Advanced Management and Marketing – MST-21306
Fundamentals of Strategy, 4th edition (summary whole book: chapters 1-8)
Chapter 1 Introducing Strategy
1.1 Introduction
This book addresses the fundamental strategic issues of importance to managers, employees,
consultants, investors and bankers. It takes a broad approach to strategy, looking at both the economics
of strategy and the people side of managing strategy in practice.
1.2 What is strategy?
Strategy → long-term direction of an organisation
Other definitions of strategy
• “The determination of the long-run goals and objectives of an enterprise and the adoption of courses
of action and the allocation of resources necessary for carrying out these goals” - Alfred D. Chandler
• “Competitive strategy is about being different. It means deliberately choosing a different set of
activities to deliver a unique mix of value” – Michael Porter
• “A firm’s theory about how to gain competitive advantages” – Peter Drucker
• “A pattern in a stream of decisions” – Henry Mintzberg
1.2.1 Defining strategy
Two advantages of defining strategy as ‘the long-term direction of an organisation’:
• The long-term direction of an organisation can include both deliberate, logical strategy and more
incremental, emergent patterns of strategy.
• The long-term direction can include both strategies that emphasize difference and competition, and
strategies that recognize the roles of cooperation and even imitation.
The three elements of this strategy are:
• The long term: strategies are typically measured over years, for some organisations a decade or more.
The importance of a long-term perspective on strategy is emphasized by the ‘three horizons’ framework.
• Strategic direction: over the years, strategies follow some kind of long-term direction or trajectory.
Typically, managers and entrepreneurs try to set the direction of their strategy according to long-term
objectives.
• Organisation: organisations involve many relationships, both internally and externally. This is because
organisations typically have many internal and external stakeholders, in other words people and groups
that depend on the organisation and upon which the organisation itself depends. Internally,
organisations are filled with people, typically with diverse, competing and more or less reasonable views
of what should be done. It is always important in strategy to look inside organisations and to consider
the people involved and their different interest and views. Externally, organisations are surrounded by
important relationships, for example with suppliers, customers, alliance partners, regulators and
investors. Strategy is also vitally concerned with an organisation’s external boundaries: in other words,
questions about what to include within the organisation and how to manage important relationships with
what is kept outside.
Three horizons framework
• This framework suggests organisations should think of themselves as compromising three types of
business or activity, defined by their horizons in terms of years.
- Horizon 1 businesses are basically the current core activities. Horizon 1 businesses need defending
and extending but the expectation is that in the long term they will likely be flat or declining in terms
of profits (or whatever else the organisation values)
- Horizon 2 businesses are emerging activities that should provide new sources of profit.
- Horizon 3 possibilities, for which nothing is sure. These are typically risky research and development
projects, start-up ventures, test market pilots or similar. In a pharma company, where the R&D and
regulatory processes of a new drug take many years, Horizon 2 might be a decade ahead.
• While timescales might differ, the basis point about the ‘three horizons’ framework is that managers
need to avoid focusing on the short-term issues of their existing activities. Strategy involves pushing
out Horizon 1 as far as possible, at the same time as looking to Horizons 2 and 3.
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,1.2.2 The purpose of strategy: mission, vision, values and objectives
There are four ways in which organisations typically define their purpose:
• Mission → a mission statement aims to provide employees and stakeholders with clarity about what the
organisation is fundamentally there to do. Ask the following question: “What business are we in?”
• Vision → a vision statement is concerned with the future the organisation seeks to create. The vision
typically expresses an aspiration that will enthuse, gain commitment and stretch performance. So here
the question is: “What do we want to achieve?”
• Values → statements of corporate values communicate the underlying and enduring core ‘principles’
that guide an organisation’s strategy and define the way that the organisation should operate. It is
important that these values are enduring, so a question to ask is: “Would these values change with
circumstances?” And if the answer is ‘yes’ then they are not ‘core’ and not ‘enduring’.
• Objectives → objectives are statements of specific outcomes that are to be achieved. These are often
expressed in precise financial terms, for instance, the level of sales, profits or share valuation in one-,
two- or three-years’ time. Organisations may also have quantifiable market-based objectives, such as
market share, customer service, repeat business and so on.
