OR Tools for Use in Strategic Management

76 An Evaluation of MS/OR Tools for Use in Strategic Management D elw yn N C lark and John L Scott Departm ent o f M anagem ent Systems University o ...
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An Evaluation of MS/OR Tools for Use in Strategic Management D elw yn N C lark and John L Scott Departm ent o f M anagem ent Systems University o f W aikato

Abstract The application o f some specific MS/OR tools to support strategic decision making has been recently advocated. However, the areas within Strategic M anagem ent which are potentially suitable for MS/OR application have not been described in any detail. The contribution o f MS/OR modelling tools for strategic decision support is exam ined in this paper. To provide a fram ework for the analysis, the nature o f the Strategic Management process is considered, and the basic organisational and environm ental elem ents identified. A set o f 40 MS/OR techniques, tools and approaches is then evaluated by matching their capabilities with the requirem ents of the strategic tasks. This analysis identifies the potential strategic application areas for each o f the MS/OR tools and is part o f ongoing research in the area.

1.

Introduction

Strategic M anagem ent (SM) is concerned with developing and implementing strategies to improve the future prospects and performance o f an organisation. In a dynamic environm ent the Strategic M anagem ent tasks are complex, and yet vitally important for establishing direction and co-ordinating resources to maintain a com petitive advantage. There is a vast array o f techniques, tools and approaches which are available for managers to use in form ulating and im plem enting strategies. As many o f the tools are task-specific it is necessary to use a selection o f tools to cover all of the Strategic tasks. There have been some attempts to provide guidance for tool selection: Prescott and G rant [1] evaluated 21 competitive analysis techniques and W ebster, Reif and Bracker [2] published a M anager’s Guide for a set o f 30 Strategic Planning tools. However, a com parative strategic evaluation o f the modelling tools from the M anagem ent Science/Operations Research (MS/OR) discipline has not been performed, and this paper begins to serve that need. The application o f some specific MS/OR tools to support strategic decision making has been advocated by W agner [3], Kirkwood [4], Thornton [5] and Lootsma [6], Detailed papers have been written on some o f the tools such as goal program m ing (Batson, [7]), forecasting (Capon and Hulbert, [8]; [9]), and systems dynamics (M orecroft, [10]). W hile the strategic applications o f MS/OR tools have been reviewed recently (Clark, [11]), the areas within Strategic M anagem ent which are potentially suitable for MS/OR tool application have not been described in any detail.

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The purpose of this analysis is to evaluate a sample of MS/OR tools to identify the areas within Strategic M anagem ent where they can contribute. First, the nature o f the SM process will be explored, and the basic elem ents o f SM identified to provide a norm ative fram ework for the tool evaluation. The results o f the strategic evaluation o f the MS/OR tools will be described, and the paper will conclude with recom mendations for further research.

2.

Strategic M anagem ent Process

The essence o f Strategic M anagem ent within organisations revolves around determining appropriate answers to three fundamental questions: (1) W here are we now? (2) W here are we going? and (3) How do we get there? These questions provide the basic structure for a three phase SM process m odel which includes: (1) Situation Assessm ent, (2) Strategic Analysis, and (3) Implementation. The typical norm ative SM process model involves a series o f activities which are represented sequentially for ease o f com m unication, but which in practice will be overlapping and iterative. Although a sim plification, the process m odel provides a fram ework or structure for thinking through/understanding the nature and essential elem ents o f SM (Johnson and Scholes, [12]). A list o f the basic SM process tasks was developed (Hofer and Schendel, [13J; W heelen and Hunger, [14]; Pearce and Robinson, [15]), and these activities were then sub-divided according to the three phases. The partitioning o f the activities, which is simple and sequential, produces the following three phase SM process model:

Normative Model of Strategic M anagement Phase 1: Situation Assessment 1. Evaluation o f current position 2. Identification o f strategic issues

Where are we now?

Phase 2: 3. 4. 5.

Strategic Analysis Generation o f strategic alternatives Evaluation of strategic alternatives Selection o f a specific strategy

Where are we going?

Phase 3: 6. 7. 8.

Implementation H ow do we get there? Developm ent o f detailed plans to achieve the strategy Im plem entation o f the plans Review/m onitoring o f perform ance

This model o f the SM process will be used as a fram ework for evaluating a sample of MS/OR tools. For the Phase 1 assessment o f the current position it is necessary to evaluate all of the components o f the organisation, as well as the environm ental elem ents. These basic

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elem ents o f Strategic M anagem ent will be outlined in the next section as they will be included within the Situation A ssessm ent Phase of the analytical framework.

3.

Basic Elem ents o f Strategic M anagem ent

The basic elem ents o f Strategic M anagem ent include the features o f the organisation itself and its surrounding environm ental influences. Each are now considered. The organisational elem ents include both the tangible and intangible components o f the system. W heelen and Hunger [14] describe the internal organisational features as the trio of Structure, Culture and Resources. Bower [16] and W aterman [17] also include top m anagem ent’s leadership Style in their set o f components. W aterman, Peters and Phillips [17] add Strategy to the essential organisational elements. The Mission and Objectives of the organisation will also be included in this analysis (Hax and Majluf, [19]). Nine types of Resources have been identifed (W heelen and Hunger, [14]; Johnson and Scholes, [12]) including- adm inistrative systems, financial resources, hum an resources, information systems, intangible resources, m arketing/distribution, production/operations, physical resources, and research & developm ent. The environm ent includes the external factors which influence the operations o f the organisation directly or indirectly. It can be considered in two areas: (1) the factors in the imm ediate or Operating Environm ent (OE), and (2) the more general forces which have an im pact on the organisation, known as the Remote Environm ent (RE). The Operating Environm ent includes the industry, m arkets, com petitors, customers, suppliers and stakeholders which affect, or are affected by, the m ajor operations of the organisation. The Rem ote E nvironm ent includes the w ider factors such as econom ic, political, legal, social, and technological forces which may impact/impinge on the organisations operations (W heelen and Hunger, [14]; Johnson and Scholes, [12]). The capabilities o f the tools will be evaluated in terms o f these organisational and environm ental elem ents in the Phase 1 Situation Assessment.

