were ready to move to dramatically lighter cars.” Nevertheless, GM did start concept studies that resulted in the Cadillac Seville.

When the oil crisis hit in fall 1973, the company responded in further increments, at first merely increasing production of its existing small car lines. Then as the crisis deepened, it added another partial solution, the subcompact “T car” — the Chevette — and accelerated the Seville’s development cycle. Next, as fuel economy appeared more saleable, executives set an initial target of removing 400 pounds from B–C bodies by 1977. As fuel economy pressures persisted and engineering feasibilities offered greater confidence, this target was increased to 800–1000 pounds (three mpg). No step by itself shifted the company’s total strategic posture until the full downsizing of all lines was announced. But each partial solution built confidence and commitment toward a new direction.

Broadening Political Support

Often these broad emerging strategic thrusts need expanded political support and understanding to achieve sufficient momentum to survive.23 Committees, task forces, and retreats tend to be favored mechanisms for accomplishing this. If carefully managed, these do not become the “garbage cans” of emerging ideas, as some observers have noted.24 By selecting the committee’s chairman, membership, timing, and agenda, guiding executives can largely influence and predict a desired outcome, and can force other executives toward a consensus. Such groups can be balanced to educate, evaluate, neutralize, or overwhelm opponents. They can be used to legitimize new options or to generate broad cohesion among diverse thrusts, or they can be narrowly focused to build momentum. Guiding executives can constantly maintain complete control over these “advisory processes” through their various influences and veto potentials. For example:

IBM’s Chairman Watson and Executive Vice President Learson had become concerned over what to do about: third generation computer technology, a proliferation of designs from various divisions, increasing costs of developing software, internal competition among their lines, and the needed breadth of line for the new computer applications they began to foresee. Step by step, they oversaw the killing of the company’s huge Stretch computer line (uneconomic), a proposed 8000 series of computers (incompatible software), and the prototype English Scamp Computer (duplicative). They then initiated a series of “strategic dialogues” with divisional executives to define a new strategy. But none came into place because of the parochial nature of divisional viewpoints.

Learson, therefore, set up the SPREAD Committee, representing every major segment of the company. Its twelve members included the most likely opponent of an integrated line (Haanstra), the people who had earlier suggested the 8000 and Scamp designs, and Learson’s handpicked lieutenant (Evans). When progress became “hellishly slow,” Haanstra was removed as chairman and Evans took over. Eventually the committee came forth with an integrating proposal for a single, compatible line of computers to blanket and open up the market for both scientific and business applications, with “standard interface” for peripheral equipment. At an all-day meeting of the fifty top executives of the company, the report was not received with enthusiasm, but there were no compelling objections. So Learson blessed the silence as consensus saying, “OK, we’ll do it” —i.e., go ahead with a major development program.25

In addition to facilitating smooth implementation, many managers reported that interactive consensus building processes also improve the quality of the strategic decisions themselves and help achieve positive and innovative assistance when things otherwise could go wrong.

Overcoming Opposition: “Zones of Indifference” and “No Lose” Situations

Executives of basically healthy companies in the sample realized that any attempt to introduce a new strategy would have to deal with the support its predecessor had. Barring a major crisis, a frontal attack on an old strategy could be regarded as an attack on those who espoused it — perhaps properly — and brought the enterprise to its present levels of success. There often exists a variety of legitimate views on what could and should be done in the new circumstances that a company faces. And wise executives do not want to alienate people who would otherwise be supporters. Consequently, they try to get key people behind their concepts whenever possible, to co-opt or neutralize serious opposition if necessary, or to find “zones of indifference” where the proposition would not be disastrously opposed.26 Most of all they seek “no lose” situations which will motivate all the important players toward a common goal. For example:

When James McFarland took over at General Mills from his power base in the Grocery Products Division, another serious contender for the top spot had been Louis B. “Bo” Polk, a very bright, aggressive young man who headed the corporation’s acquisition-diversification program. Both traditional lines and acquisitions groups wanted support for their activities and had high-level supporters. McFarland’s corporate-wide “goodness to greatness” conferences (described in earlier articles) first obtained broad agreement on growth goals and criteria for all areas.

