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Summary of Foundations of Strategy by Robert M. Grant & Judith J. Jordan

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Management en strategie

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Vrije Universiteit Brussel (VUB)

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Foundations of Strategy

Samenvatting van het boek Foundations of Strategy by Robert M. Grant & Judith J. Jordan Summary of the book Foundations of Strategy by Robert M. Grant & Judith J. Jordan

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business administration
management
strategy
summary
book
foundations of strategy
summary
vrije universiteit brussel
management amp strategy

Book Title:Foundations of Strategy

Author(s):Robert M. Grant, Judith J. Jordan

Edition:februari 2015
ISBN:9781118914700
Edition:1

Institution
Vrije Universiteit Brussel (VUB)
Education
Bedrijfskunde
Course
Management en strategie

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Foundations of Strategy
Samenvatting van het boek foundations of strategy by Robert M. Grant & Judith Jordan

,Inhoud
1 The concept of strategy .................................................................................... 7
1.1 The role of strategy in success .................................................................... 7
1.2 A brief history of strategy ........................................................................... 7
1.3 The evolution of business strategy ............................................................... 7
1.4 Strategy today .......................................................................................... 7
1.5 What is strategy ........................................................................................ 7
1.6 How do we describe a firm’s strategy ........................................................... 8
1.7 How do we identify a firm’s strategy ............................................................ 8
1.8 How is strategy made? Design versus emergence .......................................... 9
1.9 What roles does strategy perform ................................................................ 9
1.10 Strategy in whose interest? Shareholders versus Stakeholders .......................10
1.11 Strategy: Whose interests should be prioritized? ..........................................12
1.12 Profit and purpose ....................................................................................12
1.13 The debate over corporate social responsibility ............................................13
1.14 Strategic management of not-for-profit organizations ...................................13
1.15 The approach taken in this book .................................................................14
2 Industry analysis ............................................................................................15
2.1 From environmental analysis to industry analysis .........................................15
2.2 The determinants of industry profit: demand and competition ........................16
2.3 Analysing industry attractiveness ...............................................................16
2.4 Porter’s five forces of competition framework ...............................................16
2.4.1 Competition from substitutes ...............................................................17
2.4.2 The threat of entry .............................................................................17
2.4.3 Rivalry between established competitors ...............................................19
2.4.4 Bargaining power of suppliers ..............................................................21
2.5 Applying industry analysis to forecasting industry profitability ........................21
2.5.1 Identifying industry structure...............................................................21
2.5.2 Forecasting industry profitability ..........................................................21
2.6 Using industry analysis to develop strategy .................................................22
2.6.1 Strategies to alter industry structure ....................................................22
2.6.2 Positioning the company .....................................................................22
2.7 Defining an industry .................................................................................22
2.8 Reviewing the five forces of competition framework ......................................23
2.8.1 Complements: a missing force in the porter model? ...............................23
2.9 Segmentation analysis ..............................................................................23
2.10 Dealing with dynamic competition ..............................................................23

, 2.11 From industry attractiveness to competitive advantage: Identifying key success
factors ..............................................................................................................24
3 Resources and capabilities ...............................................................................25
3.1 The role of resources and capabilities in strategy formulation .........................25
3.2 Basing strategy on resources and capabilities ..............................................25
3.3 Identifying the organization’s resources and capabilities ................................25
3.3.1 Identifying resources ..........................................................................25
3.3.2 Identifying organizational capabilities ...................................................27
3.4 Appraising resources and capabilities ..........................................................29
3.4.1 Appraising the strategic importance of resources and capabilities .............29
3.4.2 Appraising the relative strength of a firm’s resources and capabilities .......30
3.5 Developing strategy implications ................................................................30
3.5.1 Exploiting key strengths ......................................................................30
3.5.2 Managing key weaknesses ...................................................................31
3.5.3 What about superfluous strengths ........................................................31
3.5.4 Choosing the industry context ..............................................................31
4 The nature and sources of competitive advantage ...............................................32
4.1 How competitive advantage emerges and is sustained ..................................32
4.1.1 The emergence of competitive advantage..............................................32
4.1.2 Sustaining competitive advantage ........................................................33
4.2 Types of competitive advantage: Cost and differentiation ..............................36
4.2.1 Strategy and cost advantage ...............................................................36
4.2.2 Strategy and differentiation advantage .................................................38
4.3 Porter’s generic strategies and being ‘stuck in the middle’ .............................39
5 Industry evolution and strategic change .............................................................40
5.1 The industry lifecycle ................................................................................40
5.1.1 Demand growth .................................................................................40
5.1.2 The production and diffusion of knowledge ............................................40
5.1.3 Dominant designs and technical standards ............................................41
5.1.4 From products to process innovation ....................................................41
5.1.5 How general is the lifecycle pattern ......................................................42
5.1.6 Implications of the lifecycle for competition and strategy ........................42
5.1.7 Key success factors and strategy ..........................................................44
5.2 Managing organizational adaptation and strategic change ..............................44
5.2.1 Why is change so difficult? The sources of organizational inertia ..............44
5.2.2 Coping with technological change .........................................................45
5.3 Managing strategic change ........................................................................45
5.3.1 Dual strategies and organizational ambidexterity ...................................45
5.3.2 Tools of strategic change management .................................................46