1.2.3 Strategy statements
Strategy statements should have three main themes: the fundamental goals (mission, vision or objectives)
that the organisation seeks; the scope or domain of the organisation’s activities; and the particular
advantages or capabilities it has to deliver all of these.
• Scope → an organisation’s scope or domain refers to three dimensions: customers or clients;
geographical location; and extent of internal activities (‘vertical integration’).
• Advantage → describes how the organisation will achieve the objectives it has set for itself in its chosen
domain. In competitive environments, this refers to the competitive advantage.
Collis and Rukstad suggest that strategy statements coverings goals, scope and advantage should be no
more than 35 words long. The ability to give a clear strategy statement is a good test of managerial
competence in an organisation. As such, strategy statements are relevant to a wide range of organisations.
1.2.4 Levels of strategy
Inside an organisation, strategies can exist at three main levels:
• Corporate-level strategy → is concerned with the overall scope of an organisation and how value is
added to the constituent businesses of the organisational whole. It includes: geographical scope,
diversity of products or services, acquisitions of new businesses, and how resources are allocated
between the different elements of the organisation.
• Business-level strategy → is about how the individual businesses should compete in their particular
markets (this is often called ‘competitive strategy’). Typically concerns issues such as innovation,
appropriate scale and response to competitors’ moves.
• Functional strategies → are concerned with how the components of an organisation deliver effectively
the corporate- and business-level strategies in terms of resources, processes and people.
This need to link the corporate, business and functional levels underlines the importance of integration in
strategy. The demand of integrating levels define an important characteristic of strategy: strategy is
typically complex, requiting careful and sensitive management. Strategy is rarely simple.
1.3 The exploring strategy framework
Exploring strategy framework → includes understanding the
strategic position of an organisation; assessing strategic choice
for the future; and managing strategy in action. See the figure at
the right for the framework→
Together, the three elements provide a practical template for
studying strategic situation. The interconnected circles are
designed to emphasise this potentially non-linear nature of
strategy. Position, choices and action should be seen as closely
related, and in practice none has priority over another. The three
circles are overlapping and interdependent. However, the
framework does not provide a comprehensive and integrated
framework for analysing an organisation’s position, considering
the choices it has and putting strategies into action.
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,1.3.1 Strategic position
Strategic position → is concerned with the impact on strategy of the macro environment and industry
environment, the organisation’s strategic capability (resources and competences), and the organisation’s
stakeholders and culture. Understanding these four factors is central for evaluating future strategy.
• Macro-environment. Organisations operate in complex multi-level environments. At the macro level,
organisations are influenced by political, economic, social, technological, ecological and legal forces.
The macro-environment varies widely in terms of its dynamism. The fundamental question here relates
to the opportunities and threats available to the organisation in complex, changing environments.
• Industry environment. At the industry level of analysis, competitors, suppliers and customers present
challenges to an organisation. The second fundamental question is: how can an organisation manage
industry forces? Industry environments can vary widely in their attractiveness and present opportunities
and threats.
• Strategic capability. Each organisation has its own strategic capabilities, made up of its resources (e.g.
machines and buildings) and competences (e.g. technical and managerial skills). The third fundamental
question on capability regards the organisations strengths and weaknesses.
• Stakeholders. There are many actors who hold a ‘stake’ in the future of every organisation – not just
the owners, but employees, customers, suppliers and more. The fourth fundamental question then is:
how can the organisation be aligned around a common purpose? An organisation’s key stakeholders
should define its purpose.
1.3.2 Strategic choices
Strategic choices → involve the options for strategy in terms of both the directions in which strategy might
move and the methods by which strategy might be pursued. Typical strategic choices, and the related
fundamental questions are covered as follows:
• Business strategy and models. There are strategic choices in terms of how the organisation seeks to
compete at the individual business level. The fundamental question here, then, is what strategy and
what business model should a company use to compete?
• Corporate strategy and diversification. The highest level of an organisation is typically concerned with
issues of corporate scope, in other words which businesses to include in the portfolio. This relates to
the appropriate degree of diversification, with regard to products offered and markets served. An
important consideration for corporate-level strategy is how to manage the internal relationships of the
group both between business units and with the corporate head-office.