Out of this and the related acquisition proposal process came two thrusts: (1) to expand — internally and through acquisitions — in food-related sectors and (2) to acquire new growth centers based on General Mills’s marketing skills. Although there was no formal statement, there was a strong feeling that the majority of resources should be used in food-related areas. But neither group was foreclosed, and no one could suggest the new management was vindictive. As it turned out, over the next five years about $450 million was invested in new businesses, and the majority were not closely related to foods. But such tactics do not always work. Successful executives surveyed tended to honor legitimate differences in viewpoints and noted that initial opponents often shaped new strategies in more effective directions and became supporters as new information became available. But strong-minded executives sometimes disagreed to the point where they had to be moved or stimulated to leave; timing could dictate very firm top-level decisions at key junctures. Barring crises, however, disciplinary steps usually occurred incrementally as individual executives’ attitudes and competencies emerged vis-à-vis a new strategy.

Structuring Flexibility: Buffers, Slacks, and Activists

Typically there are too many uncertainties in the total environment for managers to program or control all the events involved in effecting a major change in strategic direction. Logic dictates, therefore, that managers purposely design flexibility into their organizations and have resources ready to deploy incrementally as events demand. Planned flexibility requires: (1) proactive horizon scanning to identify the general nature and potential impact of opportunities and threats the firm is most likely to encounter, (2) creating sufficient resource buffers — or slacks — to respond effectively as events actually unfurl, (3) developing and positioning “credible activists” with a psychological commitment to move quickly and flexibly to exploit specific opportunities as they occur, and (4) shortening decision lines from such people (and key operating managers) to the top for the most rapid system response. These — rather than pre-capsuled (and shelved) programs to respond to stimuli which never quite occur as expected — are the keys to real contingency planning.

The concept of resource buffers requires special amplification. Quick access to resources is needed to cushion the impact of random events, to offset opponents’ sudden attacks, or to build momentum for new strategic shifts. Some examples will indicate the form these buffers may take.

For critical purchased items, General Motors maintained at least three suppliers, each with sufficient capacity to expand production should one of the others encounter a catastrophe. Thus, the company had expandable capacity with no fixed investment. Exxon set up its Exploration Group to purposely undertake the higher risks and longer-term investments necessary to search for oil in new areas, and thus to reduce the potential impact on Exxon if there were sudden unpredictable changes in the availability of Middle East oil. Instead of hoarding cash, Pillsbury and General Mills sold off unprofitable businesses and cleaned up their financial statements to improve their access to external capital sources for acquisitions. Such access in essence provided the protection of a cash buffer without its investment. IBM’s large R&D facility and its project team approach to development assured that it had a pool of people it could quickly shift among various projects to exploit interesting new technologies.

When such flexible response patterns are designed into the enterprise’s strategy, it is proactively ready to move on those thrusts — acquisitions, innovations, or resource explorations — which require incrementalism.

Systematic Waiting and Trial Concepts

The prepared strategist may have to wait for events, as Roosevelt awaited a trauma like Pearl Harbor. The availability of desired acquisitions or real estate might depend on a death, divorce, fiscal crisis, management change, or an erratic stock market break.27 Technological advances may have to await new knowledge, inventions, or lucky accidents. Despite otherwise complete preparations, a planned market entry might not be wise until new legislation, trade agreements, or competitive shake-outs occur. Organizational moves have to be timed to retirements, promotions, management failures, and so on. Very often the specific strategy adopted depends on the timing or sequence of such random events.28 For example:

Although Continental Group’s top executives had thoroughly discussed and investigated energy, natural resources, and insurance as possible “fourth legs” for the company, the major acquisition possibilities were so different that the strategic choice depended on the fit of particular candidates — e.g., Peabody Coal or Richmond Insurance — within these possible industries. The choice of one industry would have precluded the others. The sequence in which firms became available affected the final choice, and that choice itself greatly influenced the whole strategic posture of the company.

