Excerpted from Barney, J.B. & Griffin, R.G. "The management of organizations: Strategy, structure, behavior." Houghton Mifflin, 1992.
Another example: Johnson & Johnson links decentralization with a prospector strategy. Each of the firm's different businesses is organized into a separate unit, and the managers of these units hold full decision-making responsibility and authority. Often, these businesses develop new products for new markets. As the new products develop, and sales grow, Johnson & Johnson reorganizes so that each new product is managed in a separate unit.
Rather than seeking new growth opportunities and innovation, an organization that follows a defender strategy concentrates on protecting its current markets, maintaining stable growth, and serving its current customers. BIC Corporation used defender strategies, despite its history as an innovative firm (the original BIC "crystal" and the BIC "biro" pen were significant innovations in the writing instruments industry). Since the late 1970's, with the maturity of the market for writing instruments, BIC has adopted a less aggressive, less entrepreneurial style of management and has chosen to defend its substantial market share in the industry. It has done this by emphasizing efficient manufacturing and customer satisfaction.
Another example: Often a firm implementing a prospector strategy will switch to a defender strategy. This happens when the firm successfully creates a new market or business and then attempts to protect its market from competition. Mrs. Fields Inc. was one of the first firms to introduce high quality, high-priced cookies. Mrs. Fields sold its product in special cookie stores and grew very rapidly. This success, however, encouraged numerous other companies to enter the market. Increased competition, plus reduced demand for high-priced cookies, has threatened Mrs. Fields's market position. To maintain its profitability, the firm has slowed its growth and is now focusing on making its current cookie operation more profitable.
An organization that follows an analyzer strategy both maintains market share and seeks to be innovative, although usually not as innovative as an organization that uses a prospector strategy. Most large companies fall into the third category, because they want both to protect their base of operations and to create new market opportunities. IBM uses analyzer strategies. Thousands of customers have purchased IBM computers over the last several decades. It is in IBM's interest to keep these customers satisfied and to introduce new products and services that update their computer facilities. Whenever IBM introduces a new computer system, for example, it develops procedures that help its customers to move from the older system to the new system. In this way IBM maintains its customer base. However, IBM also tries to create new markets. Its line of personal computers represents an effort to expand beyond its traditional base of mainframe computers.* IBM has also invested in biotechnology, superconductivity technology, and other projects which are very innovative.
* Instructor's note: What the author's fail to mention here is that analyzers largely pursue a "second-in" strategy and improve upon the product/service offerings of their competitors. IBM, therefore, did not innovate personal computers from scratch but, instead, imitated the innovations of small personal computer manufacturers such as Apple Computer.
Another example: As a major food products company, Proctor & Gamble (P&G) has established numerous name brand products, such as Crest toothpaste, Tide laundry detergent, and Sure deodorant. It is important for P&G to continue to invest in its successful products, in order to maintain financial performance. But P&G also needs to encourage the development of new products and brand names. In this way, it can continue to expand its market presence and have new products to replace those whose market falls off. Through these efforts P&G can continue to grow.
According to Miles and Snow, an organization that follows a reactor strategy has no consistent strategic approach; it drifts with environmental events, reacting to but failing to anticipate or influence those events. Not surprisingly, these organizations usually do not perform as well as organizations that implement prospector, defender, or analyzer strategies. Most organizations would probably deny using reactor strategies. However, International Harvester (IH) during the 1960s and 1970s followed this approach. At a time when IH's market for trucks, construction equipment, and agricultural equipment was booming, IH failed to invest in research and development, in improvements in manufacturing, or in improvements in distribution. By the time a recession cut demand for its products, it was too late for IH to respond, and the company lost millions of dollars. Indeed, at one time IH had the largest annual loss of any company in the history of the world. In the last ten years, IH has had to sell off virtually all of its businesses, except its truck manufacturing business. IH has moved from being a dominant firm in trucking, agriculture, and construction to a medium-sized truck manufacturer because it failed to anticipate changes in its environment.
Another example: During the 1970s and 1980s the Large Information Systems division of Honeywell seemed to follow a reactor strategy. As a relatively small manufacturer of mainframe computers, Honeywell sometimes tried to be very innovative in its research and development efforts and sometimes tried to reduce its costs as much as possible. Sometimes it focused on very innovative software, and sometimes it laid off hundreds of skilled workers. Not until Honeywell entered into joint ventures with some Japanese and European firms did it begin to focus its strategic efforts.
|Prospector||Is innovative and growth oriented, searches for new markets and new growth opportunities, encourages risk taking||3M|
|Defender||Protects current markets, maintains stable growth, serves current customers||BIC|
|Analyzer||Maintains current markets and current customer satisfaction with moderate emphasis on innovation||IBM|
|Reactor||No clear strategy, reacts to changes in the environment, drifts with events||International Harvester in the 1960s and 1970s, Joseph Schlitz Brewing Co., W.T. Grant|
Alignments of Strategy, Structure, and Technology
Excerpted from Miles, R.E. et al., "Organizational strategy, structure,
and process," Academy of Management Review, 1978, July, 546-562.
First to market Strategy
Solutions: Creating change in the industry, growth through product and market development, monitors wide range of environmental conditions and events.
Solutions: Tendency toward product structure with low division of labor
and a low degree of formalization; decentralized control and short-looped
horizontal information systems; complex coordination mechanisms and conflict
resolved through integrators.
Solutions: low degree of routinization and mechanization; technology embedded
Solutions: Low investment in research and development, combined with imitation
of demonstrably successful products; surveillance mechanisms mostly limited
to marketing, some research and development
Solutions: Loose matrix structure combining both functions and product
groups; moderately centralized control system with vertical and horizontal
feedback loops; some conflict resolution through product managers, some
through normal hierarchical channels.
Solutions: Stable and flexible technological components; influential applied
engineering group; moderate degree of technical rationality (technology can
never be completely effective or efficient)/
Seal off stable set of products & customers
Solutions: Focus on narrow and stable domain, aggressive maintenance of
domain (e.g., competitive pricing and excellent customer service); cautious
and incremental growth primarily through market penetration; some product
development but closely related to current goods and services.
Solutions: Tendency toward functional structure with extensive division
of labor and high degree of formalization; centralized control and long-looped
vertical information systems; simple coordination mechanisms and conflict
resolved through hierarchical channels.
Solutions: Cost-efficient technology; single core technology; continuous improvements in technology to maintain efficiency.