STRATEGIC MANAGEMENT

STRATEGIC MANAGEMENT

STRATEGIC MANAGEMENT Classic Edition H. Igor Ansoff

Dorothy W. Ansoff, Trustee, Ansoff Family Trust 1979, 2007 Softcover reprint of the hardcover 1st edition 2007 978-0-230-52548-1 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First edition 1979 Reprinted 11 times This edition 2007 published by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin s Press, LLC and of Palgrave Macmillan Ltd. Macmillan is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 978-1-349-35765-9 DOI 10.1057/9780230590601 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 16 15 14 13 12 11 10 09 08 07 ISBN 978-0-230-59060-1 (ebook)

Contents List of Figures viii Foreword bygen-ichi Nakamura x Special Memorial Article: H. Igor Ansoff and Strategic Management Reflections from the Philosopher s Stone (Rick Ansoff ) 1 1. INTRODUCTION 9 State of Knowledge 9 Scope of this Book 10 Antecedents 13 2. THE OVERALL FRAMEWORK 16 Environment-Serving Organizations 16 The Work of ESOs 19 Multiple Power Centers 23 Overview ofthe Model 25 3. THE ENVIRONMENT IN A HISTORICAL PERSPECTIVE 29 The Industrial Revolution 29 The Mass-Production Era 30 The Mass-Marketing Era 31 Transition to the Post-Industrial Era 33 Environment of the Non-Profits 37 Major Trends 39 4. MODEL OF BUDGETING BEHAVIOR 44 Strategic Intensity 44 Environmental Dependence 47 Critical Mass 50 Budget Mix 52 5. MODEL OF ENVIRONMENTAL TURBULENCE 55 Predictability 55 Novelty of Change 59 Escalation of Turbulence 62 Evolution of Organizational Intelligence 65 v

vi Contents Scale of Turbulence 66 Strategic Thrust 72 Effect of the Rules of the Game 76 6. STRATEGIC CAPABILITY 80 Openness of Behavior 80 Managerial Capability 84 General Management Competence 85 Logistic Competence 92 Strategic Capacity 94 Dynamics of Strategic Capability 97 Model of Strategic Performance Potential 100 7. POWER 105 Evolution of Power Structure 105 Model of Power Dynamics 107 8. ASPIRATIONS AND CULTURE 115 Aspiration Behavior 115 Evolution and Institutionalization of Performance Aspirations 121 Culture and Behavior Aspirations 126 9. STRATEGIC LEADERSHIP 133 Patterns of Strategic Leadership 133 Legitimizing Leadership 139 Decision Leadership 142 Action Leadership 147 Behavior of Strategic Managers 148 Perception of the Environment 152 Communication of Expectations 156 10. MODEL OF STRATEGIC CHOICE 159 Action Potential and Influence Potential 159 Model of Performance Expectations 162 Model of Performance Aspirations 170 Choice of Strategic Thrust 177 11. TRANSITION BEHAVIOR 183 Lag Response to Environmental Change 183 Lead Response to Change 190 Strategic Surprise 194 Social Inertia 196 Strategic Drift 201

Contents vii 12. MODEL OF TRANSITION BEHAVIOR 204 Modes of Transition 204 Transition Triggers 207 Patterns of Transition 210 Summary Model of Transition Behavior 216 13. THE BASIC AXIOMS 224 Epistemology of Complexity 224 Key Axioms 231 References 234 Index 242