In many of the cases studied, strategists proactively launched trial concepts — Mr. McColough’s “architecture of information” (Xerox), Mr. Spoor’s “Super Box” (Pillsbury) — in order to generate options and concrete proposals. Usually these “trial balloons” were phrased in very broad terms. Without making a commitment to any specific solution, the executive can activate the organization’s creative abilities. This approach keeps the manager’s own options open until substantive alternatives can be evaluated against each other and against concrete current realities. It prevents practical line managers from rejecting a stategic shift, as they might if forced to compare a “paper option” against well-defined current needs. Such trial concepts give cohesion to the new strategy while enabling the company to take maximum advantage of the psychological and informational benefits of incrementalism.

Solidifying Progress — Incrementally

As events move forward, executives can more clearly perceive the specific directions in which their organizations should — and realistically can — move. They can seek more aggressive movement and commitment to their new perceptions, without undermining important ongoing activities or creating unnecessary reactions to their purposes. Until this point, new strategic goals might remain broad, relatively unrefined, or even unstated except as philosophic concepts. More specific dimensions might be incrementally announced as key pieces of information fall into place, specific unanswered issues approach resolution, or significant resources have to be formally committed.

Creating Pockets of Commitment

Early in this stage, guiding executives may need to actively implant support in the organization for new thrusts. They may encourage an array of exploratory projects for each of several possible options. Initial projects can be kept small, partial, or ad hoc, neither forming a comprehensive program nor seeming to be integrated into a cohesive strategy. Executives often provide stimulating goals, a proper climate for imaginative proposals, and flexible resource support, rather than being personally identified with specific projects. In this way they can achieve organizational involvement and early commitment without focusing attention on any one solution too soon or losing personal credibility if it fails.

Once under way, project teams on the more successful programs in the sample became ever more committed to their particular areas of exploration. They became pockets of support for new strategies deep within the organization. Yet, if necessary, top managers could delay until the last moment their final decisions blending individual projects into a total strategy. Thus, they were able to obtain the best possible match among the company’s technical abilities, its psychological commitments, and its changing market needs. By making final choices more effectively — as late as possible with better data, more conscientiously investigated options, and the expert critiques competitive projects allowed — these executives actually increased technical and market efficiencies of their enterprises, despite the apparent added costs of parallel efforts.29

In order to maintain their own objectivity and future flexibility, some executives choose to keep their own political profiles low as they build a new consensus. If they seem committed to a strategy too soon, they might discourage others from pursuing key issues which should be raised.30 By stimulating detailed investigations several levels down, top executives can seem detached yet still shape both progress and ultimate outcomes — by reviewing interim results and specifying the timing, format, and forums for the release of data. When reports come forward, these executives can stand above the battle and review proposals objectively, without being personally on the defensive for having committed themselves to a particular solution too soon. From this position they can more easily orchestrate a high-level consensus on a new strategic thrust. As an added benefit, negative decisions on proposals often come from a group consensus that top executives can simply confirm to lower levels, thereby preserving their personal veto for more crucial moments. In many well-made decisions people at all levels contribute to the generation, amplification, and interpretation of options and information to the extent that it is often difficult to say who really makes the decision.31

Focusing the Organization

In spite of their apparent detachment, top executives do focus their organizations on developing strategies at critical points in the process. While adhering to the rhetoric of specific goal setting, most executives are careful not to state new goals in concrete terms before they have built a consensus among key players. They fear that they will prematurely centralize the organization, preempt interesting options, provide a common focus for otherwise fragmented opposition, or cause the organization to act prematurely to carry out a specified commitment. Guiding executives may quietly shape the many alternatives flowing upward by using what Wrapp refers to as “a hidden hand.” Through their information networks they can encourage concepts they favor, let weakly supported options die through inaction, and establish hurdles or tests for strongly supported ideas with which they do not agree but which they do not wish to oppose openly.

Since opportunities for such focusing generally develop unexpectedly, the timing of key moves is often unpredictable. A crisis, a rash of reassignments, a reorganization, or a key appointment may allow an executive to focus attention on particular thrusts, add momentum to some, and perhaps quietly phase out others.32 Most managers surveyed seemed well aware of the notion that “if there are no other options, mine wins.” Without being Machiavellian, they did not want misdirected options to gain strong political momentum and later have to be terminated in an open bloodbath. They also did not want to send false signals that stimulated other segments of their organizations to make proposals in undesirable directions. They sensed very clearly that the patterns in which proposals are approved or denied will inevitably be perceived by lower echelons as precedents for developing future goals or policies.

