the concept of strategy (1) fall 2009

8/7/2019 THE CONCEPT OF STRATEGY (1) Fall 2009

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Strategic Management

Strategy: The unifying theme that gives coherence anddirection to the decisions of an organization

Strategic Management: Consisting of the analysis,decisions, and actions an organization undertakes in

order to create and sustain competitive advantages.Or, the Strategic Management Process is:

The full set of commitments, decisions, and actionsrequired for a firm to create value and earn above-

average returns. (Hitt, Hoskinson, & Ireland, 2004, p. 4)

Strategic Management basically seeks to answer the question:

How and why do some firms outperform others?


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Other Definitions of Strategy

Oxford Dictionary: The art of war, especially the planning of

movements of troops and ships etc., into favorable positions; planof action or policy in business or politics etc.

Chester I. Barnard: Strategy is intended to focus on the

interdependence of the adversaries decisions and on their

expectations about each others behavior.Alfred D. Chandler Jr.: The determination of the long run goals and

objectives of an enterprise, and the adoption of courses of action

and the allocation of resources necessary for carrying out these

goals.

Kenneth Andrews: Strategy is the pattern of objectives, purposes or

goals and the major policies and plans for achieving these goals,

stated in such a way as to define what business the company is in or

is to be in and the kind of company it is or is to be.


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The Origins of Strategy

Know the other and know yourself: Triumph without peril.

Know Nature and know the Situation: Triumph completely.

- Sun Tzu (~360 B.C.)

Business strategy is a relatively young field of study but its

roots go back to early military strategy.

Strategy comes from the Greek word strategos, which is

formed from stratos, meaning army, and ag, meaning to

lead.

Carl von Clausewitz wrote in the early 1800s that tactics[involve] the use of armed forces in the engagement, strategy

[is] the use of engagements for the objects of war.


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More Recent Historical

Development of Business Strategy

Not until very large companies with the ability to influence thecompetitive environment within their industries did strategicthinking in the business world begin to be articulated.

Alfred Sloan, CEO of GM, 1923 1946 - One of the first to analyze competition,Ford, and devise a strategic plan based on its strengths and weaknesses.

Chester Barnard, Senior Executive of New Jersey Bell, 1930s - Argued managersshould pay attention to strategic factors which depend on personal ororganizational action.

Wartime (WWI and WWII) efforts also impacted strategicthinking and use of formal strategic tools and concepts:

Allocation of scarce resources

Use of quantitative analysis in planning

The concept of learning curves

The concept of distinctive competence - first mentioned by Philip Selznick, asociologist, in a debate about whether or not to combine the military forces into asingle unit (i.e., no Army, Navy, Air Force, Marines, just the US Military).


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It wasnt until the 1950s that strategy was truly introduced in business

schools as a way of analyzing the competitive environment and settingorganizational goals and objectives to fit that environment.

These concepts serve as the foundation of strategic management study:

Previous Business Policy perspectives looked at maintaining a balance inaccord with the underlying policies of the business as a whole. Harvard

Kenneth Andrews SWOT Analysis was developed still in use today. Theodore Levitts Marketing Myopia argued that when companies fail it

typically is because firms focus on the product rather than the changingpatterns of consumer needs and tastes.

IgorAnsoffargued, in response to Levitt, that a firms mission should exploit

an existing need in the market, rather than using the consumer as the commonthread in business. In reality a given type of customer will frequently have arange of product missions or needs. Corporate Strategy, 1965.

BCG developed the experience curve and portfolio analysis concepts.

McKinsey & Companys development ofSBUs and the nine-block matrix.

Mintzbergs Deliberate, Emergent & Realized Strategies

Porters Generic Strategies

More Historical Development


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DOMINANT

THEME

1950s 1960s-early 70s Mid-70s-mid-80s Late 80s 1990s 2000s

Budgetary Corporate Positioning Competitive Strategic

planning & planning advantage innovation

control

Financial Planning Selecting Focusing on Reconciling

control growth &- sectors/markets. sources of size with

diversification Positioning for competitive flexibility &

leadership advantage agility

Capital Forecasting. Industry analysis Resources & Cooperative

budgeting. Corporate Segmentation capabilities. strategy.

