Strategy Formation

Strategy and Performance Management

Andy Weeger

Neu-Ulm University of Applied Sciences

July 22, 2025

Learning objectives

After this section, you should have a solid understanding of

  • how strategies do seem to be made;
  • what differentiates a good strategy from a poor strategy;
  • the differences between deliberate and emergent strategies;
  • the arguments for incrementalism and strategy making as a crafting and learning process;
  • how strategy can be understood as an interplay between actions and ideas, and between experience and inspiration;
  • and implications for the strategic management process.

Prologue

Good strategy

Good strategy does not pop out of some strategic-management tool, matrix, triangle, or fill-in-the-blanks scheme. Instead, a talented leader has identified the one or two critical issues in a situation—the pivot points that can multiply the effectiveness of the effort—and then focused and concentrated action and resources on them. R. Rumelt (2011)

Hallmarks of good strategy

According to R. P. Rumelt (2012) a good strategy …

  • identifies the critical issues in a situation,
  • focuses and concentrates action and resources on these issues,
  • acknowledges the challenges that arise in solving the issues,
  • provides an approach to overcome the challenges.

Good strategies tend to look simple and obvious in retrospect.

The kernel of good strategy

At its core, strategy is always the same: discover the crucial factors in a situation and design a way to coherently coordinate and focus actions to deal with them.

Hallmarks of poor strategy

According to R. P. Rumelt (2012) key hallmarks of poor strategy are:

  • failure to face the challenge;
  • mistaking goals for strategy;
  • bad strategic objectives;
  • and fluff.

Poor strategy ignores the power of choice and instead tries to reconcile a variety of conflicting demands.

Reasons for poor strategy

Poor strategy has many roots, but according to R. P. Rumelt (2012) the key ones are:

The inability to choose
and template-style planning

Implications for strategy formation

The analysis of good vs. poor strategy reveals critical requirements for effective strategy formation:

If good strategy requires diagnosis, guiding policy, and coherent actions, then strategy formation must enable deep understanding, creative problem-solving, and coordinated implementation.

Traditional planning approaches often lead to poor strategy because they emphasize process over insight and templates over understanding.

Strategy formation

Defintion

Strategy formation refers to the process of crafting strategies that revolve around the interplay of the environment, the organizational operating system, and leadership (Mintzberg 1978).

Given this complex reality of strategy formation, what types of strategies actually emerge from this process?

Output — two types of strategy

A strategy is not a fixed plan, nor does it change systematically at pre-arranged times solely at the will of management. Mintzberg (1978)

Intended strategies are plans developed before action;
emergent strategies are patterns that develop without prior intention; and realized strategies combine both deliberate and emergent elements.

Process — the crafting metaphor

The process by which effective strategies are created is better captured by thinking of strategy as a craft, rather than as a planning process (Mintzberg 1987).

The crafting metaphor addresses the limitations identified in poor strategy analysis:

  • Deep understanding comes from hands-on experience, not just analysis
  • Innovations emerge through experimentation and adaptation
  • Coordination achieved through ongoing adjustment rather than upfront planning

Tenets of strategy crafting

Like potters at the wheel, organizations must make sense of the past if they hope to manage the future. Only by coming to understand the patterns that form in their own behavior do they get to know their capabilities and their potential. Thus crafting strategy, like managing craft, requires a natural synthesis of future, present and past. Mintzberg (1987)

  1. Strategies are both plans for the future and patterns from the past.
  2. Strategies need not be deliberate—they can also emerge, more or less.
  3. Effective strategies develop in all kinds of strange ways.
  4. Strategic reorientation happen in brief, quantum leaps.
  5. Managing strategy is to craft thought and action, control and learning, stability and change.

Critical capabilities

Capabilities for strategy crafting

Following capabilities directly enable the diagnosis, guiding policy, and coherent actions required for good strategy:

Knowing the business,
managing stability,
managing patterns,
detecting discontinuity,
and reconciling change and continuity (Mintzberg 1987)

Decision-making capabilities

Firms successful in making high-quality strategic decisions frequently have three capabilities: collective intuition, quick conflict, and defusing political behavior (Eisenhardt 1999).

Conclusions

Strategy formation reality

Strategies have a life cycle,
which is coined by waves of change and continuity.

Thus, a strategy cannot be a fixed plan, or being updated at a predetermined time and the dichotomy between formulation and implementation makes little sense (Mintzberg 1978).

Implications

Strategy formation insights suggest integration of planning and learning, pattern recognition capabilities, and balanced organizational capabilities.

Key takeaways

  • Good strategy requires clear diagnosis, guiding policy, and coherent actions - not just goals or templates
  • Strategy formation must enable deep understanding, creative problem-solving, and coordinated implementation
  • Traditional planning limitations often lead to poor strategy through emphasis on process over insight
  • Deliberate and emergent strategies both play important roles; purely deliberate or emergent strategies are rare
  • Crafting perspective views strategy as art requiring skill, experience, and pattern recognition rather than just planning
  • Strategic capabilities for high-quality decision-making include collective intuition, quick conflict, and defusing politics
  • Integration needed between planning and learning, formulation and implementation, rather than artificial separation

Review and consolidation

The following questions are designed to review and consolidate what you have learned and are a good starting point for preparing for the exam.

  • How do good strategies differ from bad strategies?
  • What do the hallmarks of a good strategy imply for the strategic management process?
  • Why does Mintzberg speak of strategy formation or crafting rather then strategy formulation?
  • Why and how does cognition play a significant role in strategy formation?
  • What is the role of informal processes in strategy formation? Can you provide examples from real-world organizations where strategies emerged through informal interactions or learning from experience?
  • How might the patterns of strategy formation affect the execution of strategies within organizations?
  • Why can it be assumed that a purely emergent strategy is as rare as a purely intentional strategy?
  • What do the tenets of seeing strategic management as an art and craft imply for strategic management?
  • Discuss the following statement: Strategy seldom comes out of a structured process. It’s a mix of deliberate and emergent strategies and in practice in management learning by doing often is more important than planning. What does it imply for the process and the capabilities required to craft effective strategies?
  • Firms that are successful in making high-quality strategic decisions on a frequent basis have following capabilities: (1) building collective intuition that enhances the ability of top management to spot threats/opportunities sooner and more accurately; (2) stimulating quick conflict to improve the quality of strategic thinking without sacrificing significant time; and (3) defusing political behavior that creates unproductive conflict and wastes time. Why are these capabilities critical for effectively crafting successful strategies? Having a look at Eisenhardt (1999) will help to answer the question.
  • The “Honda Effect” is a term often used to describe the business success and impact of the Japanese automaker Honda in the United States, particularly during the 1970s and 1980s (e.g., in Pascale (1996)). Research on that effect and explain the difference views of strategy that manifested in the approaches of American and Japanese automakers at the time.

Q&A

Literature

Eisenhardt, Kathleen M. 1999. “Strategy as Strategic Decision Making.” MIT Sloan Management Review 40 (3): 65.
Mintzberg, Henry. 1978. “Patterns in Strategy Formation.” Management Science 24 (9): 934–48.
———. 1987. “Crafting Strategy.” Harvard Business Review, 66–75.
Pascale, Richard T. 1996. “The Honda Effect.” California Management Review 38 (4): 80–91.
Rumelt, R. 2011. Good Strategy/Bad Strategy: The Difference and Why It Matters. Profile.
Rumelt, Richard P. 2012. “Good Strategy/Bad Strategy: The Difference and Why It Matters.” Strategic Direction 28 (8).