An organization may use different management or leadership styles to achieve its strategies and objectives. The three main approaches used may be top down, bottom up or the negotiated approach.
Top down or planning down approach
This refers to a centralized approach to management. The parent company is heavily involved in the strategic planning processes of its companies. The company will formulate the objectives and strategies. However, when it comes to the implementation and control, this is done by the company’s senior management. The management of the companies is given pre-specified objectives at the beginning of each financial year. The Chief Executive Officer and other senior officers are the dominant people in the organization. It is also known as a rationalistic form of strategy formulation because it is planned, systematic and centralized. In this approach, the leadership believes that they have the capability to formulate precise and clear objectives.
The resources of the company such as the human labor and financial resources can be structured or fitted to achieve the strategies that have been set. In this approach, the leadership is concerned with the optimum results of the organization as a whole. The needs or preferences of the individual business units are secondary to the leadership. In fact the leadership may decide to divest in some business units and invest in others in order to achieve higher results. Mumford and Morgeson (2007), identified different kinds of management styles. They propose that the management style is dependent on the degree of involvement of the head office or corporate centre in strategy formulation and the performance controls imposed by the corporate head. They identify the financial control approach as one of the top down styles of management. The parent company is involved in setting the budgetary goals and plans. It keeps monitoring the company’s performance for any variances, whether positive or negative thereof.
The company is given profit targets. The involvement in strategic management using this approach is limited. The management has to look for ways to ensure great financial performance. They will look at strategies of cost reduction, divesting unprofitable units, increase efficiency and effectiveness and seek out profitable ventures in the market place (Morden, 2007). Managers’ compensation may be tied to their financial performance of the company. This will cause a lot of pressure on the management to achieve short term profits. The managers who do not perform may end up losing their jobs. This approach is recommended for companies that are mature and not young. It creates a high pressure environment that may not be handled well by young companies. The paybacks should be relatively short-term for the approach to be successful. The approach should not be used where the firm seeks to build a competitive advantage in the long-term.
In the long-term, a company needs to develop its staff in terms of expertise and experience. There should also be a build-up of the knowledge and technological base of the company. The company should be aware of its core competencies and seek to develop them. The research and development section of the company should also be developed. Staff should be skilled in product development, innovation and market development. If the company seeks to have an international market, there needs to be brand and image management. A financial control approach may not be suitable for a company with the
mentioned long-term objectives. Due to the focus on short-term profits, there will be a cultural bias towards investing heavily in the growth of core competencies.
Bottom Up or Planning Up Approach.
In this approach, the individual business units come up with their strategies and objectives. It is known as the holding company style. This is where the parent company chooses to involve itself minimally in the planning activities of the subsidiaries. It simply acts the role of receiving cash and profit from the subsidiaries. The parent company rather sees its role as a catalyst, a facilitator of the whole process of strategy formulation and implementation. There are great advantages of using this management style. The individual business units are close to the environment and the customers.
The strategy formulation process is therefore opportunistic and logical. The business units make their strategies incrementally in that they can keep changing as the unit adapts to the environment. The unit is able to be flexible and highly adaptable. Secondly, the business unit can be opportunistic in the market. Opportunities can emerge in the business environment at any time and they are time-bound. Where the unit is controlled and can come up with its strategies, they can easily take steps to achieve higher market sales due to the change in the market conditions. The market environment is highly evolving or turbulent and the unit has freedom to make the rules. The unit management therefore have certain responsibilities such as to conduct their affairs with integrity, adhering to corporate values and acceptable financial performance.
The Negotiated or Negotiative Approach
In this approach, the individual business units and the head office have meetings
and come up with the strategies together. The strategies that the units will have is therefore dependent on a number of factors such as the negotiating skills of the parties, any power dynamics involved, the access of both parties to certain company and market and the leadership competencies of both parties.
The units may at times be able to negotiate for strategies regularly and thus have the ability to be flexible and adaptable. However, there are certain dangers involved in this approach. The more powerful forces may able to manipulate the situation and create strategies and objectives that are highly beneficial to them. The weaker or disadvantaged side will have to comply. The powerful side therefore is opportunistic.
Relation to Strategic Management
The strategic management or leadership style contributes to the success or failure of strategic management. In strategic management, certain skills are important. There needs to be visioning skills. The leadership has to specifically know their goal and objective for the company which has to be communicated to the rest of the organization. One of the most important skills is the ability of the leaders to scan the external market environment for any changes that present opportunities or threats to the organization. These skills can be identified as scanning skills.
The company needs to cushion itself from the threatening situations while take advantage of any emerging markets. This is a company that will survive in the highly competitive environment. The external environment is highly turbulent and dynamic. The strategic leader has to be able to deal with complexity. He has to deal effectively with so many factors affecting the organization in terms of the internal resources and the market
environment. He should have analytical skills to consider all the possible courses of actions and the pros and cons of each.
He should possess high appraisal skills. He can get involved in multiple scenario planning where he changes one of the aspects in the market environment and analyzes the effect of the change on the company. The process works on the mind of the managers not to have strict and unchangeable mental images on how the events may occur and the strategies the company can adopt. The challenge in strategic management is on handling emotional equity. How does the company handle the conservative bias in some leaders towards strategy formulation? Problems will always arise and the manager should process great problem solving skills (Mumford, & Morgeson, 2007).
How will the problems impact the organization and what kind of changes should the organization adopt. Strategic management is therefore about innovation and not some form of spiritual inertia. The company at the end of the day is interested in survival and thriving in the market place (Grant, 2003). There are companies that come up with sub-committees that debate certain processes in the company in light of the business environment. They come up with new strategies and plans and this helps in creating freedom for the units to do what works for them.
Personal Application and Experience of Management Styles and Strategic Management
Personally, I would try to combine both top up and bottom up management depending on the circumstances. For example, if I were the head of a bank, I will start by advocating for a top down or planning down approach. As the head, I will lead the head office in coming up with the strategic and financial objectives in terms of advances, high cost and low cost deposits for each of the branches of the bank. Any variances from the financial objectives are analyzed by the head office finance department. The management sets the objectives based on the past performance trends and the prevailing market conditions in the branch location. Nonetheless, I will also encourage bottom up management that encourages all staff members to contribute to the overall operation of the bank. This is meant to make the staff feel appreciated and empowered. Furthermore, they are more likely to become responsible, accountable and more committed to the accomplishment of the objectives of the firm since they are the ones who formulated them. This will also help them grow in their career by taking up more responsibilities and also developing key skills like leadership.
Looking at the concepts of strategic management and the skills required in a manager, the best management style will be the bottom up approach. This is because the managers have the freedom and flexibility they need to be creative, innovative and opportunistic of the emergent opportunities. If managers want to apply strategic management, they should adopt a style that enables this to happen.
Grant, R. (2003). Strategic Planning in a Turbulent Environment: Evidence from
the Oil Majors Strategic Management Journal, 24, 6, 491-517
Mumford, T., Campion, M. & Morgeson, F. (2007). The leadership skills
strataplex: Leadership skill requirements across organizational levels. The Leadership Quarterly, 18, 154–166
Tony Morden, T. (2007) Principles of Strategic Management. England: Ashgate