1. Introduction of concepts & schools of thought
1.1. Aim of this course
• Critically understanding concepts, schools of thought and current trends
o How they look at strategy, from different angels, over a period of 50 years
o Young stream of science, starting with the military strategy in he 2nd WW and then from there
we see the first research appearing and exponentially booming from the 60’s on.
• Knowing and applying strategy instruments/analyses/frameworks
• Understanding principles, but also their limitations in the context of market/business reality
• Importance of links and assumptions
1.2. The Concept of Strategy: 4 BIG ISSUES
1. Concept and evolution of strategic “schools of thought” WHAT?
o How did SM develop as a science?
2. Boundaries of the firm: WHERE?
o Horizontal: size of the company, how much producing
o Vertical: what will we produce or buy?
o Corporate (company as a whole): on which markets do we want to be?
3. Competition: WHO and HOW?
o Type of market business is operating
o Kind of interaction of rivals
4. Positioning and dynamics: WHY?
o Where do we want to be? Low cost? Differentiation?...
o Which competitive advantage do we want to have? Do we have the resource and
capabilities for that?
The first issue in corporate strategy: “What are the boundaries of our firm, what do we do, and what do we
do not?”
o E.g.: You’re in IT: “Do we do only hardware or do we make also the software to that, do we add services?
To make the software individual for our customers?
o If you have a value chain from raw materials to end consumers, we can look at the boundaries in a
horizontal way, how many products or you can look in the vertical way: ‘I’m going to make a soft drink
but also the packaging for distribution and I’m even controlling the distribution channel myself or e.g. I
make diamonds but I also own the mines (upstream or downstream integration).
o Finally, in which markets do we want to be, which can be horizontally or vertically segmented, so finally
we decide on our portfolio = portfolio management = C-level.
o The CEO and his/her team, they wonder about this, over and over again, if the market’s changing,
competitors change, if they’re considering a merger or acquisition,… it’s with all that in their mind, ‘what
are the boundaries of our firm’. There are mainly efficiency related & managerial (e.g. be CEO of a bigger
firm) related reasons. Typically when there are no managerial reasons behind this, it doesn’t last long.
Who and how are we competing? – Business Unit Level
o Who else is in that market?
Once we know who’s there, how do we interact? If they do ‘this’, what should we do?
o E.g. they apply limit pricing / predatory pricing this is potentially starting a price war, what is the best
reaction to that and how do we explain this? And even though explicit price corporation is illegal, a lot
of companies do apply some kind price coordination…
o Our decision depend also on the basic resources we have
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,1.3. What is strategy?
Distinguishing strategy from tactics:
• Strategy = the overall design and philosophy to plan for deploying resources to establish a favorable
position/ reach success
o Usually LT
o Significant commitment of resources (not only money wise)
o Not easily reversible
• Tactic = a scheme for a specific maneuver
o Short term
1.4. Characteristics of strategic decisions:
• Important
• Involve a significant commitment of resources
• Not easily reversible
1.5. The role of analysis
• Strategy analysis improves/supports decision processes, but doesn’t give answers
• Strategy analysis assists us to identify and understand the main challenges of organizations/
businesses
• Strategy analysis helps us to manage complexity
• Strategy analysis can enhance flexibility and innovation by supporting learning
1.6. Strategy Making Processes within the Company: multiple Roles of Strategy
1.7. Strategic Plan Hierarchy
(KPI’s)
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,1.8. What makes a successful strategy?
1.9. The basic framework Strategy: the link between the firm and its environment
Now strategy links these 2, the environment
with what we have inside (with our goals,
our mission) but also our resources and
capabilities. Strategies understands what
the context is of our organization and
understands very well our org. as well.
1.10. Sources of Superior Profitability
When we know in
which markets we
are, we can
address this one
1.11. Big issues 2, 3 and 4: Besanko et. Al.
Big issue 2 – WHERE? = corporate strategy
Big issue 3 – WHO AND HOW? = competitive strategy
Big issue 4 – WHY? = competitive and corporate strategy
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,1.12. Components of “Success” – example
The idea is when they organize for this activity, they all start with a goal that they and the team believes
in to be realizable. Which is for example: a quest for stardom, reunification of Vietnam under communist
regime or winning an important tournament. And then you look ‘what is the environment we’re in’,
who are the competitors and is it a fierce environment? “Do they go over dead bodies”? Do we
understand how the environment is working? In the example of Vietnam I was understanding the US
political system to understand why they were so much involved and for so long in these wars, so it
wouldn’t happen again. And then resource appraisal, ‘what's in the particular lady Madonna or guy’?
