Management models and tools – as the SWOT or the 7s-Model – are discussed controversially. Some people use them as important tools for analyzing businesses and developing strategies. Others call them “buzzwords”, used by consultants to boost their profile. The truth about the value of management models probably lies somewhere in between. So what should you take into consideration when using models?
What is a management tool and what is its purpose?
A management tool or model is a model – that is a simplified image of reality. According to Wikipedia,
scientific modelling is a simplification of relevant aspects of a situation in the real world for its systematic study.
With regard to management models this means that models show those elements of reality (in this context: e.g. a business, a business process or an industry) that are relevant for analysis of a particular problem. Those elements that are not relevant are neglected.
Hence, models normally limit the number of aspects included, in order to reduce complexity. The more aspects you include in an analysis, the more interdependencies arise. Thus, complexity would increase significantly. This complexity in turn would have a negative impact on systematic analysis. A high number of interdependencies leads to a high number of possible outcomes and thus limits definite results. For instance, the Boston Box analyses the market share of own products in relation the competitors’ products. It only includes existing products, but does not take into account possible new competitive products to come. Hence, this model does not allow analyzing potential future actions of players.
Another excellent definition is given in the paper Conceptual Management Tools – A Guide to Essential Models for Knowledge Workers from Martin J. Eppler:
A conceptual management tool is a structured, model based way of proceeding to improve the problem solving or decision making process either individually or for a group in an organizational context. A conceptual tool achieves this by providing thought structures, action steps, and representation formats to facilitate convergent (analytical) or divergent (creative) thinking.
The important terms that indicate the purpose of management tools are
- to improve the problem solving or decision making process
- providing thought structures, action steps, and representation formats
- to facilitate … analytical or … creative thinking.
These purposes of management models and tools also imply what such tools are capable of doing and what they aren’t. Tools guide users through a process. As many other, strategic planning processes suffer more from information overload, than from too little information. Tools and models provide a framework to structure this information, to distinguish between relevant and irrelevant information, to realign information so that new interdependencies and connections become visible, and they provide formats to present information and conclusions. Thus, they facilitate thinking. They do not, however, do our thinking for us. They help to come up with conclusions or strategies, but they do not produce them.
Example: During my MBA studies, my team was given the task to develop a new strategy for a major car manufacturer. We started with research, since that was the easiest thing to do. Unfortunately we ended up with a massive amount of information. Much of that was completely irrelevant. Than we worked through the management models we had heard about in the lectures. We prepared a SWOT, a PESTLE, and a 5 Forces analysis; all of them became large charts with densely packed boxes. At that point we were fairly disappointed that we still had no idea about a groundbreaking new strategy for ‘our’ car manufacturer. That was the most important lesson I took away from this group assignment: The models just help you to structure information. This is only the basis where your strategic thinking has to start.
Problems associated with the use of management models and tools
Management models and their historical context
All management models and tools were developed in a particular historical context. They arose out of typical questions and problems that were relevant for managers and researchers at that time. Hence, they implicitly presuppose some economic assumptions, e.g. the basis of competition or the pace of change. If these conditions change, models do not necessarily lose their validity. Nevertheless, they cannot contribute to decisions as precisely as they did in their original historical context.
- There was a long period of fairly stable growth from 1945 to the mid 70s. Companies focused on growth and revenue growth. Competition was not that much an issue. Hence, companies mainly went for expansion strategies. They expanded into new products and new markets abroad. Typical management models that came up during that period are portfolio planning tools like Ansoffs Matrix, the product lifecycle concept or the Boston Box.
- From the mid 70s to mid 90s, companies faced a period of growing competition. Management focus shifted to competitive threats, changing business cycles with phases of growth and recession, profitability and survival. Hence, corporate strategies were centered around restructuring, refocussing on core businesses, niche strategies. Furthermore, mergers & acquisitions came in fashion. Typical management tools and models for this period are Porters generic strategies, the concept of core competencies and business process reengineering.
- From the mid 90s on the Internet started to influence the business world. A period of turbulence, disruption and hyper-competition started. The external environment is characterized by rapid, non-linear change. Trends became ever harder to predict. Corporate objectives shifted to the management of these unpredictable developments. Relevant corporate stragies now were about the re-definition of industry boarders and business boarders and business models. With the new technical possibilities offered by the Internet, the management of partnerships became more vital. Typical tools and modes for this period are chaos theory and game theory.
All of a sudden, a single E-Start-up could revolutionize the business models of whole industries (always a good example: Amazon.com). That makes many of the “old” models limited in their validity. Of course, even today every company has to make the general decision, whether it wants to win its customers with low prices or high quality (Porters Generic Strategies). However, it would be a big mistake to base corporate strategy solely on this decision. New technologies and distribution concepts can change the bases of any cost leadership within a short time. Similarly, businesses can lose differentiation advantages quickly when competitors imitate product or service features. Quality is no longer the major element that justifies a high price. Other aspects such as brand and customer experience gained relevance.