Financial planning. Experience curve Shareholder Complexity.

planning Synergy Portfolio analysis value. Owning

E-commerce. standards. Knowledge Management

Coordination Corporate Diversification. Restructuring. Alliances &

& control by planning depts. Global strategies. Reengineering. networks

Budgeting created. Rise of Matrix structures Refocusing. Self -organiz

systems corporate Outsourcing. ation

& virtual

planning organization

MAIN

ISSUES

KEY

CONCEPTS

&

TOOLS

MANAGE-

MENT

IMPLIC-

ATIONS

The Evolution of Strategic Management


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Ansoffs Product / Mission Matrix*

Market

Penetration

Market

Penetration

Product

Development

Product

Development

Market

Development

Market

DevelopmentDiversificationDiversification

PresentProduct

NewProduct

Present

Mission

New

Mission

*Categories define the common thread in an

organizations business/corporate strategy.


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BCGs Growth-Share Matrix

StarStar

Question

Mark

Question

Mark

Cash

Cow

Cash

CowDogDog

HighShare

LowShare

High

Growth

Slow

Growth

??

Bark!!


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DeliberateStrategy

Forms of Strategy

Realized

Strategy

Intended

Strategy

Unrealized

Strategy

Emergent

Strategy

**Normally emergent strategy comes from

learning and dissemination within the organization.

Mintzbergs Critique of Formal Strategic Planning:The fallacy of prediction the future is

unknownThe fallacy of detachment -- impossible to

divorce formulation from implementationThe fallacy of formalization --inhibits flexibility,

spontaneity, intuition and learning.

Mintzbergs Critique of Formal Strategic Planning:The fallacy of prediction the future is

unknownThe fallacy of detachment -- impossible to

divorce formulation from implementationThe fallacy of formalization --inhibits flexibility,

spontaneity, intuition and learning.


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Porters Generic Strategies

Strategy 1

CostLeadership

Strategy 2

Differentiation

Strategy 2

Differentiation

Strategy 3A

Cost Focus

Strategy 3A

Cost Focus

Strategy 3B

Differentiation

Focus

Strategy 3B

Differentiation

Focus

Competitive Advantage

Lower Cost Differentiation

Competitive

Scope

Broad

Target

Narrow

Target


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Provides a frameworkfor thinking about the business

Creates a fit between the organization and its external

environment.

Provides a process of coping with change and organizationalrenewal

Fosters anticipation, innovation, and excellence

Facilitates consistent decision-making

Creates organizational focus

Acts as a process of organizational leadership.

Finally and most importantly: To help the organization to

succeed(outperform) against itscompetition!!

Why is SM, as a field of study, necessary?

Why are all these theories/tools needed ?


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Strategy, Survival and Success The ultimate goal of the organizations is to be

successful success is: Survival (long-term success)

Achievement ofGoals

Above average returns/Profitability (probably most important,because it determines the ability to achieve the above two)

Strategy can help achieve success, but it doesntguarantee itcertain features of strategy directlycontribute to success:

1. Goals that are simple, consistent, and long-term.

2. Profound understanding of the competitive environment.3. Objective appraisal of resources.

4. Effective implementation.

These observations concerning the role of strategy can bemade in relation to most human endeavors be it warfare,

chess, politics, sport or business.


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Competition and Competitive Advantage

Competition provides the rationale forstrategy without competition, strategy isof no concern.

The essence of strategy is theinterdependence of competitorsor theestablishment ofsustainable competitiveadvantage over rivals.

The study of strategy involves how we goabout identifying, establishing, andsustaining competitive advantage.


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Thinking Strategically:The Three Big Strategic Analysis Questions

1.Where are we now? What is our situation?

2.Where do we want to go?

Business(es) we want to be in and market

positions we want to stake out

Buyer needs and groups we want to serve

Outcomes we want to achieve

3.How will we get there?


