IT Supporting Strategy Formulation

Background: Strategy Formulation, A Viable System Perspective

Strategy formulation aims at developing and selecting goals and plans securing the adaptation of the organization to its environment. These goals and plans may refer to specific product-market-technology combinations (PMCs) for which the organization hypothesizes that they ensure a stable relation with its environment. The process of strategy formulation needs to generate such goals and plans, needs to reflect upon their appropriateness, and needs to select certain goals and plans to guide the behavior of the organization. This is a continuous process. Goals and plans can be seen as hypotheses about what will work as a means to adapt and survive. Therefore, they should be monitored constantly and revised if necessary. In short, strategy formulation is a continuous contribution to maintaining organizational viability.

Although many authors deal with the process of strategy formulation, we choose the viable system model of Beer (1979, 1981, 1985) to define this process more closely. We select the VSM because Beer explicitly unfolds the functions required for the viable realization and adaptation of an organization’s strategy.

To explain what these functions entail, it is useful to divide them into two groups: functions contributing to the realization of the organization’s strategy and functions contributing to its adaptation.

The first group deals with the realization of the organization’s strategy. It consists of three functions. Function 1 comprises the organization’s primary activities constituting its “raison d’être” (Espejo, Schumann, Schwaninger, & Billello, 1996, p. 110). Function 2 (coordination) coordinates interdependencies between these primary activities. The third function is called the control function. It ensures the synergy of and cohesion between the primary activities by specifying their goals and controlling their performance.

To illustrate these functions, consider Energeco, a company servicing its environment with eco-energy. Function 1 of Energeco consists of three primary activities: supplying solar, tidal, and wind energy. To give an example of the coordination function, suppose that specialists in high-voltage energy are a shared resource between Energeco’s business units. Also suppose that there is no coordination between these business units. In this case, the allocation of high-voltage specialists to a project in the business unit Solar Energy may require a revision of the allocation of these same specialists to a project in the business unit Wind Energy. Without a function supporting the coordination of these interdependencies, the business units Solar Energy and Wind Energy may become entangled in a process that oscillates between allocating and revising the allocation of these specialists to projects. It is the task of Function 2 to coordinate these interdependencies. The control function’s task is to translate the identity and mission of the viable system (for Energeco, supplying eco-energy) into goals for the primary activities (in this example, supplying wind, solar, and tidal energy) and to control the realization of these goals.