Changing the competitive strategy of a modern company (according to the theory of B. Karlof)

B. Karlof is a Swedish economist-practitioner engaged in the training of managers, and a researcher of modern competitive strategy. He outlined his ideas in the work “Business Strategy” (1989), which became widely known in the West and was translated into many languages of the world. The main thing in Karlof’s book is the rationale for the need to develop a fundamentally new competitive strategy for a modern company. Karlof notes that in the early 80s the period of the predominance of demand over supply ended … it was replaced by a period of oversupply, when managers began to require skills and knowledge that went far beyond the traditional ones. Therefore, it is necessary to abandon the technocratic style of thinking, focused only on the criteria of technical or economic rationality and ignoring human values. Karlof draws attention to the fact that that the concepts of business strategy that had developed in academic circles by the 70s and 80s have nothing to do with the modern everyday concerns of business people, which is evident in the discussions about strategies that are taking place around the world, and in the specialized literature. Therefore, there is a need to combine analytical approaches with business experience and creative activity of managers.

B. Karlof gives a comparative description of the traditional and new strategy and notes that for a long time the strategy was understood as effective resource management, and the basis of strategic thinking was the solution of problems of managing large volumes of material flows in large enterprises. Gradually, the time came when the serial product lost its attractiveness, so a new approach to the strategy became necessary, which should coordinate the tasks of effective use of the company’s resources with the changing needs of buyers of its products. Carlof compares traditional and new approaches to strategy in the following areas:

With the traditional approach, improving production efficiency was associated with lower costs and increasing scale. In modern conditions, this problem is often solved in the opposite way, reducing the scale of production and getting rid of inefficient industries. And the expansion of the scale of production in modern conditions, on the contrary, is accompanied by an increase in production costs, as it is associated with the release of new goods or access to new markets; Every modern firm usually combines both approaches to strategy. The change in the external environment makes it necessary to use a new approach, and traditionally the company’s management seeks to minimize risk and maintains a conservative attitude to the strategy, which threatens to lose competitiveness in the future; The traditional approach to strategy has focused on analytical work, and action management has focused on action.
Of secondary importance. Over time, an increasing share of the company’s success began to depend on the specific actions of managers and entrepreneurs. And this reduced in their minds the importance of theory, analytical work, which, according to Karlof, is a negative trend. “There is a danger of getting bogged down in the analysis, but it is no less dangerous to deny its necessity” [4 pp.174, 179]; Under the traditional approach, large production complexes, vertically integrated associations, in which market relations were replaced by planned ties, were considered effective. In modern conditions, market relations are more effective than planned ones, so intra-company deliveries are increasingly giving way to market transactions; With the traditional approach, strategy is the privilege of senior management, it relies on analysis and forecasts. With the modern approach, a strategic plan can become an obstacle, since it does not imply intellectual freedom and initiative. Karlof says that strategic planning is more suitable for accountants who compare results and goals. It needs to be replaced by strategic management, that is, a strategy based on the entrepreneurship of many managers; In the modern strategy, there are new requirements for the manager’s business qualities. The concept of business qualities now includes the ability to assess the structural factors of the company’s development and create new structures through the purchase and sale of individual divisions or companies, the ability to correctly assess the structure of market needs and identify those that this firm is able to satisfy better, the ability to maximize not only its own income, but also the benefits of the consumer, the ability to use new methods of labor motivation, etc .; With the traditional approach, the focus on portfolio strategy, i.e. the strategy of associations and enterprises, prevailed. It is focused on managing the resources of the association in the common interest. In the modern strategy, the control center moves to the enterprise level, the business strategy becomes predominant. Business strategy is a strategy of an economic unit that has a complete business cycle and independent entry into the market, aimed at acquiring and maintaining competitive advantages. Along with this, in modern conditions, the importance of the functional strategy, the strategy of individual services or divisions of the company is increasing. This strategy should be subordinated to the overall Mission of the company and its long-term goals, but, at the same time, it is relatively independent, associated with improving the efficiency of the function of this unit or service. Karlof emphasizes that the importance of the functions of individual services of the company may vary. So, in the 60s, the function of marketing was important, in the 70s – the departments of finance and personnel came to the fore, and in the 80s – the most important were the functions of information support [2 pp.93-95].