Summary – Strategic management
Chapter 1 - The concept of strategy
The role of strategy in success
Four common characteristics of a strategy:
1) Goals that are consistent and long term.
2) Profound understanding of the competitive environment.
3) Objective appraisal of resources.
4) ECective implementation.
Strategies that build on these four elements almost always play an influential role.
The basic framework for strategy analysis
The basic framework for strategy analysis has the four elements recast into two groups –
the firm and the industry environment – with strategy forming between the two.
The view of strategy as a link between the firm and its industry environment has close
similarities to the widely used SWOT framework.
The task of business strategy is to determine how the firm will deploy its resources
within its environment and so satisfy its long-term goals and how it will organize itself to
implement that strategy.
Strategic fit
Ø The consistency of a firm’s strategy, first, with the firm’s external environment
and, second, with its internal environment, especially with its goals and values
and resources and capabilities.
An eCective strategy is one in which all the decisions and actions that make up the
strategy are aligned with one another to create a consistent strategic direction.
à this notion of internal fit is central to Porter’s conceptualization of the firm as an
activity system.
Porter states that “strategy is the creation of a unique and diCerentiated position
involving a diCerent set of activities.”
The concept of strategic fit is one component of a set of ideas known as contingency
theory. Contingency theory postulates that there is no single best way of organizing or
managing.
What is strategy? Why do firms need it?
In the broadest sense, strategy is the means by which individuals or organizations
achieve their objectives.
Common to most definitions is the notion that strategy involves setting goals, allocating
resources, and establishing consistency and coherence among decisions and actions.
,Strategy as decision support
Strategy is a pattern or theme that gives coherence to the decisions of an individual or
organization.
Strategy improves decision-making in several ways:
• It simplifies decision-making by constraining the range of decision alternatives
considered and acting as a heuristic – a rule of thumb that reduces the search
required to find an acceptable solution to a decision problem.
• The strategy-making process permits the knowledge of diCerent individuals to be
pooled and integrated.
• It facilitates the use of analytic tools.
Strategy as a coordinating device
The central challenge of management is coordinating the actions of multiple
organizational members. Strategy acts as a communication device to promote
coordination.
Strategy as target
Strategy is forward looking. It establishes direction for the firm’s development and sets
aspirations that can motivate and inspire members of the organization.
strategic intent creates an extreme misfit between resources and ambitions. Top
management then challenges the organization to close the gap by building new
competitive advantages.
The implication is that strategy should embrace stretch and resource leverage and not
be overly constrained by considerations of strategic fit.
Locating and describing strategy
Strategy begins in the thought processes of organizational leaders.
Collis and Rukstad identify four types of statement through which companies
communicate their strategies:
Ø The mission statement describes organizational purpose; it addresses “why we
exist”.
Ø A statement of principles or values outlines “what we believe in and how we will
behave.”
Ø The vision statement projects “what we want to be.”
Ø The strategy statement articulates the company’s competitive game plan, which
typically describes objectives, business scope, and advantage.
Ultimately, strategy is realized as action. Hence, strategy is observable in where and how
a firm chooses to compete.
Checking a company’s pronouncements about strategy against its actions may reveal a
gap between rhetoric and reality. As a reality check, it is useful to ask:
- Where is the company investing its money?
- What technologies is the company developing?
- What new products have been released, investments initiated & top mgt hired?
,Corporate and business strategy
Strategic choices can be distilled into two basic questions:
• Where to compete?
• How to compete?
The answers to these questions define the two major areas of a firm’s strategy:
corporate strategy and business strategy.
Corporate strategy defines the scope of the firm in terms of the industries and markets
in which it competes.
It includes decisions in making choices over diversification, vertical integration,
acquisitions, new ventures, and the allocation of resources between the diCerent
business of the firm.
Business strategy is concerned with how the firm competes within a particular industry
or market. If the firm is to prosper within an industry, it must establish a competitive
advantage over its rivals.
Hence, this area of strategy is also referred to as competitive strategy.
The distinction between corporate strategy and business strategy corresponds to the
organizational structure of most large companies.
Corporate strategy is the responsibility of corporate top management. Business strategy
primarily the responsibility of the senior managers of divisions and subsidiaries.
This distinction between corporate and business strategy also corresponds to the
primary sources of superior profit for a firm. To survive and prosper over the long term, a
firm must earn a return on its capital that exceeds its cost of capital. There are two
possible ways of achieving this:
- First, by locating within industries that oCer attractive rates of profit (corporate
strategy).
- Second, by establishing a competitive advantage over rivals within an industry.
This can be simplified in the basic question: “how do we make money?”
Describing strategy
These same two questions – where is the firm competing? And how is it competing? –
provide the basis upon which we can describe the strategy that a firm is pursuing. The
where question has multiple dimensions. It relates to the products the firm supplies, the
customers it serves, the countries and localities where it operates.
The how question relates to the nature of the firm’s competitive advantage: is it seeking
a cost advantage or a diCerentiation advantage?
How is strategy made? The strategy process
Design versus emergence
Henry Mintzberg is a leading critic to strategy design. He distinguishes intended,
emergent, and realized strategies.
, Intended strategy is strategy as conceived of by the leader or top management team. It
may be less a product of rational deliberation and more an outcome of inspiration,
negotiation, bargaining, and compromise among those involved in the strategy-making
process.
However, realized strategy – the actual strategy that implemented – is only partly
related to that which was intended.
The primary determinant of realized strategy is what Mintzberg terms emergent strategy
– the decisions that emerge from the complex process in which individual managers
interpret the intended strategy and adapt it to changing circumstances.
According to Mintzberg, rational design is not only an inaccurate account of how
strategies are actually formulated but also a poor way of making strategy.
In practice, strategy-making involves both thought and action: “strategy exists in the
cognition of managers but also is reified in what companies do.”
Top-down rational design combines with decentralized adaptation:
• The design aspect of strategy comprises organization processes through which
strategy is deliberated, discussed and decided.
• The enactment of strategy through decisions and actions being taken throughout
the organization is a decentralized process where middle managers play a central
role.
Applying strategy analysis
The purpose of strategy analysis is not to provide answers but to help us probe the
relevant issues. By providing a framework that allows us to examine the factors that
influence a strategic situation and organize relevant information, strategy analysis
places us in a superior position to a manager who relies exclusively on experience and
intuition.
Developing a strategy for a business typically involves four main stages:
1. Setting the strategic agenda: involves assessing whether the current strategy is
working which requires that we:
o Identify the current strategy.
o Appraise performance
2. Analyzing the situation
o Diagnose performance
o Analyze the industry
o Analyze resources and capabilities
3. Formulating strategy
4. Implementing strategy
