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STRATEGIC MANAGEMENT 1

<a> Strategic Management: Public Sector View

STRATEGIC MANAGEMENT 2

Jan-Erik Johanson

Analogies are powerful tools to orient attention to the relevant features of the research

subject. Vision and eyesight is a functional analogy to the examination of strategic

management in public sector. The ability to see is one of the human faculties and one of its

aspects is the possibility to perceive colors. There is a discussion in evolutionary biology as

to the reasons for human and other vertebrae to detect colors. The variety of color vision

found today in most primates including humans, describes vision based on three classes of

photoreceptors (Trichromacy) which, in practice, signifies the ability to differentiate between

reds, greens and blues. Dichromatic vision relies on data from only two classes of receptors,

which still allows for some color discrimination. This deficiency is commonly called color

blindness. In the most common form of dichromacy in humans and other animals, individuals

cannot differentiate between reds and greens. Color vision provides organisms with important

sensory information about their environment. For instance, the ability to distinguish colors

allows organisms to detect avoid predators as well as to recognize food and mates. (Gerl &

Morris, 2008). However, color blindness has selective advantages. It enables to better detect

color-camouflaged object and it may improve perception in lower light conditions

(Yokoyama & Takenaka, 2005). There are also compromises in sensing colors. While the

evolutionary shift to color vision undoubtedly gave animals advantages, it also meant that

there were tradeoffs. For instance, when primates increased their ability to distinguish red

and green, they reduced their reliance on chemical signals which in human has degraded the

sense of smell. On the other hand, it is assumed that among some sea animals the increased

weight related to superior vision had to give way for buoyancy and ability to escape from

predators (Gerl & Morris, 2008).

What has the visual impairment has to do with the theories of strategic management?
STRATEGIC MANAGEMENT 3

Strategic management is a tool to see future conditions with the knowledge of the present.

Strategic management is also a human condition which enables to formulate and anticipate

change on the grandest scale, but it might not be most pertinent for following minute details

or to day-to-day operations of the organizations. It also serves to illustrate that there are

tradeoffs as concentrating on one aspect of strategic management may involve handicap in

another. Strategic management refers to many aspects in organizing future circumstances and

consequently some of the actions according to one line of strategic thought may contradict

another way of strategy formation. Further, strategic management is not only a viewpoint for

guiding business operations as it originated from the organization of warfare (lStrachan,

2005) and it is embedded in political thought in maneuvering among conflicting interests

(Weaver, 1986; Hood, 2010).

The chapter is structured in the following way. First, the framework for studying

strategic management gives an idea of the possible focus of strategic thinking and action in

both the political nexus of the government as well in the operation of public agencies. The

examination takes place at both systems as well as organization level analysis. Second, the

main features of the three identified strands of strategic thought: strategic design, internal

strategic scanning are elaborated in the public sector context in light of the empirical findings

with these respective areas. Concluding discussion provides further avenues in thinking of

goal-oriented action in government circles.

<b> Public Strategy Formation

Three themes in the literature on strategy can be applied to the public sector on macro

and micro levels of analysis (Johanson, 2009, 2018). These themes or strategy modes are

strategic design, internal strategic scanning and strategic governance (Figure 25.1).

<Figure 25.1 About Here>

Strategic design. The fundamental assumption of strategic design is that organizations

STRATEGIC MANAGEMENT 4

can face future circumstances with their current understanding. While it is obvious that

strategy, by its very nature, incorporates planning, the strategic design mode relies heavily on

predetermination: The future can be programmed in advance (Mintzberg, 1994). The use of

strategic design begins with analyzing threats and opportunities in the environment. The

anticipation of future events and the subsequent programming of actions is, in its essence, a

very practical task that does not differ for different types of organizations. In the public

sector, strategic management is often equated with planning (Bryson et al., 2010; Poister,

2010). Strategic planning has its roots in a spatial examination of the physical environment,

but, most importantly, it offers a goal-oriented perspective on both macro and micro

developments within the government (Archibugi, 2008). For example, macroeconomic

planning deals with the maintenance and development of markets. On the micro level,

strategic design creates a predefined strategy which can incorporate alternative goals and a

number of theoretical approaches. From a political point of view strategy has to do with

securing of re-election (König & Wenzelburger, 2014) as well as seeking credit and

delegating blame (Weaver, 1986; Hood, 2010).

Internal strategic scanning. A government or an organization succeeds because of its

unique combination of resources. In a government, administrative reforms are the

embodiment of experimentation with new combinations of resources. On the micro level,

public agencies need to pay attention to their particular compilation of valuable resources to

fulfil their mandates and create value for society—and, indeed, to survive. Identifying an

organization’s internal strengths is one part of this. Strategic scanning looks at internal

strengths and weaknesses rather than outside opportunities and threats, which are the focus of

strategic design. The inimitability of resources and capabilities gives a business organization

an advantage over its rivals (Barney, et al., 2011). Within government sphere, the lack of

market competition puts forward the need for gathering resources for survival and retaining
STRATEGIC MANAGEMENT 5

relevance in the policy process as suggested by the politic of bureaucracy view (see Jones,

2017; Peters, 2010).