, 5.3.3 Dynamic capabilities ...........................................................................47
5.3.4 Developing new capabilities .................................................................47
6 Technology-based industries and the management of innovation ..........................49
6.1 Competitive advantage in technology-intensive industries .............................49
6.1.1 The innovation process .......................................................................49
6.1.2 The profitability of innovation ..............................................................49
6.2 Strategies to exploit innovation: how and when to enter ...............................51
6.2.1 Alternative strategies to exploit innovation ............................................51
6.2.2 Timing innovation: to lead or to follow? ................................................52
6.2.3 Managing risks ...................................................................................53
6.3 Competing for standards ...........................................................................53
6.3.1 Types of standard ..............................................................................53
6.3.2 Why standards appear ........................................................................54
6.3.3 Winning standards war .......................................................................54
6.4 Implementing technology strategies: Creating the conditions for innovation ....55
6.4.1 Managing creativity ............................................................................55
6.4.2 From invention to innovation: the challenge of integration ......................56
7 Corporate strategy ..........................................................................................57
7.1 The scope of the firm ................................................................................57
7.2 Key concepts for analysing firm scope .........................................................58
7.3 Diversification ..........................................................................................59
7.3.1 Defining diversification ........................................................................59
7.3.2 The benefits and costs of diversification ................................................59
7.3.3 Does diversification enhance corporate performance? .............................62
7.3.4 Recent trends in diversification ............................................................62
7.4 Vertical integration ...................................................................................62
7.4.1 Defining vertical integration .................................................................62
7.4.2 The benefits and costs of vertical integration .........................................63
7.4.3 Assessing the pros and cons of vertical integration .................................64
7.4.4 Designing vertical relationships ............................................................64
7.4.5 Recent trends in vertical integration .....................................................65
7.5 Managing the corporate portfolio ................................................................66
7.5.1 The GE/McKinsey matrix .....................................................................66
7.5.2 BCG’s growth-share matrix..................................................................66
7.5.3 The Heartland matrix ..........................................................................67
8 Global strategies and the multinational corporation .............................................68
8.1 The implications of international competition for industry analysis ..................68
8.1.1 Patterns of internationalization.............................................................68

, 8.1.2 Implications for competition ................................................................69
8.2 Analysing competitive advantage in an international context..........................69
8.2.1 National influences on competitiveness: Comparative advantage ..............70
8.2.2 Porter’s national diamond ....................................................................70
8.2.3 Consistency between strategy and national conditions ............................71
8.2.4 The limitations of the diamond model ...................................................71
8.3 The international location of production .......................................................72
8.3.1 Choosing where to locate production ....................................................72
8.3.2 Location and the value chain ...............................................................72
8.4 How should firms enter foreign markets ......................................................73
8.4.1 International alliances and joint ventures ..............................................75
8.5 Multinational strategies: Global integration versus national differentiation .......75
8.5.1 The benefits of a global strategy ..........................................................75
8.5.2 The need for national differentiation .....................................................76
8.5.3 Reconciling global integration with national differentiation .......................77
8.6 Strategy and organization within the multinational corporation ......................78
8.6.1 The evolution of multinational strategies and structures ..........................78
8.6.2 Reconfiguring the multinational corporation: the transnational corporation 78
9 Realizing strategy ...........................................................................................79
9.1 From strategy to execution ........................................................................79
9.1.1 The strategic planning system: linking strategy to action ........................79
9.1.2 Operating plans .................................................................................80
9.1.3 Allocating resources: Capital expenditure budgeting ...............................81
9.2 Organizational design: the fundamentals of organizing. .................................81
9.2.1 Specialization and division of labour .....................................................81
9.2.2 The cooperation problem .....................................................................82
9.2.3 The coordination problem ....................................................................82
9.2.4 Hierarchy in organizational design ........................................................83
9.2.5 Contingency approaches to organizational design ...................................83
9.3 Organizational design: choosing the right structure ......................................84
9.3.1 Defining organizational units................................................................84
9.3.2 Alternative structural forms: functional, multidivisional, matrix ................84
9.3.3 Trends in organizational design ............................................................85
9.4 Organizational culture ...............................................................................86
9.4.1 Describing and classifying cultures .......................................................86
9.4.2 Can organizational cultures be changed? ...............................................87
9.4.3 Does a strong corporate culture have an impact .....................................87
10 Current trends in strategic management ........................................................87

