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LECTURE 1: READINGSStrategic Renewal of Organizations – Agarwal & Helfat
Strategic renewal, although critical for the sustained success of organizations, has received relatively
little attention as distinct from the more general phenomenon of strategic change. Like all strategic
issues, strategic renewal presents both opportunities and challenges for organizations. In this article,
we first define the term “strategic renewal” and elaborate on important characteristics of this
phenomenon. We also bring to bear evidence that suggests that strategic renewal has a critical
impact not only on individual firms and industries but also on entire economies. We then provide an
in-depth example of a company that has successfully renewed itself more than once, namely, IBM.
Finally, we examine several different avenues for strategic renewal, involving both content and
process, and identify common themes among them.
We define “strategic” as “that which relates to the long-term prospects of the company and has a
critical influence on its success or failure.” In this definition, something is strategic if it relates to a
firm’s future prospects in a substantial way. In its broadest definition, the verb “change” means “to
make or become different”. Exactly what constitutes “refreshment” or “replacement” for a business
organization requires further explanation. 1) Refreshment does not imply restoration 2) it can be
partial or full 3) refreshment may extend beyond the original attribute in size or scope 4) firms can
undertake strategic refreshment through reconfiguration of current attributes 5) it can be useful in
the present but not in the future 6) it often connotes momentum. Based on these characteristics we
define strategic renewal as follows:
Strategic renewal includes the process, content, and outcome of refreshment or replacement of
attributes of an organization that have the potential to substantially affect its long-term prospects.
We distinguish between two basic types of strategic renewal: (i) discontinuous strategic
transformations and (ii) incremental renewal. Of these, discontinuous transformations tend to
receive the most attention in analyses of strategic renewal. Incremental strategic renewal, if
undertaken proactively, may enable firms to cope with changes in the external environment as they
take shape, and thereby reduce the need for a much larger and more difficult transformation later
on. Incremental strategic renewal may even enable the firm to shape the external environment to its
advantage. For example, by proactively introducing new generations of personal computer (PC) chips
on a regular basis, Intel created a barrier to new entry that enabled the firm to dominate its industry
for years. Strategic renewal applies not only to mature firms, but also to young firms. For example,
Intel was relatively young when it underwent a major strategic transformation, replacing the dynamic
random access memory (DRAM) semiconductor chip as its primary product with the microprocessor.
Franco et al. (2008) show that incumbents in existing markets are as likely as new entrants to identify
and pioneer new markets, and have a higher likelihood of survival. Similarly, Mitchell (1991) provides
evidence from the medical diagnostic imaging industry that incumbents who enter emerging
submarkets survive longer than new entrants, and have a higher long-term market share advantage.
In addition to the above primary impact of incumbents within a focal industry setting, there are two
enduring effects that are not fully acknowledged in studies that make the incumbent-entrant
distinction. First, entrants that destroy the status quo in an industry are often established firms
diversifying from other industries, rather than de novo entrants (E.g. ASML came from Philips).
Second, because strategy and organization studies typically focus on an organization’s own
,performance, they may underestimate the associated social and economic welfare consequences. In
a review of the growing literature on employee entrepreneurship, Agarwal et al. (2007) highlight the
“process of creative construction,” whereby strategic renewal investments made by established
organizations can also result in the creation of spinouts—new ventures founded by employees of
established firms.
Major transformations at IBM
IBM arguably has had a major impact on the U.S. economy over several decades. The company has
been a leading purveyor of business machines, computers, and information technology services—
businesses that have permeated many sectors of the economy and consume substantial
organizational resources. In recent years, IBM has transformed itself from a hardware-based
computing company with a substantial personal computer business into a business computing
services company.
Table 1 adapts the TOWS matrix (Weihrich 1982) to depict IBM’s transformation. As shown in Table
1, IBM’s success resulted from strategies that responded to the many environmental opportunities
and threats with adaptation and replacement of existing company attributes. For example, the
company had early knowledge of, and access to, the technology of electronic computing through
electronics research conducted for the U.S. government during World War II. Although electronic
computing technology was competence-destroying (Tushman and Anderson 1986), IBM combined its
early access to the new technology with proactive development of new capabilities in electronic
computing (Section II of Table 1). In doing so, IBM avoided the risk the obsolescence, and obtained a
significant early mover advantage (Section III of Table 1).
,As seen in Table 2, IBM has once again leveraged some of its historical strengths, including its
reputation for superior customer service, relationships with customers, and R&D expertise (Section I
of Table 2). This has enabled IBM to develop significant competitive strength against rivals and
reduce its reliance on more commoditized businesses such as software or hardware alone (Sections
III and IV of Table 2). Furthermore, as part of the transition, IBM identified key weaknesses within its
existing capabilities—for example, deficiencies in software and consulting expertise—and addressed
these through external development, such as the acquisitions of Rational Software and Price-
Waterhouse Coopers Consulting (Section II of Table 2). Also, as depicted in Section IV of Table 2, IBM
has sought to reshape organizational cognition toward the new thrust through significant efforts
championed by the CEO, Samuel J. Palmisano, and divestment of its core hard disk drive and personal
computer businesses (Lohr 2002; 2004a, b). Through its current championing of distributed
computing, IBM hopes to further leverage its historical and current emphasis on services.
Comparison table 1 and 2:
- Both transitions involved replacement of the company’s main business. These replacements
occurred because either a new technology or a changing competitive landscape threatened
to make IBM’s current business outdated.
- Because the replacements involved the company’s primary business, by definition they had a
critical effect on the long-term prospects of the company.
- These transformations involved replacing important attributes of the company’s strategy and
organization. Attributes that were replaced almost in their entirety included products (in the
case of the first transition), the base of technological knowledge (an intangible asset), and
organizational cognition regarding the nature of the company’s business. Other company
attributes were only partially replaced, and were adapted from their pre-existing form.
, Notably, we see the role of content as well as process in these analyses, for major transformations
and incremental renewal alike (see Table 3).
Conclusion
Strategic renewal has important consequences for the organizations involved, for the industries in
which they compete, and for entire economies. Nevertheless, strategic renewal often fails to receive
attention as a distinct phenomenon. This phenomenon goes beyond its most common conception as
discontinuous transformation, beyond its most common exemplar of technological change, and
beyond its most common application to processes of change.
Policy Gaming for Strategy and Change – Geurts, Duke & Vermeulen
This article summarizes the major insights collected in a retrospective comparative analysis of eight
strategic projects in which ‘policy gaming’ was the major methodology. Policy gaming uses gaming-
simulation to assist organizations in policy exploration, decision making and strategic change. The
process combines the rigor of systems analysis and simulation techniques with the creativity of
scenario building and the communicative power of role-play and structured group techniques.
Reality is simulated through the interaction of role players using non-formal symbols as well as
formal, computerized sub-models where necessary. The technique allows a group of participants to
engage in collective action in a safe environment to create and analyse the futures they want to
explore. It enables the players to pre-test strategic initiatives in a realistic environment.
Gaming/simulation proves an appropriate process for dealing with the increasing complexity of
organizational environments and the problems of communication within complex organizations and
their networks.
Over the last few decades, the formal strategy making approaches that once dominated the planning
departments of large firms have come under attack from reflective practitioners and management
scholars who have argued that rapidly changing environments require emerging and creative
strategies.
We will argue that policy gaming derives its strategic functions from two central features of this
methodology:
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