Managing Coalitions

Power interactions among key players are important at this stage of solidifying progress. Each player has a different level of power determined by his or her information base, organizational position, and personal credibility33 Executives legitimately perceive problems or opportunities differently because of their particular values, experiences, and vantage points. They will promote the solutions they perceive as the best compromise for the total enterprise, for themselves, and for their particular units. In an organization with dispersed power, the key figure is the one who can manage coalitions.34 Since no one player has all the power, regardless of that individual’s skill or position, the action that occurs over time might differ greatly from the intentions of any of the players.35 Top executives try to sense whether support exists among important parties for specific aspects of an issue and try to get partial decisions and momenta going for those aspects. As “comfort levels” or political pressures within the top group rise in favor of specific decisions, the guiding executive might, within his or her concept of a more complete solution, seek — among the various features of different proposals — a balance that the most influential and credible parties can actively support. The result tends to be a stream of partial decisions on limited strategic issues made by constantly changing coalitions of the critical power centers.36 These decisions steadily evolve toward a broader consensus, acceptable to both the top executive and some “dominant coalition” among these centers.

As a partial consensus emerges, top executives might crystallize issues by stating some broad goals in more specific terms for internal consumption. Finally, when sufficient general acceptance exists and the timing is right, the goals may begin to appear in more public announcements. For example:

As General Mills divested several of its major divisions in the early 1960s, its annual reports began to refer to these as deliberate moves “to concentrate on the company’s strengths” and “to intensify General Mills’s efforts in the convenience foods field.” Such statements could not have been made until many of the actual divestitures were completed, and a sufficient consensus existed among the top executives to support the new corporate concept.

Formalizing Commitment by Empowering Champions

As each major strategic thrust comes into focus, top executives try to ensure that some individual or group feels responsible for its goals. If the thrust will project the enterprise in entirely new directions, executives often want more than mere accountability for its success — they want real commitment.37 A significantly new major thrust, concept, product, or problem solution frequently needs the nurturing hand of someone who genuinely identifies with it and whose future depends on its success. For example:

Once the divestiture program at General Mills was sufficiently under way, General Rawlings selected young “Bo” Polk to head up an acquisition program to use the cash generated. In this role Polk had nothing to lose. With strong senior management in the remaining consumer products divisions, the ambitious Polk would have had a long road to the top there. In acquisitions, he provided a small political target, only a $50,000 budget in a $500 million company. Yet he had high visibility and could build his own power base, if he were successful. With direct access to and the support of Rawlings, he would be protected through his early ventures. All he had to do was make sure his first few acquisitions were successful. As subsequent acquisitions succeeded, his power base could feed on itself — satisfying both Polk’s ego needs and the company’s strategic goals.

In some cases, top executives have to wait for champions to appear before committing resources to risky new strategies. They may immediately assign accountability for less dramatic plans by converting them into new missions for ongoing groups.

From this point on, the strategy process is familiar. The organization’s formal structure has to be adjusted to support the strategy.38 Commitment to the most important new thrusts has to be confirmed in formal plans. Detailed budgets, programs, controls, and reward systems have to reflect all planned strategic thrusts. Finally, the guiding executive has to see that recruiting and staffing plans are aligned with the new goals and that — when the situation permits — supporters and persistent opponents of intended new thrusts are assigned to appropriate positions.

Continuing the Dynamics by Eroding Consensus

The major strategic changes studied tended to take many years to accomplish. The process was continuous, often without any clear beginning or end.39 The decision process constantly molded and modified management’s concerns and concepts. Radical crusades became the new conventional wisdom, and over time totally new issues emerged. Participants or observers were often not aware of exactly when a particular decision had been made40 or when a subsequent consensus was created to supersede or modify it; the process of strategic change was continuous and dynamic. Several GM executives described the frequently imperceptible41 way in which many strategic decisions evolved:

We use an iterative process to make a series of tentative decisions on the way we think the market will go. As we get more data we modify these continuously. It is often difficult to say who decided something and when — or even who originated a decision … Strategy really evolves as a series of incremental steps … I frequently don’t know when a decision is made in General Motors. I don’t remember being in a committee meeting when things came to a vote. Usually someone will simply summarize a developing position. Everyone else either nods or states his particular terms of consensus.