Strategic governance. The third mode of strategy formation, strategic governance, is

emerging from, on the one hand, the increased interdependence of the world at the global as

well as national and local levels (Kersbergen, & van Waarden, 2004) and on the other hand,

the developments in sharing knowledge and duties across the borders of organizations (Dyer

& Sing, 1998). The strategic governance framework considers both internal strengths and

environmental opportunities. Nowhere is the arm’s length control of government clearer than

in the expansion of government regulation (Gilardi et al., 2006) and in the emergence of new

forms of self-regulation and co-regulation (Steurer, 2013). These regulations comprise a large

part of governance at the macro level of government. From a micro point of view, networks

play an important role in connecting different levels of the government and of organizations

in various network management structures (Simmel, 1950). The networks are part of the

interplay among public agencies within government circles (Moore, 2013, Provan & Kenis,

2008). Building a network involves challenges in government. To mutually benefit from

sharing duties, networkers must relax control over their own actions, which can be difficult

due to business secrecy, democratic control, or fear of the loss of resources.

The three modes of strategic management orient themselves not only to different

aspect of governing, but they attune the subject matter differently. The strategic design sees

programming of actions as key strategic action; strategic governance puts emphasis on

relating with others in the external environment and internal strategic scanning highlight the

possibilities in guiding internal operations of the system.

The level of analysis issue is important in the study of government. In a fundamental

tone, there are multiple levels for choices in a society (Kiser & Ostrom, 1982). Hill and Hupe

(2006) translate choice options in society into the policymaking arena. Constitutional and
STRATEGIC MANAGEMENT 6

collective choices may take place in different loci, which define the scale of action in

particular situations. Constitutional choices appear in the design of political and

administrative institutions or intergovernmental relations on the system level. Such choices

are fundamental to the government in a sense that they define rules for making other rules.

Governmental policymaking and the rules for implementing policies are system-level

collective choices. They are genuine choices between alternatives, but the choices are

conditioned upon constitutional rules.

Constitutional governance takes place in an organizational setting in the design of

relevant contextual relations. For instance, mapping powerful and interested stakeholders

could be a relevant activity here. Here again, there are general choices, but they are

conditioned upon the system level decisions. At the organizational level, collective choices

maintain the designed external relational structures. These two aspects for a meaningful

separation between system level strategy in governments and organization strategy within

public agencies. The following examination deals with both of these levels in the aspects of

system level macro strategies in areas of policy planning and evaluation, administrative

reform and policy management. The equivalent organization-level micro strategies appear in

areas of strategic planning, organization change and network management within public

agencies.

<b> Strategic Design

Not all science has evolved out of philosophical considerations into scientific

disciplines. Instead, many areas of scientific endeavor have evolved through the collection of

rules of thumb and the development of these rules into a collection of directives. This

describes the development of many applied sciences and design sciences. The

professionalization of the practice of everyday experience is present in the application of

medicine, engineering and farming, to name a few examples. The mechanization of

STRATEGIC MANAGEMENT 7

technological tools in these and other areas of practice has increased the efficiency of the

application of the tools. Design sciences often include a normative aspect as they do not

merely describe how things are; they provide prescriptions for how things ought to be in

order to attain goals (Niiniluoto, 1993; Simon, 1996). Planning and its various forms

showcase design science. Planning has evolved out of practical tools used to design the future

of our environment and actions. Plans can be time-consuming to formulate and they might

require a lot of work and effort and take a long time to accomplish. However, planning is not

only assessed based on its formal quality, truthfulness or accuracy. In the end, the value of

planning lies in its usefulness to the users.

Despite practical origin of planning, changing government structures is hardly a

neutral exercise in achieving goals in the most efficient fashion possible. Here, political

strategy inspired by the political science puts forward a much less rational model of goal-

setting. A strategic political action is a method for achieving electoral success while

implementing policies that are not always popular. In essence, strategic political action seeks

to influence the popularity of a policy and the attribution of responsibility for that policy

(König & Wenzelburger, 2014). At times, it might be a good strategy to limit one’s political

agenda in order to avoid dealing with blame generating alternatives, or to neutralize an issue

by redefining it. A number of imaginative catchphrases capture the different ways politicians

manipulate public perception of policies and responsibility for them such as: Throwing good

money after bad (increasing resources after losses to avoid suffering), Pass the buck (place

responsibility for a decision on someone else); Jump on the bandwagon (deflect blame by

supporting a popular alternative) (Weaver, 1986).

One reason interest in this kind of analysis has increased is the need to explain

seemingly risky policies, such as welfare cuts, for which the responsible politicians have not

been penalized. In an analysis of welfare retrenchment strategies, (Pierson, 1994) argues that
STRATEGIC MANAGEMENT 8

retrenchment is an exercise in blame avoidance rather than claiming credit, because the costs

of retrenchment are concentrated and often immediate, while the benefits are dispersed. This

means that it is primarily a strategy of blame avoidance rather than credit seeking. (Hood,

2010) uses assumption of negativity bias to argue that ‘potential losses are commonly

weighted more heavily than equivalent gains.’ This implies that blame avoidance can be more

important than credit seeking. For instance, by creating more autonomous public agencies,

the market-emulating reforms built fertile ground for politicians to avoid blame. In this way,

politicians can more easily insulate themselves from disasters and accidents and delegate

responsibility to others.

