FUNDAMENTALS OF STRATEGY
Johnson, Whittington, Scholes, Angwin, Regner
Chapter 1: Introducing strategy
Strategy: the long-term direction of an organization
a pattern in a stream of decisions
Two advantages of this definition:
- The long-term direction of an organization 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 importance of a long-term perspective is emphasized by the ‘three-horizons’ framework.
This suggests that organizations should think of themselves as comprising of three types of
business or activity, defined by their ‘horizons’ in terms of years.
- Horizon 1: the current core activities (extend and defend core business)
- Horizon 2: emerging activities that should provide new sources of profit (build emerging
businesses)
- Horizon 3: possibilities (create viable options)
Strategic direction is mostly set according to long-term objectives (in private-sector mostly
maximizing profits, in public and charity other objectives e.g. move up a league).
Organization in this book they are not treated as discrete, unified entities. They involve
complex relationships, both internally and externally, as they have many stakeholders.
Strategy is concerned with what goes on inside organizations (peoples interests and views)
and external boundaries (what to include in organization).
VUCA (knowledge and predictability): volatile (rate of change), uncertain (how to proceed),
complexity (many key decision factors) and ambiguity (lack of clarity).
strategic decisions need to be made
Three levels of strategy
- Corporate-level strategy: concerned with the overall scope of an organization and how
value is added to the constituent businesses of the organizational whole.
o Includes geographical scope, diversity of products, acquisitions and allocation of
resources.
- Business-level strategy: about how the individual businesses should compete in their
particular markets (often called competitive strategy).
o Issues such as innovation, appropriate scale and response to competitors’ moves (in
public sector: how units should provide best-value services).
- Operational strategies: how the components of an organization deliver effectively the
corporate- and business-level strategies in terms of resources, processes and people.
Another way of saying it is Corporate vs. Operational strategy
Corporate strategy Operational strategy
Organization-wide, holistic Routinized
Conceptualization of issues Techniques and actions
Creating new directions Managing existing resources
Developing new resources Operating within existing strategy
1
, Ambiguous/uncertain Operationally specific
Long term orientation Day to day issues
Strategy statements (three main themes):
- Goals (mission, vision or objectives) that the organization seeks
- Scope (domain of the organization’s activities)
- Advantages or capabilities it has to deliver
Subparts:
- Mission: refers to the overriding purpose of the organization.
- Vision: refers to desired future state of the organization.
- Objectives: precise and quantifiable statements of the organization’s goals over some
period of time.
- Scope: covers three dimensions:
o Customers or clients
o Geographical locations
o Extent of internal activities (=vertical integration)
- Advantage: how the organization will achieve the objectives it has set for itself in its
chosen domain.
Exploring strategy model
This includes understanding the strategic position of an organization, assessing strategic
choices for the future, and managing strategy in action.
In practice the elements of strategy do not always follow a linear sequence of understanding
the strategic position, making choices and turning into action.
Strategic position: concerned with the impact on strategy of the external environment, the
organization’s strategic capability (resources and competences), the organization’s purpose
and the organization’s culture.
Strategic choices: the options for strategy in terms of both the directions in which strategy
might move and the methods by which strategy might be pursued (for example:
diversification, innovation etc.).
Strategy development processes
As strategies not always develop in a logical sequence of analysis, choice and action. There
are two broad accounts of strategy development:
- Rational-analytic view (intended = deliberate choices): the conventional account.
Strategies are developed through rational and analytical processes, led typically by top
managers. These processes result in a strategic plan, typically containing elements like
statement, mission, vision and objectives, environmental analysis, capability analysis,
strategic options and proposed strategies, resources and key changes.
SWOT Strategy formulation Strategy implementation
- Emergent strategy view (ad hoc, incremental actions): Good ideas and opportunities come
from top-down and bottom-up. New opportunities and learning from the marketplace
influences strategy.
Both accounts are not mutually exclusive!
Strategic decisions: likely to be complex, made in situations of uncertainty, they affect
operational decisions, require an integrated approach and involve considerable change.
