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Foundations of Strategy Book Summary
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A summary of all the chapters necessary for the course Strategy and Management.
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SAMENVATTING 'Foundations of Strategy' - Grant & Jordan
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1. The concept of strategyStrategy is not a detailed plan or programme of instructions; it is a unifying theme that gives
coherence and direction to the actions and decisions of an individual or an organization.
The role of strategy in success
4 common factors of a successful strategy;
1. Goals are simple, consistent, and long
term
2. Profound understanding of the
competitive environment
3. Objective appraisal of resources
4. Effective implementation
A brief history of strategy
- Strategy; The overall plan for deploying
resources to establish a favourable position
- Tactic; A scheme for a specific action
Tactics are concerned with the manoeuvres to win battles; strategy is concerned with winning the war.
The evolution of business strategy
- 1950s & 1960s; increasing difficulty in coordinating
decisions and maintaining control. Financial budgeting
(annual financing planning and investment appraisal)
provided short-term control.
Corporate planning was developed during the late 1950s to
provide a measure for long-term planning;
o 5-year plan for goals and objectives
o Forecast economic trends
o Establish priorities
o Allocate capital expenditures
- 1970s & 1980s; diversification failures, oil shocks,
increased international competition
Increased competition made forecasts difficult
Shift from planning to strategy making
Strategic management; Increasing focus on competition as
the central characteristic of the business environment and
competitive advantage as the primary goal of strategy
- 1990s; Focus of strategy analysis shifted from the sources
of profit in the external environment to the sources of profit within the firm; resources and
capabilities of the firm became regarded as the main source of competitive advantage
Resource-based view of the firm caused firms to exploit differences between them and their
competitors
Michael Porter on what strategy is: “Competitive strategy is about being different. It means
deliberately choosing a different set of activities to deliver a unique mix of value.”
- During 21st century; new challenges as a result of digital technologies, disruptive technologies
Strategy became less about plans and more about creating options for the future, fostering
strategic innovation and seeking uncontested market space
Complexity meant increased dependence on other firms through outsourcing and alliances
- Increasing interest in corporate social responsibility, ethics, sustainability of the natural
environment and the role of social legitimacy in long-term corporate success
1
,Strategy today
What is strategy?
Strategy; the means by which individuals or organizations achieve
their goals through the allocation of resources. It implies
consistency, integration or cohesiveness
The evolution of strategy shows a shift from strategy as plan to
strategy as direction, as it became less detailed and more flexible
- Corporate strategy defines the scope of the firm in terms of the industries and markets in
which it competes. Decisions include investment in diversification, vertical integration,
acquisitions and new ventures; the allocation of resources
- Business strategy is concerned with how the firm competes within the chosen industry, thus it
is also called the competitive strategy
Business strategy precedes the corporate strategy as the critical requirement for a company’s success is
its ability to establish competitive advantage.
At the same time, the two dimensions of strategy are intertwined: the scope of a firm’s business has
implications for the sources of competitive advantage; and the nature of a firm’s competitive
advantage determines the range of businesses in which it can be successful.
How do we describe a firm’s strategy?
Strategy is both about competing for today; where and how are we
competing? And about competing for tomorrow; mission, vision
and targets.
How do we identify a firm’s strategy?
Strategy is located in three places, of which only the last two are
observable;
1. Heads of the top management
2. Their articulations of strategy in speeches and documents
3. The decisions through which strategy is enacted
Three definitive components of strategy;
1. Objectives
2. Scope (where to compete)
3. Advantage (how to compete)
How is strategy made?
- Intended strategy; Strategy as conceived by the top management team
- Realized strategy; The actual strategy that is implemented – is only partly related to that
which was intended (Mintzberg suggests only 10-30% of intended strategy is realized)
- Emergent strategy; the decisions that emerge from the complex processes in which individual
managers interpret the intended strategy and adapt to changing circumstances
- Planned emergence; As the business environment becomes less predictable, strategy making
becomes more concerned with guidelines and less with specific decisions
What roles does strategy perform?
- Strategy as decision support
o Bounded rationality; decision analysis is subject to cognitive limitations
o Strategy improves decision making in several ways;
▪ It simplifies decision making by constraining the range of alternatives and by
acting as a heuristic (rule of thumb) reducing the search required
▪ A strategy-making process permits the knowledge of individuals to be pooled
▪ A strategy-making process facilitates the use of analytic tools
- Strategy as a coordinating device
2
, o Strategy promotes coordination as it is a communication device; statements of
strategy are powerful means through which the identity, goals and positioning of the
company can be communicated
- Strategy as target
o A forward-looking strategy not only establishes a direction, but also sets aspirations
that can motivate and inspire the members of the organization
- Strategy as animation and orientation
o Often the most important role of strategy is to animate and orientate individuals so
that they are mobilized, encouraged and work in concert to achieve focus and
direction even if the plan isn’t correct
Strategy; In whose interest? Shareholders versus stakeholders
The value created by firms is distributed among different parties: employees (wages and salaries),
lenders (interest), landlords (rent), government (taxes) and owners (profit).
The stakeholder approach consists of the view that business organizations are coalitions of interest
groups where top management’s role is to balance these different, often conflicting interests.
Stakeholder analysis is a useful tool for identifying, understanding and prioritizing the needs of key
stakeholders through the following steps;
- Identification of the list of potential stakeholders
- Ranking stakeholders according to their importance and influence on the organization
- For each stakeholder identifying the criteria that stakeholder would use to judge the
organization’s performance or the extent to which it is meeting stakeholder’s expectations
- Deciding how well the organization is doing from its stakeholder’s perspective
- Identifying what can be done to satisfy each stakeholder
- Identifying and recording longer-term issues with individual stakeholders and stakeholders as
a group
To assist with this analysis, the use of power
interest grids is suggested and it is shown how
managers may respond to different groups in
order to gain their compliance.
In contrast, however, in many countries the prime
concern of firms is seen as producing profits for
shareholders.
Strategy: Whose interests should be prioritized?
In practice the extent to which firms take a narrow (shareholder) or broad (stakeholder) view of their
purpose is probably more a matter of pragmatics than arbitrary choice. In a competitive labour market,
firms that failed to take their employees into account would soon find themselves incurring costs of
high labour turnover. Similarly, firms that failed to take the interests of customers or suppliers into
account would be at a disadvantage relative to competitors with different policies. In practice what is
important is the priority given to different groups and senior managements’ judgement calls on the
trade-offs required to satisfy important interest groups.
Profit and purpose
There is more to business than making money. The world’s most consistently successful companies
tend to be those that are motivated by factors other than profit. Studies point to the role of strategic
intent, vision and ambitious goals in driving sustained corporate success. Companies that are most
focused on profitability and the creation of shareholder value are often remarkably unsuccessful at
achieving those goals.
The failure to achieve profit when this is the main focus comes from different factors;
1. Profit will only be an effective guide to management action if managers know what
determines profit. Obsession with profitability can blinker managers’ perception of the real
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