,10.1 The new environment of business ...............................................................87
10.1.1 Turbulence ........................................................................................87
10.1.2 Competition .......................................................................................87
10.1.3 Technology ........................................................................................87
10.1.4 Social pressures and the crisis of capitalism...........................................88
10.2 New directions in strategic thinking ............................................................88
10.2.1 Reorientating corporate objectives .......................................................88
10.2.2 Seeking more complex sources of competitive advantage........................89
10.2.3 Looking more closely at processes and practices ....................................89
10.2.4 Managing options ...............................................................................89
10.2.5 Understanding strategic fit ..................................................................89
10.3 Redesigning organizations .........................................................................90
10.3.1 Multidimensional structures .................................................................90
10.3.2 Coping with complexity: making organizations informal, self-organizing and
permable .......................................................................................................91
10.4 The changing roles of managers .................................................................92

,1 The concept of strategy
1.1 The role of strategy in 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

Strategies that build on the basic four elements almost always play an influential role

Focusing on a single goal may lead to outstanding success but may be matched by dismal
failure in other areas of life.

1.2 A brief history of strategy
Origins

Enterprises need business strategies for giving direction and purpose, to deploy
resources in the most effective manner and to coordinate the decisions made by different
individuals

Strategy is the overall plan for deploying resources to establish a favourable position.

Tactic is a scheme for a specific action.

Whereas tactics are concerned with the manoeuvres necessary to win battles, strategy is
concerned with winning the war.

Strategic decisions share three common characteristics: They are important, they involve
a significant commitment of resources, they are not easily reversible

1.3 The evolution of business strategy
The evolution of business strategy has been driven more by the practical needs of
business than by the development of theory.

Corporate planning (developed during 1950’s) also known as long-term planning. Five-
year corporate planning document that set goals and objectives , forecast key economic
trends, established priorities for different products and business areas of the firm and
allocated capital expenditures.

Competitive strategy is about being different. It means deliberately choosing a different
set of activities to deliver a unique mix of value

1.4 Strategy today
Strategy is a complex and contested field of study which at first sight seem
straightforward, can on deeper inspection raise further questions and force us to reflect
on some things we may have previously taken for granted

1.5 What is strategy
Strategy is the means by which individuals or organizations achieve their objectives.
Strategy is focused on achieving certain goals; that the critical actions which make up a
strategy involve allocation of resources and that strategy implies consistency, integration
or cohesiveness

Strategy must embrace flexibility and responsiveness. It is precisely in these conditions
that strategy becomes more rather than less important.

Strategy as plan  strategy as direction

7

,In a turbulent environment, strategy must embrace flexibility and responsiveness. In an
environment of uncertainty and change, a clear sense of direction is essential to the
pursuit of objectives.

Corporate strategy : Defines the scope of the firm in terms of the industries and
markets in which it competes. Corporate strategy decisions include investment in
diversification, vertical integration, acquisitions and new ventures, the allocation of
resources between the different businesses of the firm, and divestments.

Business strategy : is concerned with how the firm competes within a particular
industry or market. If the firm is to prosper within an industry, it must establish a
competitive advantage over its rivals. Hence, this area of strategy is also referred to as
competitive strategy

The distinction between corporate strategy and business strategy corresponds to the
organizational structure of most large companies. Corporate strategy is typically the
responsibility of the top management team and the corporate strategy staff. Business
strategy is primarily the responsibility of divisional management.

1.6 How do we describe a firm’s strategy
• Where is the firm competing
• How is it competing

Provide the basis upon which we can describe the strategy that a firm is pursuing. The
where question has multiple dimensions. It relates to the industry or industries in which
the firm is located, the products it supplies, the customer groups it targets, the countries
and localities in which it operates and the vertical range of the activities it undertakes.

However, strategy is not simply about competing for today; it is also concerned with
competing for tomorrow. This dynamic concept of strategy involves establishing
objectives for the future and determining how they will be achieved.

Future objectives relate to the overall purpose of the firm (mission) relate to the overall
purpose of the firm (mission), what it seeks to become (vision) and specific performance
targets.