2
Johnson, Whittington, Scholes, Angwin, Regner
Chapter 1: Introducing strategy
Strategy: the long-term direction of an organization
a pattern in a stream of decisions
Two advantages of this definition:
- The long-term direction of an organization 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 importance of a long-term perspective is emphasized by the ‘three-horizons’ framework.
This suggests that organizations should think of themselves as comprising of three types of
business or activity, defined by their ‘horizons’ in terms of years.
- Horizon 1: the current core activities (extend and defend core business)
- Horizon 2: emerging activities that should provide new sources of profit (build emerging
businesses)
- Horizon 3: possibilities (create viable options)
Strategic direction is mostly set according to long-term objectives (in private-sector mostly
maximizing profits, in public and charity other objectives e.g. move up a league).
Organization in this book they are not treated as discrete, unified entities. They involve
complex relationships, both internally and externally, as they have many stakeholders.
Strategy is concerned with what goes on inside organizations (peoples interests and views)
and external boundaries (what to include in organization).
VUCA (knowledge and predictability): volatile (rate of change), uncertain (how to proceed),
complexity (many key decision factors) and ambiguity (lack of clarity).
strategic decisions need to be made
Three levels of strategy
- Corporate-level strategy: concerned with the overall scope of an organization and how
value is added to the constituent businesses of the organizational whole.
o Includes geographical scope, diversity of products, acquisitions and allocation of
resources.
- Business-level strategy: about how the individual businesses should compete in their
particular markets (often called competitive strategy).
o Issues such as innovation, appropriate scale and response to competitors’ moves (in
public sector: how units should provide best-value services).
- Operational strategies: how the components of an organization deliver effectively the
corporate- and business-level strategies in terms of resources, processes and people.
Another way of saying it is Corporate vs. Operational strategy
Corporate strategy Operational strategy
Organization-wide, holistic Routinized
Conceptualization of issues Techniques and actions
Creating new directions Managing existing resources
Developing new resources Operating within existing strategy
1
, Ambiguous/uncertain Operationally specific
Long term orientation Day to day issues
Strategy statements (three main themes):
- Goals (mission, vision or objectives) that the organization seeks
- Scope (domain of the organization’s activities)
- Advantages or capabilities it has to deliver
Subparts:
- Mission: refers to the overriding purpose of the organization.
- Vision: refers to desired future state of the organization.
- Objectives: precise and quantifiable statements of the organization’s goals over some
period of time.
- Scope: covers three dimensions:
o Customers or clients
o Geographical locations
o Extent of internal activities (=vertical integration)
- Advantage: how the organization will achieve the objectives it has set for itself in its
chosen domain.
Exploring strategy model
This includes understanding the strategic position of an organization, assessing strategic
choices for the future, and managing strategy in action.
In practice the elements of strategy do not always follow a linear sequence of understanding
the strategic position, making choices and turning into action.
Strategic position: concerned with the impact on strategy of the external environment, the
organization’s strategic capability (resources and competences), the organization’s purpose
and the organization’s culture.
Strategic choices: the options for strategy in terms of both the directions in which strategy
might move and the methods by which strategy might be pursued (for example:
diversification, innovation etc.).
Strategy development processes
As strategies not always develop in a logical sequence of analysis, choice and action. There
are two broad accounts of strategy development:
- Rational-analytic view (intended = deliberate choices): the conventional account.
Strategies are developed through rational and analytical processes, led typically by top
managers. These processes result in a strategic plan, typically containing elements like
statement, mission, vision and objectives, environmental analysis, capability analysis,
strategic options and proposed strategies, resources and key changes.
SWOT Strategy formulation Strategy implementation
- Emergent strategy view (ad hoc, incremental actions): Good ideas and opportunities come
from top-down and bottom-up. New opportunities and learning from the marketplace
influences strategy.
Both accounts are not mutually exclusive!
Strategic decisions: likely to be complex, made in situations of uncertainty, they affect
operational decisions, require an integrated approach and involve considerable change.
2
