Jelenc Lara
Faculty of Economics Rijeka, Croatia
[email protected]
Ivančić Valentina
Faculty of Economics Rijeka, Croatia
[email protected]
The Strategic Reality Check- Quo vadis
Croatia?
Abstract
The process of strategic management is the core of the strategic management literature. The
classical contributions of the founders of strategic management suggested that the process
should be directed as deliberate and controlled as possible and every step should be rational
based on data and facts. The opposing approach in strategy is emergent approach allowing
changes in the process from the moment it starts the implementation stage. Furthermore, if
the whole process is flexible we are talking about the adaptive approach to the process of
strategic management. At the other end of spectrum there is organizational anarchy and
garbage-can model of strategy development. The reality check of Croatian national strategy
starts from the statistical data produced by the Croatian Chamber of Economy in 2006 and
2010. The Croatian economy is dominatingly based on trade in almost each of the counties,
non-competitive processing industry with a large number of employees, and construction.
These three sectors are vital for the Croatian economy and should be the focal parts of the
future strategies.
Key words: Strategic management, Strategy, Sectors of Economy, Croatia
Povzetek
Proces strateškega managementa je osrednji element v literaturi strateškega managementa.
Klasični doprinos začetnikov strateškega managementa je v dojemanju procesa kot
namernega in nadzorovanega ter da so vsi koraki racionalni, na podlagi informacij in dejstev.
Nasproten pristop strategiji je izranjajujoči pristop, ki omogoča oziroma dopušča spremembe
v procesu od trenutka, ko začne faza implementacije. Če je celoten proces fleksibilen, lahko
govorimo o adaptivnem pristopu k strategiji v procesu strateškega managementa. Na drugi
strani obstaja organizacijska anarhija in model razvoja strateškega managementa, imenovan
“garbage-can” model. Preverjanje realnosti hrvaške nacionalne strategije se začne s
statističnimi podatki Hrvaške gospodarske zveze za leti 2006 in 2010. V hrvaškem
gospodarstvu je dominantna trgovina v skoraj vseh države, nekonkurenčna predelovalna
industrija z velikim številom zaposlenih in gradbeništvo. Ti trije sektorji so najbolj pomembna
za hrvaško gospodarstvo in bi morali biti osrednji, glavni deli bodočih strategij.
Ključne besede: strateški management, strategija, sektori ekonomije, Hrvaška
Introduction
One of the most frequently used words by the people at the top of the firms, organizations
and government is strategy. The capability to express strategy is the way how to build
someone's credibility. The strategy itself has a few conceptual challenges; it is not only the
matter of expression rather the process of formulation, implementation, control and
evaluation; it is not only the result of the rational planning process rather the interplay of the
deliberate and emerging activities happening in the process. The result of the strategies may
diverge, alternate and even contradict from the initial intentions. The black box between the
formulation and the final result is a phase that is the least studied part in the literature of
strategic management. Strategy implementation is the most difficult test of the top managers'
credibility. The continuous reality check is the activity highly recommended for every step in
the process of strategic management. This activity is needed to realize the changes in the
environment, changes in the capability of the firm, changes in the effects of specific strategy.
It serves as the opportunity for both correcting the activities in order to meet the strategy and
correcting the strategy in order to meet the changes in the environment. The aim of this
article is proposing a reality check on the national strategy based on the statistical data of the
Croatian Chamber of Economy. The statistical data show the facts about the economy
structure and the tendencies in the future that should be taken into consideration when
creating national level strategy. The article starts by presenting the classical approaches in
strategic management, most common discrepancies in the process of strategic management
and the unusual forms of strategy existing in the practice. The article continues to compare
statistical data in order to state the current moment of the state economy and the strategic
reality check of the Croatian national level strategy.
Classical approach to strategic management process
Chandler, representing the classical view on the process, defined strategy as the
determination of the basic long-term goals and objectives of an enterprise, and the adoption
of courses of action and the allocation of resources necessary for carrying out the goals
(Chandler, 1962, 13-14). This specific course of action should have a certain characteristics
(Christensen et.al. 1982, 6, 94, 185, 543):
 Strategy formulation should be a controlled, conscious process of thought
The strategies are formed through a tightly controlled process of conscious human thought.
Strategies should not be developed intuitively or in emergent fashion, instead to be as
deliberate as possible (Andrews, 1981, 24) and to change intuitive skill of formulating
strategy into conscious one (Andrews, 1981, 105-106). Emergent strategy and opportunism
are conceptual enemies of strategy and implicit intuitive strategy in hand of a strong leader is
a sign of weakness of the firm (Christensen et.al., 1982, 828-829). The process of strategic
management cannot support intuition, random decisions, or subconscious feeling of
prospective future business trends.