A major strategic change in Xerox was characterized this way:

How was the overall organization decision made? I’ve often heard it said that after talking with a lot of people and having trouble with a number of decisions which were pending, Archie McCardell really reached his own conclusion and got Peter McColough’s backing on it. But it really didn’t happen quite that way. It was an absolutely evolutionary approach. It was a growing feeling. A number of people felt we ought to be moving toward some kind of matrix organization. We have always been a pretty democratic type of organization. In our culture you can’t come down with mandates or ultimatums from the top on major changes like this. You almost have to work these things through and let them grow and evolve, keep them on the table so people are thinking about them and talking about them.

Once the organization arrives at its new consensus, the guiding executive has to move immediately to insure that this new position does not become inflexible. In trying to build commitment to a new concept, individual executives often surround themselves with people who see the world in the same way. Such people can rapidly become systematic screens against other views. Effective executives therefore purposely continue the change process, constantly introducing new faces and stimuli at the top. They consciously begin to erode the very strategic thrusts they may have just created — a very difficult, but essential, psychological task.

Integration of Processes and of Interests

In the large enterprises observed, strategy formulation was a continuously evolving analytical-political consensus process with neither a finite beginning nor a definite end. It generally followed the sequence described above. Yet the total process was anything but linear. It was a groping, cyclical process that often circled back on itself, with frequent interruptions and delays. Pfiffner aptly describes the process of strategy formation as being “like fermentation in biochemistry, rather than an industrial assembly line.”42

Such incremental management processes are not abrogations of good management practice. Nor are they Machiavellian or consciously manipulative maneuvers. Instead, they represent an adaptation to the practical psychological and informational problems of getting a constantly changing group of people with diverse talents and interests to move together effectively in a continually dynamic environment. Much of the impelling force behind logical incrementalism comes from a desire to tap the talents and psychological drives of the whole organization, to create cohesion, and to generate identity with the emerging strategy. The remainder of that force results from the interactive nature of the random factors and lead times affecting the independent subsystems that compose any total strategy.

An Incremental — Not Piecemeal — Process

The total pattern of action, though highly incremental, is not piecemeal in well-managed organizations. It requires constant, conscious reassessment of the total organization, its capacities, and its needs as related to surrounding environments. It requires continual attempts by top managers to integrate these actions into an understandable, cohesive whole. How do top managers themselves describe the process? Mr. Estes, president of General Motors, said:

We try to give them the broad concepts we are trying to achieve. We operate through questioning and fact gathering. Strategy is a state of mind you go through. When you think about a little problem, your mind begins to think how it will affect all the different elements in the total situation. Once you have had all the jobs you need to qualify for this position, you can see the problem from a variety of viewpoints. But you don’t try to ram your conclusions down people’s throats. You try to persuade people what has to be done and provide confidence and leadership for them.

Formal-Analytical Techniques.

At each stage of strategy development, effective executives constantly try to visualize the new patterns that might exist among the emerging strategies of various subsystems. As each subsystem strategy becomes more apparent, both its executive team and top-level groups try to project its implications for the total enterprise and to stimulate queries, support, and feedback from those involved in related strategies. Perceptive top executives see that the various teams generating subsystem strategies have overlapping members. They require periodic updates and reviews before higher echelon groups that can bring a total corporate view to bear. They use formal planning processes to interrelate and evaluate the resources required, benefits sought, and risks undertaken vis-à-vis other elements of the enterprise’s overall strategy. Some use scenario techniques to help visualize potential impacts and relationships. Others utilize complex forecasting models to better understand the basic interactions among subsystems, the total enterprise, and the environment. Still others use specialized staffs, “devil’s advocates,” or “contention teams” to make sure that all important aspects of their strategies receive a thorough evaluation.

