CHAPTER 1 STRATEGIC MANAGEMENT 23

Strategy development and implementation – the emergent approach

Essentially, this takes a much more experimental view of the strategy choice and its implementation.
It seeks to learn by trial, experimentation and discussion as strategies are developed. There is no
final, agreed strategy but rather a series of experimental approaches that are considered by those
involved and then developed further. Strategies emerge during a process of crafting and testing.
There is therefore no clear distinction in the emergent approach between the two stages of devel-
oping the strategy and its implementation. Moreover, there is no need to identify a separate stage of
discussion involving the leadership, culture and organisation, since all these will occur inevitably
during the strategy development and implementation phase. Importantly, there is then a strong link
back to the earlier analytical phase, enabling changes in the environment and resources to be
reflected quickly in the adaptive, learning strategy. This is shown in Figure 1.8(b).
By definition, there can be no single view of a process that emerges within an organisation – each
one will be different. Figure 1.8(b) serves to indicate the circulatory nature of the decision-making
process according to this approach. There is no definitive emergent route.

KEY STRATEGIC PRINCIPLES

• There are two main approaches to strategic management development: the prescriptive approach
and the emergent approach. Each complements the other, and both are relevant to the strategy
process.
• The prescriptive approach takes the view that the three core elements are linked together
sequentially. The emergent approach regards the three core areas as being essentially interrelated.
• The two approaches can be used to develop models for the strategic management process.
However, it should be recognised that every model is a compromise and may not reflect all the
circumstances that exist in reality.

There are two areas of strategic management that deserve special strategies:
• public sector and not-for-profit strategies;
• international and global strategies.
The main areas are summarised on the free accompanying website. There is a more detailed discussion of each of the
topics in Chapters 14, 18 and 19, respectively.

CASE STUDY 1.3

Facebook’s strategy: where is the sustainable competitive advantage?

Over the nine years to 2013, Facebook’s strategy has built the world’s largest social networking site. But it is not so
clear whether the company had sustainable competitive advantages over its rivals. Perhaps that was why it made
three company acquisitions in 2013 and 2014?

Years of growth When it was decided to put Facebook on a commercial

Back in 2004, Mark Zuckerberg and some friends were footing around 2006, the company invited outside investment
Harvard University students writing computer programs to beyond the founders. Various venture capital companies took
provide a social network connecting their fellow students. shares to fund the company’s growth. These included Microsoft
The result was the first version of Facebook – free, lively which took a small share in return for exclusive priority for its
and popular. The service was so successful that it was first advertising. Mark himself became Chief Executive Officer and
extended to other US universities, then across the USA and some of his colleagues remained with the company in various
finally to other countries. By early 2013, it had become the positions. However, new people with more business experi-
world’s largest social networking site with over 1.2 billion ence were also recruited with the aim of ensuring that the
active users. business was profitable and soundly based.

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 24 PART 1 INTRODUCTION

impossible to copy. Moreover, Twitter with a different network

offering was coming up strongly with over 500 million regis-
tered users with revenues of $317 million, although Twitter
was still loss-making in 2013.
Nevertheless, advertisers began to see potential in social
networking in general and Facebook in particular. The reason
was that it allowed them to reach their target groups through
display advertising. By 2011, ‘brands are still flocking to
Facebook and its share of display advertising spending is rising
fast,’ according to the Financial Times.32 But all was not well in
the social networking business. MySpace was sold by News
Corporation in 2011 for around $30 million and Bebo was sold
by AOL for $10 million according again to the Financial Times.
Was Facebook really different? Did it have a competitive
Facebook was highly successful up to 2014, but will it advantage that would allow it to survive?
continue?
© AKP Photos/Alamy
Facebook’s competitive advantages?
In essence, Facebook was better at developing new services
By 2013, leading entrepreneurs were attracted to the fast- and re-aligning its offerings than its rivals. The main value of
growing, experimental nature of the business. They could see social networks comes not from the exchanges of geeky com-
substantial potential in Facebook. The outcome was a business puter experts but from a wide range of people exchanging
valued at a staggering $120 billion in 2013 on annual sales of their interests, opinions and ideas. But such networks have
around $3 billion. But did the company really possess assets a difficult history. ‘As long as social networks are growing
that would justify this valuation? and pulling in millions of new members . . . they have great
revenue potential. But when growth stalls, or even slows, they
Social networking customers and competitors tend to implode as the network effect goes into reverse. This
From its early beginnings, social networking began to capture has been the pattern since Friendster became the pioneer of
the imagination of many people. It provided a way of exchang- online social networking in 2002,’ according to John Gapper in
ing news, photos, events and contacts for anyone with an the Financial Times in 2011.33 There are risks inherent in social
internet connection. By 2010, it had taken over from search networking businesses that require careful strategy.
engines like Google and Bing and from entertainment sites like From a strategy perspective, what does Facebook have that
computer games as the main area of online activity. Essentially, other networks do not? Why is it better than other companies?
social networking is a much broader range of activity that What are its competitive advantages? The most obvious one
allows people to engage with each other in whatever way they is the size of its social network. In addition, it clearly has
choose. But it is essentially free, so Facebook only makes a some talented software engineers and managers that are able
profit from advertising and from links to commercial users to read the markets and put together new services that cus-
who support the site and seek new customers. tomers find attractive. But it does not have the killer, patented
Given the success of the format, there were a number of software application that has distinguished Google’s search
other social network providers. For example, in 2008 MySpace engine from its rivals.
had a larger user base in the USA than Facebook: 62 million Moreover, Facebook still faces new competitors. For example,
versus 31 million visitors, respectively. In the UK, Facebook Twitter – the network that allows instant brief comment on
was the leader by about 1 million customers over Bebo with anything – had 1.6 billion daily search hits by 2013. Google’s
MySpace third: 12, 11 and 9 million visitors, respectively. It was Buzz was also launched in 2010 but had not been successful at
this type of evidence that persuaded the world’s largest media the time of writing this case in 2014. Importantly, although
company, News Corporation, to acquire MySpace for $580 Twitter had 500 million registered users in 2013, it was making
million in 2008. Similarly, AOL acquired Bebo for $850 million a loss. Facebook was not the market leader in every country.
in the same year. QQ instant messaging service has at least 500 million active
Nevertheless, Facebook continued to innovate with new users in China and is highly effective (as the author of this case
interactive sections on uploading photos, the Wall (where can confirm from his time at Wuhan University in 2012). These
users can post messages), Pokes (which allows users to send a and other alternative networks suggest that it is relatively easy
virtual ‘poke’ to each other), the Marketplace (free classified to set up a social network: the barriers to entry are low. Such
ads) and other related areas. Facebook became market leader social networks have little competitive advantage beyond the
by 2010 as its main competitors failed to offer the same size of the networks themselves. This therefore raises the ques-
innovative and easy-to-use range of social network services. tion of the business model of a social network. How does
But none of the Facebook services was totally unique and Facebook generate its revenue and make a profit?

