What is strategy?What is strategy?

After studying this topic you should be able to:

1. Outline the historical development of the ‘strategic management’ discipline

2. Explain a range of contemporary perspectives on the nature of ‘strategic’ management;

3. Understand the content and purpose of each element of the strategy process.

Strategy definedStrategy defined(see http://home.att.net/~nickols/strategy_definition.htm )

"Corporate strategy is the pattern of decisions in a company "Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those produces the principal policies and plans for achieving those goals, and defines the range of business the company is to goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, economic contribution it intends to make to its shareholders, employees, customers, and communities."employees, customers, and communities."

Kenneth Andrews (1980) Kenneth Andrews (1980) The Concept of Corporate StrategyThe Concept of Corporate Strategy p.18p.18“Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations”

Johnson et al (2005) Exploring Corporate Strategy p.9

Key elements of strategyKey elements of strategyCONTENT (The ‘what’ of strategy) It determines scopescope of an organisation’s activities It determines the long-term directionlong-term direction It clarifies why the organisation exists why the organisation exists (mission) and who forwho for

(shareholders vs. stakeholders) It involves broad decisions about theabout the mix and use of resourcesmix and use of resources Competitive advantageCompetitive advantage is an essential aim of strategy

PROCESS (The ‘how’ of strategy) Strategy operates at different levelsdifferent levels in an organisation (corporate,

business and operational) It is dynamic and evolves over time (‘emergent strategy’emergent strategy’) as

environmental conditions change. It is not synonymous with formal planningnot synonymous with formal planning

Brief History of Strategy DisciplineBrief History of Strategy Discipline (see Chapter 1 of Contemporary Strategy Analysis by Robert M Grant)

General management theory developed in response to the emergence of large industrial organisations in Europe and the US in the early 20th century.

Key early contributors were:

– Frederick Taylor – scientific management

– Henri Fayol administration

– Elton Mayo – motivation (Hawthorne experiments)

– Max Weber – bureaucracy and structure– (see http://www.kernsanalysis.com/sjsu/ise250/history.htm)

Brief History of Strategy Brief History of Strategy DisciplineDiscipline Fuelled by the consumer boom of the 1950s and 60s,

organisations grew in size and became more internationalised. This increased scale led to concerns for more effective long-term planning, co-ordination and capital budgeting.

The need to extend the planning horizon lead to the development of formal corporate planning systems in large organisations in the 1960s. Typically, these systems produced detailed 5 year plans based on numeric analysis of economic (costs) and market forecasts (demand) containing precise objectives and plans.

History of strategy cont’d….History of strategy cont’d…. In the early 1970s, the competitive landscape began to get more

congested and so firms became concerned with issues of diversification as they sought new sources of revenue growth. This was the peak of formal planning with significant resources devoted to elaborate planning by specialist planning departments.

In the late 1970s three factors undermined confidence in formal planning. Firstly, the results of diversification were frequently disappointing. Secondly, economic instability was generated by the oil price shocks of 1974 and 1979. Thirdly, the growth of international competition especially from Japan and SE Asia.

History of strategy cont’d….History of strategy cont’d…. In response firms became more concerned with

‘positioning’ their organisations favourably in the competitive landscape. The focus was on targeting, product positioning, segmentation, and product development. ‘Strategic planning’ gave way to ‘strategic management’ where the emphasis was on a broader range of competitive issues and less certain of environmental stability/predictability. (Porter, 1980, 1996)

History of strategy cont’dHistory of strategy cont’d In the late 1980s and 1990s, difficulties in sustaining

competitive advantage saw an increased focus on internal resources and competencies as firms sought new ways to enhance profits. This major shift is often referred to as the Resource Based View (RBV) of strategy. (Hamel and Prahalad, 1994). This trend has continued with a focus on intangible resources in particular (especially “knowledge

History of strategy cont’dHistory of strategy cont’d

The period from the mid 90s to the year 2008 was characterised by the emergence of new economic powers. China and India became major players and there was strong econmic growth throughout the world. .

History of strategy cont’dHistory of strategy cont’d

The year 2008 Lehman Brothers bank collapsed leading to the nationalisation of banks in America and Europe, triggering a world wide recession. There has not been a recovery in the west with the Euro being particularly affected In 2011 there were still fears of a double dip recession and by 2013 austerity programmmes are still continuing.

History of strategy cont’dHistory of strategy cont’d

BRIC has been replaced by a new acronym CHIME

later MINT Malaysia India Nigeria and

Turkey

CorporateStrategy

BusinessUnit Strategy

Other BusinessUnits

Other functionalplans

Marketingplan

Focus: Portfolio management, diversification, corporate parenting.Focus: what product groups, segments, positioning and bases of competition to adopt.

Focus: executing the decisions made above by translating them into detailed plans with budgets, etc. and implementing them.

Levels of StrategyLevels of Strategy

Strategic checklistStrategic position

• What are the

environmental

opportunities and threats?