<b> Policy Planning and Evaluation

The prominence of planning in the literature on strategic management relates partly to

the fact that planning offers an encompassing view of society. First, planning appears in the

macro development of entire countries as well as within micro developments of individual

firms, public agencies and local communities. Second, as indicated by the micro–macro

distinction, planning can refer to action in economic circles, in government or in civil society.

Third, the most obvious effects of planning relate to the temporal aspect of social life. In

other words, planning is a means of achieving goals and objectives in the future. Fourth,

planning efforts do need not be confined to the realm of national governments, as witnessed

by the developmental planning efforts of the UN, the World Bank and the International

Monetary Fund [IMF], or the rise of supra-national institutions such as the EU. Traditionally,

planning was viewed as its own area of activity, separate from the consequences of strategic

actions. In this view, the feedback loop between strategy outcomes and the formulation of

new strategies is not the main concern of strategic planning.

There is a useful typology of different areas of strategic planning in specific subject

areas that have succeeded in the past century through the use of managerial methods of public
STRATEGIC MANAGEMENT 9

decision and intervention: (1) Physical planning; (2) Macroeconomic planning; (3) Socio-

environmental planning; (4) Development planning; (5) Operational system planning. The

value of planning is its ability to look forward to distant futures without concern for the

practices of the past. Although many planning developments begin as bottom-up, grassroots

movements, it is fruitful to coordinate these activities from the top down. Physical planning is

an obvious example. Within the confines of a country, it makes sense to coordinate urban

planning and regional planning. Macro-economic planning deals with national governments’

allocation of scarce public resources. The practical impetus for this field of study lies in the

preparation and recovery from the world wars, in the need to design economic structures

without markets in former socialist countries. Socio-environmental planning builds on the

local grassroots engagement of communities and groups in improving their own social

conditions in a variety of areas such as housing, employment conditions or the care of

children and the elderly. These actions have their macro counterpart in national health, social

and education policies, among other things. Developmental planning aims to improve

conditions in the developing world, often with the help of international organizations such as

the UN, IMF or the World Bank. The intellectual origin of operational planning lies in

management science; the design of planning programming and budgeting [PPB] systems

developed by national governments signify such developments (Archibugi, 2008).

Evaluation research has evolved, not as antithetical to the planning movement, but as

a parallel development in the process of changing society’s ideas in focus areas. The neo-

liberal focus was related to the market-emulating reforms in the 1980’s. If governments

should operate like private enterprises, their performance and use of taxpayer monies should

be evaluated in terms of value for money. The current evaluation focus supposedly began at

the beginning of the new millennium. The fundamental idea of this movement is that policies

should be based on what works and what does not, according to prior evidence (Vedung,
STRATEGIC MANAGEMENT 10

2010). Evaluation is useful for strategic planning in two main respects. First, evaluation can

provide valuable information about a plan’s progress during the implementation phase. It can

help organizations reorient and reformulate strategies based on concrete empirical evidence

gathered during the strategy-formation process. Evaluation can also inform the initial phases

of strategy formulation by distinguishing feasible futures from less likely ones based on the

strategic goals. The importance of measurement brings strategic management closer to

performance management, which is essentially setting goals and managing the achievement

of those goals; the focus on goals means that strategic management occurs at the level of

operations (and not only planning) (Poister, 2003).

<b> Strategic Planning

In strategic design mode, strategy is a model or a plan. It integrates goals into an

integrated whole. The strategy deploys resources in a unique and viable fashion. The strategy

builds on the organization’s abilities accounts for anticipated changes in the organization’s

environment. The basic ingredients of a strategic plan are vision (where?), mission (why?),

goals (what?) and primary means (how?) (Quinn, 1980). Strategic planning is the formulation

of strategy. It defines what an organization is and why it does what it does. Strategic planning

does not simply extrapolate current trends into the distant future; it also requires the invention

of new practices and the development of measures to track progress.

Strategic design addresses the temporal aspect of achieving a public organization’s

goals. Many of the tools and procedures adopted by public agencies are used to anticipate

future circumstances based on present knowledge in the formal design cycle. This cycle

moves between planning and implementation and follows a predefined series of steps, from

strategy determination through strategic management to, finally, identifiable outcomes. It

begins with an analysis of the environment and of institutional and organizational features,

which leads to the formulation of a strategic plan and the content of the strategy. The cycle
STRATEGIC MANAGEMENT 11

then moves to the implementation stage with more operative programs and projects;

employees’ individual duties are defined here. After implementation, the organization

assesses the outcomes in terms of changes in capacity and performance (Wheelen & Hunger,

2017).