Informality, simplicity, explicitly, creativity, uniqueness as characteristics of the
strategic management process
Classical approach acknowledged that strategy formulation could be designed in a simple,
yet informal way, while it is a result of “an act of judgment” (Christensen et.al., 1982, 108).
Simplicity is the essence of good art, a conception of strategy should bring simplicity to
complex organizations (Christensen et.al., 1982, 554). Strategy helps in reducing details and
points to the most important factors in the environment and within the firm. Although simple
strategy is not necessarily natural, it must be formally learned (Christensen et.al. 1982, 6
cited by Mintzberg, 1990, 176). If the strategy cannot be congested in a short and simple
form, how it would be possible to perform control implementation of that strategy
(Christensen et.al. 1982,182)? The strategies should be made explicit and if possible,
articulated, which means they have to be kept simple (Christensen et.al. 1982, 105-106, 554,
835). The strategy should be explicit for three reasons: to be effective and specific enough to
require some actions and exclude others (Christensen et.al., 1982, 105-106), only an explicit
strategy can be discussed, investigated and debated (Andrews, 1981, 24) and only explicit
strategy can serve its prime function of knitting people together, provide coherence to
organizational action (Rumelt, 1980, 380) and generate support (Mintzberg, 1990, 182). The
formulation process should be a creative act (Christensen et.al., 1982, 186 cited in
Mintzberg, 1990, 177). The essence of the strategy definition is a pattern, its unity,
coherence, and internal consistency of a firm's strategic decisions that position the firm in its
environment and gives the firm its identity, its power to mobilize its strengths, and its
likelihood of success in the marketplace (Andrews, 1987, 14-15).
 Adaptation to the environment and social responsibility
Environment influences the firm. Therefore, the firm should recognize the parameters in the
environment and adjust itself according to them. There is no possibility either to change the
environment or to create a new one. The emphasis is on social responsibility. However, the
leader accounts for the needs of society, not the other way round. Society exerts influence
on the firm, if the leader is voluntarily socially responsible (Mintzberg, 1994, 38).

Formulation precedes implementation
Full-blown strategy that has followed the instruction above is ready to reach the second
stage- the implementation. Analysis of the current situation is a divergent process; the
moment of deciding upon the decision is a convergent process while the implementation is a
divergent one again. After being decided upon, strategy does not change, while emergent
strategy considered erosion of deliberate strategy (Christensen et.al., 1982, 553-554).
Structure follows the strategy helping to implement the planned business idea. If there is
some mistake in the implementation, the reason is either an implementation
misunderstanding or a political reason, but not the mistakes in the formulation strategy
process.
There were a number of points that classical approach represents. Aaron Wildavsky
(Wildavsky, 1973, 130) opposed planning; suggesting that planning is not defended for what
it accomplishes, but for what it symbolizes- rationality. Planning is conceived to be the way in
which intelligence is applied to social problems. Planning is good because it is systematic
rather than random, efficient rather than wasteful, coordinated rather than helter-skelter,
consistent rather than contradictionary, and above all, rational rather than unreasonable
(Wildavsky, 1979, 129 cited by Mintzberg, 1994, 189).
The opposing approaches in the process
One of the most popular opposing approaches to the process of strategic management is the
deliberate-emergent approach. The deliberate approach is the typical formal, analytical,
rational approach common for the classical point of view presented previously. It is proposed
by the founders of strategic management and considered as the only possible way of
performing strategy. It is used in the stable environments which guarantee the “ceteris
paribus” conditions for forecasting, optimizing the conditions, structure and actions in the
future.
Acknowledging the inflexibility of planning, George Steiner stated that plans are
commitments, or should be and thus they limit choice. They tend to reduce initiative to
arrange alternatives beyond the plans (Steiner, 1979, 46). Effective strategists are not people
who abstract themselves from the daily details but quite the opposite: they are the ones who
immerse themselves in it, while being able to abstract the strategic message from it
(Mintzberg, 1994, 256). Good strategy is the one that does not need to be changed in a short
period. Strategy is a framework for resolving problems, not a specific way to resolve the
problems (Rumelt, 1980, 365 cited in Mintzberg, 1990, 182).
Researchers of the classical approach confess that there is an evident problem with inability
to predict the future, acknowledged the imperfections of the top manager, time pressure and
the influence of the thousands of unknown factors (Christensen et al., 1985, 3). The
formulation and the implementation process cannot follow one after another, but they appear
rather simultaneously, where as soon as the process of formulation is close to the end, the
process of implementation already starts. Andrews points the need to find a balance between
focus and flexibility while deciding on the partial unknown facts, risk, and uncertainty (Ansoff,
1987, 115).
