(EN) The Evolution of Strategic Management—Before Strategic Management

Running a company is not easy. A lot of lean tools help you with the small details and fuel the continuous improvement process. However, you should not neglect the big picture. How do you make not only small or large operational changes (i.e., the tactics), but also actually use a strategy to win the war (i.e., to lead a company to success)? That is strategic management. This series of posts will look at how strategic management evolved over time, with particular focus on its use in manufacturing. And yes, Hoshin Kanri will (eventually) be part of this short post series.

What Is Strategic Management?

Strategic management is the continuous process of planning, monitoring, analyzing, and assessing all that is necessary for an organization to meet its goals and objectives.

For this, you first and foremost need to have goals. Where do you want your company to move? Next, you need to clearly understand where you are currently (i.e., your current state). Both the current state and the desired state should include quantitative (i.e., numeric and measurable) aspects, albeit qualitative goals are also still often used.

Knowing the current and desired future state allows you to plan how to actually get from “current” to “desired.” And having such a plan allows you to implement this plan.

Are we done? No, of course not. The last but also important step is to evaluate if your plan worked, and adjust or update your plan if it did not. This would be the highest level PDCA (Plan—Do—Check—Act) that you would have in a company.

Overall, strategic management allows you to be proactively in control of your company, deciding where to go and how… rather than merely being adrift in the crashing waves of the economy, hoping not to crash onto a reef on the way.

Before Strategic Management

For most of history, companies… or, more generally speaking, businesses were run with little regard to strategic management. Craftsman did what their masters did, and mostly just worked, hoping to make ends meet at the end. And, since everybody else did it the same way, it often did.

While bookkeeping and accounting was known for thousands of years, it was usually used to track items and money rather than to plan ahead. Modern double-entry bookkeeping, invented in Italy around the fourteenth century, similarly merely recorded the current state and was used for tactical understanding, but rarely for big-picture strategic decision-making.

Even large undertakings like the Arsenal of Venice, probably the most significant shipyard during the Middle Ages with 16 000 workers, were organized quite ad hoc. They did have bookkeeping and paperwork, but mostly to keep track of the material (much of which was stolen by the workers anyway).

Even scientifically oriented minds like the potter Josiah Wedgwood used his knowledge of modern scientific methods to optimize his glazes and improve the quality of his pottery, but much less so to optimize his company.

Sure, there were the occasional outstanding entrepreneurs who not only knew how to read, write, AND do math, but actually used it to plan their businesses, but they were far and between. One example I am aware of (and I am sure there are more, lost to history) was Matthew Robinson Boulton (1770–1842), son of famous Matthew Boulton (1728–1809) of the Boulton and Watts Soho manufactory steam engine partnership. When he expanded his inherited business to establish the Soho Foundry, he and his partners James Watt Jr. (1769–1848) and Gregory Watt (1777–1804) (both sons of James Watt, 1736–1819) carefully planned the enterprise in a back-then unimaginable level of detail.

They did extensive data mining, statistical analysis, and more to match the capacity of the foundry to the market demand. Most unusually for the time, they even had target speeds for their not-yet-even-installed machines. For us nowadays, having a target speed (i.e., a customer takt or a line takt) is standard. But back then it was revolutionary. The foundry was arranged strictly according to the material flow, and even the information flow was considered to provide each (not yet hired) worker with the information he needs. Hence, when the foundry was opened in 1796 in Smethwick, West Midlands, England, every detail was taken care of in this sophisticated planning process…

…except for one small, insignificant, tiny little detail: They had no actual experience in casting metal. Hence, their quality was actually quite bad, far below that of their competitors. But, here, too, they acted quite strategically… through industrial espionage of their competitors (especially the Round Foundry built by the partnership of Fenton, Murray, and Jackson in Leeds). They learned a lot of important details on sand for the casts, casting methods, and other process aspects, dramatically improving their own quality. Oh, and they shrewdly also bought up all the land around this aforementioned Round Foundry, giving their competitor a major headache when they wanted to expand their Round Foundry, only to find that there was no available land to expand into.

This level of analytics continued throughout the operation. For example, their cost accounting had no less than twenty-three different types of consumables for their candles and oil alone. Through time studies they not only measured the duration of the work, but (rare even nowadays) analyzed the fluctuations of these times! Overall, the Soho Foundry was extremely well organized and planned, which allowed them to also treat their workers well while making a decent profit, even after their steam engine patent expired in 1800.

But again, such levels of detail were far and between, and most factories were run with the foresight of a garage tinkerer.

In my next post I will look in more detail at stategic management up to World War II, before looking at the evolution of different methods like management by objectives (MBO), objectives by key-results (OKR), balanced scorecard, and (of course) Hoshin Kanri. But now, go out, understand where your company is now, decide where you want to be in the long term, plot a course in this direction, and organize your industry!