miles and snow article by ghoshal
TRANSCRIPT
Miles and Snow: Enduringinsights for managers
Academic Commentary by Sumantra Ghoshal
The Academy of Management Executive exists toserve as a bridge between management academ-ics and business practitioners. In this brief com-mentary, I suggest that the framework ProfessorsRaymond Miles and Charles Snow (M&S, in futurereferences) presented in Organizational Strategy,Structure, and Process (OSSP in future references)remains even today, twenty-five years after publi-cation, one of the most comprehensive, insightful,and useful ways for senior managers to under-stand and respond to the challenges they face intheir own organizations. Yet, few of today’s man-agers, I suspect, are actually familiar with thisframework. So, in this commentary, I summarizewhat I see as the most managerially relevant ar-guments of the book and illustrate them with therecent experiences of one company—Sony. M&Sinduced the framework from their study of a num-ber of mostly small, local American organizationsin the 1970s. By demonstrating the power of thatframework in illuminating the challenges and re-sponses of a large, global Japanese company inthe 2000s, I wish to establish the enduring andbroad relevance of this seminal contribution and togenerate awareness of and interest in this bookamong today’s practitioners.
The Adaptive Cycle
The basic proposition in OSSP is that successfulcompanies need to develop consistency amongtheir strategy, the business model they adopt, in-cluding the choice of technology, and their organi-zational capability, including human resourcepractices. What is interesting is that M&S pro-posed this model well before the better known 7-Ssmodel (Strategy, Structure, Systems, Staff, Skills,Style and Shared values) was published by Rich-ard Pascale and Anthony Athos (1981) in their fa-mous book The Art of Japanese Management, andby Tom Peters and Robert H. Waterman (1982) intheir even more famous In Search of Excellence.1Also, the basic framing of the problem in OSSP is
not a static analysis of fit but rather the dynamicproblem of adaptation. How do organizationsadapt to changing environments? Why do adap-tive failures occur? These were the starting ques-tions for M&S.
How do organizations adapt to changingenvironments? Why do adaptive failuresoccur? These were the starting questionsfor M&S.
They saw the adaptive process as consisting ofthree sets of problems that a company has to solvein a mutually consistent way (see Figure 1). Thefirst is what they described as the entrepreneurialproblem, focused on the choice of product-marketsthat the company would serve. In an establishedcompany, this choice is constrained by the existingactivities of the firm: Should it remain within itshistorical domain, or should it venture out to ex-ploit new opportunities that may lie outside thatdomain?
Let me illustrate the nature of the problemthrough the recent experiences of Sony. In the sec-ond half of the 1990s, this much-admired Japaneseconsumer electronics company was facing pre-cisely this problem in an acute way. Historically,Sony has been a producer of analogue-technology-based, stand-alone audio and video products.These markets were becoming increasingly profit-starved because of low-cost competition from Ko-rean chaebols such as Samsung and the LG Groupas well as increasing commoditization.
At the same time, the market itself was chang-ing. The evolution of digital technologies was driv-ing a convergence between consumer electronics,information technology, and media businesses.Consumers increasingly demanded an integratedoffering in which they could combine music andmovie software from the Internet with their audioand video equipment, and access the entire enter-
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109
tainment package through their laptops, mobilephones, PDAs, or game machines.
How could Sony respond to these new chal-lenges and opportunities? It was clear to the com-pany that the main gateway to the Internet was thepersonal computer and it was on the PC that thisintegration would occur, at least initially. Sony didnot produce or market a PC. It had tried to enter themarket on two earlier occasions and had failedabysmally. Sony excelled in creativity—“in givingcustomers products they could not imagine.” Con-strained by Wintel standards and already com-moditized and subject to intense price competition,the PC was not “Sony-like.”
M&S wrote: “The entrepreneurial function re-mains a top-management responsibility.” This isprecisely what occurred at Sony. Its incoming CEO,Nobuyuki Idei, declared “regeneration” as the newmanagement theme and put VAIO—Video AudioIntegrated Operations (but also, symbolically, anintegration of analogue technology reflected in thewave of VA and of digital technology in the IO)—as
the new entrepreneurial domain of the company.He articulated a new vision of the PC, beyond anefficiency tool to an entertainment gateway, onwhich all of Sony’s product and service offeringscould be integrated. The company’s successfulnew VAIO computers are a part of its response tothe entrepreneurial problem.