Power-Behavioral Aspects: Coalition Management.

All of the formal methodologies help, but the real integration of all the components in an enterprise’s total strategy eventually takes place only in the minds of high-level executives. Each executive may legitimately perceive the intended balance of goals and thrusts differently. Some of these differences may be openly expressed as issues to be resolved when new information becomes available. Some differences may remain unstated — hidden agendas to emerge at later dates. Others may be masked by accepting so broad a statement of intention that many different views are included in a seeming consensus, when a more specific statement might be divisive. Nevertheless, effective strategies do achieve a level of understanding and consensus sufficient to focus action.

Top executives deliberately manage the incremental processes within each subsystem to create the basis for consensus. They also manage the coalitions that lie at the heart of most controlled strategy developments.43 They recognize that they are at the confluence of innumerable pressures — from stockholders, environmentalists, government bodies, customers, suppliers, distributors, producing units, marketing groups, technologists, unions, special issue activists, individual employees, ambitious executives, and so on — and that knowledgeable people of goodwill can easily disagree on proper actions. In response to changing pressures and coalitions among these groups, the top management team constantly forms and reforms its own coalitions on various decisions.44

Most major strategic moves tend to assist some interests — and executives’ careers — at the expense of others. Consequently, each set of interests serves as a check on the others and thus helps maintain the breadth and balance of strategy.45 T o avoid significant errors some managers try to ensure that all important groups have representation at or access to the top.46 The guiding executive group may continuously adjust the number, power, or proximity of such access points in order to maintain a desired balance and focus.47 These delicate adjustments require constant negotiations and implied bargains within the leadership group. Balancing the forces that different interests exert on key decisions is perhaps the ultimate control top executives have in guiding and coordinating the formulation of their companies’ strategies.48

Establishing, Measuring, and Rewarding Key Thrusts

Few executives or management teams can keep all the dimensions of a complex evolving strategy in mind as they deal with the continuous flux of urgent issues. Consequently, effective strategic managers seek to identify a few central themes that can help to draw diverse efforts together in a common cause.49 Once identified, these themes help to maintain focus and consistency in the strategy. They make it easier to discuss and monitor proposed strategic thrusts. Ideally, these themes can be developed into a matrix of programs and goals, cutting across formal divisional lines and dominating the selection and ranking of projects within divisions. This matrix can, in turn, serve as the basis for performance measurement, control, and reward systems that ensure the intended strategy is properly implemented.

Unfortunately, few companies in the sample were able to implement such a complex planning and control system without creating undue rigidities. But all did utilize logical incrementalism to bring cohesion to the formal-analytical and power-behavioral processes needed to create effective strategies. Most used some approximation of the process sequence described above to form their strategies at both subsystem and overall corporate levels. A final summary example demonstrates how deliberate incrementalism can integrate the key elements in more traditional approaches to strategy formulation.

In the late 1970s a major nation’s largest bank named as its new president and CEO a man with a long and successful career, largely in domestic operating positions. The bank’s chairman had been a familiar figure on the international stage and was due to retire in three to five years. The new CEO, with the help of a few trusted colleagues, his chief planner, and a consultant, first tried to answer the questions: “If I look ahead seven to eight years to my retirement as CEO, what would I like to leave behind as the hallmarks of my leadership? What accomplishments would define my era as having been successful?” He chose the following as goals:

1. To be the country’s number one bank in profitability and size without sacrificing the quality of its assets or liabilities.
2. To be recognized as a major international bank.
3. To improve substantially the public image and employee perceptions of the bank.
4. To maintain progressive policies that prevent unionization.
5. To be viewed as a professional, well-managed bank with strong, planned management continuity.
6. To be clearly identified as the country’s most professional corporate finance bank, with a strong base within the country but with foreign and domestic operations growing in balance.
7. To have women in top management and to achieve full utilization of the bank’s female employees.
8. To have a tighter, smaller headquarters and a more rationalized, decentralized corporate structure.