4.

Strategic Evaluation o f the M S/OR Toolkit

A sam ple o f 40 M S/OR techniques, tools and approaches was selected for this analysis from the M S/OR literature. The principal source was the International Abstracts in Operations Research (IAOR) technique list, supplemented with tools from a previous literature analysis (Clark, [11]), and surveys, serials and texts. This toolkit contains both the traditional ‘hard’ techniques such as decision analysis and linear program m ing, and some o f the newer ‘soft’ approaches e.g. soft systems methodology, and strategic choice. It includes the newer technological tools o f spreadsheet modelling, decision support systems, and expert systems, as m any M S/OR practitioners are now involved with them (Carter, [20]). The strategic process m odel, as outlined, was used as a fram ework to evaluate the MS/OR tools. Each tool was studied and its contribution to each process step assessed and recorded in a matrix. The cumulative results will be now be presented for each o f the 3 SM phases. 4.1 Phase 1: Situation Assessment For the Situation Assessm ent phase the specific tools were analysed to see which o f the

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organisational and environm ental elements are usually included in their application. For the general tools, their potential contribution to each elem ent was considered. 4.1.1 Organisational Analysis Figure 1 shows the percentage o f the tools which are applicable for each of the organisational elements. In general more of the tools are applicable for the evaluation o f Resources than the other organisational elements. Six o f the Resource areas are able to be incorporated by at least 75% o f the tools. Furthermore the top three areas, which include the Physical (98%), Financial resources (95%), and Production/Operations (93%) reflect the traditional application areas of MS/OR.

Organisational elements

Figure 1

Situation Assessment: O rganisational Elem ents

At the other extreme, only 7 o f the tools (18%) include, or are applicable to, the organisational Culture, M anagement Style, or the Mission. Objectives are incorporated by 23% o f the tools, and the Structure by 33% o f the sample. The lowest Resource areas were the Intangibles, which are incorporated by 33% o f the tools, and Adm inistratative Systems which are able to be evaluated by 43% o f the sample. The average num ber o f the 15 organisational elem ents which are included by a tool is 8.3 which represents 55% of the set o f elements. Hovever, this cum ulative average sm ooths the effects o f both high and low results. Ten of the tools include 5 or fewer of the elem ents; by contrast, there were 15 tools (38%) which incorporate 10 or more o f the elem ents. Finally, the mode for the sample was 6 elements. These cumulative results show that the m ajor contribution o f the MS/OR tools in the Situation Assessment Organisational Analysis lies in the Resource evaluation area. The results for the individual MS/OR tools provide both a com parative evaluation o f the tools and a

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com prehensive assessment of their contribution to each of the basic organisational elements.

4.1.2 Environm ental Analysis Figure 2 shows the percentage o f the tools which are applicable to each o f the basic environm ental elem ents. In the Operating Environm ental (OE) area the aggregate results are alm ost uniform. Four of the OE areas (Industries, Com petitors, Customers and Suppliers) are able to be addressed by 55% o f the tools. The other two OE elements are close to this value, with Markets providing the upper limit of 60% (24 tools), and Stakeholders the lowest value of 45% (18 tools). 100 90V)

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Figure 2 Situation Assessment: Environm ental Analysis In the Remote Environm ental (RE) area, three of the five elem ents (Political issues, Legal and Social developm ents) are incorporated by 17 or 18 tools which represents 43-45% o f the sample. The other two RE elem ents are higher, with Econom ical forces at 60% (24 tools) and Technological issues able to be evaluated by 58% o f the sample. The cum ulative average of the Operating Environm ental elem ents incorporated by the tools is 54% and for the Remote Environm ental elem ents it is 50%. Sixteen o f the tools do not include any o f the OE elem ents, however 18 tools include all 6 OE elem ents. The result for the RE elem ents is very similar, with sixteen o f the tools not considering any o f the RE elem ents, and 17 tools including all 5 of the RE elements.

4.2 Phase 2: Strategic Analysis Each of the SM tools was evaluated in terms of the three Strategic Analysis phase activities: (1) generating options or alternative strategies, (2) evaluating the options, and (3) selecting

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the best strategy. The cumulative results for the whole sample are sum m arised in Figure 3. Thirty seven tools, which represents 93% of the sample, provide a m echanism for evaluating alternative strategies. Generation o f the strategic options is a feature of 22 tools (55%). However, the process of making the selection of the best strategy is found in only 10 tools. This is further evidence o f the support role provided by analytical tools. Ultim ately, the decisions are made by the people involved, combining their judgem ent with all o f the other inputs. All but one of the MS/OR tools have some involvem ent with the Strategic Analysis phase activities. Forty eight percent of the sample perform only 1 o f these activities; 10 tools (25%) perform 2 of these tasks, and a further 25% involve all 3 o f these strategic tasks.

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