Although agencies deal with policies more than with political struggles, analyzing

bureaucracies from a purely technical point of view is a fallacy. Public agencies are born in

political struggles, which mean that they are political compromises caught between pressures

from those in political power, the opposition and interest groups. These pressures tend to

decrease an agency’s efficiency. Furthermore, because of these struggles, politicians and

interest groups routinely and deliberately create bureaucracies that are structurally ill-suited

for effective action. In addition, bureaucracies are established to protect certain functions or

actions from the political agenda in order to make it difficult for political opponents to

influence policies when they gain power (Moe, 1989). At worst, strategic planning reduces

to ritual, something which serves to meet the demands of others, typically superior

government units or funding bodies (Bunning, 1992). In the analysis of national park

management in the UK and the US, Llewellyn and Tapping (2003) found that strategic plans

were initially ‘dormant documents’ which had little use for the organization although their

completion required a considerable amount of time and expert involvement (20 years in some

cases). Interestingly enough, as park funding was curbed, the role of strategies changed into a

management tool to prioritize projects and to attract new additional funding from stakeholder

groups

The role of the manager is weaker in the public sector than in the private sector.

Politics play a bigger role in guiding choices in the public sector and many choices are

predefined. The traditions of organizational culture also have more influence in the public

sector. However, these two realms of action do not differ much in the amount of planning or
STRATEGIC MANAGEMENT 12

the speed of changes (Scholes & Johnson, 2001). Due to the controversial nature of many

public policies, the actual planning tends to concentrate on the use of resources instead of on

strategic goals and these controversies can easily lead to political bargaining. The influence

of politics in public agencies is not so much connected to the political struggle between

parties, but to the nature of political institutions. From an institutional point of view, the

existence of prior legislation is an impediment to any drastic governmental change. In this

way, most government actions and spending have already been stipulated by prior

legislatures (see Greener, 2005). Another aspect of strategy in government circles is the

electoral cycle, which prevents the formulation of long-term strategic commitments. Further,

the one-year budget cycle shortens the time horizon to the most immediate issues and actions

(Di Francesco & Alford, 2016).

In their review of strategic management research in the public sector, Poister (2010)

points out that, until recently, there has been little effort to synthesize efforts in the use of

strategic management tools in the public sector. He argues that policy areas and the nature of

constituency groups play a significant role in determining engagement in strategic planning.

Political decision makers sometimes compel organizations to formulate strategic plans. On

the other hand (Bryson et al., 2010), public agencies might lack the authority to make

decisions or the operative space to manage their organizations strategically. It seems that an

organization’s size is a factor that affects strategy as well, as larger organizations are more

likely to engage in formal planning procedures. Available resources are an important

determinant of strategic management exercises (Boyne et al., 2004), but a lack of resources

has also been found to encourage the formulation of a plan (Berry & Wechsler, 1995).

Studies comparing top-down strategies to bottom-up ones have produced complementary

findings. The bottom-up approach tends to increase consensus regarding goals but complicate

implementation (Kissler et al., 1998; Wheeland, 1993; Hendrick, 2003)

STRATEGIC MANAGEMENT 13

Market competition does not hinder interagency cooperation, but successful agencies

are able to generate information and provide advice about the policymaking process.

Agencies that can generate information are able to control the flow of information flow

through the policy process. Interestingly enough, a focus on internal administration is not the

main factor affecting an agency’s success. This is because agencies tend to be evaluated

based on the success of their policies, not the success of their internal operations (see Ellison,

2006). Interestingly enough, as the number of strategic targets increases, performance tends

to decrease (Boyne & Gould-Williams, 2003). This finding suggests that, while clear goals

are an important part of strategy, simple strategic goals are valuable in their own right. In an

analysis of austerity measures in Italy, Cepicu, Giordano and Savignon (2018) found out that

economic crises do not increase the focus on performance-based criteria in strategic planning

or in budgetary processes in Italy. The quality of strategic planning appears in another

fashion as a more responsible behavior. When the quality of planning has been good,

strategic management has led to tax increases to cover debts and to directly addressing the

most pressing social and economic issues.

Empirical assessments of the performance outcomes of strategic planning in public

organizations are rare; most originate in analyses of English and Welsh local authorities.

According to these findings, the prospector strategy is most likely to lead to high

performance. A research project at the Cardiff Business School analyzed local government

strategies using the Miles and Snow strategy typology (Miles et al., 1978). This typology

includes three main strategies (defender, prospector and analyzer) that enable organizations to

survive in their environments. The model also adds the non-strategy of failure (reactor),

which consists of inconsistent combinations of strategy, technology and processes. Defenders

seek to find a stable spot in the market, which they then try to protect against rivals.

Prospectors try to adapt to dynamic environments by finding new opportunities and

STRATEGIC MANAGEMENT 14

exploiting innovations. Analyzers fall between the two other strategies and try to balance

stability with seeking new opportunities. According to a number of empirical studies (mainly

in the UK and the US), a prospecting strategy improves performance and usually produces

better results than defender or reactor strategies (Boyne & Walker, 2010). However, there is

some evidence that the defender strategy leads to high performance (Andrews et al., 2009).

The analyzer strategy is rarely included in these studies.