The second problem in the adaptation process iswhat M&S described as the engineering problem,involving “the creation of a system which puts intoactual operation management’s solution to the en-trepreneurial problem.” In other words, the com-pany has to select an appropriate business modelincluding a choice of technology. Anticipating themuch richer description and analysis of the prob-lem by, among others, Clayton Christensen in hisbook The Innovator’s Dilemma,2 M&S highlightedthe tensions that are created because of potentialconflicts between the business model necessaryfor successfully implementing an innovation andthe company’s existing business model.
Once again, let me illustrate this problem in the
FIGURE 1The Adaptive Cycle
Reproduced with permission from Figure 2.1, p. 24, of R.E. Miles and C.C. Snow, Organizational Strategy, Structure, and Process.Stanford: Stanford University Press, 2003. A Stanford Business Classic.
110 NovemberAcademy of Management Executive
context of Sony’s very contemporary adaptationchallenge. Consider, first, the issue of technologyand product design. If the VAIO personal computerhad to integrate all of Sony’s existing audio andvideo products, then it had to have a communica-tion link—preferably wireless—with those prod-ucts. Yet, the inclusion of any such linking devicewould make the stand-alone product, say a cam-corder, less attractive because of the unavoidableincrease in size. With miniaturization as its corecompetence and key source of competitive differ-entiation, this was a very real conflict and a keyreason why Sony’s divisional managers were ini-tially extremely reluctant to proceed with the VAIOstrategy.
Similarly, Sony’s historical product developmentprocess was also inappropriate for creating a newPC. Sony prided itself in creating breakthroughproducts such as the Walkman, which consumerscould not imagine. Therefore, product developmentwas purely technology and engineering driven,with little attention to customer needs. For the PC,however, such a customer-divorced approach toproduct development would have been disastrous.The logistics chain presented another source ofconflict. PCs have a far shorter life cycle than tele-vision sets or DVD players. So, Sony’s historicaltwo-step distribution process with substantial in-ventories would not work in the PC business wherethe need was for a system that would yield close tozero inventories.
Sony’s resolution of the engineering problem hasbeen remarkably close to how M&S suggested thatit be solved. The company developed some com-pletely new technological devices, including thememory stick and the iLink to create the necessaryconnectivity. It created a completely different prod-uct-development and logistics system for the newbusiness. And these, as suggested by M&S, wereboth the causes and the consequences of thechanges it had to make to the administrative sys-tem—the third of the three components of the over-all adaptation challenge.
The administrative problem relates to the struc-ture and processes of the organization: how tobuild the organizational arrangements necessaryto efficiently implement existing activities withoutjeopardizing the company’s ability to create newactivities in response to evolving market demands.Here again, anticipating much of the subsequentelaboration, such as by Michael Tushman andCharles O’Reilly in their description of the “ambi-dextrous organization,”3 M&S clearly highlightedthe need for organization design with these twooften conflicting objectives in mind: the goal ofstimulating innovations and of efficiently rational-
izing and administering the established busi-nesses.
Back to Sony. Perhaps the greatest challenge ofthe company lay in precisely this administrativecomponent of the adaptation process. Historically,the Sony organization was fragmented into highlyautonomous product divisions that carried full re-sponsibility for all aspects of the business for theirallocated products: from research and new productdevelopment through manufacturing and logisticsto marketing and customer service. While this or-ganization facilitated innovation within the sepa-rate product categories, it was unsuitable for man-aging the more integrated business envisioned bySony CEO Idei.
The solution to the problem adopted by Sonyentirely matches the solution hinted at in OSSPand developed in greater detail by M&S in theirsubsequent work.4 Essentially, the company built aversion of the network organization in which theback-end of production and logistics activities wasconsolidated across all the different product divi-sions into Sony Engineering, Manufacturing, andCustomer Service (EMCS), enabling efficiency andproductivity gains in the existing businesses,while the front-end units were regrouped into a setof “solutions” organizations that actively developthe new, integrated, network-based offerings.
Categorization Based on the Adaptive Process
Perhaps the most enduring and insightful contri-bution of M&S lies in their developing a categori-zation scheme for organizations based on how theyrespond to the adaptive challenge. In contrast tomost work on strategic and organizational “arche-types” that tend to be grounded in static analysisof organizational snapshots, M&S’s scheme isbased on a view of organizations as “integratedwholes in dynamic interaction with their environ-ments.”