The emergent strategies rise in the moment of implementation. In order to foster the rise of
such a strategies firm needs to have a system of supporting the signals from the
environment, drive from the middle management to support ideas and propose changes and
have an open mind to continuous changes in the strategy and the behavior accordingly. The
opposing, flexible approach to strategy creating is the adaptive way of forming strategy
characterized by the following facts (Mintzberg, 1973, 405-406):

There are no clearly defined goals; the strategy is a reflection of the political influence
of individual interest groups within and outside the firm. There is no central position of
political power and no simple goals. The firm ignores the inconsistency between



goals. The firm cannot achieve the maximization of profit, but has to find a solution to
the problems good enough to meet the restrictions,
The process of strategic management, by its character, reacts to the emerged
problems, contrary to the active approach towards new opportunities. In a constantly
changeable environment, there are many issues to be solved, and if there were time
for exploring new opportunities, the lack of goals’ clarity would make the soundness
of such action impossible,
Decisions are made in a step-by-step rhythm. Since we are dealing with a complex
environment, the firm cannot risk making a wrong important decision. It should make
a number of smaller decisions whose feedback will lead to a correct final decision.
Forming a strategy is an endless process of successive steps in which continuous
nibbling replaces the big bite (Lindblom, cited in Mintzberg, 1973, 47),
Individual demands put in front of a firm are contradictory and the manager does not
have the mental capacity to reconcile them. The process of forming strategy is
fragmented by nature but remains flexible.
James Brian Quinn continued the Lindblom’s work on incrementalism and in 1978 published
Strategies for Change: Logical Incrementalism. In the business sector, a central actorstrategist is pulling all activities and directing them toward the common goal and strategy.
There is incrementalism, but it is logical, not disjoined. The role of strategic management
means trying to develop or maintain in the top executives minds a consistent pattern among
the decisions made in each subsystem (Quinn, 1980, 52 cited by Mintzberg, Ahlstrand,
Lampel, 1998, 181). The process of strategic management is continuous and pulsing
dynamic, and managers should build the seeds of understanding, identity, and commitment
into the very processes that create their strategies. By the time the strategy begins to
crystallize in focus, pieces of it are already being implemented. Through their strategic
formulation processes, they have built a momentum and psychological commitment to the
strategy that causes it to flow toward flexible implementation. Constantly integrating the
simultaneous incremental processes of strategy formulation and implementation is the
central art of effective strategic management (Quinn, 1980, 145 cited in Mintzberg, Ahlstrand,
Lampel, 1998, 181-182).
The Power of Different Strategy
Apart from the dichotomy approach, there is a third way of approaching process of strategic
management recognized in the literature of strategic management. The third way recognizes
the possibility of (un)successful firms in which there could not be possible to establish a
pattern of logical activities directed toward accomplishing the goal. The organizational
anarchy (Haberberg, Rieple, 2001, 650) is name for all those firms that lack any form of
strategic direction or formally expressed strategy and still perform successfully. These
examples question the need for strategy and strategic management in general (Cohen,
March i Osen, 1972 in Stacey, 1993, 192). Inkpen and Choudhury (1995) consider the firms
in the extremely dynamic environment as the appropriate candidates for such approach.
Furthermore, if such state of non-existence of strategy creates environment in which the goal
is vague or not existing, and the activities are in contradiction and conflict, one could state
garbage-can model (Cohen, March, Olsen, 1972 in Stacey, 1993, 192). It is characterized by
the environment in which problems, participants and the solution rise from the situation,
moment and the circumstance. The decisions are taken without previous considerations in a
blink of the second without considerations about the consequences. Some decisions are
taken by accident; the organization has the lack of the values and cultural values are not
coordinated. There is a constant flow of new problems, crisis, new people, and exceptions
from common rules. There is no clear hierarchy and the distribution of power is close to
egalitarian (Stacey, 1993, 270). The individuals do not have the sense of direction and they
search for their own role in the firm.
The nation level strategy
The characteristics of the strategic management process in the private firm are not identical
to the characteristics of the national government. The complexity of environment, factors,
multiplication of stakeholders, and the political process of elections cycles contribute to even
more challenging aspect of formulating, implementing, controlling and evaluating strategy on
the national level. Managing the development of the state is complex issue due to the
dynamic market mechanism that shapes the behavior and slow public administration trying to
fulfill the obligations serving as the modern democratic state. The Republic of Croatia had a
number of strategies, the two recently are named Government program in the period 20082011 and for the period 2009-2011. The program defines the goals and measures in the
specific sector and field of governance during the mandate.
