Miles A. Zachary

MGT 4380

Strategic Management

Mastering Strategy: Art and Science

Chapter 1

Key question: “Why do some firms outperform other firms?”

Examines how the behaviors and actions of top management team (TMT) members, firms, industries, and economies influence a firm’s success or failure

Note the different levels of analysesIndividualTeam or dyadFirmIndustryEconomy

What is Strategic Management?

In strategy, firms are the main unit of analysisAnalyzed from internal and external

environmental perspectivesInternal

IndividualDyadTeam or group

ExternalStrategic group IndustrySectorEconomy

Levels of Analyses

Mintzberg (1987) outlined five ways to conceptualize strategy

1. Strategy as a Plan—a carefully crafted set of steps a firm follows to be successful

2. Strategy as a Ploy—a specific move designed to out maneuver or outwit a competitor(s)

3. Strategy as a Pattern—the degree of consistency related to a firm’s actions

4. Strategy as a Position—a firm’s place in its industry relative to its competitors

5. Strategy as a Perspective—how a firm’s executives perceive the competitive landscape

Five P’s of Strategy

The most common view of strategyNearly all firms create a strategic plan of

some kindA vital and common element of a strategic

plan is a business planOutlines the process by which a firm hopes to

be profitableWhen firms seek additional capital, investors

and lenders often desire a written business plan

Research suggests that firms that do not clearly articulate their business plan are more likely to fail

Strategy as a Plan

Strategic ploys range from simple maneuvering to complex (and sometimes questionable) trickery

D’Aveni (1994) suggested that the nature of hypercompetition, particularly in certain industries and sectors, requires many firms to strategically maneuver around competition to be profitable

Firms should be careful to follow legal and ethical standardsFirms failing to follow legal guidelines often failFirms failing to follow ethical standards may suffer

negative publicity and lower reputation

Strategy as a Ploy

Simply thought of as ‘strategic consistency’A proponent of strategic consistency is Oliver

Williamson (2001); suggested that firms should focus on first-order cost considerations and maintain a stable strategic pattern of action in order to be successful

Strategy as a Pattern

Strategy as a position adds a multi-firm perspective; how does a firm fit amongst competitors in its given industry?

Firms establish industry positions through different strategic actions (e.g. Porter’s Generic Strategies)

Different industry positions carry different advantages and disadvantages

Research on temporary advantages suggest that leading firms facing displacement by competitors are best served self-displacing (Pacheco-de-Almeida, 2010)

Strategy as a Position

Shifts strategy from firm-level to TMT-level; how do a firm’s executives view the strategic landscape?

Individual idiosyncrasies lead executives to interpret competition and competitors differently

Competitor acumen describes the ability of a firm (and its executives) to accurately determine how another firm (and its executives) views its competitive landscape (Tsai, Su, & Chen, 2011)

Unique executive perspectives may lead firms to see market opportunities that others would miss

Strategy as a Perspective

The strategic plan an firm hopes to execute

Typically described within a firm’s strategic plan

Intended strategies are often developed when a new venture is being formed

For new ventures, a firm’s strategic plan is also called a business plan

Intended Strategies

Unplanned strategies that result from the opportunities and threats faced by a firm over time

Firms able to capitalize on emergent strategies may be more successful

However, not all emergent strategies lead to success

Emergent Strategies

The strategies that a firm actually followsRealized strategies are a function of three

upstream types of strategyIntended strategy—what a firm plans to doDeliberate strategy—what a firm continues to

pursue over timeEmergent strategy—unplanned strategies

that emerge over time as a result of actions and events presented

Sometimes a firm may dispose of strategies as they diverge from deliberate strategies; these are called non-realized strategies

Realized Strategies

Intended, Emergent, and Realized Strategies

Let’s take a 10 minute break…

“I made a big decision a little while ago.I don’t remember what it was, which prob’ly goes to showThat many times a simple choice can prove to be essential

Even though it often might appear inconsequential

I must have been distracted when I left my home becauseLeft or right I’m sure I went. (I wonder which it was!)

Anyway, I never veered: I walked in that directionUtterly absorbed, it seems, in quiet introspection

For no reason I think of, I’ve wandered far astray.And that is how I got to where I find myself today.”

-Bill WattersonThe Indispensable Calvin and Hobbes

Earliest recorded of strategic management1491 BC-Moses divides his large group into

smaller groups, thus creating a command structure

500 BC-Sun Tzu writes The Art of War70 BC-Virgil tells the story of the Trojan horse

Much of modern strategy was developed from military strategySun Tzu-The Art of WarNiccolo Machiavelli-The PrinceMilitaries serve as a examples of large

organizations pursuing a goal

History of Strategic Management

1776 – Adam Smith discusses the role of dividing labor to maximize efficiency

1911 – Frederick Taylor wrote The Principles of Scientific Management emphasizing firm efficiency through “one best way”Responsible for labeling organizational

performance as the core concern for strategic management

Spawned Harvard University’s (1912) “business policy” course; first of its kind

1920’s – A&W Root Beer introduced franchising

Strategy in the 20th Century

1962 – Alfred Chandler published Strategy and Structure: Chapters in the History of the Industrial EnterpriseDiscusses how organizational performance is a

function strategy and organizational structure together

Considered the first real look at modern strategy1980 – Strategic Management Society published the

Strategic Management Journal (SMJ)1980 – Michael Porter publis hed Competitive

Strategy: Techniques for Analyzing Industries and CompetitorsIntroduced 5 forces model and generic strategies

Strategy in the 20th Century

Issues in the presentGlobalization/hypercompetitionBusiness ethicsCorporate social responsibilityCorporate-level entrepreneurship

Strategy is and will continue to become highly valuable moving forward

Strategy in the 21st Century

The Strategic Management ProcessUnderstandi

ng Strategy &

Performance

Environmental & Intern

al Scann

ing

Strategy For

mulation

Strategy Implementatio

n

Mintzberg (1987) outlined four (4) reasons firms need strategiesSetting directionFocusing effortDefining the organizationProviding consistency

Reasons firms need strategy

The main role of strategy is to evolve a trajectory toward a target; set the course for action

Enable firms to maneuver through threatening environments

Firms should balance their time horizons—you don’t want to look so far into the future as to ignore the present

Sometimes, good strategy can blind an organization and reduce flexibility

Setting Direction

Strategy focuses collective effort by stitching together individual actors through providing a sense of direction

Mintzberg (1987) suggests and Barnard (1938) would agree that this is the main objective of the CEO

A potential drawback is that institutionalized culture/strategy can make adapting to changing environments difficult or impossible

Focusing Effort

Gives the organization meaning and purposeCan give a shorthand example of how to

differentiate one firm from anotherHaving a loose or open strategy can increase

flexibility

Defining the Organization

Reduces uncertainty and provides consistency

Satisfies intrinsic need for orderPromote stability and efficiencyRumelt (1979): “the function of strategy is

not to ‘solve a problem,’ but to so structure a situation that the emergent problems are solvable.”

And by extension, the emergent strategies are appropriately realized

Providing Consistency

Remember, strategies are consistent, the process of creating strategies is dynamic

One of the biggest dangers firms face regarding strategy is becoming stagnant

Strategic homogeneity can be good, but can also blind an organization from other possibilities

Suggests that firms should carryout consistent strategies and develop innovative strategies simultaneously

Conclusions