• What are the

organisation’s strengths

and weaknessses?

• What is the basic purpose

of the organisation?

• How does culture fit the

strategy?

Strategy in action

• Are strategies suitable,

acceptable and feasible?

• What kind of strategy-

making process is

needed?

• What are the required

organisation structures

and systems?

• How should the

organisation manage

necessary changes?

• Who should do what in

the strategy process?

Strategic choices

• How should business

units compete?

• Which businesses to

include in a portfolio?

• Where should the

organisation compete

internationally?

• Is the organisation

innovating appropriately?

• Should the organisation

buy other companies, ally

or go it alone?

The Strategy Development ProcessThe Strategy Development Process

ExternalEnvironment

Analysis

InternalEnvironment

Analysis

BusinessMission Objectives

Strategyselection

ActionProgrammes Implementatio

n

Feedback and Control

Simplified Strategy ProcessSimplified Strategy Process STRATGEGIC ANALYSIS (Where are we now?)

– External analysis addresses the question: what challenges does our organisation face from its environment?

– Internal analysis addresses the question: Does our organisation have the resources and capabilities needed to meet its challenges?

STRATEGIC CHOICE (Where do we want to be?)– Corporate level: what business should we be in?– Business level: what positioning maximises profits?

STRATEGY IMPLEMENTATION (How do we get there?)– Hard issues: planning, budgeting, restructuring, systems

implementation, product/service development– Soft issues: consensus building, politicking, conflict management, HR

issues, culture change, etc.

STRATEGIC CONTROL (Are we making good progress?)– Data gathering, variance analysis, evaluation, corrective action.

Strategy process: Not linear, Strategy process: Not linear, recursive!recursive!

ANALY

SIS

ANALY

SIS C

HO

ICE

CH

OIC

E

IMPLEMENTATIONIMPLEMENTATION

Strategy development can start at any stage and regularly loops back on other stages to update, review and/or amend thinking

Intended vs. Emergent strategy Intended vs. Emergent strategy (Mintzberg and Waters, 1985)(Mintzberg and Waters, 1985)

INTENDEDSTRATEGY

DELIBERATE SRATEGY

UnrealisedUnrealisedelementselements

EmergentEmergentelementselements

REALISEDSTRATEGY

Strategy is often a compromiseStrategy is often a compromiseStrategy development is not a neat and tidy process approached Strategy development is not a neat and tidy process approached with objective rationality by managers following a checklist of with objective rationality by managers following a checklist of stages. Many factors influence its development - to a greater or stages. Many factors influence its development - to a greater or lesser degree depending on the organisation in question.lesser degree depending on the organisation in question.

PlanningPlanning

PoliticsPolitics

CultureCulture

Enforced choiceEnforced choice

LogicalLogicalIncrementalismIncrementalism

CommandCommand

Influences on Strategy

Development

Source: Johnson and Scholes (1999) 5th edition

The strategy lenses summary

Table C.ii A summary of the strategy lenses

Strategy Development: Strategy Development: Schools of Thought (1)*Schools of Thought (1)*Planning/Positioning School

– STRATEGY PROCESS• Development and Implementation are related but

separated• Numerically oriented analysis favoured• Actors are seen as rational objective decision makers.• Top-down.• Environmental analysis drives strategic choice• Positioning in terms of activities performed, customer

needs or customer access (Porter, 1996).

– Contributors: Igor Ansoff, Michael Porter, Kenneth Andrews, Roland Christensen, Alfred Chandler, Kenichi Ohmae.

* Note these schools are not mutually exclusive and will overlap in reality.

Strategy Development: Strategy Development: Schools of Thought (2)Schools of Thought (2)Logical Incrementalist/Resource Based View (RBV)

– STRATEGY PROCESS• Opportunistic approach to strategy, i.e. seek flexibility to

respond to emerging profit opportunities.• Top-down/bottom-up process, i.e. good ideas can come

from anywhere not just the top.• Decision makers ‘boundedly rational’ (cf Herbert Simon)• Internal resources and capabilities drive content of

strategy, i.e. work to your strengths• Take up market positions that lend themselves to what

you are good at.

– Contributors: Birger Wernerfelt, Jay Barney, Henry Mintzberg, James Quinn, Gary Hamel, C K Prahalad,.

Strategy in Different Contexts

Small business– Dominant issues are market intelligence,

growth and meeting expectations of founders.

Multinational Corporations– Dominated by need to sustain profits

through diverse business portfolio, complex organisations makes strategy difficult to implement, external shareholder expectations critical.

Strategy in Different Contexts

Professional Service Firms– Key issues: the expectations and standards of

professionals, the powerful influence of internal stakeholders (e.g. partners), increasingly, competitive positioning

Public sector– Key issues involve: public sector culture (service,

public good, value), political imperatives (locan and central gov’t), complex stakeholder structure, constraints on action (gov’t regulations).