List of Figures F.l The development of Dr Ansoff s works xi F.2 The Ansoff mountains xii 2.1 Scope of the book 22 2.2 Model of ESO behavior 27 3.1 Speed of commercialization change 40 3.2 Speed of diffusion of change 41 3.3 Complexity of the environment 42 4.1 Distribution of stategic budgets in two industries 45 4.2 Differences in market dependence 49 4.3 Budgeting and critical mass 53 5.1 Evolution of knowledge about an environmental change 57 5.2 Predictability of change 58 5.3 Response time vs novelty vs early start of response 61 5.4 Shifting relation between predictability and novelty 63 5.5 Orbital analogy of turbulence 67 5.6 Scale of environmental turbulence in an industry 69 5.7 Levels of entrepreneurial turbulence 70 5.8 Levels of marketing turbulence 71 5.9 Types of strategic thrust 73 5.10 Turbulence and economic effectiveness 74 5.11 Economic effectiveness of business and non-profit industries 76 6.1 Levels of organizational openness 83 6.2 Profiles of general management competence 87 6.3 McNamara s impact on general management of the U.S. Defense Department 91 6.4 Attributes of logistic competence 93 6.5 Profiles of logistic competence 95 6.6 Alignment of ESO with environment 98 6.7 Competence effectiveness coefficients for strategic thrust 101 7.1 Model of power structure 109 7.2 Power structure and process 111 viii

List of Figures ix 8.1 Patterns of aspiration behavior 120 8.2 Range of aspiration behavior feasible under different power processes 124 8.3 Strategic culture 128 9.1 Changing participation in strategic decision 135 10.1 Map of past and future turbulence 163 10.2 Formation of expectations 164 10.3 Effect of strategic culture and management capability on perception of turbulence 166 10.4 Process of formation of expectations 169 10.5 Formation of performance aspirations 172 10.6 Choice of strategic thrust 178 10.7 Process of reconciliation of performance and behavior aspirations 182 11.1 Lag response to threat 185 11.2 Lead response to environmental change 191 11.3 Relation of social inertia to power and culture 197 12.1 Multidisciplinary description of behavior roles 205 12.2 Alignment of strategic behavior 207 12.3 Transition triggers 208 12.4 Patterns of transition behavior 211 12.5 Timing of response in stable and reactive cultures 213 12.6 Timing of response in anticipation/reactive cultures 215 12.7 Timing of response in exploring/creative cultures 217 12.8 Impact of environment, power, leadership, culture, on transition behavior 222

Foreword 1 THE FATHER OF STRATEGIC MANAGEMENT Symbolically enough, it was on the commemoration day of the French Revolution, July 14, 2002, that Dr Igor Ansoff, who had made revolutionary contributions to the two major disciplines of corporate strategy and strategic management, passed away at the age of eighty-three. Firstly, he is well known as the author of the pioneering and best-selling book, Corporate Strategy, published originally in 1965. 1 Secondly, the original publication, in 1979, of another groundbreaking masterpiece, Strategic Management, has led to him being highly acclaimed as the father of strategic management throughout the world. 2 THE DEVELOPMENT OF DR IGOR ANSOFF S WORKS As shown in Figure F.1, the development of Dr Ansoff s works, which may be safely called monumental ones, can be identified by the horizontal and vertical flows. The first flow is a horizontal one in terms of the scope of disciplines concerned: from corporate strategy/strategic planning to strategic management. It may be worthwhile for readers to know at the moment that the former is incorporated into the latter as one of its constituent elements. The second flow is a vertical one in terms of the orientation or emphasis of contents: from the orientation of highly sophisticated and enriching concepts to the emphasis on application to actual business practices. I also offer readers a panoramic view of the Ansoff Mountains as a metaphorical expression of Dr Ansoff s monumental works, as shown in Figure F.2. 3 PROFESSOR DAVID HUSSEY S CONTRIBUTION When we try to discuss Dr Ansoff s remarkable contributions to the discipline of strategic management, it is essential for us to refer to Professor David Hussey s article, Dr Ansoff s Continuing x

xi Strategic Planning The Discipline of Strategic Management Corporate Strategy (1965) 1965 Business Strategy (1969) 1970 1975 From Strategic Planning to Strategic Management (1976) 1980 Strategic Management (1979) horizontal development in terms of the disciplines concerned vertical development in terms of the enrichment of contents and/ or the enlargement of application 1985 Implanting Strategic Management (Original Version,1984) The New Corporate Strategy (1988) 1990 Implanting Strategic Management (Revised Version,1990) 1995 Figure 1 The Development of Dr Ansoff s Works : Disciplines and Major Books

xii Strategic Management (1979) Corporate Strategy (1965) The New Corporate Strategy (1988) Implanting Strategic Management (1990) (1984) From Strategic Planning to Strategic Management (1976) Strategy (1969) The Discipline of Corporate Strategy/Strategic Planning The Discipline of Strategic Management Figure 2 The Ansoff mountains: A Metaphor for Dr Ansoff s Monumental Works Note: The height of each mountain denotes proportionally my personal view of the abstraction/sophistication level of each conceptual framework.