Perhaps the most enduring and insightfulcontribution of M&S lies in theirdeveloping a categorization scheme fororganizations based on how they respondto the adaptive challenge.
Basically, they argued that organizations cancreate the coherence in their strategy, structure,and processes that is needed for effective adapta-tion in some distinct ways. While theoretically avery large number of different permutations andcombinations of the different dimensions was pos-
2003 111Ghoshal
Tabl
e1
The
Four
Org
aniz
atio
nal
Arc
hety
pes
Def
ende
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ctor
Ana
lyze
rR
eact
or
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trep
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euri
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m•
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use
da
nd
na
rrow
ma
rket
seg
men
t•
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envi
ron
men
tsc
an
nin
g•
Foc
us
onef
fici
ency
an
dp
rod
uct
ivit
y•
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tal
gro
wth
thro
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hd
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erm
ark
etp
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rati
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ith
inse
gm
ent
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ome
pro
du
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evel
opm
ent
clos
eto
exis
tin
gp
rod
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roa
dm
ark
etw
ith
con
tin
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sd
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opm
ent
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roa
den
viro
nm
ent
sca
nn
ing
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row
thth
rou
gh
pro
du
cta
nd
ma
rket
dev
elop
men
t•
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uis
itio
nto
obta
inn
ewte
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olog
ies
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ult
iple
ma
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s,so
me
sta
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,oth
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cha
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ing
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tal
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s•
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112 NovemberAcademy of Management Executive
sible, M&S’s field research in companies revealedonly four archetypes, of which three—which theylabeled as the Defender, Prospector, and Ana-lyzer—were stable, in the sense of being coherentand sustainable, and the fourth—the Reactor—was incoherent and therefore fragile.
Defenders are organizations that focus on a well-defined and narrow market in which they attemptto remain competitive by constantly improvingtheir efficiency and productivity. The parallel withPorter’s “cost leadership” strategy is clear, as withTreacy and Wiersema’s category of companies thatcompete on “operational excellence.”5
Prospectors focus on constant innovations. Theysearch for new market opportunities and tend to behighly flexible and entrepreneurial. Once again,the similarities between this category and Porter’s“differentiation” strategy and Treacy and Wier-sema’s “product leadership” strategy are striking.
Analyzers are more complex organizations thatcombine some aspects of both Defenders and Pros-pectors. They operate in some businesses that arerelatively stable, in which they compete on theDefender’s strengths of efficiency and low cost,and others that are dynamic, in which they act likeProspectors, searching for innovations.
Analyzers are more complexorganizations that combine some aspectsof both Defenders and Prospectors.
Finally, Reactors are organizations that lackconsistency in their strategy, structure, and pro-cesses. They are, therefore, unable to create a co-herent and sustainable position for themselvesand are unable to respond effectively to environ-mental change, unless somehow forced to do so byexternal influences.
What is remarkable about this categoriza-tion scheme is the comprehensiveness of organ-izational attributes—across strategic orientation,organizational features, and management pro-cesses—that it captures (see Table 1). It is in thecomprehensiveness of the scheme that the M&Sframework distinguishes itself from other catego-rization schemes that relate primarily to the strat-egy of firms, with limited insights into the associ-ated organizational attributes, such as MichaelPorter’s generic strategies,6 or to organizationalstructural attributes, with limited attention to ei-ther strategy or process, as in Oliver Williamson’sdistinctions among F, H, M, and corrupted Mforms,7 or even in schemes that span strategy andorganization, such as Henry Mintzberg’s or DannyMiller’s typologies.8
Let me once again use Sony to illustrate thevirtues of this comprehensiveness. In 1995, the yearIdei was elevated to the CEO position, Sony was inthe midst of what is often described by companyinsiders as the “years of darkness.” Sales were flatfor the entire first half of the 1990s, and profits haddeclined from $900 million in 1992 to $149 million in1994. Debt, once a scant 18 per cent of capitaliza-tion, had soared to nearly 50 per cent. Most criti-cally, Sony’s celebrated innovation engine wascreaking, with no new “killer” products other thanthe Playstation emerging in several years.
