The EIRMA report makes no mention of the compatibility (or otherwise) between the technological opportunities open to the firms on the one hand and its organizational structure and strategic style on the other. Our view is that different kinds of technological opportunities require different kinds of strategies and structures if they are to be exploited effectively.
According to Chandier, large firms’ corporate headquarters have two functions- entrepreneurial promotion and administrative control.
Gould and Campbell identify three generic corporate strategic styles that each have a different balance between the entrepreneurial and administrative functions. Three strategic styles are appropriate for different types of technology and market:
Financial control strategies are reflected in a strong administrative monitoring function in corporate HQ, and an expectation of high, short term financial returns. Technological investments in knowledge building and strategic positioning will be neither understood nor encouraged but will concentrate instead on low risk incremental improvements in established businesses. A such this strategy style is suited to conglomerates in low technology industries. There will therefore be relatively little organic growth and in high tech industries many technology based opportunities that are missed rather than exploited.
Strategic planning strategies are reflected in strong central entrepreneurial direction who corporate HQ giving strong encouragement to investments in knowledge building and strategic positioning and taking a central role in deciding technological priorities and more generally of showing what Leonard Barton calls strategic intent. As such this strategic style is most appropriate for high tech focused and lumpy businesses, such as automobiles drugs and petroleum where experimentation is costly and customer markets are clearly defined.
Strategic control strategies also give high value to entrepreneurial technological investments but devolve the formulation and execution of strategies much more to the divisions and business units. Instead of exercising strategic intent, the HQ shows strategic recognition an reinforces successful entrepreneurial ventures emerging from the divisions which become separate divisions themselves. As such this style of strategy is best suited to high tech businesses with pervasive technologies, varied markets and relatively low costs of experimentation. Examples include 3M Corporation with its widespread application of adhesives and coatings, technologies and consumer electronic firms.
Mismatch between a firm’s strategic style and its core technology will inevitably cause instability and can have two causes. First, the imposition of a strong style of financial control in a sector where high technological investments – especially in knowledge building and strategic positioning are necessary for long term survival. Examples include GEC in the UK, which has progressively reduced its competence in electronic computers and moved out of high tech sectors with expanding opportunities and ITT in the USA. Neither GEC nor ITT exist in name today, but the lessons remain relevant.
Second, the changing nature of technological opportunities which require a changed strategic style for their effective exploitation. Contemporary examples include:
The chemical industry where the focus of technical change over the past 30 years has shifted from scale process innovations in bulk plastics and synthetic fibres to product innovation in drugs and other fine chemicals and smaller scale developments in specialty chemicals. This raises two questions for corporate strategy: (1) Are there still technological synergies between bulk and fine chemicals? If not, should the large chemicals demerge? (2) Is there organizational incompatibility between bulk chemicals requiring centralized strategic planning and specialty chemicals requiring decentralized strategic control?
The computer industry where technological change over the past 20 years has resulted in a revolutionary change from a market requiring the centralized style of strategic planning (selling large and lumpy main frame computers to large organizations) to one requiring the decentralized style of strategic control (selling a wide range of relatively cheap hardware and software products in a wide range of market applications). Thus, although IBM and other large firms had technological capacity to make the necessary transformation they did not succeed in making the matching changes in strategic style in the organization.
Source: Managing Innovation