<b> Internal Strategic Scanning

The simple storyline of the development of public administration describes a

movement from the old form of public administration – with its red tape, hierarchical control

and sometimes overly legalistic rules and procedures – into a streamlined, business-like,

market-oriented form of public management in the 1980s. Recently, some voices have

supported a shift to a new form of public governance defined by voluntary networks,

cooperation and the co-production of public services (Kisner &Vigoda-Gadot, 2017). In

assigning these broad labels, it is not easy to determine whether they refer to specific reform,

actual forms of public administration, or theoretically driven models of the current state of

current affairs. It is possible that some reform models actually contain all of these elements,

while others do not possess any of them. In terms of strategic management and specifically

the internal strategic scanning mode, the important feature of administrative reforms is that

they focus on changing the government as a whole and offer guidelines for how to implement

this change.

<b> Administrative Reform

The analysis of NPM reforms has dominated the academic scene since the 1980s. The

reasons for the NPM reform doctrine, along with descriptions of it and its outcomes and

efforts to make governments more business-like, market-oriented and client-friendly have

been thoroughly covered in discussions about the role of public administration (Hood 1991).
STRATEGIC MANAGEMENT 15

It is very easy to see public management reforms partly as a consequence of problems and a

failure of planning. Centralized control and comprehensive planning were not able to remove

society’s problems. A sometimes-naïve belief in progress and the scientific method that

dominated society during the period of steady economic growth following World War II

turned into distrust of the government during the economic instability of the 1970s. The fact

that NPM has become more or less the catchword for any administrative reform effort has to

do, at least partially, with developments in the political sphere. In the 1980s, the role of

public administration became, for the first time, a political question and administrative reform

became a topic of political struggle (see Pollitt & Bouckaert, 2017).

In the area of strategic management, public sector reform offers a showcase for the

government’s self-referential action. The primary focus of public sector reform is the re-

organization of governmental ranks, particularly within the executive branch. Administrative

reform has evolved into a business of improving, streamlining and re-inventing public

administrations to a degree never seen before. In an influential examination of public

management reforms in OECD countries, Pollitt and Bouckaert (2017) offer a descriptive

model of administrative reforms. In this model, politicians and senior civil servants channel

the influence of politics and socio-economic forces in the decision-making arena. Elite

decision-making defines the feasibility and desirability of a given reform agenda, but the

agenda is vulnerable to events such as scandals and disasters. Despite sometimes ambitious

efforts, public administrations tend to change slowly.

In his examination of US government reforms between after WWII, Light (1997,

2006) proposes four different approaches to reform. In the first, scientific management,

people trust the government, which takes a centralized approach to implementation. This

approach is defined by strict rules, clear guidelines and procedures and close oversight by

central agencies. The second approach, the war on waste, involves audits, inspections and
STRATEGIC MANAGEMENT 16

centralized oversight by quasi-independent bodies. This centralized implementation approach

is also characterized by a lack of trust in the government. The third approach, the watchful

eye, sees freedom of information and openness of procedures as a way to improve the

government’s functioning. This approach is decentralized and also includes a lack of trust in

the government. E-media, interest groups and citizens use their voices and actions and to

prevent governmental mischief. The fourth approach, liberation management, is characterized

by trust in the government. This approach is decentralized and seeks to empower employees

by avoiding oppressive rules and to achieve innovation through commitment and group

effort.

Research on public administration has identified several strategies for administrative

reform that include both the goals of and means to implement strategic action. New Public

Administration [NPA], New Public Service [NPS], New Public Management [NPM], Public

Value Management [PVM] and New Public Governance [NPG] are some options for

realizing macro changes in government. Each of these approaches has its own vision of

public good, defined methods for achieving that vision, it’s own idea of the roles of the state

and the government and definition of the role of the public administration (see Pyun &

Gamassou, 2018, pp. 255-58).

<b> Organization Change

Within the analysis of internal operations of the organizations resource-based in the

examination of business firms offers promising theoretical building ground for strategic

management in public agencies and it coincides well with the notion of political nature of

bureaucracy in the politics of bureaucracy discussion (see Jones, 2017). One of the basic

tenets of the resource-based view is that the resources are valuable, rare, inimitable and non-

substitutable. If resources are valuable, rare and hard to imitate, they provide firm for a

sustainable competitive advantage. The value criterion of resources is not problematic in

STRATEGIC MANAGEMENT 17

public organizations. Agencies can use valuable resources to produce superior performance

due to nature of the resources (see Peteraf, 1993). The other criteria assume the existence of

some type of competitive situation in which organizations seek a sustainable competitive

advantage; this does not apply to government entities. In other words, the dominant focus on

rent extraction does not apply to a discussion of public agencies (Vining, 2016). Quite on the

contrary, for public agencies, increasing dependence on other organizations might reduce

autonomy, but sharing resources with other organization might increase the agency’s

legitimacy in the eyes of its political masters, resulting in broader actual autonomy over the

long run (Verhoest, 2018). Very interesting finding of public missionary organizations in

promotion of peace and human rights suggests that such strongly ideational organizations are

able to survive better in they can insulate them from other agencies. However, those few

surviving agencies that are embedded with others are more likely to influence national policy

than insulated ones (Drezner, 2000).

