This post is another overview in preparation for my upcoming discussion on Sales Force Management.
The theory of Strategic Types originates from an attempt by Miles et al. (1978) to create a unifying theory on the ability of organisations to adapt. This theory was subsequently validated by multiple case studies and used to create a framework with two major elements:
- A general model of the ‘Process of Adaption’.
- A method for classifying organisations based on their approach to adaption.
Process of Adaption
The late 70′s and early 80′s saw Michael Porter’s theories on organisational strategy published, including his ubiquitous ‘Five Forces’ theory. This theory posits that the most important factor for a company to generate above average returns is the environment that it operates in.
In contrast a fragmented set of research based on the concept of strategic-choice argued that
“organizational behavior is only partially preordained by environmental conditions and that the choices which top managers make are the critical determinants of organizational structure and process” (Miles et al. 1978, p. 548).
Top managers have a wide range of choices available to them in directing and controlling a company. It was theorised that these choices are best categorised into three problems of adaption to competitive conditions:
- Entrepreneurial Problem
- Engineering Problem
- Administrative Problem
Entrepreneurial Problem
What product will the company supply and to whom will it be sold?
When creating a new company this is the first question that needs to be addressed. Once it is known what a company will produce and who its customers will be subsequent decisions are able to be answered within the context of that decision.
In established organisations the entrepreneurial problem becomes more complex. If a company needs to adapt to changing market conditions then, having previously decided on products and markets the company has a sunk cost which many managers struggle to discount. Additionally existing solutions to engineering and administrative problems may cause a change in product or market to be prohibitively expensive.
Engineering Problem
How will the company’s operations be organised?
The solution to this problem will address production, logistics and service design issues. A company that decides to change its approach to the market may need to change its capabilities.
If a company that has been focused on providing a cheap commodity product decides to enter a market that demands highly customised solutions then all of its engineering solutions may need to be adjusted to accomodate the required customiseation. This increased flexibility may then increase the cost of producing the commodity product.
In many organisations this change is also restricted due to organisational inertia and a reluctance to change ‘tried and true’ engineering solutions (Beinhocker 2006). Where a company has retained levels of flexibility in its processes that it no longer needs employees tend to be reluctant to removing that flexibility for more streamlined processes as they know the current solution works.
Administrative Problem
How can the company organisationally support the previous two solutions?
This is the problem of creating an administrative function that provides the stability employees need to perform while retaining a level of adaptability that will allow them to change with market demands.
This solution will vary depending on the company approach to the previous two problems. If a company is working to be highly cost-efficient (such as a mass manufacturer) then simple, stable, easily understood administrative practices will provide the necessary support while requiring minimal expenditure. If a company is in a highly dynamic industry however (such as professional services) then constantly ensuring that the knowledge and skills of employees meet customer requirements requires a significantly investment and more agile solution.
Strategic Types
Miles et al. (1978) identified four categories of approach to resolving the adaptive problems. The companies are then categorised by the ‘Strategic Types’ framework as being one of the following:
- Defender
- Prospector
- Analyser
- Reactor
Defender
A Defender is a company that, having gained control of a particular market concentrates on keeping it secure. The company is unlikely to spread into new areas unless compelled to by competition or changing customer requirements.
These companies will strongly defend their markets and tend to focus on efficiency in production and distribution to make it as difficult as possible for competitors to enter their space (Hamel & Prahalad 2005). These are best shown by commodity companies that keep their prices low enough that it is not feasible for competitors to enter their market.
Administration tends to be focused on supporting a highly controlled and efficient organisation. The support provides stability for concentrating on improving efficiency and reducing cost in all areas of the organisation (Miles et al. 1978).
Prospector
A Prospector is focused on the discovery and release of new products into existing and/or new markets. The company is generally highly dynamic, has a significant appetite for risk and is comfortable shedding existing products to remain fluid. A prospector tends to be hard to predict and strongly emphasises innovation and always being on the leading edge.
Miller & Friesen (1982) subsequently found that dynamic and hostile (i.e. competitive) environments tend to contain these highly innovative companies.
Operating in highly dynamic environments requires engineering processes to be adaptive and necessitates an avoidance of long-term commitments to specific processes.
Administration must support an organisational need for flexibility in staff. It is necessary not only for staff to be able to innovate but also for them to fail without sanction (which would then stifle the innovation).
Analyser
An Analyser attempts to balance the innovation of a Prospector with the efficiency of a Defender. If this is achieved then the company can become virtually unassailable in their market, a recent example of this would be Ikea with their innovative business model and low cost base. These organisations attempt to choose viable opportunities to exploit while maintaining strong products and loyal customers (Miles et al. 1978).
The engineering problem is addressed by keeping existing products and markets highly efficient. Distribution is strongly aligned to customer needs, while attempting to retain flexibility when dealing with new products and markets.
Administratively this type is highly challenging as the company must balance stable existing operations with dynamic new ones and the shift in emphasis as new operations mature.
Reactor
Reactors are the companies that are unable or unwilling to take a consistent approach. These organisations are characterised as lacking an understanding of strategy and are consumed with moving from one tactical solution to the next. Reactors tend to apply engineering and administrative solutions inconsistently causing inefficient structures that restrict flexibility.
Companies that operate as a Reactor tend to either develop into one of the other Strategic Types or go out of business (Miles et al. 1978).
References
Beinhocker, E 2006, ‘The adaptable corporation’, McKinsey Quarterly, no. 2, pp. 76-87.
Hamel, G & Prahalad, CK 2005, ‘Strategic Intent. (cover story)’, Harvard Business Review, vol. 83, no. 7/8, pp. 148-61.
Miles, RE & Snow, CC 1984, ‘Fit, Failure And The Hall of Fame’, California Management Review, vol. 26, no. 3, pp. 10-28.
Miles, RE, Snow, CC, Meyer, AD & Coleman, JHJ 1978, ‘Organizational Strategy, Structure, and Process’, Academy of Management Review, vol. 3, no. 3, pp. 546-62.
Miller, D & Friesen, PH 1978, ‘ARCHETYPES OF STRATEGY FORMULATION’, Management Science, vol. 24, no. 9, pp. 921-33.
—— 1982, ‘Innovation in Conservative and Entrepreneurial Firms: Two Models of Strategic Momentum’, Strategic Management Journal, vol. 3, no. 1, pp. 1-25.
Mintzberg, H 1973, ‘Strategy-Making in Three Modes’, California Management Review, vol. 16, no. 2, pp. 44-53.
O Reilly, C & Tushman, M 2004, ‘The ambidextrous organization’, Harvard Business Review, vol. 82, no. 4, pp. 74-83.
Porter, M 1980, Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press.
Slater, SF & Olson, EM 2000, ‘Strategy Type and Performance: The Influence of Sales Force Management’, Strategic Management Journal, vol. 21, no. 8, pp. 813-29.
Stalk, G, Evans, P & Shulman, LE 1992, ‘Competing on capabilities: The new rules of corporate strategy’, Harvard Business Review, vol. 70, no. 2, pp. 54-66.