What do we have in the team? Who is in there? And it's not just Madonna or Lance Armstrong or anyone
else it's not person based, it's team based. What is already in the team? Who's the manager for
example? Who are the other drivers in the team? It's the team that makes the results. For example for
Madonna “ make sure recognize limited raw talent”, basically she can’t sing, however she was majorly
successful, but she explored it strengths in self-promotion, product development and relationship
management… And then the implementation was through serious commitments and discipline,
charismatic leadership, team building, attention to detail,… that made her the store she was.
Here you can see how in very different context then, the context that we will see most often in the next
classes of business, multinationals, for-profit companies but also nonprofit or governmental agencies,
that this course is applicable in some way for all these different kind of organizations.
We don't always mean literally profit this can be other KPI’s that are for that organization of importance.
For example maximizing surface level in hospitals (we want to cure as many patients as we can, we want
to empty the beds as quickly as we can to cure more patients), it's not about profits it's about more
service. Or in governmental agencies this may be about budgetary maximization, the more budgets we
get to this activity the more we can realize and be successful as a government agency.
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,1.13. The Evolution of Strategic Management
1.14. Strategy Making: Design or Process?
You can’t possibly predict things like “there will be a terrorist attack soon which will impact our
business”.
Formulating something, having the idea of what you want, is not always easy to implement, for
example if you want to attract young graduates and their vision is for a sustainable future but you
cannot promise this fully in your business segment.
And for the last one, this means “we have a strategy let's just do this for the next 10 years”, well
this is not how management levels and organizations work. They react to customer needs and then
changes and then there is a supplier that drops out and we need another supplier but that's not a
very good quality supplier and so on. So things happen all the time and so thinking that you can
just formalize your strategy and that this is not open for any learning or spontaneity along the way
is wrong. So Mintzberg said “it's both, you have to start somewhere, but you have to be open for
change as well”. So there is not ‘one school’ for strategy that is going to be dominant.
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,1.15. Strategy Safari – Mintzberg, Ahlstrand, Lampel
“And over here, ladies and gentlemen: the strategic management beast”
• Ancient Sufi tale – the blind man & the elephant
• Analogy of the blind men trying to describe an elephant
• Ten schools – groupings: framework that can be used to categorize the field of Strategic
Management.
While academics and consultants keep focusing on these narrow perspectives, business managers will
be better served if they strive to see the wider picture. Some of strategic management’s greatest
failings, in fact, occurred when one of these concepts was taken too seriously.
1.16. Ten schools
Many companies and marketing managers have dedicated staff for strategy formulation. It is a very
important process for the company, as it tells the future direction which the company has to take, and
the way that the company can succeed. The 10 schools of thoughts tell us how strategy formulation
can be done, and what the various ways are that you can formulate a strategy.
1) Design School = Strategy formations as a process of conception
2) Planning school = Strategy formation as formal process
3) Positioning school = Strategy formation as an analytical process
4) Entrepreneurial school = Strategy formation as a visionary process
5) Cognitive school = Strategy formation as a mental process
6) Learning school = Strategy formation as a emergent process
7) Power School = Strategy formation as a negotiation
8) Cultural School = Strategy formation as a collective process
9) Environmental school = Strategy formation as a reactive process
10) Configuration process = Strategy formation as a process of transformation
It’s not like you have to choose between one of them, theoretically strategy has root in any of these,
but the most dominant ones are the first 3 ones, but it’s more a mixture today!
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,1.16.1. Design school
< Strategy formation as a process of conception >
• Strategy that seeks to attain a match or fit, between internal capabilities and external possibilities
• Nature: prescriptive
• Senior management formulates clear and simple strategies in a deliberate process of conscious
thought and communicates them to the staff so that everyone can implement the strategies.