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Differing Perspectives of the StrategicManagement Process

External EnvironmentExternal Environment

Industry AttractivenessIndustry Attractiveness

Strategy FormulationStrategy Formulation

I/O ModelI/O Model

Assets/Skills AssessmentAssets/Skills Assessment

ImplementationImplementation

ResourcesResources

CapabilityCapability

Sustainable CASustainable CA

RBV ModelRBV Model

Strategy FormulationStrategy Formulation

ImplementationImplementation


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Four Assumptions of the I/O Model

1.1. The external environment is assumed to possessThe external environment is assumed to possesspressures and constraints that determine the strategiespressures and constraints that determine the strategies

that would result in above-average returns.that would result in above-average returns.

2.2. Most firms competing within a particular industry areMost firms competing within a particular industry are

assumed to control similar strategically relevantassumed to control similar strategically relevantresourcesresources and to pursue similar strategies in light of thoseand to pursue similar strategies in light of those

resources.resources.

3.3. Resources used to implement strategies are highlyResources used to implement strategies are highly mobilemobile

across firms.across firms.4.4. Organizational decision makers are assumed to beOrganizational decision makers are assumed to be

rational and committed to acting in the firms bestrational and committed to acting in the firms best

interests, as shown by their profit-maximizing behaviors.interests, as shown by their profit-maximizing behaviors.


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Our Approach to Studying the Strategic

Management Process

Both the I/O and RBV perspectives are

useful to managers and essential to

understanding the strategic managementprocess.

One essentially takes an outward-in (I/O)

perspective while other takes an inward-out(RBV) perspective.


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19Im

plementati

on

(5)

Implem

entation

(5)

Strateg

icCon

trol(6)

Strate

gicCon

trol(6

)

Formulating Directions

- Develop Vision/Mission (1)

-Set Objectives (2)

Formulating Directions

- Develop Vision/Mission (1)

-Set Objectives (2)

Organizational Culture

Stakeholder Influence

Values / Ethics

Strategic Analyses (3)Strategic Analyses (3)

Strategy Formulation (4)

-Formulate and Consider

Alternatives

-Make Strategy Choice

Strategy Formulation (4)

-Formulate and Consider

Alternatives

-Make Strategy Choice

Opportunities and Threats

from Economic, Political,

Technological etc Sources

Opportunities and Threatsfrom Competition and

Key Stakeholders

Organizational Culture

Stakeholder Influence

Values / Ethics

Internal OrganizationInternal Organization

Competitor/StakeholderCompetitor/Stakeholder

External EnvironmentExternal Environment

Context of Strategy(type of organization, culture, values,

life cycle competitive position)


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Birnbaums Strategy 21 Process

Examine the Current Business Model Go Beyond the Current Business Model Design a Grand Strategy Develop a Compelling Vision

Assure Enablers of Strategy Intellectual Capacity Processes Organizational Structures

Technologies External Relationships Capital Resources

Set Objectives to Measure Success Design a Monitoring Process

Similar to

Internal and

Competitive

Analysis

Similar to

Internal and

CompetitiveAnalysis

Basic Decision

to Make Major

Change or Not

Related Issues to

Monitor

Implementation

Process

Strategic

Formulation and

Implementation


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21Hambrick & Fredrickson, 2001


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The Strategy Concept

Levels of AnalysisC o r p o r a t e

S t r a t e g y

B u s i n e s s

S t r a t e g y

F u n c t i o n a l

S t r a t e g y

C h o i c e o f P r o d u c t s

C h o i c e o f M a r k e t s

C h o i c e o f C o m p e t i t o r s

Where to Compete?

How to Compete?

How to Contribute?


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RATE OF PROFIT

ABOVE THE

COMPETITIVE

LEVEL

How do we

make

money?

INDUSTRY

ATTRACTIVENESS

Which

businesses

should we be

in?

COMPETITIVE

ADVANTAGE

How should

we compete?

CORPORATE

STRATEGY

BUSINESS

STRATEGY

the concept of strategy (1) fall 2009

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