The bottom-up approach of statistical data from the database of the Croatian Chamber of
Economy was gathered in 2006 and 2010. The authors used the formal database although
there has been seen some technical inconsistency when data mining. The tables 1 and 2
show the three most widespread sectors according to the number of firms in 2006 and 2010.
Based on the data in Table 1 the sector that has the largest number of firms is the trade
ranging from 47,7% up to the 61,3% from total number of firms in different counties. The
second placed is shared by the processing industry, ranging from 22,0% up to 31,7 % in
specific counties; and real-estate business and rental ranging from 19,9 % up to 34,2%. The
third place of sectors is divided between again real-estate business and rental and
processing industry and construction, hotels and restaurants, agriculture and forestry. All
other sectors are present in less than 20% of the total number of firms. According to this data
our economy is based on the trade, processing industry and real-estate sector and rentals.
The strategic initiatives should be directed toward the decision whether the characteristics of
trade sectors will bring benefit to Croats. Trade should be directed toward the wider region
and should promote Croatian processing industry. Processing industry is the sector that has
the tradition and the large number of employees that present the potential social problems in
society if considering a radical downsizing. The future of those firms depend on their search
for the competiveness on the global market by keeping the number of employees stable
which is one additional challenge to face. Real-estate business is the mark of the changes in
the ownership, mobility of the people, the structure of the nation and the level of their living
standard.
Table 1: The three most widespread frequent sectors according to the number of firms in
2006
County
Rank 1
Rank 2
Rank 3
Sum
NKD
Num
%
NKD
Num
%
NKD
Num
%
G
12.517
53,9
K
6.563
28,2
D
4.152
17,9
23.232
G
3.183
59,6
K
1.232
23,0
D
930
17,4
5.345
G
2.109
47,7
K
1.513
34,2
D
803
18,1
4.425
G
2.102
50,3
K
1.333
31,9
D
744
17,8
4.179
Osječko-baranjska
Dubrovačkoneretvanska
G
1.410
61,3
K
459
19,9
D
434
18,8
2.303
G
803
54,7
K
421
28,7
H
244
16,6
1.468
Varaždinska
G
829
52,8
D
383
24,4
K
357
22,8
1.569
Međimurska
G
669
51,9
D
372
28,9
K
248
19,2
1.289
Karlovačka
G
566
53,9
D
283
26,9
K
202
19,2
1.051
Šibensko-kninska
G
497
48,0
D
349
33,6
K
191
18,4
1.037
Zadarska
G
718
58,8
K
278
22,8
D
224
18,4
1.220
Požeško-slavonska
G
451
52,1
D
229
26,5
K
185
21,4
865
G
486
58,2
D
215
25,7
K
135
16,1
836
G
450
51,8
D
260
29,9
K
159
18,3
869
G
411
50,5
D
258
31,7
F
145
17,8
814
G
458
58,5
D
176
22,4
F
150
19,1
784
G
432
54,8
D
222
28,1
K
135
17,1
789
Brodsko-posavska
G
229
56,9
D
112
27,9
K
61
15,2
402
Virovitičkopodravska
G
264
58,7
D
99
22,0
A
87
19,3
450
Ličko-Senjska
G
163
55,8
D
71
24,3
F
58
19,8
292
Zagrebačka
Splitskodalmatinska
Primorskogoranska
Istarska
Sisačkomoslavačka
Bjelovarskobilogorska
Krapinskozagorska
Vukovarskosrijemska
Koprivničkokriževačka
Source: www.hgk.hr (July 2006)
Remark: The classification system used is NKD 2002.
Table 2 presents the same data just four years apart. In 2010 the dominance of trade lost the
first place only in three counties and replaced it with transport and storage and financial and
insurance sectors. The second place offers more variety of sectors; processing industry,
energy, gas, steam and air-conditioners, construction. The third rank is mostly for
construction. The sector of providing intellectual services (professional, scientific and
technical activities) is interesting to realize as the sector appearing in one county as the
second and some others as the third level sector. This is the first sign of the proof that
existing knowledge can be explored for some benefits.
When looking the comparison of the two years, the Republic of Croatia is still dominated by
trade with the very slow rate of decline during these four years. Processing industry is
declining in the number of firms while construction becomes one of the dominant third priority
sectors. There is a variety of sectors that are placed as the third level sectors, but in a few
years will probably replace trade. Those sectors will denote the direction of development of
the state being the result of either the public policy or opportunity on the open market seen
by the entrepreneurs.