• Dominant view of strategy in 1970s, based on Alfred D. Chandler’s “Strategy and structure”.
• 2 stage approach:
1. from close examination (case study): internal capabilities
2. external possibilities
Everything is defined at the very beginning (and the CEO is the key strategist), everyone carries it
out, and then the process ‘stops’, a.k.a. it’s very inflexible.
Focus is on conception of ideas and to design new ideas. The company does an internal analysis
with the help of SWOT (Note’s Elisa Claeys)). But swot is dynamic and the design process does not
allow for any changes, so you can only do it in the very beginning of the organization (my note’s).
Major criticisms – CONS
• Strategy formation should be deliberate process of conscious thought (we could wonder whether
every CEO does this, in business practice it’s not always the case)
• Responsibility for that control and consciousness must rest with the chief executive officer: that
person is the strategist
• The model of the strategy formation be kept simple and informal (but it’s basically in the head of
1 person)
• Strategies should be one of a kind: the best ones result from a process of individualized design
• The design process is complete when strategies appear fully formulated as perspective
• These strategies should be explicit, so they have to be kept simple (and are a 1 time effort to be
implemented)
• Only after theses unique, full-blown, explicit, and simple strategies are fully formulated can they
then be implemented
• Assessment of strengths and Weakness – Bypassing Learning 6
• Structure follows strategy
• Making strategy explicit
,Encouragement towards design school model – PROS
• One brain can, in principle, handle all of the information relevant for strategy information
• That brain is able to have full, detailed, intimate knowledge of the situation in question
• The relevant knowledge must be established before a new intended strategy has to be
implemented – in other words, the situation has to remain relatively stable or at least predictable
• The organization in question must be prepared to cope with a centrally articulated strategy
1.16.2. Planning school
< Strategy formations as a formal process >
• Nature: prescriptive
• This school grew in parallel with the design school, but the Planning School predominated by the
mid-1970's and though it faltered in the 1980s it continues to be an important influence until early
21st century
• It reflects most of the design school's assumptions except a rather significant one: that the process
was not just cerebral but formal, decomposable into distinct steps, delineated by checklists, and
supported by techniques
• This meant that staff planners replaced senior managers as the key players in the process.
• Origin: H. Igor Ansoff’s “Corporate Strategy”
In the design school it’s designed in the very beginning and then throughout the years it is
implemented as it was designed with planning you have intermediary phases, but it’s all also
defined by the beginning (when should we reach what, how can it be measured and then the next
step will be carried out…)
1.16.3. Positioning school
< Strategy formation as an analytical process >
• Nature: prescriptive
• This was the dominant view of strategy formulation in the 1980s
• In this view, strategy reduces to generic positions selected through formalized analysis of industry
situations—hence, planners became analysts
• This proved especially lucrative to consultants, who could sink their teeth into hard data and so
promote their "scientific truths" to companies
• Origin: Sun Tzu, Michael Porter
Using SWOT and other frameworks to determine which kind of position the firm should choose
and then stick to it and carry out in its strategy.
“The management decides that they want to position the product at the top of the mind and
makes decisions accordingly. The management has to determine the competition already present
in the market, and where their own company is positioned. It can use tools like 5 forces, Value
Chain, BCG Matrix to position its products. Once the market has been analyzed, the right strategy
is needed to improve the positioning of the product.” (Note’s Elisa Claeys)
Up till now: prescribing how the company should deal with it, now switch to descriptive.
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,1.16.4. Entrepreneurial school
< Strategy formation as a visionary process >
• Nature: prescriptive (because of the trust people have in the leaders) and descriptive
• Central concept: vision
• Focused on the single leader
charismatic leaders that share a vision from their vast experience. This should be someone who is
entrusted with their vision. Steve Jobs, Zuckerberg, Bill Gates are examples of people who have
grown companies to incredible proportions due to their leadership skills.
• Also stressed the most innate of mental states and processes – it is based on: intuition, judgement,
wisdom, experience, insight.
• Origin: J. A Schumpeter’s notion of “Creative Destruction”
Summarized: “focus on CEO of the company. The company follows whatever the CEO says. In this
case, the CEO needs to be visionary, needs strong leadership skills, and has to have the right
judgement and direction.” (Note’s Elisa Claeys)
1.16.5. Cognitive school
< Strategy formation as a mental process >
• Nature: descriptive
• If strategies developed in people's mind as frames, models, or maps, what could be understood
about those mental processes?