The point is that the ‘old’ models tend to presume fairly static conditions. Freek Vermeulen explains this in his article No need for differentiation:
To understand this, you have to realize that the field of Strategy arose from Economics. The strategy thinkers who first entered the scene in the 1980s and 90s based their recommendations on economic theory, which would indeed suggest that, as a competitor, you have to somehow be different to make money. Over the last decade or two, however, we have been seeing more and more research in Strategy that builds on insights from Sociology, which complements the earlier economics-based theories, yet may be better equipped to understand this particular issue.
Management models as a fashion trend
Finally, management models bear another great risk: They can become a matter of fashion. Sometimes it takes only one best-selling book by a reputable author and the enthusiasm seizes whole industries. This enthusiasm leads to another risk: exaggeration. As soon the first companies report breakthrough results, deriving from a particular management tool, it becomes hard not to follow them. Market analysts and powerful shareholder groups virtually expect managers to adopt this new ‘best practice’. Moreover, consultants happily take up such new trends, creating new consulting solutions to sell to their customers.
An example is the era of diversification. Large groups of companies emerged from the objective to spread risks across operations in various industries and to exploit synergies. Some of these groups grew that large and complex that is was virtually impossible to manage them economically. The result was the era of core competencies. All subsidiaries and operations that were no core businesses were sold or closed down. Some companies reduced their operations to core companies in an extent that they outsourced important corporate functions. Later they had to realize that it is not always possible to manage the quality of outsourced processes as perfectly as this would be possible in-house. The management of complex outsourcing-relationships turned out to be a demanding task.
[bctt tweet=”Not every management model is valuable for every business in every situation.”]
Imagine everybody develops his strategy using the same management models and tools. Won’t they all come up with similar strategies? Moreover, companies and their managers are all different. Hence, not every tool is for every business. It is always advisable to maintain a healthy skepticism and a bit of lateral thinking in this situation.
Not every model works well for everybody
It is evident that each model was designed for a particular set of circumstances under which it will provide the best insights. For instance, a value chain analysis for itself only analyzes structures and processes of an organization or an industry. Hence, it provides no or limited insights about aspects outside this focus.
Moreover, the value of a tool may also depend on its users working style. Eppler writes in the paper mentioned above
managers will notice that some tools fit their individual working style better than others. This can be due to their cognitive style (e.g., whether they are keen to work with models or not, with figures or with charts, with templates or revisions, with single or with multiple perspectives) or their specific working context (i.e., heavy time-pressure, lack of IT support, interdisciplinary work teams, etc.).
Similarly writes Donna T. Mayo in her article Strategic planning tools
There are a variety of perspectives, models and approaches used in strategic planning. The development and implementation of these different tools depend on a large number of factors, such as size of the organization, nature and complexity of the organization’s environment, and the organization’s leadership and culture.
Strengths and benefits of management models
In view of today’s information-overload, models can be valuable tools to organize, to analyze, and to present information systematically. A management model is not able to take a decision; however, it can help to make an informed decision. It does make sense to apply some selected models to a corporation or an industry from time to time. This can be done as a brainstorming-exercise, so that it brings together the variety of knowledge of different members and departments of the organization. If a particular model proves not applicable (e.g. Porters 5 Forces analysis does not fit the pace of change in an industry), it can be neglected anyway.
The combination of different models may compensate for the weaknesses of some models with the strengths of others. Even older models still have their validity and can contribute to a thorough analysis. Their major advantage is that they are well known and easily understood by almost everybody.
Management tools can help to better understand particular aspects of an organization or its environment. For the following step – the analysis of insights provided by the models – however, there is no model. Management models are effective only if their users are able to realize each models specific limitations, i.e. its assumptions, simplifications, neglected aspects and its historic context.
Summary: Recommendations for using management models and tools
- Never base your decisions just on one single model.
- Never trust a model blindly, only because it proved worthwhile in the past.
- Be careful with models that are in fashion
- Never rely on a model just because everybody else does it.
- Make sure all users have the same understanding of the model, its applications and limitations
- To summarize it: Carefully select a set of models that complement each other and that fit your business, your industry, your objectives, and your teams working style
By Dagmar Recklies
This article is an extended and updated version of an earlier article from 2000.
Our Literature Recommendation on Management Models
- Key Management Models: The 60+ models every manager needs to know by Marcel Van Assen, Gerben Van den Berg, Paul Pietersma
This book gives you short, practical overviews of the top classic and cutting edge management models in an easy-to-use, ready reference format. Whether you want to remind yourself about models you’ve already come across, or want to find new ones, you’ll find yourself referring back to it again and again.
- Key Strategy Tools: The 80+ Tools for Every Manager to Build a Winning Strategy by Vaughan Evans
Covering 88 tools – approaches, models, schools and techniques – framed within an innovative strategy development process, the strategy pyramid, this user-friendly manual takes you through each step of the process. Whether analysing your market, building competitive advantage or addressing risk and opportunity, you’ll find the strategic thinking tools you need at every stage.
- The Decision Book: 50 Models for Strategic Thinking by Mikael Krogerus, Roman Tschäppeler
This book presents fifty models for better structuring, and subsequently understanding, life’s steady challenges. Interactive and thought-provoking, this illustrated workbook offers succinct summaries of popular strategies