The CEO brought back to the corporate offices the head of his overseas divisions to be COO and to be a member of the Executive Committee, which ran the company’s affairs. The CEO discussed his personal views concerning the bank’s future with this Committee and also with several of his group VPs. Then, to arrive at a cohesive set of corporate goals, the Executive Committee investigated the bank’s existing strengths and weaknesses (again with the assistance of consultants) and extrapolated its existing growth trends seven to eight years into the future. According to the results of this exercise, the bank’s foreseeable growth would require that:

1. The bank’s whole structure be reoriented to make it a much stronger force in international banking.
2. The bank decentralize operations much more than it ever had.
3. The bank find or develop at least 100 new top-level specialists and general managers with in a few years.
4. The bank reorganize around a “four bank” principle (international, commercial, investment, and retail banks) with entirely new linkages forged among these units.
5. These linkages and much of the bank’s new international thrust be built on its expertise in certain industries, which were the primary basis of its parent country’s international trade.
6. The bank’s profitability be improved across the board, especially in its diverse retail banking units.

To develop more detailed data for specific actions and to further develop consensus around needed moves, the CEO commissioned two consulting studies: one on the future of the bank’s home country and the other on changing trade patterns and relationships worldwide. As these studies became available, the CEO allowed an ever wider circle of top executives to critique the studies’ findings and to share their insights. Finally, the CEO and the Executive Committee were willing to draw up and agree to a statement of ten broad goals (parallel to the CEO’s original goals but enriched in flavor and detail). By then, some steps were already under way to implement specific goals (e.g., the four bank concept). But the CEO wanted further participation of his line officers in the formulation of the goals and in the strategic thrusts they represented across the whole bank. By now eighteen months had gone by, but there was widespread consensus within the top management group on major goals and directions.

The CEO then organized an international conference of some forty top officers of the bank and had a background document prepared for this meeting containing: (1) the broad goals agreed upon, (2) the ten major thrusts that the Executive Committee thought were necessary to meet these goals, (3) the key elements needed to back up each thrust, and (4) a summary of the national and economic analyses the thrusts were based upon. The forty executives had two full days to critique, question, improve, and clarify the ideas in this document. Small work groups of line executives reported their findings and concerns directly to the Executive Committee. At the end of the meeting, the Executive Committee tabled one of the major thrusts for further study, agreed to refined wording for some of the bank’s broad goals, and modified details of the major thrusts in line with expressed concerns.

The CEO announced that within three months each line officer would be expected to submit his own statement of how his unit would contribute to the major goals and thrusts agreed on. Once these unit goals were discussed and negotiated with the appropriate top executive group, the line officers would develop specific budgetary and nonbudgetary programs showing precisely how their units would carry out each of the major thrusts in the strategy. The COO was asked to develop measures both for all key elements of each unit’s fiscal performance and for performance against each agreed upon strategic thrust within each unit. As these plans came into place, it became clear that the old organization had to be aligned behind these new thrusts. The CEO had to substantially redefine the COO’s job, deal with some crucial internal political pressures, and place the next generation of top managers in the line positions supporting each major thrust. The total process from concept formulation to implementation of the control system was to span three to four years, with new goals and thrusts emerging flexibly as external events and opportunities developed.

Conclusion

In recent years, there has been an increasingly loud chorus of discontent about corporate strategic planning. Many managers are concerned that despite elaborate strategic planning systems, costly staffs for planning, and major commitments of their own time, their most elaborately analyzed strategies never get implemented. These executives and their companies generally have fallen into the trap of thinking about strategy formulation and implementation as separate, sequential processes. They rely on the awesome rationality of their formally derived strategies and the inherent power of their positions to cause their organizations to respond. When this does not occur, they become bewildered, if not frustrated and angry. Instead, successful managers in the companies observed acted logically and incrementally to improve the quality of information used in key decisions; to overcome the personal and political pressures resisting change; to deal with the varying lead times and sequencing problems in critical decisions; and to build the organizational awareness, understanding, and psychological commitment essential to effective strategies. By the time the strategies began to crystallize, pieces of them were already being implemented. Through the very processes they used to formulate their strategies, these executives had built sufficient organizational momentum and identity with the strategies to make them flow toward flexible and successful implementation.