Since many resources of public agencies, such as expertise or administrative

procedures, are not mobile or easily transferable from one agency to another, it is quite likely

that these agencies control unique resources which cannot be easily acquired or developed by

other agencies. In other words, immobility of resources might be one factor explaining

performance differences among public organizations even in the absence of interagency

rivalry. Klein, Mahoney, McGahan and Pitelis, (2010) offer valuable insights for the

importance of resources in the public setting. Public organizations are stocks of resources.

They employ routines and capabilities and acquire excess capacity by deploying these

resources. Public entities control important resources such as infrastructure, military

information and knowledge systems, as well as organizational assets such as bureaucratic

cultures. Public organizations produce public outputs but use both public and private inputs.

Another aspect is the nature of value generation. Private firms aim to capture value (profit),
STRATEGIC MANAGEMENT 18

but most often they first need to create at least some part of the value that can be captured.

Public agencies create value for wider public interests, but they also need to capture some

value for their own goals, which may include survival, conflict resolution, or tax revenue. In

other words, private firms aim to appropriate created value, whereas public agencies try to

create appropriable value (Klein et al., 2010).

The politics of bureaucracy discussion puts forward a view of political nature of

public administration in which executive side of government has considerable influence on

the government decisions. The actual decisions are based on bargaining and negotiations

which most often result in unintended decisions. The politics of bureaucracy view highlight

the roles and positions of actors in influencing decision making (Jones, 2017). In this line of

thought there is also competition over resources and power struggle in getting one’s own

goals represented in the decision-making agenda (Peters, 2010). The most important

resources of public agencies are tied to the knowledge and capabilities of administrators: their

expertise, ability to generate information and advice and possession of a dominant profession

(see Ellison, 2006). An agency can clarify its mission by encouraging administrators to

specialize. The agency can also strengthen its position if it masters complex technical duties

that cannot be easily contested by the political masters or the general public. The technical

language of engineers, lawyers and medical doctors illustrates this point. The possession of a

dominant profession describes an agency that employs members of a single profession. The

position of an agency is further advanced if the professionals within the agency belong to a

group that performs highly valued duties in society.

Resource-based ideas have attracted empirical attention in studies of knowledge and

dynamic capabilities which have been extensively documented in recent review articles (see

Pee & Kankanhalli, 2016; Piening, 2013). The perspective on knowledge sheds new light on

the nature of public agencies. From this viewpoint, their limited operational decision-making
STRATEGIC MANAGEMENT 19

power is not the main problem with public agencies’ strictly defined mandates. The problem

is an overreliance on explicit knowledge, as seen in standard operating procedures, manuals

and codes of conduct (Janhonen & Johanson, 2011). This can mean that agencies have too

few opportunities to combine the sedimented structures of tacit knowledge with fluid forms

of explicit knowledge. One of the key lessons is the importance creating knowledge,

disseminating it and using it for productive purposes. The ideal goal is most often a

horizontally and vertically integrated ICT system connecting all walks of administrative life,

from local to central government (Layne & Lee, 2001). Another recurring theme in this

research is that abundant resources are important if dynamic capabilities are to be developed

and reconfigured. It also seems that dissatisfaction with the status quo is a significant trigger

for capability development.

<b> Strategic Governance

Governance offers a broad perspective on the functioning of society. What is seen as

unifying features behind the viewpoints is the pluricentric rather than unicentric view of the

number of parties involved. In other words, it is assumed that governance takes place

between many rather than few actors. Networks play important role in the study of

governance signifying not only the multitude of actors, but also the different types of actors

such as public and private organizations, as well as civic engagement. There is also an

emphasis on the processes of governing rather than on structures of government. To put it

otherwise, processes of governance highlight soft coordination mechanisms, such as

negotiation, alliance formation and cooperation, in contrast to hard methods of command and

control. The relationships between actors are assumed to contain risk and the discussion of

governance has taken into account the institutional arrangements to reduce and handle such

risks (Kersbergen & van Waarden, 2004).

In a networked environment, there are two ways to guide interactions: (1) Guidance of
STRATEGIC MANAGEMENT 20

the network structuring processes and (2) Direct guidance of the networks. In a sense, this

difference is the distinction between micro interactions within organizations and macro

interactions within governments. In the discussion on governance, there is a clear division

between these two aspects. The designing of institutions and policy management define

macro governance and network creation and maintenance are the tasks of public agencies.

<b> Policy Management

There is an emerging idea that regulation, in its multiple forms, actually covers most

aspects of governance (Jordana & Levi-Faur, 2004; Levi-Faur, 2013). It is too narrow to

define regulation as government control of economic interactions and it is even more

restrictive to see regulation only as the activity of overseeing the functioning of utilities such

as energy or water. Regulation includes the self-regulation of industries or community groups

and it takes place, not only through legal rules, but also through less formal but equally

binding norms. Governments can influence other areas of society, not only through the hard

method of laws, but also through soft methods such as economic incentives and knowledge

dissemination. Put another way, the law represents the stick, incentives the carrot and

information the sermon in government regulations (Bemelmans-Videc et al., 2017).

