Summary of the book 'Foundations of Strategy' by Grant and Jordan. It includes all chapters except chapter 6. All the other chapters, the chapters you need to study for 'Strategy and Organisation' at Tilburg University, are included. Examples, images and tables from the book are used very often.
Strategic management perspectives in the context of automobile industry
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Foundations of Strategy
Robert M. Grant & Judith Jordan
Index
Chapter 1: The concept of strategy ................................................................................................ 2
Chapter 2: Industry analysis ........................................................................................................... 5
Chapter 3: Resources and capabilities ............................................................................................ 8
Chapter 4: The nature and sources of competitive advantage .........................................................11
Chapter 5: Industry evolution and strategic change........................................................................15
Chapter 7: Corporate strategy ......................................................................................................18
Chapter 8: Global strategies and the multinational corporation ......................................................23
Chapter 9: Realising strategy ........................................................................................................25
Chapter 10: Current trends in strategic management .....................................................................30
,Chapter 1: The concept of strategy
The role of strategy in success
Some strategies are conductive to success, some strategies are not. Strategies that are conductive to
success have 4 common elements:
- Simple, consistent and long term goals
- Profound understanding of the competitive environment
- Objective appraisal of resources*
- Effective implementation
* Exploiting internal strengths while protecting areas of weakness.
Success goes to those managing their careers most effectively, typically by combining the four
strategic factors.
A brief history of strategy
Enterprises need strategy (derives from ‘strategia’, meaning generalship) to give direction and
purpose, to deploy resources in the most effective manner and to coordinate decisions. Strategic
decisions (1) are important, (2) involve commitment of resources and (3) are not easily reversible.
Strategy: The overall plan for deploying resources to establish a favourable position.
Tactic: A scheme for a specific action.
In the 50’s and 60’s, senior executives in growing companies experience difficulties coordinating
decisions and maintaining control. This led to the development of corporate planning.
→ Corporate planning: Setting goals and objectives, forecasting economic trends and establishing
priorities for different products and business areas.
In the 70’s and 80’s, the environments of organisations became more turbulent, due to instability
and international competition. This led to the development of strategic management.
→ Strategic management: Competitive advantage is the primary goal of strategy.
In the 90’s, the focus of strategy is on the sources of profit within the firm (e.g. resources and
capabilities) instead of on the external environment. This is called the resource-based view.
Since the 21st century, organisations face challenging circumstances with technology, media and
telecommunications. They develop responsiveness and flexibility by reducing hierarchy and
stimulating collaboration and high-performance workforces.
,Strategy today
Strategy: The means by which individuals or organisations achieve their objectives. Over the years,
strategy has shifted from being a plan to being used as direction. There are two types of strategy:
corporate strategy and business strategy.
- Corporate strategy (where to compete?): The scope of the firm in terms of the industries and
markets in which it competes. Diversification, vertical integration, acquisitions, new ventures,
allocation of resources and divestments are of interest.
→ Responsibility of the top management.
- Business strategy (how to compete?): How the firm competes within a particular industry or
market. This is also called the competitive strategy.
→ Responsibility of the divisional management.
A static strategy focusses on today (e.g. product scope, vertical scope).
A dynamic strategy focusses on tomorrow (e.g. mission, vision).
Strategy is located in the heads of organization members; in articulations of strategy in written
documents; and in the decisions. Only the last two are observable. Most companies see value in
communicating their strategy to stakeholders and the public (e.g. mission, values, vision and game
plan). This often can be found on companies’ websites and in annual reports. To really find out what
a companies’ strategy is, it is better to check financial statements, patents and investments.
Mintzberg distinguished 3 types of strategy:
1. Intended strategy: The outcome of negotiation, bargaining and compromise of the top
management.
2. Realised strategy: The actual part of the intended strategy that is implemented and realised.
3. Emergent strategy: Decisions that emerge from complex processes, to adapt to changing
external circumstances.
➔ In practice, strategy making involves a combination of rational design and decentralized
adaptation. This is called planned emerge (Grant).
Strategy can perform multiple roles in organisaties. Strategy provides decision support, can be used
as a coordinating device, sets the targets for the organisation and serves as an orientation
mechanism. The roles that strategy performs:
1. Decision support
- Strategy simplifies decision making by constraining the range of decision alternatives and by
acting as a heuristic that reduces the search required to find an acceptable solution.
- The strategy-making processes permits the knowledge of different individuals to be pooled and
integrated.
- Strategy-making processes facilitate the use of analytic tools (frameworks and techniques).
2. Coordinating device
- Strategy is a communication device.
- The strategic-planning process can provide a forum in which views are exchanged.
- The implementation of strategy through goals and commitments provides a mechanism to
ensure that the organisations moves forward in a consistent direction.
, 3. Target
- Strategy sets aspirations that can motivate and inspire the members of the organisation.
- Strategy assures that the organisation focusses less on fit and resource allocation and more on
stretch and resource leverage.
4. Animation and orientation:
- Strategy animates and orientates individuals within organizations so that they are mobilised,
encouraged and work in concert with each other to achieve focus and direction.
Strategy: whose interest should be prioritised?
What do we mean by value and who benefits from the value created through strategy?
The value created by firms is distributed among different parties, and firms also create value for their
customers (the derive customer surplus).
Stakeholder approach: Organisations are coalitions of interest groups where the top management’s
role is to balance these different interests. This is particularly the case for non-profit organisations.
The world’s most consistently successful companies tend to be those that are motivated by factors
other than profit. The pursuit to profit often fails because:
- Profit will only be an effective management guide if managers know what determines profit.
- The goal of maximizing profit is unlikely to inspire employees and other stakeholders and doesn’t
induce unite between them.
Corporate social responsibility: It is the management’s responsibility to operate in the interests of
shareholders (the firm as property) and to maintain the firm within its overall network of
relationships and dependencies (the firm as social entity). This goes against the ideas of Friedman,
who states that the only social responsibility of businesses is to use its resources to increase profits
as long as it stays within the rules of the game.
The approach taken in this book
The foundations of strategy lie in competition. Therefore, focus in this book is on private sector firms
assuming that they operate in the interests of their owners. The four key considerations are:
1. Competition: Competition erodes profitability.
2. The market for corporate control: Management teams that fail will be replaced.
3. Convergence of stakeholder interests: There is likely to be more community of interest than
conflict among different stakeholders.
4. Simplicity: All the major tools of decision making are rooted in the assumption of profit
maximisation.
Strategic fit: The strategy must be consistent with the external environment and the internal
environment.
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