Why did the company encounter this adaptationproblem? OSSP provides a clear insight. Histori-cally, Sony was a classic Prospector. All attributesof its strategy, structure, and processes were text-book illustrations of this approach.9 In the secondhalf of the 1980s, Norio Ohga, then CEO of Sony,had made some sharp changes in the company’smanagement processes. In particular, he had in-stalled a centralized and relatively rigid budget-ing and control system in an effort to achievehigher efficiencies. So, he had injected the Defend-er’s processes into a Prospector’s strategy andstructure. Both internal and external analysts ofSony agree that this loss of coherence in the com-pany’s overall management system was at least inpart to blame for the adaptive problems faced bySony.
The Sony envisioned by Idei is an Analyzer thatwill defend its position in the traditional consumerelectronics businesses while simultaneously build-ing a leadership position in the emerging “inte-grated home entertainment” market. The changesinitiated by Idei almost mirror how M&S wouldsuggest that this evolution be managed. Idei hassplit up the research organization, enhancing therole of applied research. He has established amore effective matrix structure, empowering geo-graphic managers in different regions of the worldto balance the historical primacy of divisionalmanagers in Japan. He has built several mecha-nisms for horizontal integration across the busi-nesses including the highly influential “Sony-juku,” a cross-divisional action-learning forumthat he personally facilitates.
Does the framework yield any insights into whatIdei has not yet done but ought to consider? Yes, itdoes. Sony has not yet adopted the more externallyoriented, multidimensional, and flexible perfor-mance-management system that M&S saw as nec-essary in effective Analyzers. Perhaps we will soonsee this change.
There is much more in OSSP that managers canlearn from: illustrations of how to apply the frame-work to diagnose an existing organizational con-
2003 113Ghoshal
figuration, including a specific heuristic for suchdiagnosis; descriptions of the role that externalconsultants can play in the process; and so on.Space limitations prevent me from providing a pre-cis of all the highly practical and insightful con-tents of this marvelously small and tightly writtenbook. In any case, my purpose here is merely towhet appetites; those managers who find the briefsummary I have provided to be useful for thinkingabout their current situation are highly recom-mended to the original if only to see how muchmore nuanced the framework is than the synopsisI have provided. I would welcome any comments orquestions that readers may have.
Endnotes1 Pascale, R. T., & Athos, A. G. 1981. The art of Japanese
management. New York: Simon & Schuster; Peters, T. J., & Wa-terman, Jr., R. H. 1982. In search of excellence. New York: Harper& Row.
2 Christensen, C. M. 1997. The innovator’s dilemma: Whennew technologies cause great firms to fail. Boston: HarvardBusiness School Press.
3 Tushman, M. L., & O’Reilly, III, C. A. 1997. Winning throughinnovation. Boston: Harvard Business School Press.
4 Miles, R. E., & Snow, C. C. 1986. Network organizations: Newconcepts for new forms. California Management Review, 28:
62–73; Miles, R. E., & Snow, C. C. 1994. Fit, failure and the Hall ofFame: How companies succeed or fail. New York: The FreePress.
5 Porter, M. E. 1980. Competitive strategy: Techniques for an-alyzing industries and competitors. New York: The Free Press;Treacy, M., & Wiersema, F. 1995. The discipline of market lead-ers. Reading, MA: Addison Wesley.
6 Porter, 1980, op. cit.7 Williamson, O. E. 1975. Markets and hierarchies: Analysis
and antitrust implications. New York: Free Press.8 Miller, D. 1990. The Icarus Paradox: How exceptional com-
panies bring about their own downfall. New York: Harper Busi-ness; Mintzberg, H. 1979. The structuring of organizations: Asynthesis of the research. Englewood Cliffs, NJ: Prentice-Hall.
9 For details, see Kida, T., Yamaguchi, H., & Ghoshal, S. 2002.Sony Regeneration (A and B). London: London Business School.
Sumantra Ghoshal is professorof strategy and internationalmanagement at the LondonBusiness School. He has pub-lished 11 books and over 60 ar-ticles. His most recent book, ABias for Action (with HeikeBruch), will be published in2004. He earned doctoral de-grees from both MIT andHarvard and is a member ofthe Harvard Business School’sCommittee of Overseers. Con-tact: [email protected].
114 NovemberAcademy of Management Executive
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