1.3.3 Strategy in action
Managing strategies in action → is about how strategies are formed and how they are implemented. The
emphasis is on the practicalities of managing. Three issues for strategy in action:
• Structuring an organisation to support successful performance. A key question here is how centralized
or structured should the organisational structure be. Structure matters for who is in charge and who is
accountable.
• Systems are required to control the way in which strategy is implemented. Planning and performance
systems are important to getting things done. The issue here is how to ensure that strategies are
implemented according to plan.
• Leading strategic change is typically an important part of putting strategy into action. How should
change be led? Here key questions include the speed and comprehensiveness of change.
1.4 Strategy development processes
There are two broad accounts of strategy development
• The rational-analytic view of strategy development is the conventional account. Here strategies are
developed through rational and analytical processes, led typically by top managers. These processes
result in a strategic plan. The basic assumption in this rational-analytic view is that strategies are
typically intended, in other words the product of deliberate choices. This rational-analytical view is
associated with theorists such as Alfred Chandler and Michael Porter.
• The emergent strategy view is the alternative broad explanation of how strategies develop. In this view,
strategies often do not simply develop as intended or planned but tend to emerge in organisation over
time as a result of ad hoc, incremental or even accidental actions. This emergent view is associated
with Henry Mintzberg.
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, The rational-analytic and emergent views of strategy development are not mutually exclusive. Intended
strategies can often succeed, especially in stable markets were there are few surprises. Moreover, an
organisation’s key stakeholders – employees, owners, customers, regulators and so on – will typically
want to see evidence of deliberate strategy-making: it is rarely acceptable to say that everything is imply
emergent. Strategic choices do not always come about as a result of simple rational analysis: cultural and
political processes in organisation can also drive changes in strategy.
Summary chapter 1
• Strategy is the long-term direction of an organisation
• A strategy statement should include an organisation’s goal, scope of activities and the advantages or
capabilities it brings to these goals and activities
• Corporate-level strategy is concerned with an organisation’s overall scope; business-level strategy is
concerned with how to compete; and functional strategy is concerned with how corporate- and
business-level strategies are actually delivered
• The Exploring Strategy Framework has three major elements: understanding the strategic position,
making strategic choices for the future and managing strategy-in-action.
• Strategy develops through rational-analytic and emergent processes.
Chapter 2 Macro-environment Analysis
2.1 Introduction
The business environment creates both opportunities and threats for organisations. Some organisations
have been transformed by environmental change, some organisations have sprung suddenly to global
scale. Although the future can never be predicted perfectly, it is clearly important that entrepreneurs and
managers try to analyse their environments as carefully as the can in
order to anticipate and, if possible, take advantage of such
environmental changes. Environments can be considered in terms of
a series of ‘layers’ (see figure). The macro environment → consists
of broad environmental factors that impact to a greater or lesser
extent many organisations, industries and sectors. The industry, or
sector, makes up the next layer within this broad environment. This
layer consists of organisations producing the same sorts of products
or services. The third layer is that of specific competitors and markets
immediately surrounding organisations.
The chapter is organized into three main sections:
• PESTEL factors examine macro-environmental factors according to six key types: political, economic,
social, technological, ecological and legal. These factors include moth market and non-market aspects.
• Forecasting, which aims to predict, with varying degrees of precision or certainty. Macro-environmental
forecasting draws on PESTEL analysis and often makes use of three conceptual tools: megatrends,
inflexion points and weak signals.
• Scenario analysis, a technique that develops plausible alternative views of how the environment might
develop in the future. Scenario analysis differs from forecasting because it avoids predictions about the
future; it is more about learning different possibilities for environmental change.
2.2 PESTEL Analysis
The PESTEL framework is one of several frameworks (including the similar ‘PEST’ and ‘STEEPLE’
frameworks) which categorize environmental factors into key types. PESTEL analysis → highlight six
environmental factors in particular: political, economic, social, technological, ecological and legal.
Organisations need to consider both market and non-market aspects of strategy:
• The market environment consists mainly of suppliers, customers and competitors. Pricing and
innovation are often key strategies here.
• The non-market environment involves primarily the social, political, legal and ecological factors, but can
also be impacted by economic factors. Key participants in the non-market environment include non-
governmental organisations (NGO’s), politicians, government departments, regulators, political
activists, campaign groups and the media. Lobbying, public relations, networking and collaboration are
key strategies here.
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