Table 2: The three most widespread sectors according to the number of firms in 2010
County
Rank 1
NKD
Rank 2
Num
%
Rank 3
NKD
Num
%
Sum
NKD
Num
%
Zagrebačka
Splitskodalmatinska
Primorskogoranska
Istarska
G
14310
52,6
M
7538
27,7
F
5350
19,7
27198
G
3959
47,1
K
2962
35,2
F
1493
17,7
8414
H
10555
69,7
G
3187
21,0
F
1407
9,3
15149
K
3394
46,5
G
2710
37,1
F
1192
16,3
7296
Osječko-baranjska
Dubrovačkoneretvanska
Varaždinska
G
1605
58,4
C
598
21,8
F
543
19,8
2746
K
1026
42,8
G
968
40,4
H
404
16,8
2398
G
1037
53,2
C
523
26,8
M
388
19,9
1948
Međimurska
G
881
47,5
D
548
29,5
F
426
23,0
1855
Karlovačka
G
686
53,8
C
367
28,8
M
223
17,5
1276
Šibensko-kninska
G
661
57,4
F
245
21,3
C
245
21,3
1151
Zadarska
Požeškoslavonska
Sisačkomoslavačka
Bjelovarskobilogorska
Krapinskozagorska
Vukovarskosrijemska
Koprivničkokriževačka
Brodsko-posavska
Virovitičkopodravska
Ličko-Senjska
G
890
52,5
F
471
27,8
C
334
19,7
1695
G
241
52,4
C
132
28,7
F
87
18,9
460
G
548
52,6
C
288
27,7
F
205
19,7
1041
G
574
53,3
C
348
32,3
M
182
16,9
1077
G
497
44,8
C
332
29,9
F
281
25,3
1110
G
627
54,5
D
286
24,9
F
237
20,6
1150
G
1660
78,0
C
291
13,7
F
176
8,3
2127
G
516
44,6
C
337
29,1
F
304
26,3
1157
G
327
54,4
C
148
24,6
A
126
21,0
601
G
181
46,9
C
116
30,1
F
89
23,1
386
Source: www.hgk.hr (September 2010)
Remark: The classification system used is NKD 2007. (not comparable to the Table 1 codes)
Instead of the conclusion
As the classical approach in the strategic management literature suggested the process of
planning should be as deliberate as possible based on the number of proofs, facts and data.
At the moment when strategy implementation takes the leading part, there should be more
space for the emergent initiatives to enter the grand plan and make interventions according
to the changes in the environment. Although some of the firms, organizations and
government lack the ability to plan strategically, there is also a danger in tendency to overuse
the strategic planning (Ohmae, 1982, 225) and make a different type of strategic mistake.
Reality checks between the strategy and the statistical data reveals that strategy should be
focusing more on the scope and structure of the trade, its consequences and trade-offs for
other sectors. The second issue is the changing structure of the economy. The processing
industry is losing its importance and letting others to become the dominant part of economy.
The question is whether the other sector will contribute the creation of new goods and be
competitive on the domestic and foreign markets and employ as many people as processing
industry did. Only three counties found their way to promote other activities apart from trade
and they should be an example of good practice other counties could follow. The appearance
of a variety of sectors in 2010 as the third level sectors is a sign that Croatia is directing
towards development in a different directions apart from the common tendency towards the
trade. The public policies should provide a strong push towards other sectors and providing a
turning point from the trade and non competitive processing industry. The strategy should be
directed towards the new more knowledge- oriented sectors. Due to the size of Croatia there
should be a selective approach towards the entrepreneurial initiatives in each of the counties
while only few of the firms hold and turn the economy of the whole region. The sector policy
directions find a quite controversy feedback in practice while setting general rules many
individual entrepreneurs find themselves blocked by the implementation procedure of the
public policy measures.
The economy growth in its essence is a complex and long term issue and it can not be
isolated from social development and development of ethical values. It is important to
operate using proactive and methodical thinking to create a way of achieving
competitiveness opportunities. Apart from the sector structure development imbalance, in
Croatia, there is also an imbalance between the levels of county development. The
concentration of firms is higher in certain counties: Zagrebačka, Primorsko goranska, Istria,
Splitsko dalmatinska, which is reflected in an unbalanced distribution of GDP per capita.
Strategy of the Republic of Croatia should be formulated for the next 10-20 years time as the
general direction and list of priority sectors that government will support and promote while
the public policy measures and specific outputs should be planned, formulated, implemented
and controlled in the four years election cycles by the leading political party in power. The
situation in the Republic of Croatia is still oriented towards the trade and processing industry
that is not competitive either on the domestic or foreign markets and both of them employ the
number of people in the country.
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