Foreword xiii Contribution to Strategic Management. 2 Itischaracterized by his in-depth understanding of Dr Ansoff s professional works and personality. To the best of my knowledge, there is no literature which provides a better bird s-eye view of his pioneering works or a more relevant positioning of them in the whole context of business management than this article. Thus, I will try to limit myself to referring only to three points which Hussey has not discussed in his article. 4 THE THREE SALIENT FEATURES OF DR ANSOFF S APPROACH IN STRATEGIC MANAGEMENT Three salient features of Dr Ansoff s approach in Strategic Management can be identified in contemporary viewpoints: 1. A far-reaching and more global European view. His natural endowment coupled with his practical and academic experiences in Europe and the United States had allowed Dr Ansoff to develop a globally universal view or, to be more specific, a far-reaching and more global European view as opposed to a myopic and parochial, purely American, one. Hussey has elaborated this point from a different perspective in his article. 2. A hypothesis-verification approach. Dr Ansoff s basic attitude in this book is characterized by a hypothesis-verification approach which has been underpinned by his multidisciplinary approach to be described below. Hypotheses presented there, by definition, require verification of business realities during the last two and a half decades and, today, inthe following two respects. Firstly, as illustrated in Figure F.1, his conceptual framework originated in Strategic Management and it has been widely and deeply verified by a number and variety of doctoral dissertations as empirical research studies carried out under the guidance of Dr Ansoff and his successors at the former United States International University and the present Alliant International University in San Diego. Secondly, a better part of the constituent elements of his conceptual framework has been well observed in the actual business world, as well as its corporate environment, partly through the benchmarkings of distinguished firms (and this irrespective of their nationality, size or the nature of the business) and partly by readers experiences.

xiv Foreword 3. A multi-disciplinary approach. Dr Ansoff s background has also allowed him to develop a multi-disciplinary approach with a wide spectrum ranging from the natural sciences to social science in general and from philosophy, logic, mathematics, physics, psychology, economics, and complexity to business management in particular. 5 IGOR ANSOFF AS HUMANIST AS WELL AS SCIENTIST In connection with the publication in 1980 of the Japanese version of Strategic Management, I played a role of moderator for the 1981 Ansoff Strategic Management Seminars for Japanese Top Managers in Japan, sponsored jointly by three organizations. The following is from our first conversation, prior to the start of the first seminar: I.A.: Oh, you are Professor Gen-Ichi Nakamura. Gen-Ichi, how come you re so smart in translating this kind of a difficult book, the contents of which even the original author does not understand? G.N.: Thank you, Igor. It is presumably because I am more stupid than you are. Enjoying our first joke, we felt that we had touched each other s heartstrings. Thus, Igor s and my friendship started on a firstname basis from the very beginning. This example, drawn from many during the two decades of the 1980s and 1990s, may be sufficient to show that Igor was as much a humanist/humorist as he was a great scientist. He was the man. 6 MY RECOMMENDATION TO READERS Strategic Management, as the highest of the Ansoff Mountains, soaring to the sky and looking down on the other six, may appear to be difficult and tiresome for readers to climb at the outset. After some trial, however, I am sure that they will find their efforts most enjoyable, enriching and rewarding.

Foreword xv I wish each and every reader success!! GEN-ICHI NAKAMURA President, Japan Strategic Management Society Chief and Professor, Graduate School of Business Management, Shoh-In University Professor Emeritus, Teikyo University of Science and Technology NOTES 1 The revised version was published under the title of The New Corporate Strategy in 1988. 2 Journal of Strategic Change, Vol. 8, No. 7, November 1999, pp. 375 92 (1999).