In the era of governance, civil society has taken a more active regulatory role. A

mixture of formal standards and informal pressure extends government influence. Setting

standards for environmentally-friendly forestry practices, creating an index for governmental

corruption and selling certificates to sustainable tuna fisheries are examples of regulations

exercised by institutions of civil society. In business, self-regulation may be done collectively

through industry standards, such as the adoption of corporate governance standards or the

implementation of corporate social responsibility policies in individual firms (Steurer, 2013).

Private firms may also oversee the functioning of governments, such as when private firms

audit public sector accounts (Vakkuri et al., 2006). Co-regulation and co-management
STRATEGIC MANAGEMENT 21

practices blur many existing borders by forming identifiable types of hybrid arrangements

between government, economy and civil society (Johanson & Vakkuri, 2017; Vakkuri &

Johanson, 2020).

Regulations may include a specific set of rules, a deliberate state influence, or any

form of social or economic influence. Regulation is not always restrictive; it can also enable

actions. Although, regulation is mainly directed to economy and civil society, there has

recently been an increase in certain types of regulations, such as formal auditing procedures

and financial control of appropriations in the public sector. Regulative strategies include

command and control, incentive-based regimes, market-harnessing controls, disclosure

regulations, direct action and design solutions, rights and liabilities, public compensation and

social insurance schemes (Baldwin et al., 2012).

<b> Network Management

The examination of management of network deals with operation of organizations, in

which the public agencies offer an empirical illustration. Although there is a discussion of

collaborative management in the public sector, little work has been done on the strategic

aspects of collaboration (Bryson, 2010). Within the public administration literature, there are

three clusters of relational perspectives focused on (1) policy formation, (2) governance and

(3) policy implementation with overlaps between the first and second as well as the second

and third clusters. It seems that network-analytic studies of public administration concentrate

on questions of policy implementation (Lecy et al., 2014). The strategic task of the public

manager is to use imagination when combining the tasks of an agency, authorizing

environment and operational capabilities. Although the role of public managers is to find new

opportunities to achieve strategic goals by using their cunning in an imaginative value search,

fairness and accountability are what legitimize them. Legitimacy does not stem only from

political approval; it includes harnessing stakeholder support from service users and local
STRATEGIC MANAGEMENT 22

communities. Furthermore, the probity of public officials is not limited to the confines of a

public agency or the users of its services but extends to those who provide services to the

agency. Approval does not result from keeping a suitable distance from politics; it is a result

of constant and repeated actions of integrity before multiple audiences (Moore, 2013).

The analysis of task of public agencies illuminates what type of network

constellations would contribute to the efficiency of the agency within network structures. The

fundamental transformation in sociability emerges in moving from the examination of dyads,

that is, groups of two, to the examination of triads. The triad is composed of three elements

that connect to one another forming a group. For public administration, the efficiency of

initiating and governing such groups becomes a virtue. There are three roles in triads: Non-

partisan, Tertius gaudens, (the third who benefits) and Divide et Impera (divide-and-rule).

One non-partisan role is the mediator, who remains as a neutral outsider to the decision-

making. In the tertius gaudens, the third party uses the social structure for his or her own

egotistic purposes. Competition is the key to understanding the benefits of the situation. In

such a case, it makes sense to keep your contacts apart to gain control and informational

advantages (Burt, 1992). The distinguishing nuance of the divide-and-rule position is

embodied in the fact that the third element tries to gain a position to dominate the others

(Simmel, 1950, pp. 150-63). This examination of triads suggests that the network role of

public agencies is not constant, but that it depends upon the administrative duties (Johanson,

2009) of the agency at hand. The public agency can be a (1) benevolent mediator in the non-

partisan role, (2) a business partner in the tertius gaudens role and (3) an antitrust agent in

divide et impera role. Client group support is a relevant aspect of triadic interaction of the

non-partisan type. Empirical evidence in US state agencies shows that in agencies where top

administrators perceive a strong influence from clients, budgets are greater (Ryu et al., 2008).

As contrast, in competitive environments, public agencies are business partners to their

STRATEGIC MANAGEMENT 23

clients and providers. Here, a lack of connections between outside partners enables the

agency to gain benefits in the marketplace. In an antitrust agent role in regulating and

controlling external parties such as industries, the agency wishes to have an all-powerful

position in discouraging coalition formation among network partners. This hinders the

possibilities of, for instance, regulatory capture, which is an outcome of sectional interests

influencing the working of the government (Bó, 2006).

The empirical studies of networks put forward fruitful network constellations not

unlike the theoretical models in acquiring control, benefiting from the social intercourse and

mediating the action of others. In the analysis of the effectiveness of public agency networks,

the examination of total networks draws attention to the overall configuration of the network

structure rather than the aspects of its individual members. Shared network governance

allows members equal representation in the overall guidance of the network. If one member

of the network dominates the others, one can speak of a lead organization-based network and

if the network contains a separate coordinating actor, this is a network administrative

organization. In their analysis of governance of public networks, Provan and Kenis (2008)

argue that shared network governance works best in small high-trust consensual networks

that do not require a high level of network-level competencies. The lead organization-based

governance on the other hand performs best in medium-sized networks under conditions of

relatively low trust and level of consensus as well as a moderate need for network-level

competencies. The network administrative organization (or the coordinated network) appears

to function best in conditions of relatively high levels of trust, a moderate number of

participants and when the goal consensus and the need for network-level competencies are

high.