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 CHAPTER 1 STRATEGIC MANAGEMENT 25

Facebook’s business model 2 WhatsApp instant messaging service for $19 billion in 2013:
the new company claimed over 200 million active monthly
At the time of its public share offering, Facebook had annual
users.
revenues of nearly $2 billion. These had risen to $7.9 billion
by 2013. Its revenue was derived wholly from advertising by 3 Oculus virtual reality company for $2 billion in 2014: ‘Every
companies on its network. However, the Facebook business 10 or 15 years, there’s a major new computing platform,’
model is more complex than the model for a search engine explained Facebook founder Mark Zuckerberg. ‘To me, by
like Google. When someone undertakes a search on Google far the most exciting platform is around vision . . . It’s differ-
and then clicks onto a company, there is a way of automatic- ent from anything I’ve ever experienced in my life.’
ally registering whether the potential customer has migrated
Facebook still faces the task of monetising and developing
to a company website – the clickthrough rate in the jargon – on
these new ventures to preserve and enhance its business
which revenues and profits are then generated.
strategy.
Social networks are different. They do not exist to provide
product or service search and follow-up sales. They exist for
social purposes with advertising as a secondary reason for In April 2011, Facebook announced a new
looking at the site. Hence, the most successful advertising initiative with regard to custom-engineered
on Facebook has been where customers have been asked to technology designed to increase energy
help choose something on a company’s website: for example efficiency and lower costs. It is sharing this
Starbucks in the UK invited Facebook users to choose seasonal specification and best practice with
drinks in late 2010. This resulted in boosting sales by 15 per companies across the industry.
cent. But this lack of a direct connection between the advertis-
ing and the click makes it more difficult to put a value on social
© Copyright Richard Lynch 2015. All rights reserved. This case was written
network advertising and marketing. As a result, advertising is by Richard Lynch from published sources only.34
cheaper on social networks than search networks, but this
reduces the value and makes it more difficult to see whether
Case questions
there is much added value in the business of social networks.
Importantly, there is little loyalty to social networks beyond 1 What are the sustainable competitive advantages of
the network of friends and family held by the network. Thus Facebook? And where and how does it add value?
new users may decide to migrate to another network. Arguably, 2 Do you think Facebook’s strategy is sustainable over time?
it was for this reason that Facebook made three company What would you do next if you were responsible for
acquisitions between 2012 and 2014: Facebook?
1 Instagram photo sharing website for $1 billion in 2012: the 3 What lessons can other companies learn from recent
new company was reported to be growing faster than strategies? Would you invest in developing a new social
Facebook. network?

CRITICAL REFLECTION
The nature of strategic management
One of the main disputes in strategic management over the past 20 years concerns the differences
between prescriptive and emergent forms of strategy process. Companies argue that they need to have
a ‘strategic plan’ in order to plan ahead in terms of both the competitive environment – sales, customers,
new products and services – and of resources – finance and cash, people, factories. Some of these ele-
ments take years to develop and put into practice. A clear strategic plan is therefore essential and
involves a prescriptive process to strategy development.
Other companies have a more entrepreneurial and experimental approach to strategy.
It is important to sense what is happening in fast-changing markets and to be able to respond to this.
In addition, long-term strategic planning often turns out to be mistaken, with unintended outcomes. It
is better therefore to be more creative in strategy development and to take an emergent approach to the
process of strategy development.
What is your view? Which approach is better?
Or do both approaches have merit? If the latter is true, then how do you handle the differences of
approach inside a company?

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