In their 1978 book “Organization Strategy, Structure, and Process,” Raymond Miles and Charles Snow argue that different company strategies arise from the way companies decide to address three fundamental problems:
- Entrepreneurial problem. How a company should manage its market share.
- Engineering problem. How a company should implement its solution to the entrepreneurial problem.
- Administrative problem. How a company should structure itself to manage the implementation of the solutions to the first two problems.
Based on that, they classify companies into Four Strategic Types:
- Defender. A mature type of company in a mature industry that seeks to protect its market position through efficient production, strong control mechanisms, continuity, and reliability.
- Entrepreneurial problem: how to maintain a stable share of the market? Hence they function best in stable environments, they strive for cost leadership, they specialize in particular areas and they use established and standardized technical processes to maintain low costs.
- Administrative problem: how to ensure efficiency? Centralization, Vertical Integration, formal procedures, and discrete functions.
- Environmental problem: because their environments change slowly, Defenders can rely on long-term planning.
- Prospector. A type of company that seeks to exploit new opportunities, to develop new products and/or services, and to create new markets. Typically its core skills lie in marketing and R&D and it will tend to have a broad range of technologies and product types.
- Entrepreneurial problem: how to locate and exploit new product and market opportunities? Prospectors have broad product or service lines and often promote creativity over efficiency. They prioritize new product and service development and innovation to meet new and changing customer needs and demands and to create new demands.
- Administrative problem: how to coordinate diverse business activities and promote innovation? Decentralization, employing generalists (not specialists), have few levels of management, encourage collaboration among different departments and units.
- Environment: Prospectors thrive in changing business environments that have an element of unpredictability, and succeed by constantly examining the market in a search for new opportunities.
- Analyzer. A type of company that avoids excessive risks but excels in the delivery of new products and/or services. Typically it concentrates on a limited range of products and technologies and seeks to outperform other companies on the basis of quality enhancement.
- Entrepreneurial problem: how to maintain their shares in existing markets and how to find and exploit new markets and product opportunities? Must maintain the efficiency of established products or services, while remaining flexible enough to pursue new business activities. Seek technical efficiency to maintain low costs, but also emphasize new product and service development to remain competitive when the market changes.
- Administrative problem: how to manage both of these aspects? Cultivate collaboration among different departments and units. Analyzer organizations are characterized by balance—a balance between defender and prospector organizations.
- Reactor. A type of company which have little control over their external environment, lacking the ability to adapt to external competition and lacking in effective internal control mechanisms. They do not have a systematic strategy, design, or structure.
No single strategic orientation is the best. Miles and Snow argue that what determines the success of a company ultimately is not a particular strategic orientation, but simply establishing and maintaining a systematic strategy that takes into account a company’s environment, technology, and structure.
Source: Raymond Miles and Charles Snow – Organization Strategy, Structure, and ProcessBusiness frameworks like Strategic Types are invaluable to evaluating and analyzing various business problems. You can download business frameworks developed by management consultants and other business professionals at Flevy here.