1. Strategy as positioning
a. Where are we competing
b. How are we competing
2. Strategy as direction
a. What do we want to become
b. What do we want to achieve
c. How will we get there

1.7 How do we identify a firm’s strategy
Strategy is located in three places: Heads of the chief executive, senior managers, other
members of the organization

• The mission statement is the basic statement of organizational purpose; it
addresses ‘why we exist’
• A statement of principles or values outlines ‘what we believe in and how we will
behave’
• The vision statement projects ‘what we want to be’
• The strategy statement articulates ‘what our competitive game plan will be’

8

,Game plan should comprise three definitive components of strategy:

• Objectives
• scope (where we will compete)
• advantage (how we will compete)

1.8 How is strategy made? Design versus emergence
Strategy is the result of managers engaging in deliberate, rational analysis. However,
strategy may also emerge through adaptation to circumstances.

1. Intended strategy: is strategy as conceived of by the top management team.
Even here, intended strategy is less a product of rational deliberation and more an
outcome of negotiation, bargaining and compromise among the many individuals
and groups involved in the process
2. Realized strategy: the actual strategy that is implemented is only partly related to
that which was intended.
3. Emergent strategy: The decisions that emerge from the complex processes in
which individual managers interpret the intended strategy and adapt to changing
external circumstances.

The emergent approaches to strategy making permit adaptation and learning though
continuous interaction between strategy formulation and strategy implementation in
which strategy is constantly being adjusted and revised in light of experience

Strategy making always involves a combination of centrally driven rational design and
decentralized adaptation

Planned emergence : strategic planning that combines design and emergence. The
balance between the two depends greatly upon the stability and predictability of a
company’s business environment

1.9 What roles does strategy perform
Strategy as decision support

Bounded rationality : decision analysis is subjected to the cognitive limitations that
constrain all human beings.

Strategy improves decision making in several ways:

1. Simplifying decision making by constraining the rand of decision alternatives
considered and by acting as a heuristic (a rule of thumb) that reduces the search
required to find an acceptable solution to a decision problem.
2. A strategy-making process permits the knowledge of different individuals to be
pooled and integrated
3. A strategy-making process facilitates the use of analytic tools

Strategy as a coordinating device

The greatest challenge of managing an organization is coordinating the actions of
different organizational members. Strategy can promote coordination in several ways

1. Communication device : statements of strategy are a powerful means through
which the CEO can communicate the identity, goals and positioning of the
company to all organizational members.
2. Communication alone is not enough ! For coordination to be effective, buy-in is
essential from the different groups that make up the organization. The strategic
planning process can provide a forum in which views are exchanged and
consensus developed.

9

, Once formulated, the implementation of strategy through goals, commitments and
performance targets that are monitored over the strategic planning period also provides
a mechanism to ensure that the organization moves forward in a consistent direction

Strategy as target

Strategy is forward looking. It is concerned not only with how the firm will compete now
but also with what the firm will become in the future.

A key purpose of a forward-looking strategy is not only to establish a direction of the
firm’s development but also to set aspirations that can motivate and inspire the members
of the organization

Strategic intent creates an extreme misfit between resources and ambitions  top
management then challenges the organization to close the gap by building new
competitive advantages. The implication they draw is that strategy should be less about
fit and resource allocation and more about stretch and resource leverage.

Strategy as animation and orientation

Often the most important role of strategy is to animate and orientate individuals within
organizations so that they are mobilized, encouraged and work in consent to achieve
focus and direction even if the plan isn’t correct.

1.10 Strategy in whose interest? Shareholders versus Stakeholders
Organizations are composed of many different individuals and groups, many of which
may have different agendas. As a consequence firms are likely to have multiple goals
some of which may, at times, conflict

All business seek to create value through the activities they undertake. This, of course,
invites the questions about what we mean by value and who benefits from the value
businesses create.

Perceptions of value arise through the interplay of supply and demand and through
processes of negotiation and argument but, in the business world, values is usually
assessed in monetary terms through customers’ willingness to pay for a good or service.
Firms create value for their customers to the extent that the satisfaction customers gain
exceeds the price they pay for the goods or services they purchase

The value created by firms is distributed among different parties

• Employees
• Lenders
• Landlords
• Government
• Owners

Given that the value added by firms is distributed between these different parties, it is
tempting to think of all businesses as operating for the benefit of multiple constituencies.
This view of business organizations as coalitions of interest groups where top
management’s role to balance these different often conflicting interest is referred to as
the stakeholder approach to the firm.

Stakeholder analysis : is a useful tool for identifying, understanding and prioritizing the
needs of key stakeholders. The needs and goals of stakeholders often conflict, requiring
organizations to engage in an ongoing process of balancing and managing multiple
objectives and relationships.

10

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Summary of Foundations of Strategy by Robert M. Grant & Judith J. Jordan

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