• The job of the cognitive school: to get at what this process means in the sphere of human
cognition, drawing specially on the field of cognitive psychology
• Strategy is some kind of interpretation of the world
• Origin: H. A Simon
“People’s perception and information is studied. You can better your business by understanding
your customers. It is a mental and psychological process to find out what is in the minds of the
customer and how we improve on that or use that information. Once you know the customer’s
perception, you can change the strategy: you can either improve or you can communicate better
so that your customers have more information about you.” (Note’s Elisa Claeys)
You could say there is some overlap with the entrepreneurial school, it’s also a ‘vision’ in
someone’s mind, but this school is not a 1 shot vision that is shared but rather a mental process
that could also be of more people, not just 1 person.
1.16.6. Learning school
< Strategy formation as an emerging process >
• Nature: descriptive
• This school answers the question raised by the previous schools: “How are strategists supposed
to proceed?” => “They learn over time”.
• According to this school, strategies emerge as people, sometimes acting individually but more
often collectively, come to learn about a situation as well as their organization’s capability of
dealing with it.
• Origin: Charles Lindblom’s article “the science of muddling through”
“A company forms his future strategy by looking at the past, not necessarily its own past (other
companies). The company looks at things that worked and tries to implement the same thing over
time with the assumption that it will work again. The company also looks at things that did not
work in its favor (or in favor of a competitor who tried to same thing) and discards such things.”
(Note’s Elisa Claeys)
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, 1.16.7. Power school
< Strategy formation as a process of negotiation >
• This comparatively small, but quite different school has focused on strategy making rooted in
power in two ways:
1. Micro power - sees the development of strategies within the organization as essentially
political, a process involving bargaining, persuasion, and confrontation among inside actors
2. Macro power - takes the organization as an entity that uses its power over others and among
its partners in alliances, joint ventures, and other network relationships to negotiate
"collective" strategies in its interests
• Origin: MacMillan’s text on “Strategy Formulation: Political Concepts”
The people who are in power take the decisions. Problem with this school : when the powerful
people stop listening to feedback or stop implementing measures of improvement. (Note’s Elisa Claeys)
“CEO’s filling the room” (e.g. Steve Jobs in the past).
1.16.8. Cultural school
< Strategy formation as a collective process >
• Opposing the power school, the cultural school focuses on common interest and integration
• Strategy formation is viewed as a social process rooted in culture
• The theory concentrates on the influence of culture in discouraging significant strategic change
• Culture became a big issue in the United States and Europe after the impact of Japanese
management (e.g. Kaizen) was fully realized in the 1980's and it grew clear that strategic
advantage can be the product of unique and difficult-to-imitate cultural factors => cultural
background may inhibit some strategic change, even if you wanted to
1.16.9. Environmental school
< Strategy formation as a reactive process >
• The environmental school deserves attention for the light it throws on the demands of the
environment.
• Among its most noticeable theories is the "contingency theory," that considers what responses
are expected of organizations that face particular environmental conditions, and "population
ecology” writings that claim severe limits to strategic choice. (e.g. Covid => completely relying on
what is requested of the environment but maybe not linking to our capabilities inside (e.g. pshyical
commerce to e-commerce))
• Problem: the process depends on the environment which constantly changes. It is difficult for
organizations to keep changing their strategies constantly.
1.16.10. Configuration schoolschool
Configuration
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< Strategy formation as a process of transformation >
• Two main sides of this school:
1. One describes state-of the organization and its surrounding context
2. Other describes the strategy making process- as transformation
• Transformation is an inevitable consequence of configuration
• It describes the relative stability of strategy within given states, interrupted by occasional and
rather dramatic leaps to new ones
Everything comes more or less together, strategy is a process of transformation. On the one hand you want
to see what’s inside your organisation and what’s surrounding it and it’s also a process that is dynamic that
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transform over time, it is learning, re-configurating, e.g. deals with changes in CEO types, ….and hopefully
there are some periods by relative sability but interrupted by changes or even dramatic leaps in some cases.