All of the basic orientations of the third party appear in agency context. Agencies can

behave as non-partisan intermediaries between politics and the environment, self-interest

STRATEGIC MANAGEMENT 24

seeking profit maximisers or harsh rulers aiming at domination of network partners. The role

of an agency with its partners depends on the duties it performs and also on the flow of

financial transfers, as well as on the nature of recipients of such transfers. In other words,

there is not one definite network role for a public agency, but role-based orientations for

different types of agencies.

<b> Of Color Blindness and Other Strategic Matters

The description of color blindness in the beginning of the chapter draws attention to

the deficiencies and advantages of visual impairment. In one way or the other, strategic

management is geared toward change in programming action, combining resources and

managing contacts with external stakeholders and constituencies. The tradeoff in adapting

strategy approach might be that one becomes estranged from the everyday duties in the

operation of the government. The discussion pointed out to two types of choices in society,

constitutive ones which define the framework for action and collective choices which

function within the selected framework. In this way, many of the system level developments

in the government can easily be viewed from the strategy perspective. It is not evident that all

strategic view represented her are attuned to changing the system of governing in any

fundamental way. Within government there is a double bind in not allowing great alteration

of the operations. In the system level checks and balances between institutions and stricter

demands for the modification of constitutions works against radical changes and legal

restrictions put similar obstacles for organization of public agencies.

To continue with the metaphor of vision and eyesight, it has been suggested that color

is not an inherent property of an object but a property of the visual system of the organism

that perceives it (Endler, 1978). The discussion clearly shows that strategic management is

not only business for private enterprises, but strategy is very much a business of government.

However, the way in which strategy is seen in the study of business enterprises is quite
STRATEGIC MANAGEMENT 25

different in the realm of politics. In the government decision making strategy puts forward a

struggle for power as well as maneuvering between credit seeking and blame avoidance.

There is no reason to belittle the energy and struggle involved in formation of business

strategies, but the way in which they are framed as neutral exercise in meeting goals for

gaining market share or entering quickly expanding markets tends to hide potential and

actually occurring conflicts. One implication of this is that in government circles strategic

management does not appear as impartial tool to improve the quality of government, but also

a tool for acquiring and maintaining power.

Although, some of the basic assumptions of strategic management differ between

government and business, there are many lessons learned from the private sector practice.

One key insight within strategic planning in the private enterprises is that the significance of

planning is difficult to show. One of the key topics in this field is the interaction between

strategic planning and performance, but the results of this analysis remain inconclusive (Wolf

& Floyd, 2017). The lack of studies in public sector does not enable to assess the benefits of

strategic planning in any detailed fashion, but it is fair to assume such assessment is likely to

be at least equally difficult in public sphere.

The separation into three strategy modes offer thought for further contemplation (see

Johanson, 2019). Here it suffices to point out their main obstacles of their adoption and their

connections to the types of capital. In strategic design mode the planning necessitates some

form of continuity. Constant, drastic or sudden changes can render the best of plans futile

exercises in putting forward imagined futures. However, some evidence from business

enterprises suggest that extremely complex and unstable environments encourage the

adoption of more comprehensive long-range planning processes (Wolf & Floyd, 2017). This

finding is extremely interesting as it does not rule out strategic planning in turbulent

environments. Failure to define well-functioning resource combination is the most obvious

STRATEGIC MANAGEMENT 26

obstacle for the successful internal scanning strategy. The problem is made even worse as the

required capabilities tend to change. However, problems with the division of labor also take

place among and between professionals in their inability or reluctance to mix fruitful

expertise to fulfil the most important goals of the organization. In external interactions, the

role of the partners in interaction can be misinterpreted, the efforts to reach agreement may

consume multitude of resources and powerful external stakeholders may overwhelm public

authority.

It is possible that these strategy modes follow temporal orientation in the appreciation

of capital from financial and human capital to the valuation of social capital in modern

societies. In building of infrastructure and physical facilities the financial capital enables

investment in machinery to make concrete artefacts and to modify physical environment

which is at the focus of strategic design mode. In internal strategic scanning the rise of

knowledge-based economy has increased the production of virtual products and services

which have raised the relevance of human capital in terms of knowledge, skills and

capabilities embodied by the minds and action of the employees. Further, strategic

governance points to social capital in an interconnected society which promotes the value of

network relationships over financial possessions or knowledge-based assets.

The aim of this chapter has been to improve our vision of strategic management in

government. The application of the three strategy modes have enable to see strategic

management not as different shades of grey, but rather as different coloring schemes in which

the perceiver has an important influence. In practice, all of these aspects are important

features of governing. There is need for planning for the future, experimentation with the

resource combination as well as establishing and maintaining connections with the

environment. Successful amalgamation of these features gives us a promise that strategic

management is a form of art able to depict government in its true splendor.

STRATEGIC MANAGEMENT 27
STRATEGIC MANAGEMENT 28

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