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Summary Fundamentals of strategy fourth edition
Complete book summary (8 chapters) Fundamentals of strategy fourth edition by Gerry Johnson, Richard Whittington, Kevan Scholes, Duncan Angwin and Patrick Regnér.
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SUMMARY FUNDAMENTALS OF STRATEGYLisanne van Haarlem
Wageningen University
1
,Chapter 1: Introducing strategy
1.2 What is strategy?
Strategy is the long-term direction of an organisation.
There are different definitions of strategy (marketing strategy, innovation strategy, corporate
strategy, etc.). Figure 1 shows the strategy definitions of several leading strategy theorists.
Figure 1 Definitions of strategy
Strategic decisions are likely to:
• Be complex in nature;
• Be made in situations of uncertainty (you never know the outcome);
• Affect daily decisions;
• Require an integrated approach (thus inside & outside an organisation);
• Involve considerable change.
Strategic decisions are wicked problems → for which no unique best solution exists.
1.2.1 Defining strategy
Defining strategy as the long-term direction of an organisation has two advantages:
• The long-term direction of an organisation can include both deliberate, logical strategy and
more incremental, emergent patterns of strategy;
• 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 – the long term, direction and organisation – can each be
explored further:
• 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 in figure 2;
2
, • Strategic direction → Strategies follow some kind of long-term direction or trajectory.
Sometimes a strategic direction only emerges as a coherent pattern over time. Typically,
however, managers and entrepreneurs try to set the direction of their strategy according
to long-term objectives;
• Organisation → Organisations involve many relationships with stakeholders (people and
groups that depend on the organisation and upon which the organisation itself depends),
both internally and externally.
o Internally organisations are filled with people, typically with diverse, competing and
more or less reasonable views of what should be done. In strategy, therefore, it is
always important to look inside organisations and to consider the people involved
and their different interests and views;
o Externally, organisations are surrounded by important relationships, for example
with suppliers, customers, alliance partners, regulators and investors. Strategy
therefore is also vitally concerned with an organisation’s external boundaries: what
to include within the organisation and how to manage important relationships with
what is kept outside.
The three horizons framework suggests organisations should think of themselves as comprising
three types of business or activity, defined by their ‘horizons’ in terms of years:
• Horizon 1 → Businesses are basically the
current core activities. Businesses needs
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 → Businesses are possibilities for
which nothing is sure. Typically risky Research
& Development projects, start-up ventures, test-
market pilots or similar.
Figure 2 Three horizons for strategy
1.2.2 The purpose of strategy: mission, vision, values and objectives
A strategy is stated to define and express the motivating purpose of an organisation to
stakeholders. There are four ways in which organisations typically define their goals/purpose:
1. A mission statement aims to provide employees and stakeholders with clarity about what
the organisation is fundamentally there to do. ‘Be healthy and fit’;
o What business are we in?
o What would be lost if the organisation did not exist?
o How do we make a difference?
2. A vision statement is concerned with the future the organisation seeks to create. ‘Run the
New York marathon’;
o What do we want to achieve?
3. 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. ‘Train a lot, without putting the body at risk’;
4. Objectives are statements of specific outcomes that are to be achieved. ‘Lose 5 kilos by
sept 1st and run the NY marathon next year’.
o Financial terms → level of sales, profits, share valuation, etc.
o Market-based objectives → market share, customer service, repeat business, etc.
3
, 1.2.3 Strategy statements
Strategy statements should have three main themes: the fundamental goals (mission, vision or
objectives) that the organisation seeks (see 1.2.2); the scope or domain of the organisation’s
activities; and the particular advantages or capabilities it has to deliver all of these.
An organisation’s scope or domain refers to three dimensions:
• Customers or clients;
• Geographical location;
• Extent of internal activities (vertical integration).
The advantage of a strategy describes how the organisation will achieve the objectives it has set
for itself in its chosen domain.
E.g.: IKEA: ‘To create a better everyday life for the many people [by offering] a wide range of well-
designed functional home furniture products at prices so low that as many people as possible will
be able to afford them’.
1.2.4 Levels of strategy
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 business of the organisational whole. Include
geographical scope, diversity of products or services, acquisition of new businesses, and
how resources are allocated between the different elements of the organisation;
o Tesla: ‘Moving from car manufacturer to battery production for homes’.
• Business-level (or competitive) strategy → Is about how the individual businesses
should compete in their particular markets. Concerns issues such as innovation,
appropriate scale and response to competitors’ moves;
o Tesla: ‘Rolling out a lower-cost electrical car to build volume and capture market
share in advance of potential competitor entry’.
• 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.
o Tesla: ‘Continue raising
eternal finance to fund its
rapid growth. The functional
strategy is geared to meeting
investment needs’.
1.3 EXPLORING STRATEGY FRAMEWORK
The exploring strategy framework (figure
3) includes understanding the strategic
position of an organisation; assessing
strategic choices for the future; and
managing strategy in action. The elements of
strategy do not always follow a linear
sequence wherefore the elements in the
figure are overlapping and not drew linearly.
Figure 3 The Exploring Strategy Framework
4
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